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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 and Fiscal Year 2013 Rates; Hospitals' Resident Caps for Graduate Medical Education Payment Purposes; Quality Reporting Requirements for Specific Providers and for Ambulatory Surgical Centers

Action

Final Rule.

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. Some of the changes implement certain statutory provisions contained in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act) and other legislation. These changes will be applicable to discharges occurring on or after October 1, 2012, unless otherwise specified in this final rule. We also are updating the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits will be effective for cost reporting periods beginning on or after October 1, 2012.

We are updating the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implementing certain statutory changes made by the Affordable Care Act. Generally, these changes will be applicable to discharges occurring on or after October 1, 2012, unless otherwise specified in this final rule.

In addition, we are implementing changes relating to determining a hospital's full-time equivalent (FTE) resident cap for the purpose of graduate medical education (GME) and indirect medical education (IME) payments. We are establishing new requirements or revised requirements for quality reporting by specific providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities (IPFs)) that are participating in Medicare. We also are establishing new administrative, data completeness, and extraordinary circumstance waivers or extension requests requirements, as well as a reconsideration process, for quality reporting by ambulatory surgical centers (ASCs) that are participating in Medicare.

We are establishing requirements for the Hospital Value-Based Purchasing (VBP) Program and the Hospital Readmissions Reduction Program.

Unified Agenda

 

Table of Contents Back to Top

Tables Back to Top

DATES: Back to Top

Effective date: This final rule is effective on October 1, 2012.

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, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH), and Postacute Care Transfer 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.

Bridget Dickensheets, (410) 786-8670, Market Basket for LTCHs Issues.

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

James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and Hospital Value-Based Purchasing—Program Administration, Validation, and Reconsideration Issues.

Shaheen Halim, (410) 786-0641, Hospital Inpatient Quality Reporting—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues.

Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.

Kim Spalding Bush, (410) 786-3232, Hospital Value-Based Purchasing Efficiency Measures Issues.

James Poyer, (410) 786-2261, and Barbara Choo, (410) 786-4449, Inpatient Psychiatric Facility Quality Reporting Issues and PPS-Exempt Cancer Hospital Quality Reporting Issues.

Anita Bhatia, (410) 786-7236, Ambulatory Surgical Center Quality Reporting (ASCQR) Program Issues.

SUPPLEMENTARY INFORMATION: Back to Top

Electronic Access Back to Top

This Federal Register document is also available from the Federal Register online database through the U.S. Government Printing Office Web page at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR. 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), 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).

Tables Available Only Through the Internet on the CMS Web Site Back to Top

In the past, a majority of the tables referred to throughout this preamble and in the Addendum to this final rule were published in the Federal Register as part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables are no longer published in the Federal Register. Instead, these tables will be available only through the Internet. The IPPS tables for this final rule are available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen titled, “FY 2013 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2013 final rule are available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation Number CMS-1588-F. For complete details on the availability of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Nisha Bhat at (410) 786-4487.

Acronyms Back to Top

3M3M Health Information System

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

ASCQRAmbulatory Surgical Center Quality Reporting

ASITNAmerican Society of Interventional and Therapeutic Neuroradiology

BBABalanced Budget Act of 1997, Public Law 105-33

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

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

BLSBureau of Labor Statistics

CAHCritical access hospital

CARE[Medicare] Continuity Assessment Record & Evaluation [Instrument]

CARTCMS Abstraction & Reporting Tool

CBSAsCore-based statistical areas

CCComplication or comorbidity

CCRCost-to-charge ratio

CDAC[Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CDCCenter for Disease Control and Prevention

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

EHRElectronic health record

EMRElectronic medical record

FAHFederation of Hospitals

FDAFood and Drug Administration

FFYFederal fiscal year

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

HIPCHealth Information Policy Council

HISHealth information system

HITHealth information technology

HMOHealth maintenance organization

HPMPHospital Payment Monitoring Program

HSAHealth savings account

HSCRC[Maryland] Health Services Cost Review Commission

HSRVHospital-specific relative value

HSRVccHospital-specific relative value cost center

HQAHospital Quality Alliance

HQIHospital Quality Initiative

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

IGIIHS Global Insight, Inc.

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

IQRInpatient Quality Reporting

LAMCsLarge area metropolitan counties

LOSLength of stay

LTC-DRGLong-term care diagnosis-related group

LTCHLong-term care hospital

LTCHQRLong-Term Care Hospital Quality Reporting

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

MMEAMedicare and Medicaid Extenders Act of 2010, Public Law 111-309

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

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

NHSNNational Healthcare Safety Network

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 1986, 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]

PCHPPS-exempt cancer hospital

PCHQRPPS-exempt cancer hospital quality reporting

PMSAsPrimary metropolitan statistical areas

POAPresent on admission

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

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

TPSTotal Performance Score

UHDDSUniform hospital discharge data set

Table of Contents Back to Top

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

2. Summary of the Major Provisions

3. Summary of Costs and Benefits

B. Summary

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

2. Hospitals and Hospital Units Excluded From the IPPS

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

4. Critical Access Hospitals (CAHs)

5. Payments for Graduate Medical Education (GME)

C. 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) Applicable to FY 2013

D. Issuance of a Notice of Proposed Rulemaking

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

A. Background

B. MS-DRG Reclassifications

C. Adoption of the MS-DRGs in FY 2008

D. FY 2013 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 and FY 2009 Claims Data

5. Prospective Adjustment for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

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

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

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

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

a. Background

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

10. Prospective Adjustments for FY 2010 Documentation and Coding Effect

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Summary of Policy Discussions in FY 2012

3. Discussion for FY 2013

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

1. Background

2. HAC Selection

3. Present on Admission (POA) Indicator Reporting

4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS

5. Changes to the HAC Policy for FY 2013

a. Additional Diagnosis Codes to Existing HACs

b. New Candidate HAC Condition: Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures

c. New Candidate HAC Condition: Iatrogenic Pneumothorax With Venous Catheterization

6. RTI Program Evaluation Summary

a. RTI Analysis of FY 2011 POA Indicator Reporting Across Medicare Discharges

b. RTI Analysis of FY 2011 POA Indicator Reporting of Current HACs

c. RTI Analysis of FY 2011 Frequency of Discharges and POA Indicator Reporting for Current HACs

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

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

f. RTI Analysis of Estimated Net Savings for Current HACs

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

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

i. Proposals Regarding Current HACs and Previously Considered Candidate HACs

G. Changes to Specific MS-DRG Classifications

1. Pre-Major Diagnostic Categories (Pre-MDCs)

a. Ventricular Assist Device

b. Allogeneic Bone Marrow Transplant

2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): Influenza With Pneumonia

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

a. Percutaneous Mitral Valve Repair With Implant

b. Endovascular Implantation of Branching or Fenestrated Grafts in Aorta

4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders): Disorders of Porphyrin Metabolism

5. Medicare Code Editor (MCE) Changes

a. MCE New Length of Stay Edit for Continuous Invasive Mechanical Ventilation for 96 Consecutive Hours or More

b. Sleeve Gastrectomy Procedure for Morbid Obesity

6. Surgical Hierarchies

7. Complications or Comorbidity (CC) Exclusions List

a. Background

b. CC Exclusions List for FY 2013

(1) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for FY 2013

(2) Suggested Changes to MS-DRG Severity Levels for Diagnosis Codes for FY 2013

(A) Protein-Calorie Malnutrition

(B) Antineoplastic Chemotherapy Induced Anemia

(C) Cardiomyopathy and Congestive Heart Failure, Unspecified

(D) Chronic Total Occlusion of Artery of the Extremities

(E) Acute Kidney Failure With Other Specified Pathological Lesion in Kidney

(F) Pressure Ulcer, Unstageable

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

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

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

c. Adding Diagnosis or Procedure Codes to MDCs

9. 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

d. ICD-10 MS-DRGs

10. Public Comments on Issues Not Addressed in the Proposed Rule

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Proposed Weights

2. Methodology for Calculation of the Proposed Relative Weights

3. Development of National Average CCRs

4. Bundled Payments for Care Improvement (BPCI) Initiative

a. Background

b. Treatment of Data from Hospitals Participating in the BPCI Initiative

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 2013 Status of Technology Approved for FY 2012 Add-On Payments: AutoLaser Interstitial Thermal Therapy (AutoLITT TM)

4. FY 2013 Applications for New Technology Add-On Payments

a. Glucarpidase (Trade Brand Voraxaze®)

b. DIFICID TM (Fidaxomicin) Tablets

c. Zilver® PTX® Drug-Eluting Stent

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

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

A. Background

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

C. Worksheet S-3 Wage Data for the FY 2013 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

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

D. Verification of Worksheet S-3 Wage Data

E. Method for Computing the FY 2013 Unadjusted Wage Index

F. Occupational Mix Adjustment to the FY 2013 Wage Index

1. Development of Data for the FY 2013 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

2. Calculation of the Occupational Mix Adjustment for FY 2013

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2013 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix Adjusted Wage Index

2. Application of the Rural, Imputed, and Frontier Floors

a. Rural Floor

b. Imputed Floor and Proposal for an Alternative, Temporary Methodology for Computing the Imputed Floor

c. Frontier Floor

3. FY 2013 Wage Index Tables

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

1. General Policies and Effects of Reclassification/Redesignation

2. FY 2013 MGCRB Reclassifications

a. FY 2013 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2014

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

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

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

6. Waiving Lugar Redesignation for the Out-Migration Adjustment

7. Cancellation of Acquired Rural Status Due to MDH Expiration

I. FY 2013 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Process for Requests for Wage Index Data Corrections

K. Labor-Related Share for the FY 2013 Wage Index

IV. Other Decisions and Changes to the IPPS for Operating Costs and Graduate Medical Education (GME) Costs

A. Hospital Readmission Reduction Program

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Overview

3. FY 2013 Proposed and Final Policies for the Hospital Readmissions Reduction Program

a. Overview

b. Base Operating DRG Payment Amount, Including Special Rules for SCHs and MDHs and Hospitals Paid Under Section 1814 of the Act

c. Adjustment Factor (Both the Ratio and Floor Adjustment Factor)

d. Aggregate Payments for Excess Readmissions and Aggregate Payment for All Discharges

e. Applicable Hospital

4. Limitations on Review

5. Reporting Hospital-Specific Information, Including Opportunity To Review and Submit Corrections

B. Sole Community Hospitals (SCHs) (§ 412.92)

1. Background

2. Reporting Requirement and Clarification of Duration of Classification for Hospitals Incorrectly Classified as Sole Community Hospitals

3. Change to Effective Date of Classification for MDHs Applying for SCH Status Upon the Expiration of the MDH Program

C. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI) and Discharge Criteria (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

D. Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Expiration of the Affordable Care Act Provision for FYs 2011 and 2012

2. Background

3. Affordable Care Act Provisions for FYs 2011 and 2012

4. Payment Adjustment for FY 2013 and Subsequent Years

E. Indirect Medical Education (IME) Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2013

2. Timely Filing Requirements under Fee-for-Service Medicare

a. IME and Direct GME

b. Nursing and Allied Health Education

c. Disproportionate Share Hospital (DSH) Payments

d. Summary of Public Comments, Our Responses, and Final Policies

3. Other Related Policy Changes

F. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME) (§§ 412.105 and 412.106)

1. Background

2. Policy Change Relating to Treatment of Labor and Delivery Beds in the Calculation of the Medicare DSH Payment Adjustment and the IME Payment Adjustment

G. Expiration of the Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

H. Changes in the Inpatient Hospital Update

1. FY 2013 Inpatient Hospital Update

2. FY 2013 Puerto Rico Hospital Update

I. Payment for Graduate Medical Education (GME) and Indirect Medical Education (IME) Costs (§§ 412.105, 413.75 through 413.83)

1. Background

2. Teaching Hospitals: Change in New Program Growth from 3 Years to 5 Years

3. Policies and Clarifications Related to 5-Year Period Following Implementation of Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of the Affordable Care Act

4. Preservation of Resident Cap Positions From Closed Hospitals (Section 5506 of the Affordable Care Act)

a. Background

b. Change in Amount of Time Provided for Submitting Applications Under Section 5506 of the Affordable Care Act

c. Change to the Ranking Criteria Under Section 5506

d. Effective Dates of Slots Awarded Under Section 5506

e. Clarification of Relationship Between Ranking Criteria One, Two, and Three

f. Modifications to the Section 5506 CMS Evaluation Form

5. Notice of Closure of Teaching Hospitals and Opportunity to Apply for Available Slots

a. Background

b. Notice of Closure of Teaching Hospitals

c. Application Process for Available Resident Slots

J. Changes to the Reporting Requirements for Pension Costs for Medicare Cost-Finding Purposes

K. Rural Community Hospital Demonstration Program

1. Background

2. Budget Neutrality Offset Amount for FY 2013

L. Hospital Routine Services Furnished Under Arrangements

M. Technical Change

V. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

C. Prospective Adjustment for the FY 2010 Documentation and Coding Effect

1. Background

2. Prospective Adjustment for the Effect of Documentation and Coding in FY 2010

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

D. Changes for Annual Update for FY 2013

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

B. Report of Adjustment (Exceptions) Payments

VII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2013

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 for FY 2013

1. Background

2. Patient Classifications into MS-LTC-DRGs

a. Background

b. Changes to the MS-LTC-DRGs for FY 2013

3. Development of the FY 2013 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 2013

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 FY 2013 MS-LTC-DRG Relative Weights

C. Use of a LTCH-Specific Market Basket Under the LTCH PPS

1. Background

2. Overview of the FY 2009-Based LTCH-Specific Market Basket

3. Development of a LTCH-Specific Market Basket

a. Development of Cost Categories

b. Cost Category Computation

c. Selection of Price Proxies

d. Methodology for the Capital Portion of the FY 2009-Based LTCH-Specific Market Basket

e. FY 2013 Market Basket for LTCHs

f. FY 2013 Labor-Related Share

D. Changes to the LTCH Payment Rates for FY 2013 and Other Changes to the LTCH PPS for FY 2013

1. Overview of Development of the LTCH Payment Rates

2. FY 2013 LTCH PPS Annual Market Basket Update

a. Overview

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

c. Market Basket Under the LTCH PPS for FY 2013

d. Annual Market Basket Update for LTCHs for FY 2013

3. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located in Alaska and Hawaii

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

1. Background

2. The 25-Percent Payment Adjustment Threshold

3. The “IPPS Comparable Per Diem Amount” Payment Option for Very Short Stays Under the Short-Stay Outlier (SSO) Policy

4. One-Time Prospective Adjustment to the Standard Federal Rate Under § 412.523(d)(3)

a. Overview

b. Data Used to Estimate Aggregate FY 2003 TEFRA Payments

c. Data Used to Estimate Aggregate FY 2003 LTCH PPS Payments

d. Methodology to Evaluate Whether a One-Time Prospective Adjustment Under § 412.523(d)(3) is Warranted

e. Methodology to Estimate FY 2003 LTCH Payments Under the TEFRA Payment System

f. Methodology to Estimate FY 2003 LTCH PPS Payments

g. Methodology for Calculating the One-Time Prospective Adjustment Under § 412.523(d)(3)

h. Public Comments and CMS' Responses

i. Final Policy Regarding the One-Time Prospective Adjustment Under § 412.523(d)(3)

VIII. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background

a. History of Measures Adopted for the Hospital IQR Program

b. Maintenance of Technical Specifications for Quality Measures

c. Public Display of Quality Measures

2. Removal and Suspension of Hospital IQR Program Measures

a. Considerations in Removing Quality Measures From the Hospital IQR Program b. Hospital IQR Program Measures Removed in Previous Rulemakings

c. Removal of Hospital IQR Program Measures for the FY 2015 Payment Determination and Subsequent Years

(1) Removal of One Chart-Abstracted Measure

(2) Removal of 16 Claims-Based Measures

d. Suspension of Data Collection for the FY 2014 Payment Determination and Subsequent Years

3. Measures for the FY 2015 and FY 2016 Hospital IQR Program Payment Determinations

a. Additional Considerations in Expanding and Updating Quality Measures Under the Hospital IQR Program

b. Hospital IQR Program Measures for the FY 2015 Payment Determination and Subsequent Years

(1) Process for Retention of Hospital IQR Program Measures Adopted in Previous Payment Determinations

(2) Additional Hospital IQR Program Measures for FY 2015 Payment Determination and Subsequent Years

c. Hospital IQR Program Quality Measures for the FY 2016 Payment Determination and Subsequent Years

4. Possible New Quality Measures and Measure Topics for Future Years

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

a. Background

b. Procedural Requirements for the FY 2015 Payment Determination and Subsequent Years

c. Data Submission Requirements for Chart-Abstracted Measures

d. Sampling and Case Thresholds Beginning With the FY 2015 Payment Determination

e. HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016 Payment Determinations

f. Data Submission Requirements for Structural Measures

g. Data Submission and Reporting Requirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

6. Supplements to the Chart Validation Process for the Hospital IQR Program for the FY 2015 Payment Determination and Subsequent Years

a. Separate Processes for Sampling and Scoring for Chart-Abstracted Clinical Process of Care and HAI Measures

(1) Background and Rationale

(2) Selection and Sampling of Clinical Process of Care Measures for Validation

(3) Selection and Sampling of HAI Measures for Validation

(4) Validation Scoring for Chart-Abstract Clinical Process of Care and HAI Measures

(5) Criteria to Evaluate Whether a Score Passes or Fails

b. Number and Manner of Selection for Hospitals Included in the Base Annual Validation Random Sample

c. Targeting Criteria for Selection of Supplemental Hospitals for Validation

7. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2015 Payment Determination and Subsequent Years

8. Public Display Requirements for the FY 2015 Payment Determination and Subsequent Years

9. Reconsideration and Appeal Procedures for the FY 2015 Payment Determination

10. Hospital IQR Program Disaster Extensions or Waivers

11. Electronic Health Records (EHRs)

a. Background

b. HITECH Act EHR Provisions

B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Statutory Authority

2. Covered Entities

3. Quality Measures for PCHs for FY 2014 Program and Subsequent Program Years

a. Considerations in the Selection of the Quality Measures

b. PCHQR Program Quality Measures for FY 2014 Program and Subsequent Program Years

(1) CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures

(2) Cancer-Specific Measures

4. Possible New Quality Measure Topics for Future Years

5. Maintenance of Technical Specifications for Quality Measures

6. Public Display Requirements for the FY 2014 Program and Subsequent Program Years

7. Form, Manner, and Timing of Data Submission for FY 2014 Program and Subsequent Program Years

a. Background

b. Procedural Requirements for FY 2014 Program and Subsequent Program Years

c. Reporting Mechanisms for FY 2014 Program and Subsequent Program Years

(1) Reporting Mechanism for the HAI Measures

(2) Reporting Mechanism for the Cancer-Specific Measures

d. Data Submission Timelines for FY 2014 Program and Subsequent Program Years

e. Data Accuracy and Completeness Acknowledgement (DACA) Requirements for the FY 2014 Program and Subsequent Program Years

C. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background

2. Overview of the FY 2013 Hospital VBP Program

3. FY 2014 Hospital VBP Program Measures

4. Other Previously Finalized Requirements for the Hospital VBP Program

5. Hospital VBP Payment Adjustment Calculation Methodology

a. Definitions of the Term “Base Operating DRG Payment Amount” for Purposes of the Hospital VBP Program

b. Calculating the Funding Amount for Value-Based Incentive Payments Each Year

c. Methodology To Calculate the Value-Based Incentive Payment Adjustment Factor

d. Timing of the Base Operating DRG Payment Amount Reduction and Value-Based Incentive Payment Adjustment for FY 2013 and Future Hospital VBP Program Years

e. Process for Reducing the Base Operating DRG Payment Amount and Applying the Value-Based Incentive Payment Adjustment for FY 2013

6. Review and Corrections Processes

a. Background

b. Review and Corrections Process for Claims-Based Measure Rates

c. Review and Corrections Process for Condition-Specific Scores, Domain-Specific Scores, and Total Performance Scores

7. Appeal Process Under the Hospital VBP Program

a. Background

b. Appeal Process

8. Measures for the FY 2015 Hospital VBP Program

a. Relationship Between the National Strategy and the Hospital VBP Program

b. FY 2015 Measures

c. General Process for Hospital VBP Program Measure Adoption for Future Program Years

9. Measures and Domains for the FY 2016 Hospital VBP Program

a. FY 2016 Measures

b. Quality Measure Domains for the FY 2016 Hospital VBP Program

10. Performance Periods and Baseline Periods for the FY 2015 Hospital VBP Program

a. Clinical Process of Care Domain Performance Period and Baseline Periods for FY 2015

b. Patient Experience of Care Domain Performance Period and Baseline Period for FY 2015

c. Efficiency Domain Measure Performance Period and Baseline Period for FY 2015

d. Outcome Domain Performance Periods for FY 2015

(1) Mortality Measures

(2) AHRQ PSI Composite Measure

(3) CLABSI Measure

e. Performance Periods for FY 2016 Measures

11. Performance Standards for the Hospital VBP Program for FY 2015 and FY 2016

a. Background

b. Performance Standards for the FY 2015 Hospital VBP Program Measures

c. Performance Standards for FY 2016 Hospital VBP Program Measures

d. Adopting Performance Periods and Standards for Future Program Years

12. FY 2015 Hospital VBP Program Scoring Methodology

a. General Hospital VBP Program Scoring Methodology

b. Domain Weighting for the FY 2015 Hospital VBP Program for Hospitals That Receive a Score on all Four Proposed Domains

c. Domain Weighting for Hospitals Receiving Scores on Fewer Than Four Domains

13. Applicability of the Hospital VBP Program to Hospitals

a. Background

b. Exemption Request Process for Maryland Hospitals

14. Minimum Numbers of Cases and Measures for the FY 2015 Program

a. Background

b. Minimum Numbers of Cases and Measures for the FY 2015 Outcome Domain

c. Medicare Spending Per Beneficiary Measure Case Minimum

15. Immediate Jeopardy Citations

D. Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Statutory History

2. LTCH Program Measures for the FY 2014 Payment Determination and Subsequent Fiscal Years Payment Determinations

a. Process for Retention of LTCHQR Program Measures Adopted in Previous Payment Determinations

b. Process for Adopting Changes to LTCHQR Program Measures

3. CLABSI, CAUTI, AND Pressure Ulcer Measures

4. LTCHQR Program Quality Measures for the FY 2016 Payment Determinations and Subsequent Fiscal Years Payment Determinations

a. Considerations in Updating and Expanding Quality Measures Under the LTCHQR Program for FY 2016 and Subsequent Payment Update Determinations

b. New LTCHQR Program Quality Measures Beginning With the FY 2016 Payment Determination

(1) Quality Measure #1 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Percent of Nursing Home Residents who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680)

(2) LTCH Quality Measure #2 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Percentage of Residents or Patients who Were Assessed and Appropriately Given the Pneumococcal Vaccine (Short-Stay) (NQF #0682)

(3) LTCH Quality Measure #3 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431)

(4) LTCH Quality Measure #4 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Ventilator Bundle (Application of NQF #0302)

(5) LTCH Quality Measure #5 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Restraint Rate per 1,000 Patient Days

5. Timeline for Data Submission Under the LTCHQR Program for the FY 2015 Payment Determination

6. Timeline for Data Submission Under the LTCHQR Program for the FY 2016 Payment Determination

7. Public Display of Data Quality Measures

E. Quality Reporting Requirements Under the Ambulatory Surgical Centers Quality Reporting (ASCQR) Program

1. Background

2. Requirements for Reporting Under the ASCQR Program

a. Administrative Requirements

(1) Requirements Regarding QualityNet Account and Administrator for the CYs 2014 and 2015 Payment Determinations

(2) Requirements Regarding Participation Status for the CY 2014 Payment Determination and Subsequent Payment Determination Years

b. Requirements Regarding Form, Manner, and Timing for Claims-Based Measures for CYs 2014 and 2015 Payment Determinations

(1) Background

(2) Minimum Threshold for Claims-Based Measures Using QDCs

c. ASCQR Program Validation of Claims-Based and Structural Measures

3. Extraordinary Circumstances Extension or Waiver for the CY 2014 Payment Determination and Subsequent Payment Determination Years

4. ASCQR Program Reconsideration Procedures for the CY 2014 Payment Determination and Subsequent Payment Determination Years

F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority

2. Application of the Payment Update Reduction for Failure To Report for FY 2014 Payment Determination and Subsequent Years

3. Covered Entities

4. Quality Measures

a. Considerations in Selecting Quality Measures

b. Quality Measures Beginning With FY 2014 Payment Determination and Subsequent Years

(1) HBIPS-2 (Hours of Physical Restraint Use)

(2) HBIPS-3 (Hours of Seclusion Use)

(3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic Medications)

(4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic Medications With Appropriate Justification)

(5) HBIPS-6 (Post Discharge Continuing Care Plan Created)

(6) HBIPS-7 (Post Discharge Continuing Care Plan Transmitted to the Next Level of Care Provider Upon Discharge)

c. Maintenance of Technical Specifications for Quality Measures

5. Possible New Quality Measures for Future Years

6. Public Display Requirements for the FY 2014 Payment Determination and Subsequent Years

7. Form, Manner, and Timing of Quality Data Submission for the FY 2014 Payment Determination and Subsequent Years

a. Background

b. Procedural Requirements for the FY 2014 Payment Determination and Subsequent Years

c. Reporting and Submission Requirements for the FY 2014 Payment Determination

d. Reporting and Submission Requirements for the FY 2015 and FY 2016 Payment Determinations

e. Population, Sampling, and Minimum Case Threshold for FY 2014 and Subsequent Years

f. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2014 Payment Determination and Subsequent Years

8. Reconsideration and Appeals Procedure for the FY 2014 Payment Determination and Subsequent Years

9. Waivers From Quality Reporting Requirements for the FY 2014 Payment Determination and Subsequent Years

10. Electronic Health Records (EHRs)

IX. MedPAC Recommendations and Other Related Reports and Studies for the IPPS and LTCH PPS

A. MedPAC Recommendations for the IPPS for FY 2013

B. Studies and Reports on Reforming the Hospital Wage Index

1. Secretary's Report to Congress on Wage Index Reform

2. Institute of Medicine (IOM) Study on Medicare's Approach to Measuring Geographic Variations in Hospitals' Wage Costs

X. Quality Improvement Organization (QIO) Regulation Changes Relating to Provider and Practitioner Medical Record Deadlines and Claim Denials

XI. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

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

3. ICRs for the Occupational Mix Adjustment to the FY 2013 Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for Application for GME Resident Slots

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

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

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

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

10. ICRs for the Ambulatory Surgical Center (ASC) Quality Reporting Program

11. ICRs for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

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, 2012 and Payment Rates for LTCHs Effective With Discharges Occurring on or After October 1, 2012

I. Summary and Background

II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2013

A. Calculation of the Adjusted Standardized Amount

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

C. Calculation of the Prospective Payment Rates

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2013

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

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2013

C. Capital Input Price Index

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase Percentages for FY 2013

V. Changes to the Payment Rates for the LTCH PPS for FY 2013

A. LTCH PPS Standard Federal Rate for FY 2013

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2013

1. Background

2. Geographic Classifications/Labor Market Area Definitions

3. LTCH PPS Labor-Related Share

4. LTCH PPS Wage Index for FY 2013

5. Budget Neutrality Adjustment for Changes to the Area Wage Level Adjustment

C. LTCH PPS Cost-of-Living Adjustment for LTCHs Located in Alaska and Hawaii

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

E. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2013

VI. Tables Referenced in this Final Rulemaking and Available Through the Internet on the CMS Web Site

Appendix A—Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

B. Need

C. Objectives of the IPPS

D. Limitations of Our Analysis

E. Hospitals Included in and Excluded From the IPPS

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

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

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Policy Changes

1. Effects of Policy on HACs, Including Infections

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

3. Effects of Policy Changes Relating to SCHs

4. Effects of Payment Adjustment for Low-Volume Hospitals for FY 2013

5. Effects of Policy Changes Relating to Payment Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME)

6. Effects of the Policy Changes Relating to Direct GME and IME

a. Effects of Clarification and Policy Regarding Timely Filing Requirements for Claims for Medicare Advantage Enrollees Under Fee-for-Service Medicare

b. Effects of Policy Changes Relating to New Teaching Hospitals: New Program Growth From 3 Years to 5 Years

c. Effects of Changes Relating to 5-Year Period Following Implementation of Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of The Affordable Care Act

d. Preservation of Resident Cap Positions From Closed Hospitals (Section 5506 of the Affordable Care Act)

7. Effects of Changes Relating to the Reporting Requirements for Pension Costs for Medicare Cost-Finding Purposes

8. Effects of Implementation of Rural Community Hospital Demonstration Program

9. Effects of Change in Effective Date for Policies Relating to Hospital Services Furnished Under Arrangements

I. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

J. Effects of Payment Rate Changes and Policy Changes Under the LTCH PPS

1. Introduction and General Considerations

2. Impact on Rural Hospitals

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

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

K. Effects of Requirements for Hospital Inpatient Quality Reporting (IQR) Program

L. Effects of PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

M. Effects of Hospital Value-Based Purchasing (VBP) Program Requirements

N. Effects of New Measures Added to the LTCH Quality Reporting (LTCHQR) Program

O. Effects of Quality Reporting Requirements for Ambulatory Surgical Centers

P. Effects of Requirements for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

Q. Effects of Requirements for Provider and Practitioner Medical Record Deadlines and Claims Denials

R. Alternatives Considered

S. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

II. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

III. Regulatory Flexibility Act (RFA) Analysis

IV. Impact on Small Rural Hospitals

V. Unfunded Mandate Reform Act (UMRA) Analysis

VI. 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 2013

A. FY 2013 Inpatient Hospital Update

B. Update for SCHs for FY 2013

C. FY 2013 Puerto Rico Hospital Update

D. Update for Hospitals Excluded From the IPPS

E. Update for LTCHs

III. Secretary's Recommendation

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

I. Executive Summary and Background Back to Top

A. Executive Summary

1. Purpose and Legal Authority

This final rule makes payment and policy changes under the Medicare inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it makes payment and policy changes for inpatient hospital services provided by long-term care hospitals (LTCHs) under the long-term care hospital prospective payment system (LTCH PPS). It also makes policy changes to programs associated with Medicare IPPS hospitals and LTCHs.

Under various statutory authorities, we are making changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 2013. These statutory authorities include, but are not limited to, the following:

  • Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).
  • Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.
  • Sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) of the Act), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of long-term care hospitals (LTCHs) described in section 1886(d)(1)(B)(iv) of the Act.
  • Sections 1814(l), 1820, and 1834(g) of the Act, which specifies that payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services and that these payments are generally based on 101 percent of reasonable cost.
  • Section 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.
  • Section 1886(d)(4)(D) of the Act, which addresses certain hospital-acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (CDC), at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are 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.
  • Section 1886(a)(4) of the Act, which specifies that costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act.
  • Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase in payments to a subsection (d) hospital for a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary.
  • Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year are to be established by the Secretary. Section 1886(o)(1)(B) of the Act directs the Secretary to begin making value-based incentive payments under the Hospital Inpatient VBP Program to hospitals for discharges occurring on or after October 1, 2012.
  • Section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act and amended by section 10309 of the Affordable Care Act, which establishes the “Hospital Readmissions Reduction Program” effective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals under section 1886(d) of the Act will be reduced to account for certain excess readmissions.

2. Summary of the Major Provisions

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

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 prospective adjustment under section 1886(d)(3)(A)(vi) of the Act.

Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional one-time adjustment to the standardized amounts to offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 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.

After accounting for adjustments made in FYs 2008 and 2009, we have found a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90. Without making this adjustment, our actuaries estimated that annual aggregate payments would be increased by approximately $4 billion. Furthermore, an additional one-time adjustment of −5.8 percent would be required to fully recapture overpayments (estimated at approximately $6.9 billion) due to documentation and coding that occurred in FY 2008 and FY 2009, as required by section 7(b)(1)(B) of Public Law 110-90.

CMS has thus far implemented a −2.0 percent (of a required −3.9 percent) prospective adjustment, and completed the full one-time −5.8 percent recoupment adjustment (−2.9 percent in both FYs 2011 and 2012). In FY 2013, we are completing the remaining −1.9 percent prospective adjustment, while also making a + 2.9 percent adjustment to remove the effect of the FY 2012 one-time recoupment adjustment. We have also determined that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of documentation and coding changes on future payments to SCHs and MDHs. After accounting for adjustments made to the hospital-specific rate in FY 2011 and FY 2012, an additional prospective adjustment of −0.5 percent is necessary to complete the full −5.4 adjustment. For FY 2013, we are making a full −0.5 percent adjustment to the hospital-specific rate, in keeping with our policy of applying equivalent adjustments, when applicable, to other subsection (d) hospital payment systems.

In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to make an additional adjustment to account for documentation and coding effects that occurred in FY 2010. After review of comments and recommendations from MedPAC, CMS analyzed FY 2010 claims using the same methodology as previously applied to FYs 2008 and 2009 claims. CMS estimated that there was a 0.8 percentage point effect due to documentation and coding that did not reflect an actual increase in patient severity. However, in light of public comments we received on the proposed rule, we are not making an adjustment to account for this effect at this time. Therefore, the total documentation and coding adjustment for FY 2013 is a + 1.0 percent adjustment (−1.9 plus + 2.9) to the standardized amount and a −0.5 percent adjustment to the hospital-specific rate.

b. Hospital-Acquired Conditions (HACs)

Section 1886(d)(4)(D) 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.

In this final rule, we are adding two new conditions, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures and Pneumothorax with Venous Catheterization, for the HAC payment provisions for FY 2013 under section 1886(d)(4)(D) of the Act. We note that the SSI Following CEID Procedures condition will be a new subcategory of the SSI HAC category. We also are adding diagnosis codes 999.32 (Bloodstream infection due to central venous catheter) and 999.33 (Local infection due to central venous catheter) to the existing Vascular Catheter-Associated Infection HAC category for FY 2013.

c. Reduction of Hospital Payments for Excess Readmissions

We are finalizing a number of policies to implement section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, which establishes the Hospital Readmissions Reduction Program. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payments to account for excess readmissions of selected applicable conditions, which are acute myocardial infarction, heart failure, and pneumonia. We are finalizing provisions related to the applicable hospitals that are included in the Hospital Readmissions Reduction Program, the methodology to calculate the adjustment factor, the portion of the hospital's payment that is reduced by the adjustment factor, and the process under which the hospitals have the opportunity to review and submit corrections for their readmissions information prior to the information being posted on the Hospital Compare Web site.

d. Long-Term Care Hospital-Specific Market Basket

We are updating LTCH payment rates with a separate market basket comprised of data from only LTCHs, which we refer to as a “LTCH-specific market basket.” We are implementing a stand-alone LTCH market basket based on FY 2009 Medicare cost report data. The method used to calculate the cost weights and the price proxies used are generally similar to those used in the FY 2008-based RPL market basket that was finalized for the FY 2012 IPPS/LTCH PPS final rule. The primary difference is that we are using data from LTCH providers only.

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

Moratoria on the implementation of certain LTCH payment policies and on the development of new LTCHs and LTCH satellite facilities and on bed increases in existing LTCHs and LTCH satellite facilities established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further amended by sections 3106 and 10312 of the Affordable Care Act are set to expire during CY 2012, under current law.

The moratoria established by these provisions delayed the full implementation of the following policies for 5 years beginning at various times in CY 2007:

  • The full application of the “25-percent payment adjustment threshold” to certain LTCHs, including hospitals-within-hospitals (HwHs) and LTCH satellite facilities for cost reporting periods beginning on or after July 1, 2007, and before July 1, 2012, or cost reporting periods beginning on or after October 1, 2007, and before October 1, 2012, as applicable under the regulations at §§ 412.534 and 412.536.
  • The inclusion of an “IPPS comparable per diem amount” option for payment determinations under the short stay outlier (SSO) adjustment at § 412.529 of the regulations for LTCH discharges occurring on or after December 29, 2007, but prior to December 29, 2012.
  • The application of any one-time budget neutrality adjustment to the LTCH PPS standard Federal rate provided for in § 412.523(d)(3) of the regulations from December 29, 2007, through December 28, 2012.
  • In general, the development of new LTCHs and LTCH satellite facilities, or increases in the number of beds in existing LTCHs and LTCH satellite facilities from December 29, 2007, through December 28, 2012, unless one of the specified exceptions to the particular moratorium was met.

In this final rule, we are extending the existing delay of the full implementation of the 25-percent payment adjustment threshold for an additional year; that is, for cost reporting periods beginning on or after October 1, 2012, and before October 1, 2013, as applicable. We are providing a 1-year moratorium on the application of the “25-percent threshold” payment adjustment for cost reporting periods beginning on or after October 1, 2012, and before October 1, 2013. However, the moratorium will expire for several types of LTCHs with cost reporting periods beginning before July 1, 2012 and September 30, 2012, prior to the effective date of the moratorium finalized in this rule. This gap in the continued application of the moratorium is a result of the July 1, 2007 effective date of section 114(c)(1) of the MMSEA, as amended by section 4302(a)(1) of the ARRA, which was based on the former July 1 through June 30 regulatory cycle for the LTCH PPS. In order to address this situation for this group of LTCHs, we are finalizing a policy that applies a supplemental moratorium on a per discharge basis beginning with discharges occurring on or after October 1, 2012, and continuing through the LTCH's cost reporting period.

We are providing for an additional 1-year extension in the delay of the full application of the 25-percent payment adjustment threshold policy because we believe that, based on a recent research initiative, we could soon be in a position to propose revisions to our payment policies that could render the 25-percent payment adjustment threshold policy unnecessary. In light of this potential result, we believe it is prudent to avoid requiring LTCHs (or CMS systems) to implement the full reinstatement of the policy for what could be a relatively short period of time.

We are not making any changes to the SSO policy as it currently exists in the regulations at § 412.529. Accordingly, consistent with the existing regulations at § 412.529(c)(3), for SSO discharges occurring on or after December 29, 2012, the “IPPS comparable per diem amount” option at § 412.529(c)(3)(i)(D) will apply to payment determinations for cases with a covered length of stay that was equal to or less than one standard deviation from the geometric average length of stay for the same MS-DRG under the IPPS (that is, the “IPPS comparable threshold”).

The moratoria on the development of new LTCHs or LTCH satellite facilities and on an increase in the number of beds in existing LTCHs or LTCH satellite facilities are set to expire on December 29, 2012, under current law.

We are making a one-time prospective adjustment under § 412.523(d)(3) of the regulations (which will not apply to payments for discharges occurring on or before December 28, 2012, consistent with the statute) and to transition the application of this adjustment over a 3-year period. Regulations at § 412.523(d)(3) provide for the possibility of making a one-time prospective adjustment to the LTCH PPS rates so that the effect of any significant difference between the data used in the original computations of budget neutrality for FY 2003 and more recent data to determine budget neutrality for FY 2003 is not perpetuated in the prospective payment rates for future years.

f. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(viii) of the Act, hospitals are required to report data on measures selected by the Secretary for the Hospital IQR Program in order to receive the full annual percentage increase. In past rules, we have established measures for reporting and the process for submittal and validation of the data.

In this final rule, we are making programmatic changes to the Hospital IQR Program for the FY 2015 payment determination and subsequent years. These changes will streamline and simplify the process for hospitals and reduce burden. We are reducing the number of measures in the Hospital IQR Program from 72 to 59 for the FY 2015 payment determination. We are removing 1 chart-abstracted measure and 16 claims-based measures from the program for the FY 2015 payment determination and subsequent years. We are removing these measures for a number of reasons, including that these measures are losing NQF endorsement, are included in an existing composite measure, are duplicative of other measures in the Hospital IQR Program, or could otherwise be reported on Hospital Compare in the future under the authority of section 3008 of the Affordable Care Act. In addition, we are adopting three claims-based measures, one chart-abstracted measure and a survey-based measure regarding care transitions, which we will collect using the existing HCAHPS survey, to the measure set for the FY 2015 payment determination and subsequent years. We are adopting a structural measure for the FY 2016 payment determination and subsequent years.

In an effort to streamline the rulemaking process, we are retaining measures for all subsequent payment determinations, unless specifically stated otherwise, through rulemaking. We are adopting a policy under which we will use a subregulatory process to make nonsubstantive updates to the Hospital IQR Program measures. To ensure that hospitals that participate in the Hospital IQR Program are submitting data for a full year, we are providing that hospitals that would like to participate in the Hospital IQR Program for the first time, or that previously withdrew from the Program and would like to participate again, must submit a completed Notice of Participation by December 31 of the calendar year preceding the first quarter of the calendar year in which chart-abstracted data submission is required for any given fiscal year. In addition, if a hospital wishes to withdraw from the program, it will have until May 15 prior to the start of the payment year affected to do so. In order to reduce the burden associated with validation, we are reducing the base annual validation sample from 800 to 400, with an additional targeted sample of up to 200 hospitals. All hospitals failing validation in a previous year will be included in the 200 hospital supplement, with a random sample drawn from hospitals meeting one or more additional targeting criteria. We are calculating scores for both the chart-abstracted clinical process of care and HAC measure sets and then calculating a total score reflecting a weighted average of each of the two individual scores. Hospitals must achieve a total score of 75 percent to pass validation.

g. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o)(1)(B) of the Act directs the Secretary to begin making value-based incentive payments under the Hospital Inpatient VBP Program to hospitals for discharges occurring on or after October 1, 2012. These incentive payments will be funded for FY 2013 through a reduction to the FY 2013 base operating MS-DRG payment for each discharge of 1 percent, as required by section 1886(o)(7)(B)(i) of the Act. The applicable percentage for FY 2014 is 1.25 percent, for FY 2015 is 1.5 percent, for FY 2016 is 1.75 percent, and for FY 2017 and subsequent years is 2 percent.

We previously published the requirements and related measures to implement the Hospital Inpatient VBP Program in a final rule issued in the Federal Register on April 29, 2011 (76 FR 26490, May 6, 2011), in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660), and in the CY 2012 OPPS/ASC final rule (76 FR 74527 through 74547). In this final rule, we are adding requirements for the Hospital VBP Program. Specifically, we are adding for the FY 2015 program two additional outcome measures—an AHRQ Patient Safety Indicators composite measure and CLABSI: Central Line-Associated Blood Stream Infection. We are adding a measure of Medicare Spending per Beneficiary in the Efficiency domain. We are also finalizing a number of other requirements for the program, including an appeals process, case minimums, a review and corrections process for claims-based measures, and the scoring methodology for FY 2015.

3. Summary of Costs and Benefits

  • FY 2013 Documentation and Coding 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 prospective adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional one-time adjustment to the standardized amounts to offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 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.

After accounting for adjustments made in FYs 2008 and 2009, we have found a remaining documentation and coding effect of 3.9 percent. As we have discussed in prior rules, an additional cumulative adjustment of −3.9 percent will be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90. Without making this adjustment, our actuaries estimated that annual aggregate payments would be increased by approximately $4 billion. Furthermore, an additional one-time adjustment of −5.8 percent will be required to fully recapture overpayments (estimated at approximately $6.9 billion) due to documentation and coding that occurred in FY 2008 and FY 2009, as required by section 7(b)(1)(B) of Public Law 110-90.

CMS has thus far implemented a −2.0 percent (of a required −3.9 percent) prospective adjustment, and completed the full one-time −5.8 percent recoupment adjustment (−2.9 percent in both FYs 2011 and 2012). In FY 2013, we are completing the remaining −1.9 percent prospective adjustment, while also making a +2.9 percent adjustment to remove the effect of the FY 2012 one-time recoupment adjustment. We have also determined that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of documentation and coding changes on future payments to SCHs and MDHs. After accounting for adjustments made to the hospital-specific rate in FY 2011 and FY 2012, an additional prospective adjustment of −0.5 percent is necessary to complete the full −5.4 percent adjustment. We are making a full −0.5 percent adjustment to the hospital-specific rate, in keeping with our policy of applying equivalent adjustments, when applicable, to other subsection (d) hospital payment systems.

In addition, in the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to make an additional adjustment to account for documentation and coding effects that occurred in FY 2010. After review of comments and recommendations from MedPAC, CMS analyzed FY 2010 claims using the same methodology as previously applied to FYs 2008 and 2009 claims. CMS estimated that there was a 0.8 percentage point effect due to documentation and coding that did not reflect an actual increase in patient severity. However, in light of the public comments that we received on the proposed rule, we are not making an adjustment to account for this effect at this time. Therefore, the total IPPS documentation and coding adjustment of +1.0 percent (−1.9 plus +2.9) will increase total payments by approximately $1.069 billion. The total adjustment to the hospital-specific rate will be −0.5, and will decrease total payment by $22.7 million. The combined impact of the final FY 2013 documentation and coding adjustments will increase total payments by approximately $1.042 billion.

  • Hospital-Acquired Conditions (HACs). For FY 2013, we are continuing to implement section 1886(d)(4)(D) of the Act that addresses certain hospital-acquired conditions (HACs), including infections. We are adding two additional conditions for FY 2013, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures and Iatrogenic Pneumothorax with Venous Catheterization. The projected savings estimate for these two conditions is less than $1 million, with the total estimated savings from HACs for FY 2013 projected at $24 million dollars.
  • Reduction to Hospital Payments for Excess Readmissions. We are making a number of policies to implement section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, which establishes the Hospital Readmissions Reduction Program. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payment amount to account for excess readmissions of selected applicable conditions, which are acute myocardial infarction, heart failure, and pneumonia. This provision is not budget neutral. A hospital's readmission payment adjustment is the higher of a ratio of a hospital's aggregate dollars for excess readmissions to their aggregate dollars for all discharges, or 0.99 (that is, or a 1-percent reduction) for FY 2013. In this final rule, we estimate that the Hospital Readmissions Reduction Program will result in a 0.3 percent decrease, or approximately $280 million, in payments to hospitals.

• Long-Term Care Hospital-Specific Market Basket. The FY 2009-based LTCH-specific market basket update (as measured by percentage increase) for FY 2013 is currently estimated to be 2.6 percent, which is slightly lower than the market basket update based on the FY 2008-based RPL market basket at 2.7 percent (currently used under the LTCH PPS). Therefore, we project that there will be no significant fiscal impact on the LTCH PPS payment rates in FY 2013 as a result of this policy. In addition, we are updating the labor-related share under the LTCH PPS for FY 2013 based on the relative importance of each labor-related cost category in the FY 2009-based LTCH-specific market basket. Although this policy will result in a decrease in the LTCH PPS labor-related share for FY 2013, we are projecting that there will be no effect on aggregate LTCH PPS payments due to the regulatory requirement that any changes to the LTCH area wage adjustment (including the labor-related share) are adopted in a budget neutral manner.

•Update to the LTCH PPS Standard Federal Rate, including the Expiration of Certain Payment Rules for LTCH Services and the Moratorium on the Establishment of Certain Hospitals and Satellite Facilities and the Increase in the Number of Beds in LTCHs and LTCH Satellite Facilities. Based on the best available data for the 428 LTCHs in our database, we estimate that the changes we are presenting in the preamble and Addendum of this final rule, including the update to the standard Federal rate for FY 2013, the changes to the area wage adjustment for FY 2013, and changes to short-stay outliers and high-cost outliers will result in an increase in estimated payments from FY 2012 of approximately $92 million (or approximately 1.7 percent). Although we generally project an increase in payments for all LTCHs in FY 2013 as compared to FY 2012, we expect rural LTCHs to experience a larger than average increase in payments (3.3 percent) primarily due to the changes to the area wage level adjustment. Rural hospitals generally have a wage index of less than 1; therefore, the decrease to the labor-related share results in their wage index reducing a smaller portion of the standard Federal rate, resulting in an estimated increase in payments in FY 2013 as compared to FY 2012. In addition, the effect of the extension of the moratorium on the application of the “25 percent threshold” payment adjustment policy, as provided by section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the Affordable Care Act, that is generally effective for cost reporting periods beginning on or after October 1, 2012, and before October 1, 2013, is estimated to result in a payment impact of approximately $170 million to LTCHs. (We note that, for certain LTCHs and LTCH satellite facilities with cost reporting periods beginning or after July 1, 2012, and before October 1, 2012, we are providing a supplemental moratorium for discharges beginning on or after October 1, 2012, and through the end of the cost reporting period. Overall, we estimate that the increase in aggregate LTCH PPS payments in FY 2013 will be $262 million.

  • Hospital Inpatient Quality Reporting (IQR) Program. In this final rule, we discuss our requirements for hospitals to report quality data under the Hospital IQR Program in order to receive the full annual percentage increase for FY 2015. We estimate that approximately 95 hospitals may not receive the full annual percentage increase in any fiscal year. However, at this time, information is not available to determine the precise number of hospitals that will not meet the requirements to receive the full annual percentage increase for FY 2015.

We are adding supplements to the chart validation process for the Hospital IQR Program. Starting with the FY 2015 payment determination, we are finalizing a modest increase to the current Hospital IQR Program validation sample of 18 cases per quarter to 27 cases per quarter in order to capture data on CLABSI, CAUTI, and SSI measures. However, in order not to increase the Hospital IQR validation program's overall burden to hospitals, we are reducing the total sample size of hospitals included in the annual validation sample from 800 eligible hospitals to up to 600 eligible hospitals.

We provide payment to hospitals for the cost of sending charts to the CDAC contractor at the rate of 12 cents per page for copying and approximately $4.00 per chart for postage. Our experience shows that the average chart received by the CDAC contractor is approximately 275 pages. The requirement of an additional 9 charts per hospital submitted for validation, combined with the decreased sample size, will result in approximately 1,800 additional charts per quarter being submitted to CMS by all selected hospitals. Thus, we estimate that we would expend approximately $66,600 per quarter to collect the additional charts we need to validate all measures.

  • Hospital VBP Program. The Hospital VBP Program is statutorily mandated to be budget neutral. We believe that the program's benefits will be seen in improved patient outcomes, safety, and experience of care. We cannot estimate these benefits in actual dollars and improved quality of care because the payment adjustments based on hospital performance will not begin to be made until FY 2013.

B. Summary

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

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

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

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

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, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 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. (We note that the statutory provision for payments to MDHs expires at the end of FY 2012, that is, after September 30, 2012.) 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.

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

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

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of the Act effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of 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.

C. 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) Applicable to FY 2013

The Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.”) A number of the provisions of the Affordable Care Act affect the updates to the IPPS and the LTCH PPS and providers and suppliers. The provisions of the Affordable Care Act that were applicable to the IPPS and the LTCH PPS for FYs 2010, 2011, and 2012 were implemented in the June 2, 2010 Federal Register notice (75 FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).

In this final rule, we are implementing, or continuing in FY 2013 to implement, the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS, the LTCH PPS, and PPS-exempt cancer hospitals:

  • Section 3001 of Public Law 111-148, which provides for establishment of a hospital inpatient value-based purchasing program under which value-based incentive payments will be made in a fiscal year to hospitals that meet performance standards for the performance period for that fiscal year.
  • Section 3004 of Public Law 111-148, which provides for the submission of quality data for LTCHs in order to receive the full annual update to the payment rates beginning with the FY 2014 rate year.
  • Section 3005 of Public Law 111-148, which provides for the establishment of a quality reporting program for PPS-exempt cancer hospitals with respect to FY 2014, and for subsequent program years.
  • Section 3025 of Public Law 111-148, which establishes a hospital readmissions reduction program and requires the Secretary to reduce payments to applicable hospitals with excess readmissions effective for discharges beginning on or after October 1, 2012.
  • Section 3125 and 10314 of Public Law 111-148, which modified the definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals, effective only for discharges occurring during FYs 2011 and 2012. Beginning with FY 2013, the preexisting low-volume hospital qualifying criteria and payment adjustment, as implemented in FY 2005, will resume.
  • Section 3401 of Public Law 111-148, which provides for the incorporation of productivity adjustments into the market basket updates for IPPS hospitals and LTCHs.
  • Section 10324 of Public Law 111-148, which provides for a wage adjustment for hospitals located in frontier States.
  • Sections 3401 and 10319 of Public Law 111-148 and section 1105 of Public Law 111-152, which revise certain market basket update percentages for IPPS and LTCH PPS payment rates for FY 2013.
  • Section 3137 of Public Law 111-148, which requires the Secretary to submit to Congress a report that includes a plan to comprehensively reform the Medicare wage index under the IPPS. In developing the plan, the Secretary was directed to take into consideration the goals for reforming the wage index that were set forth by MedPAC in its June 2007 Report to Congress and to consult with relevant affected parties.
  • Section 5503 of Public Law 111-148, as amended by Public Law 111-152 and section 203 of Public Law 111-309, which provides for the reduction in FTE resident caps for direct GME under Medicare for certain hospitals, and the “redistribution” of the estimated number of FTE resident slots to other qualified hospitals. In addition, section 5503 requires the application of these provisions to IME in the same manner as the FTE resident caps for direct GME.
  • Section 5506 of Public Law 111-148, which added a provision to the Act that instructs the Secretary to establish a process by regulation under which, in the event a teaching hospital closes, the Secretary will permanently increase the FTE resident caps for hospitals that meet certain criteria up to the number of the closed hospital's FTE resident caps. The Secretary is directed to ensure that the aggregate number of FTE resident cap slots distributed is equal to the amount of slots in the closed hospital's direct GME and IME FTE resident caps, respectively.

D. Issuance of a Notice of Proposed Rulemaking

On May 11, 2012, we published in the Federal Register (77 FR 27870), a proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2013. We also set forth proposed changes relating to payments for IME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, in the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2013.

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

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

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

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2013 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle Institute, International (RTI) reports and recommendations relating to charge compression.
  • Proposed recalibrations of the MS-DRG relative weights.
  • Proposed changes to hospital-acquired conditions (HACs) and a listing and discussion of HACs, including infections, that would be subject to the statutorily required adjustment in MS-DRG payments for FY 2013.
  • A discussion of the FY 2013 status of new technologies approved for add-on payments for FY 2012 and a presentation of our evaluation and analysis of the FY 2013 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

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

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

  • The proposed FY 2013 wage index update using wage data from cost reporting periods beginning in FY 2009.
  • Analysis and implementation of the proposed FY 2013 occupational mix adjustment to the wage index for acute care hospitals.
  • 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 2013 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 2013 hospital wage index.
  • Determination of the labor-related share for the proposed FY 2013 wage index.

3. 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 proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 476, including the following:

  • The proposed rules for payment adjustments under the Hospital Readmissions Reduction Program based on hospital readmission measures and the process for hospital review and correction of those rates.
  • Proposed clarification regarding the duration of the classification status of SCHs.
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
  • Proposed payment adjustment for low-volume hospitals for FY 2013.
  • The statutorily required IME adjustment factor for FY 2013, a clarification of the requirements of timely filing of claims for Medicare Advantage enrollees for IME, direct GME, and nursing and allied health education payment purposes, and a proposal to apply the timely filing requirements to the submission of no-pay bills for purposes of calculating the DSH payment adjustment.
  • Proposal for counting labor and delivery beds in the formula for determining the payment adjustment for disproportionate share hospitals and IME payments.
  • Discussion of the expiration of the MDH program in FY 2012.
  • Proposed changes to the inpatient hospital update for FY 2013, including incorporation of a productivity adjustment.
  • Proposed changes relating to GME and IME payments, including proposed changes in new growth period for new residency programs from 3 years to 5 years for new teaching hospitals; proposals and clarifications related to the 5-year period following implementation of reductions and increases to hospitals' FTE resident caps; and proposals and clarifications related to the preservation of resident cap positions from closed hospitals.
  • Proposed conforming changes to regulations relating to reporting requirements for pension costs for Medicare cost-finding purposes.
  • Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
  • Proposed delay in the effective date of policies relating to hospital routine services furnished under arrangements.

4. FY 2013 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 2013 and the proposed MS-DRG documentation and coding adjustment for FY 2013.

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

In section VI. of the preamble of the proposed rule, we discuss proposed changes to payments to certain excluded hospitals.

6. 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 2013. Specifically, we proposed the following major changes: A 1-year extension of the moratorium on the full implementation of the “25-percent threshold” payment adjustment at 42 CFR 412.534 and 412.536; a “one-time prospective adjustment” to the standard Federal rate phased in over a 3-year period (which would not be applicable to payments for discharges occurring on or before December 28, 2012, consistent with the statute); an LTCH-specific market basket; and annual updates to the LTCH PPS standard Federal rate and to other payment factors.

7. Changes Relating to Quality Data Reporting for Specific Providers and Suppliers

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

  • Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full applicable percentage increase.
  • The proposed establishment of a quality reporting program for PPS-exempt cancer hospitals.
  • Proposed requirements for the Hospital Value-Based Purchasing Program.
  • Proposed requirements for the quality reporting measures under the LTCH Quality Reporting (LTCHQR) Program.
  • Proposed quality data reporting and other requirements for the Ambulatory Surgical Center Quality Reporting (ASCQR) Program.
  • The establishment of the Inpatient Psychiatric Facility Quality Reporting Program (IPFQRP).

8. Determining 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 2013 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We 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 2013 for certain hospitals excluded from the IPPS.

9. Determining 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 2013 prospective standard Federal rate. We proposed to establish the adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

10. Impact Analysis

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

11. 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 2013 for the following:

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

12. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2012 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 2012 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.

We received approximately 436 timely pieces of correspondence from the public in response to the FY 2013 IPPS/LTCH PPS proposed rule. We summarize these public comments and present our responses under the specific subject areas of this final rule.

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

A. Background

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

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

B. MS-DRG Reclassifications

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 through 50055), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 through 51487).

C. Adoption of the MS-DRGs in FY 2008

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189).

D. FY 2013 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

In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189), we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, there are 751 MS-DRGs. By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries 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, and we finalized the FY 2008 adjustment through rulemaking, effective October 1, 2007 (72 FR 66886).

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent, and we finalized that adjustment through rulemaking (73 FR 48447). The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, which reflected the amendments made by 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, in the case of underpayments) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary only make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.

4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

In order to implement the requirements of section 7 of Public Law 110-90, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008 using the methodology first described in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and later discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772). We performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims (75 FR 50057 through 50068). The results of the analysis for the FY 2011 proposed and final rules, and subsequent evaluations in FY 2012, supported that the 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system. We were persuaded by both MedPAC's analysis (as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50064 through 50065)) and our own review of the methodologies recommended by various commenters that the methodology we employed to determine the required documentation and coding adjustments was sound.

5. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(A)(vi) of the Act

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777), we opted to delay the implementation of any documentation and coding adjustment until a full analysis of case-mix changes based on FY 2009 claims data could be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule for a detailed description of our proposal, responses to comments, and finalized policy. After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50073), we found a total prospective documentation and coding effect of 1.054 percent. After accounting for the −0.6 percent and the −0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we found a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes that do not reflect real changes in case-mix on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an “appropriate” adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we believe we have some discretion as to the manner in which we apply the prospective adjustment of −3.9 percent. We indicated that applying the full prospective adjustment of −3.9 percent for FY 2011, in combination with the proposed recoupment adjustment of −2.9 percent in FY 2011 (discussed below) would require an aggregate adjustment of −6.8 percent. As we discussed extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. Therefore, we stated that we believed it was appropriate to not implement the −3.9 percent prospective adjustment in FY 2011 because we finalized a −2.9 percent recoupment adjustment for that year. Accordingly, we did not propose a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 through 23870). We note that, as a result, payments in FY 2011 (and in each future year until we implement the requisite adjustment) would 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 noted that payments in FY 2010 were also 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 estimated increased aggregate payments by approximately $4 billion in FY 2010.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we indicated that because further delay of this prospective adjustment will result in a continued accrual of unrecoverable overpayments, it was imperative that we implement a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we implemented a −2.0 percent prospective adjustment (a reduction of a proposed −3.15 percent adjustment) to the standardized amount to partially eliminate the full effect of the documentation and coding changes that do not reflect real changes in case-mix on future payments.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27887), for FY 2013, we proposed to complete the prospective portion of the adjustment required under section 7(b)(1)(B) of Public Law 110-90. We proposed a −1.9 percent adjustment to the standardized amount for FY 2013. We stated that this adjustment would remove the remaining effect of the documentation and coding changes that do not reflect real changes in case-mix that occurred in FY 2008 and FY 2009. We indicated we believe it is imperative to implement the full remaining adjustment, as any further delay would result in an overstated standardized amount in FY 2013 and any future years until a full adjustment is made. We believe that the offsetting nature of the FY 2012 recoupment adjustment (described in section II.D.6. of the proposed rule (77 FR 27887 through 27888) and the preamble of this final rule) will mitigate any negative financial impacts of this prospective adjustment.

Comment: MedPAC submitted a comment fully supporting the proposed documentation and coding adjustments, citing its 2011 comment letter regarding the FY 2012 IPPS/LTCH PPS proposed rule for its support of the CMS methodology and the calculation of documentation and coding effect estimates. MedPAC reiterated its recommendation that Congress grant the Secretary the authority to recapture overpayments due to documentation and coding effects that occurred after FY 2009.

Response: We appreciate MedPAC's analysis and continued support of the methodology to calculate the impact of documentation and coding on hospital payments. As stated in the proposed rule, at this point, we only have the authority to prospectively adjust the standardized amount to prevent future overpayments due to the effects of documentation and coding. We believe that any overpayments made in FY 2008 and FY 2009 have already been recaptured, and any additional past overpayments cannot be recovered without additional statutory authority.

Comment: Many commenters, including national hospital associations, continue to argue that the methodology employed by CMS significantly overstated the impact of documentation and coding changes. Commenters believed that the CMS methodology assumes that case-mix index has held constant over several fiscal years, and they view this as a flawed assumption. Commenters submitted a case-mix trend analysis, noting that this analysis was updated for new claims data and revised relative to similar analyses submitted as public comment on documentation and coding in prior IPPS rulemaking. According to the commenters, their case-mix trend analysis indicated only a 3.5 percent documentation and coding increase, which equals the total adjustment already implemented by CMS. These commenters argued that no further cuts are necessary to the standardized amount, and that the proposed adjustments are excessive.

Response: We disagree that the presented trend analysis provides a more accurate estimate of the documentation and coding effect. We continue to believe that the proposed methodology, which removes real-case mix growth from the calculation, yields a more straightforward and direct estimate. We also believe that the estimates obtained using our methodology are consistent with real case-mix growth as demonstrated by MedPAC in its 2011 public comment submitted on the FY 2012 IPPS/LTCH PPS proposed rule. We refer readers to our response in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51494-51496) for a more detailed response.

Comment: One commenter, a national hospital association, disagreed with CMS' response from prior year rulemaking that “changes in case-mix do not necessarily follow a consistent pattern over time.” The commenter indicated that the simple linear regression of case-mix growth it submitted was the most conservative estimate of potential documentation and coding effect, and that more advanced, nonlinear statistical methods were better statistical fits, and suggested an even smaller impact due to documentation and coding.

Response: We are not convinced that further statistical testing of a case-mix trend based analysis would yield more accurate results, nor did we intend to suggest that nonlinear regression of case-mix growth would be a more appropriate measure of documentation and coding effects. The estimates submitted by the commenter presented a theoretical documentation and coding effect ranging from +3.5 percent to −1.9 percent. As discussed in prior year rulemaking, the inclusion of additional years in the suggested CMI trend based analysis caused documentation and coding effect estimates to vary significantly, and now the commenter argues that different statistical interpretations also may cause large fluctuations. With respect to the trend analysis, we continue to believe that the determination of an appropriate historical trend is less straightforward than our proposed methodology, which removes real case-mix growth from the calculation. Again, we refer readers to our more detailed response to public comments in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51494 through 51496).

Comment: One commenter stated that coding offsets exceeding total case-mix growth duplicate the productivity adjustment mandated by the Affordable Care Act and should not be implemented. The commenter stated that decreases in real case-mix represent an improvement in productivity already adjusted for in the productivity adjustment.

Response: Section 3401(a) of the Affordable Care Act requires that the IPPS operating market basket update be adjusted by changes in economy-wide productivity for FY 2012 (and each subsequent fiscal year). The statute defines the productivity adjustment to be equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, cost reporting period, or other annual period). We disagree with the commenter that this statutory provision somehow interacts with our documentation and coding adjustment authority. This statutory provision does not in any way reference our statutory documentation and coding adjustment authority, nor does our documentation and coding authority in any way reference the market basket adjustment for economy-wide productivity. The methodology used for determining the IPPS rates, and specifically our methodology for estimating documentation and coding effects was made available to the general public (through notice and comment rulemaking) prior to the enactment of the Affordable Care Act. However the law did not reference nor change our authority in light of the productivity adjustment.

In addition, as we have previously indicated, our methodology for estimating documentation and coding removes changes in real case-mix from the calculation. Although we disagree that decreases in real case-mix represent an improvement in productivity in the context of section 3401(a), even if for purposes of discussion one were to accept this assertion, this is not a documentation and coding adjustment issue. The proper place for any offset would be to the productivity adjustment. Section 3401(a) of the Affordable Care Act provides no authority for such an adjustment for decreases in real case-mix.

After consideration of the public comments we received, we do not believe that any alternative methodologies would produce more accurate estimates of documentation and coding effects. We are finalizing, as proposed, a −1.9 percent documentation and coding adjustment to the standardized amount. This adjustment will complete our statutory obligation to account for remainder of documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009.

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

As discussed in section II.D.3. of this preamble, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2008 and FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data. Our actuaries estimated that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. Therefore, as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012 would be necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009.

It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS final rule, we made an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude allowed us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY 2012).

As we stated in prior rulemaking, a major advantage of making the −2.9 percent adjustment to the standardized amount in FY 2011 was that, because the required recoupment adjustment is not cumulative, we anticipated removing the FY 2011 −2.9 percent adjustment from the rates (in other words, making a positive 2.9 percent adjustment to the rates) in FY 2012, at the same time that the law required us to apply the remaining approximately −2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90.

Therefore, for FY 2012, in accordance with the timeframes set forth by section 7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in the FY 2011 IPPS/LTCH PPS final rule, we completed the recoupment adjustment by implementing the remaining −2.9 percent adjustment, in addition to removing the effect of the −2.9 percent adjustment to the standardized amount finalized for FY 2011 (76 FR 51489 and 51498). Because these adjustments, in effect, balanced out, there was no year-to-year change in the standardized amount due to this recoupment adjustment for FY 2012.

The −2.9 percent adjustment in each of the two previous fiscal years completed the required recoupment for overpayments due to documentation and coding effects on discharges occurring in FYs 2008 and 2009. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27888), we proposed to make a final +2.9 percent adjustment to the standardized amount. This adjustment would remove the effect of the one-time −2.9 percent adjustment implemented in FY 2012. As stated in the proposed rule, we continue to believe that this is a reasonable and fair approach that satisfies the requirements of the statute while substantially moderating the financial impact on hospitals.

We did not receive any specific public comments regarding this adjustment. We did receive public comments requesting an additional +0.72 percent adjustment to account for cumulative overestimates of documentation and coding effects. We will address these comments in a later section. We are finalizing a +2.9 percent adjustment, as proposed, completing the recoupment portion of section 7(b)(1)(B) of Public Law 110-90. We note that with this positive adjustment, according to our estimates, all overpayments made in FY 2008 and FY 2009 have been fully recaptured with appropriate interest, and the standardized amount has been returned to the appropriate baseline.

7. 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. (We note that, under current law, the MDH program expires at the end of FY 2012, as discussed in section IV.G. of this final rule.) 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 documentation and coding that do not reflect real changes in case-mix.

However, in the final rule that appeared in the Federal Register on November 27, 2007 (72 FR 66887 through 67888), we rescinded the application of the documentation and coding adjustment to the hospital-specific rates effective 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 have their Medicare claims grouped using the same MS-DRG system as other IPPS 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. 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 was 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 was warranted, we indicated that we would propose to make such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.

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

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule, we discussed our 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 for other IPPS hospitals, but did not significantly differ from that result. We refer readers to those FY 2010 proposed and final rules for a more complete discussion (74 FR 24098 through 24100 and 74 FR 43775 through 43776, respectively).

As we have noted previously, because hospitals paid on the basis of their hospital-specific rate, including SCHs (and MDHs until the end of FY 2012), use the same MS-DRG system as all other IPPS 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 were 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. 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 to hospitals paid on the basis of their hospital-specific rate. We note that, for FY 2013, this adjustment would only apply to the SCHs because the MDH program expires in FY 2012 (as discussed in section IV.G. of this preamble). Unlike the case of standardized amounts paid to IPPS hospitals, prior to FY 2011, we had 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 needed to be made, as opposed to a −3.9 percent remaining adjustment for IPPS hospitals.

After finalizing a −2.9 percent prospective adjustment in FY 2011 (75 FR 50067 through 50071), we finalized a prospective adjustment to the hospital-specific rate of −2.0 percent for FY 2012 (76 FR 51499) instead of our proposed adjustment of −2.5 percent. Making this level of adjustment allowed CMS to maintain, for FY 2012, consistency in payment rates for different IPPS hospitals paid using the MS-DRG. We indicated in the final rule that because this −2.0 percent adjustment no longer reflects the entire remaining required adjustment amount of −2.5 percent, an additional −0.5 percent adjustment to the hospital-specific payment rates would be required in future rulemaking.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27889), we proposed to complete the remaining prospective adjustment to account for the documentation and coding effect that occurred in FY 2008 and FY 2009 by applying a −0.5 percent adjustment to the hospital-specific rate. We continue to believe that SCHs had the same opportunity to benefit from improvements in documentation and coding that did not reflect an increase in patient severity, and we continue to believe that any resulting adjustments should be applied similarly to all subsection (d) hospitals, when possible. For FY 2013, we proposed a prospective adjustment of −1.9 percent to the standardized amount. Therefore, we stated in the proposed rule (77 FR 27889) that we believed it was also appropriate to propose a −0.5 percent adjustment to the hospital-specific rate for FY 2013.

Comment: Commenters questioned CMS' statutory authority to apply documentation and coding adjustments to hospitals receiving the hospital-specific rate. The commenters stated that section 1886(d)(3)(A)(vi) of the Act specifically required the Secretary to determine if overpayments were made, and make appropriate adjustments to the standardized amount. The commenters contended that the broad authority granted under section 1886(d)(5)(I)(i) of the Act is not so broad as to permit CMS to extend the scope of a legislative directive that was specifically limited to hospitals paid under a prospective payment system.

Response: We continue to disagree that we do not have the authority to make prospective documentation and coding adjustments to the hospital-specific rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51499) for further discussion on our authority granted under section 1886(d)(5)(I)(i) of the Act. We do not believe that specific discretionary authority under section 1886(d)(3)(A)(iv) of the Act creates a limit on the broad authority granted under section 1886(d)(5)(I) of the Act. In this final rule, we are finalizing a prospective −0.5 percent adjustment to the hospital-specific rate to account for documentation and coding effects for discharges occurring in FY 2008 and FY 2009.

9. 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 documentation and coding 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.

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 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 to apply 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

As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 through 50073), using the same methodology we applied to estimate documentation and coding changes under IPPS for non-Puerto Rico hospitals, our best estimate was that, for documentation and coding that occurred over FY 2008 and FY 2009, a cumulative adjustment of −2.6 percent was required to eliminate the full effect of the documentation and coding changes that do not reflect real changes in case-mix on future payments from the Puerto Rico-specific rate. As we stated above, we believe it is 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. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50072 through 50073), we stated that we believed that a full prospective adjustment was the most appropriate means to take into full account the effect of documentation and coding changes on payments, while maintaining equity as much as possible between hospitals paid on the basis of different prospective rates.

Because the Puerto Rico-specific rate received a full prospective adjustment of −2.6 percent in FY 2011, we proposed no further adjustment in the proposed rule for FY 2012. For FY 2013, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27889), we also did not propose any adjustment to the Puerto Rico-specific rate.

10. Prospective Adjustments for FY 2010 Documentation and Coding Effect

Section 7(b)(1)(A) of Public Law 110-90 required CMS to make prospective documentation and coding adjustments under section 1886(d)(3)(A)(iv) of the Act if, based upon a review of FY 2008 and FY 2009 discharges, we determined that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix during FY 2008 or FY 2009 and that were different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90. However, section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts if the Secretary determines such adjustments to be necessary for any subsequent fiscal years in order to eliminate the effect of coding or classification changes that do not reflect real changes in case-mix. After review of comments and recommendations received in a FY 2012 comment letter from MedPAC (available on the Internet at: http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf), we analyzed claims data in FY 2010 to determine whether any additional adjustment would be required to ensure that the introduction of MS-DRGs was implemented in a budget neutral manner. While we expect that the impacts of documentation and coding behavior in response to the introduction of MS-DRGs in FY 2008 will eventually decline to insignificant levels, we analyzed FY 2010 data on claims paid through December 2011 using the same claims-based methodology as described in previous rulemaking (73 FR 43768 and 43775). We determined a total prospective documentation and coding effect of 1.008 for FY 2010. Our actuaries have estimated that this 0.8 percentage point increase resulted in an increase in aggregate payments of approximately $1.19 billion in FY 2010. Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we proposed an additional −0.8 percent adjustment to account for the effects of documentation and coding changes that did not reflect real changes in case-mix in FY 2010.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we stated that the combined total prospective adjustment to the standardized amount proposed for FY 2013 under Public Law 110-90 to account for documentation and coding effects in FY 2008 and FY 2009 and under section 1886(d)(3)(A)(vi) of the Act to account for documentation and coding effect in FY 2010 was −2.7 percent (−1.9 percent plus −0.8 percent). We indicated that the proposed adjustment would eliminate the effect of documentation and coding that did not reflect real changes in case-mix for discharges occurring during FYs 2008, 2009, and 2010. While we did not make proposals regarding future fiscal years in the proposed rule, we plan to continue to monitor and analyze additional claims data and make adjustments, when necessary, as authorized under section 1886(d)(3)(A)(vi) of the Act. We noted that the proposed total adjustment to the proposed FY 2013 standardized amount would be +0.2 percent because these prospective adjustments will be offset by the completion of the recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90, as discussed below.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we noted that while we have decided to review FY 2010 claims data to determine whether additional prospective adjustments are necessary (as discussed earlier), section 7(b)(1)(B) of Public Law 110-90 does not authorize CMS to calculate any retrospective adjustment for overpayments made in FY 2010, nor to recover any related overpayments beyond FY 2012. The Secretary's authority under section 1886(d)(3)(A)(vi) of the Act is limited to prospective adjustments.

Consistent with our proposal for IPPS hospitals paid on the basis of the standardized amount, our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act, and based upon our review of FY 2010 claims data, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we also proposed an additional −0.8 percent adjustment to the hospital-specific rate to account for documentation and coding changes in FY 2010 that did not reflect real changes in case-mix. We indicated that we believed that a full prospective adjustment for hospitals paid based on the hospital-specific rate is the most appropriate means to take into account the effect of documentation and coding changes on payments, while maintaining equity as much as possible between hospitals paid on the basis of different prospective rates. Therefore, we proposed a combined adjustment of −1.3 percent (−0.5 percent + −0.8 percent) to the hospital-specific rate, accounting for all documentation and coding effects observed between FY 2008 though FY 2010.

Based upon our analysis of FY 2010 claims data, we found no significant additional effect of documentation and coding in FY 2010 that would warrant any additional adjustment to the Puerto Rico-specific rate.

Comment: Numerous comments objected to the CMS proposal to make an adjustment under section 1886(d)(3)(A)(vi) of the Act to account for payment increases due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2010. Commenters pointed to MedPAC's analysis in its public comment letter in response to the FY 2011 IPPS/LTCH PPS proposed rule that suggested that “negative documentation and coding” may have occurred under the CMS-DRGs, creating an overestimation of documentation and coding due to the introduction of MS-DRGs. MedPAC estimated that the magnitude of this effect could reach 0.36 percent in FY 2008, 0.36 percent in FY 2009, and 0.25 percent in FY 2010. CMS responded to these findings in the FY 2011 IPPS/LTCH PPS final rule by stating that MedPAC characterized this impact of any potential overestimate as “small” and could not be corroborated with any specific examples or analysis. Commenters indicated that they did not consider the potential impacts to be “small” and pointed out that if such estimates are true, hospitals would be due an additional +0.72 percent adjustment to account for overestimated recoupments (as well as similar positive adjustments to the hospital-specific and Puerto Rico-specific rate). Some commenters asserted that there are numerous examples of changes in documentation and coding that may have decreased the CMI under the CMS-DRGs, and provided five specific examples.

One commenter, compared the FY 2007 CC list to the FY 2008 CC list, identifying examples of chronic conditions that were CCs under the CMS-DRGs, but are no longer considered CCs or MCCs under the MS-DRGs, and that would also necessarily result in a lower MS-DRG assignment because more specific codes related to that condition were not developed. The commenter expressed surprise that CMS' medical coding experts were unable to do the same. The commenter identified the following common, chronic conditions which were CCs under the CMS-DRGs, but are not a CC or MCC under the MS-DRGs: atrial fibrillation; chronic blood loss anemia; mitral valve disorder; and aortic valve disorder. The commenter stated that removing these chronic conditions from the CC list under the MS-DRGs led to a substantial decrease in the reporting of these conditions as a secondary diagnosis when the MS-DRGs were implemented in FY 2008.

Specifically, after 10 years in which the proportion of IPPS cases that included atrial fibrillation as a secondary diagnosis increased each year, the proportion decreased by 20 percent immediately upon implementation of the MS-DRGs in FY 2008. This decrease in coding of atrial fibrillation would cause the CMI as measured by the FY 2007 DRG GROUPER to go down, while having no effect on the CMI as measured by the MS-DRG GROUPER. The commenter stated that if this negative documentation and coding effect is not taken into account in CMS' analysis, it will inappropriately increase CMS' estimate of documentation and coding change. The commenter also found that the secondary diagnoses of chronic blood loss anemia, mitral valve disorder and aortic valve disorder decreased in proportion immediately upon implementation of the MS-DRGs in FY 2008.

In addition, the commenter stated that hyperpotassemia was a CC under the CMS-DRGs, but is not a CC or MCC under the MS-DRGs. Because of this, there was a substantial decrease in the reporting of hyperpotassemia as a secondary diagnosis when the MS-DRGs were implemented in FY 2008. Specifically, after 9 consecutive years in which the proportion of IPPS cases that included hyperpotassemia as a secondary diagnosis increased, the proportion decreased by 37 percent immediately upon implementation of the MS-DRGs in FY 2008.

In responding to MedPAC's analysis, the commenter stated that CMS concluded that it did not believe it would be appropriate to revise its estimates based solely on MedPAC's analysis without knowing of any specific examples. Given that the commenter is now providing such specific examples, the commenter urged the agency to revise its analysis to account for what the commenter believed to be overestimation of documentation and coding as identified by MedPAC and the AHA. Specifically, the commenter recommended that CMS subtract 0.25 percentage points from its estimate of a 6.2 percent cumulative documentation and coding effect; which yields a revised cumulative effect of 5.95 percent. Under this methodology, because CMS has already implemented documentation and coding cuts of 3.5 percent, the commenter stated that the cut remaining is actually only 2.45 percent, instead of the 2.7 percent the agency proposed.

Response: We disagree with the commenter's suggestion that the removal of the codes for the chronic conditions of atrial fibrillation, chronic blood loss anemia, mitral valve disorder and aortic valve disorder from the CC list upon the implementation of MS-DRGs and the subsequent decrease in hospital reporting are examples of a “negative” documentation and coding effect. We note that what the commenter provided are examples of an immediate change in coding and reporting practices based on incentives under the MS-DRGs. It did not suggest that patients had fewer occurrences of the chronic conditions identified. They do suggest that hospitals were immediately aware of the incentives provided by the CC and MCC lists under MS-DRGs and began focusing on identifying and reporting codes on the MS-DRG CC and MCC lists.

We believe the commenters' suggestions of immediate changes in coding and reporting based on incentives provided by the MS-DRGs CC and MCC lists support our view that coding practices have changed in response to incentives, which we have shown lead to increases in the case-mix index that were not based on actual changes in patient severity.

We further believe that while the MedPAC analysis suggested that a potential overestimate could have, in theory, occurred in the methodology, the estimates are theoretical maximums. It is not clear at this time, based on the information submitted, to what extent the five examples provided by commenters substantiate these theoretical maximums or any change in adjustments.

Nonetheless, we recognize that the methodological issues that surround this question are complex, and may merit further consideration. Therefore, we are not finalizing the proposed −0.8 percent adjustment to the standardized amount and the hospital-specific rate at this time until more analysis can be completed.

Remaining prospective adjustment for FYs 2008-2009 Prospective adjustment for FY 2010 Prospective adjustment for FY 2013 Removal of onetime recoupment adjustment in FY 2013 Combined documentation & coding adjustment for FY 2013
Level of Adjustments −1.9% −0.0% −1.9% +2.9% +1.0%

As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effects. Interested individuals may still order these files through the Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/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.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

Beginning in FY 2007, we implemented relative weights for DRGs based on cost report data instead of charge information. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS-DRGs and MS-DRGs.

As we implemented cost-based relative weights, some public commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to the Research Triangle Institute, International (RTI) to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the cost-to-charge ratios (CCRs) across services within cost centers. For a detailed summary of RTI's findings, recommendations, and public comments that we received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 through 48453).

In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the FY 2009 IPPS/LTCH PPS final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining the items that should be reported in these respective cost centers, we adopted the commenters' recommendations that hospitals should use revenue codes established by the AHA's National Uniform Billing Committee to determine the items that should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. Accordingly, a new subscripted line 55.30 for “Implantable Devices Charged to Patients” was created in July 2009 as part of CMS' Transmittal 20 update to the cost report Form CMS-2552-96. This new subscripted cost center has been available for use for cost reporting periods beginning on or after May 1, 2009.

As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527), in addition to the findings regarding implantable devices, RTI also found that the costs and charges of computed tomography (CT) scans, magnetic resonance imaging (MRI), and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and the OPPS relative weights would better estimate the costs of those services if CMS were to add standard cost centers for CT scans, MRI, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the costs from charges on claims data. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create standard cost centers for CT scans, MRI, and cardiac catheterization, and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS 2552-10. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed discussion of the reasons for the creation of standard cost centers for CT scans, MRI, and cardiac catheterization.) The new standard cost centers for CT scans, MRI, and cardiac catheterization are effective for cost report periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10.

2. Summary of Policy Discussion in FY 2012

In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due to what is typically a 3-year lag between the reporting of cost report data and the availability for use in ratesetting, we anticipated that we might be able to use data from the new “Implantable Devices Charged to Patients” cost center to develop a CCR for Implantable Devices Charged to Patients in the FY 2012 or FY 2013 IPPS rulemaking cycle. However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782), due to delays in the issuance of the revised cost report CMS 2552-10, we determined that a new CCR for Implantable Devices Charged to Patients might not be available before FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for CT scans, MRI, and cardiac catheterization, we explained that data from any new cost centers that may be created will not be available until at least 3 years after they are first used (75 FR 50077).

Accordingly, during the FY 2012 IPPS rulemaking (76 FR 51502), we assessed the availability of data in the “Implantable Devices Charged to Patients” cost center. In order to develop a robust analysis regarding the use of cost data from the “Implantable Devices Charged to Patients” cost center, it was necessary to have a critical mass of cost reports filed with data in this cost center. We checked the availability of data in the “Implantable Devices Charged to Patients” cost center on the FY 2009 cost reports, but we did not believe that there was a sufficient amount of data from which to generate a meaningful analysis in this particular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for “Implantable Devices Charged to Patients” for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would reassess the availability of data for the “Implantable Devices Charged to Patients” cost center for the FY 2013 IPPS/LTCH PPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

3. Discussion for FY 2013

To calculate the MS-DRG relative weights, we use two data sources: the MedPAR file as the claims data source and the HCRIS as the cost data source. We adjust the charges from the claims to costs by applying the 15 national average CCRs developed from the cost reports. In the past several years, we have made progress in changing the cost report to add the “Implantable Devices Charged to Patients” cost center. At the time of development of the FY 2013 IPPS/LTCH PPS proposed rule, there was a sizeable number of hospitals in the FY 2010 HCRIS that had reported data for “Implantable Devices Charged to Patients” on their cost reports beginning during FY 2010. However, during the development of the proposed rule, we were able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates on or after October 1, 2009, and before May 1, 2010. This is because cost reports with fiscal year begin dates of May 1, 2010, through September 30, 2010, were filed on the new cost report Form 2552-10, and cost reports filed on the Form 2552-10 were not accessible in the HCRIS. Normally, we pull the HCRIS dataset that is 3 years prior to the IPPS fiscal year (that is, for the FY 2013 relative weights, we would use the FY 2010 HCRIS, which includes data from cost reports that begin on or after October 1, 2009, and before October 1, 2010). However, because data from the Form 2552-10 cost reports were not available, to ensure that the relative weights are calculated with a data set that is as comprehensive and accurate as possible, in the proposed rule, we proposed to calculate the FY 2013 relative weights with data from FY 2010 cost reports for providers with fiscal year begin dates of on or after October 1, 2009, and before May 1, 2010, and to back fill with data from FY 2009 cost reports for those providers that have fiscal year begin dates on or after May 1, 2010 through September 30, 2010. Further complicating matters was that, due to additional unforeseen technical difficulties, the corresponding information regarding charges for implantable devices on hospital claims was not yet available to us in the MedPAR file. Without the breakout in the MedPAR file of charges associated with implantable devices to correspond to the costs of implantable devices on the cost report, we believed that we had no choice but to propose to continue computing the relative weights with the current CCR that combines the costs and charges for supplies and implantable devices. We stated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892) that when we do have the necessary supplies and implantable device data on the claims in the MedPAR file to create distinct CCRs for supplies and implantable devices, perhaps for FY 2014, we also hoped that we would have data for an analysis of creating distinct CCRs for MRI, CT scans, and cardiac catheterization. Prior to proposing to create these CCRs, we would first thoroughly analyze and determine the impacts of the data. Distinct CCRs for implantable devices, MRIs, and CT scans would be used in the calculation of the relative weights only if they were first finalized through rulemaking.

Comment: Commenters expressed concern that CMS had proposed not to use the data available from the new “Implantable Devices Charged to Patients” cost center for FY 2013. The commenters were concerned about the continued delays in the utilization of the new cost center data, and stated that such delays only prolong the payment inaccuracies associated with charge compression. Two commenters suggested a short-term fix to account for the lack of data and to create a CCR for implantable devices. The commenters suggested that CMS calculate a DRG-by-DRG estimate of the split of standardized supplies charges into implantable devices and routine supplies. They stated that once supplies charges are apportioned in each DRG, separate national average CCRs for implantable devices and other supplies could be applied, based on the existing cost reports. The commenters recommended using the CY 2010 Inpatient Standard Analytic File (SAF) to calculate the DRG-level factors for apportioning the supplies charges, as the file has information on charges by revenue center, allowing implantable devices to be split from routine supplies. They further suggested that CMS could calculate the CY 2010 ratios of routine supply charges to implantable device charges by DRG, apply those ratios to the FY 2011 MedPAR supplies charges, and then utilize the separate CCRs for supplies and implantable devices to estimate costs within each DRG. The commenters added that the remainder of the DRG weight calculation would proceed at this point, now with 16 CCRs, including the implantable devices CCR. The commenters stated that CMS has information required for DRG assignment, and could run the data through the latest MS-DRG GROUPER if MS-DRG definition changes are an issue.

Several commenters requested that CMS adopt a regression-based CCR for implantable devices due to the delay in using the cost report and claims data to calculate an implantable device CCR. The commenters suggested that CMS implement this approach, which was a recommendation made by RTI and MedPAC, to the statistical disaggregation of CCRs in the “Medical Supplies Charged to Patients” cost center, as it would immediately address charge compression until data from the new cost centers become available.

One commenter requested that CMS use the data from the hospitals that are compliant in using the “Implantable Devices Charged to Patients” cost center data to establish an implantable device CCR for establishing FY 2013 relative weights. The commenter suggested that, despite data limitations of the current data, CMS continue to revise this CCR in subsequent years, as the agency does for all cost centers as more robust data are available, without further delaying needed improvements in the interim period.

Response: We acknowledge the commenters' concern that we did not propose a distinct CCR for implantable devices charged to patients for FY 2013. Nevertheless, we believe it would be inappropriate to finalize a specific CCR for implantable devices charged to patients for FY 2013 (using SAF data, a regression-based methodology, or the limited implantable devices cost report data that we do have), without an opportunity for the public to review and comment on our analysis. Rather, we believe that it is appropriate to wait until FY 2014, when we hope to be able to provide a proper impact analysis of the addition of a CCR for implantable devices charged to patients in the relative weights calculation. Accordingly, we are not implementing a regression-based CCR for implantable devices at this time, nor are we implementing any new CCRs for use in the relative weights calculation for FY 2013.

Comment: Several commenters expressed concern that CMS may not have sufficient data to establish an implantable device cost center to use in the calculation of the relative weights for FY 2014. Two commenters requested that CMS develop and discuss in this FY 2013 IPPS final rule an action plan for ensuring that FY 2011 HCRIS and MedPAR data will be available for allowing the “Implantable Devices Charged to Patients” cost center to be used for calculating MS-DRG relative weights for FY 2014. Another commenter requested that, rather than waiting for the next rulemaking cycle, CMS should determine if it will have the necessary data available prior to the FY 2014 proposed rule and inform stakeholders if there continues to be administrative issues with the data. The commenter believed that this will allow stakeholders to weigh in on potential solutions to avoid another year of delay in establishing the implantable device CCR.

Response: We understand the commenters' desire for reassurance that the FY 2014 rulemaking cycle will not present further unanticipated delays in the availability of both HCRIS and MedPAR data required to create distinct CCRs for implantable devices charged to patients and supplies charged to patients, respectively. We expect to have the necessary data available to begin modeling the additional CCRs before the end of calendar year 2012. Therefore, we are optimistic that, for the FY 2014 proposed rule, we will be able to provide a detailed impact analysis of the relative weights using distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. If, for some reason, additional delays are encountered toward the end of calendar year 2012, we will consider informing stakeholders of this delay, if appropriate, and hosting a national conference call, so that alternative solutions to establishing additional CCRs can be considered in a timely fashion.

Comment: Some commenters supported our proposal of not making major refinements in the MS-DRG relative weight methodology.

Response: We appreciate the commenters' support for our proposal of not making major refinements to the MS-DRG relative weights.

Comment: One commenter recommended that, despite the delay in the implementation of the “Implantable Devices Charged to Patients” cost center for the IPPS relative weights, CMS should proceed with the implementation of the implantable devices cost center in the calculation of OPPS rates for CY 2013. The commenter requested that CMS work toward a solution to combine data from the two different cost reporting forms in the HCRIS data so that OPPS rates can be calculated using the cost difference reported in the “Implantable Devices Charged to Patients” cost center.

Response: We note that the CY 2013 OPPS/ASC proposed rule, which went on public display at the Office of the Federal Register on July 6, 2012 (available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices-Items/CMS-1589-P.html), in fact, includes a proposal to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for use in calculating the OPPS relative weights for CY 2013.

Comment: Two commenters expressed continued concern about the accuracy of establishing new CT and MRI cost centers using cost report and claims data. The commenters were concerned that the data reported in the CT and MRI cost centers will not represent hospitals' full cost of providing CT and MRI for some time. The commenters stated that a large portion of the capital costs for CT and MRI equipment may have been allocated across the entire hospital, rather than to the radiology cost center, which would result in the understatement of costs of CT and MRI reported in the radiology cost center.

Response: We received similar comments regarding the allocation of capital costs for radiology equipment on the FY 2011 IPPS/LTCH PPS proposed rule. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50078), we provided a detailed response for CMS' longstanding policy on the proper reporting of such capital costs. Specifically, we stated that “section 104 of the PRM-I 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-I 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 [are] 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 Costs-Moveable Equipment' cost center(s) on Worksheet A (lines 2 and 4 [on the CMS Form 2552-96 and line 2 on the CMS Form 2552-10]). 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 MRIs. 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” (75 FR 50078). Hospitals that still need to correct their cost reporting practices in this regard should do so soon, so that when we propose distinct CCRs for MRI and CT scans, hopefully for FY 2014, these CCRs will represent fairly accurately the costs of these radiology services.

In summary, in this final rule, we are finalizing our proposal to continue to use the existing 15 CCRs to calculate the MS-DRG relative weights for FY 2013. For this final rule, as we did for the proposed rule, because data from the CMS Form 2552-10 continue to be unavailable, we are using data from FY 2010 cost reports for providers with fiscal year begin dates of on or after October 1, 2009, and before May 1, 2010, and we are backfilling with data from FY 2009 cost reports for those providers that have fiscal year begin dates on or after May 1, 2010 through September 30, 2010. Depending on the availability of necessary data, we hope to be able to propose, if appropriate, for FY 2014 to use distinct CCRs for implantable devices charged to patients and supplies charged to patients, and possibly distinct CCRs for MRI, CT scans, and cardiac catheterization as well.

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

1. Background

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. This provision is part of an array of Medicare tools that we are using to promote increased quality and efficiency of care. Under the IPPS, hospitals are encouraged to treat patients efficiently because they receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would otherwise receive for cases without these conditions. To this extent, the IPPS encourages hospitals to avoid complications.

However, the treatment of certain conditions can generate higher Medicare payments in two ways. First, if a hospital incurs exceptionally high costs treating a patient, the hospital stay may generate an outlier payment. Because the outlier payment methodology requires that hospitals experience large losses on outlier cases before outlier payments are made, hospitals have an incentive to prevent outliers. Second, under the MS-DRG system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain conditions can generate higher payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 261 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. The presence of a CC or an MCC generally results in a higher payment.

Section 1886(d)(4)(D) 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.

Effective for discharges occurring on or after October 1, 2008, pursuant to the authority of section 1886(d)(4)(D) of the Act, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not present on admission (POA). Thus, if a selected condition that was not POA manifests during the hospital stay, it is considered a HAC and the case is paid as though the secondary diagnosis was not present. However, even if a HAC manifests during the hospital stay, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate. In addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is POA. When a HAC is not POA, payment can be effected in a manner shown in the diagram below.

2. HAC Selection

Beginning in FY 2007, we have set forth proposals, and solicited and responded to public comments, to implement section 1886(d)(4)(D) of the Act through the IPPS annual rulemaking process. For specific policies addressed in each rulemaking cycle, including a detailed discussion of the collaborative interdepartmental process and public input regarding selected and potential candidate HACs, we refer readers to the following rules: the FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547) and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43782); the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080); and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) and final rule (76 FR 51504 through 51522). A complete list of the 10 current categories of HACs is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 through 25814) and FY 2012 IPPS/LTCH PPS final rule (76 FR 51507 through 50509), we proposed but did not finalize the candidate condition Contrast-Induced Acute Kidney Injury. Instead, we deferred the decision making on this condition as a selected HAC until future rulemaking and such a time when improved coding for the condition is available.

3. Present on Admission (POA) Indicator Reporting

Collection of POA indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision as well as for broader public health uses of Medicare data. In previous rulemaking, we provided both CMS and CDC Web site resources that are available to hospitals for assistance in this reporting effort. For detailed information regarding these sites and materials, including the application and use of POA indicators, we refer the reader to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 through 51507).

As discussed in previous IPPS proposed and final rules, there are five POA indicator reporting options, as defined by the ICD-9-CM Official Guidelines for Coding and Reporting. Under the HAC policy, we treat HACs coded with “Y” and “W” indicators as POA and allow the condition on its own to cause an increased payment at the CC/MCC level. We treat HACs coded with “N” and “U” indicators as Not Present on Admission (NPOA) and do not allow the condition on its own to cause an increased payment at the CC/MCC level. We refer readers to the following rules for a detailed discussion: the FY 2009 IPPS proposed rule (73 FR 23559) and final rule (73 FR 48486 through 48487); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082); and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) and final rule (76 FR 51506 through 51507).

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.

Beginning on or after January 1, 2011, hospitals were required to begin reporting POA indicators using the 5010 electronic transmittal standards format. The 5010 format removes the need to report a POA indicator of “1” for codes that are exempt from POA reporting. We have issued CMS instructions on this reporting change as a One-Time Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 7024, effective on August 13, 2010, which can be located at the following link on the CMS Web site: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R756OTN.pdf. However, for claims that continue to be submitted using the 4010 electronic transmittal standards format, the POA indicator of “1” is still necessary because of reporting restrictions from the use of the 4010 electronic transmittal standards format.

In addition, as discussed in section II.G.9. of the preamble of this final rule, the 5010 format allows the reporting and, effective January 1, 2011, the processing of up to 25 diagnoses and 25 procedure codes. As such, it is necessary to report a valid POA indicator for each diagnosis code, including the principal and all secondary diagnoses up to 25.

4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS

As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 and 51507) and in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894), in preparation for the transition to the ICD-10-CM and ICD-10-PCS code sets, further information regarding the use of the POA indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain to the HAC policy will be discussed in future rulemaking.

At the March 5, 2012 meeting of the ICD-9-CM Coordination and Maintenance Committee, an announcement was made with regard to the availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-10-PCS code sets. Participants were informed that the list of the current ICD-9-CM selected HACs has been translated into codes using the ICD-10-CM and ICD-10-PCS classification system. It was recommended that the public review this list of ICD-10-CM/ICD-10-PCS code translations of the current selected HACs. The translation list is available on the CMS Web page at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We encourage the public to submit comments on these translations through the HACs Web page using the CMS ICD-10-CM/PCS HAC Translation Feedback Mailbox that has been set up for this purpose under the Related Links section titled “CMS HAC Feedback.” The final HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be subject to formal rulemaking.

In the meantime, we continue to encourage readers to review the educational materials and draft code sets currently available for ICD-10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/index.html. In addition, the draft ICD-10-CM/ICD-10-PCS coding guidelines can be viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.html.

Comment: Commenters expressed appreciation for CMS' decision to make this crosswalk available. Commenters noted that they would continue to review the crosswalk and provide additional comments, as warranted.

Response: We appreciate the commenters' support and continued feedback.

5. Changes to the HAC Policy for FY 2013

a. Additional Diagnosis Codes to Existing HACs

As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894), as changes to diagnosis codes and new diagnosis codes have been proposed and finalized for the list of CCs and MCCs, we have modified the list of selected HACs to reflect these changes. While there were not any new diagnosis codes proposed for FY 2013, there were new and revised diagnosis codes effective October 1, 2011 (FY 2012) that were not finalized in time for inclusion in the FY 2012 IPPS rulemaking. Therefore, in the proposed rule (77 FR 27894), we proposed to add two of these codes to an existing HAC category. We proposed to add diagnosis codes 999.32 (Bloodstream infection due to central venous catheter) and 999.33 (Local infection due to central venous catheter) to the Vascular Catheter-Associated Infection HAC category for FY 2013. These codes were created in response to a request discussed at the March 9-10, 2011 ICD-9-CM Coordination and Maintenance Committee meeting to better identify specific types of infections (systemic versus local) that occur as a result of central venous catheter placement.

Previously, there was only one existing HAC code (999.31 (Infection due to central venous catheter)) in the Vascular Catheter-Associated Infection HAC category. With the creation of codes 999.32 and 999.33, effective October 1, 2011, the title for code 999.31 was revised to “Other and unspecified infection due to central venous catheter.” Therefore, codes 999.32 and 999.33 provide further specificity as to the type of infection due to a central venous catheter. We refer readers to page 45 of the topic packet found at the following link on the CDC ICD-9-CM Web page at http://www.cdc.gov/nchs/data/icd9/TopicpacketforMarch2011_HA1.pdf for further information.

Shown in the table below are the two diagnosis codes that we proposed with their corresponding descriptions and their CC/MCC designations.

ICD-9-CM Code Code descriptor CC/MCC Designation
999.32 Bloodstream infection due to central venous catheter CC
999.33 Local infection due to central venous catheter CC

We invited public comments on the proposed adoption of these two ICD-9-CM diagnosis codes designated as CC/MCCs that are listed above, to be added to the Vascular Catheter-Associated Infection HAC category as indicated for FY 2013.

Comment: Several commenters supported the addition of these two codes. One commenter, a State program, indicated that it uses these codes in a statewide HAC payment incentive program.

Response: We appreciate the commenters' support.

Comment: Some commenters opposed the addition of these two diagnosis codes. Commenters also urged CMS to remove the one existing HAC code (999.31) in the Vascular Catheter-Associated Infection HAC category. They stated that CMS is proposing to add a quality measure on central line associated bloodstream infection (CLABSI), which would capture vascular catheter-associated infections and asserted that “this could penalize hospitals twice for the same event.” (We note that the commenters may be referring to two different CMS programs, the Hospital IQR Program and the Hospital VBP Program.) Commenters stated that their opposition to the proposed inclusion of the two codes is not specific to the particular codes that were proposed, but that their opposition is predicated on the “expansion of this HAC [Vascular Catheter-Associated Infection].” Commenters also stated that they supported reducing the incidence of CLABSI as a patient safety goal and urged CMS to “select only one program in which to measure hospital performance for vascular catheter-associated infection.”

Response: The HAC-POA Program is part of an array of tools used by the Medicare program to promote increased quality and efficiency of care. These tools include quality measurement as well as payment adjustments. Because of their importance, HACs have been included in multiple tools used by the Medicare program to measure quality of services provided and performance, and to determine payment adjustments. 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, such as when any nonselected CC/MCC appears on the claim, 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 and would not generally “penalize hospitals twice.”

Because of their importance, measures of HACs have historically been included in the Hospital IQR Program and are simultaneously monitored by different CMS programs. The HAC/POA policy authorized under section 1886(D)(4)(d) of the Act is a claims-based payment policy, and in many cases, even if a HAC manifests during a hospital stay, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate.

Comment: One commenter supported the addition of diagnosis code 999.32, Bloodstream infection due to central venous catheter, to the Vascular Catheter-Associated Infection HAC category, however, the commenter expressed concern with the inclusion of diagnosis code 999.33, Local infection due to central venous catheter, as a condition under this same HAC category to be subject to the HAC payment policy. According to the commenter, diagnosis code 999.33 identifies and describes local infections related to the soft tissues versus infections in the central bloodstream. As such, the commenter asserted that the Vascular Catheter-Associated Infection HAC category should only include central bloodstream infections. Therefore, the commenter did not support the addition of code 999.33 to the Vascular Catheter-Associated Infection HAC category.

In addition, this same commenter recommended that CMS publish data analyses for the Vascular Catheter-Associated Infection HAC category. Specifically, the commenter requested that volume and cost data be made publicly available for diagnosis codes 999.31, Other and unspecified infection due to central venous catheter; 999.32, Bloodstream infection due to central venous catheter; and 999.33, Local infection due to central venous catheter. The commenter reiterated that they do not support the inclusion of code 999.33 as a condition under the Vascular Catheter-Associated Infection HAC category, however, the commenter stated the additional information would assist in identifying potential shifts in volume among the newer, more specific codes of 999.32 and 999.33.

Response: We appreciate the commenter's support for the addition of diagnosis code 999.32, Bloodstream infection due to central venous catheter, to the Vascular Catheter-Associated Infection HAC category. With respect to the concern expressed regarding diagnosis code 999.33, Local infection due to central venous catheter, we believe the commenter may be confused. The title of the HAC category is Vascular Catheter-Associated Infection; therefore, the emphasis is on the fact that the patient had a central venous catheter placed and subsequently developed an infection due to the presence of that catheter. We acknowledge there is widespread interest particularly in bloodstream infections due to central venous catheters, as several initiatives have been undertaken focusing on surveillance and prevention. However, for this HAC payment provision, it is our belief that local infections resulting from a central venous catheter are also of importance and deserve similar efforts among the provider community and healthcare industry with regard to surveillance and prevention, as do the other selected HAC conditions. While the condition being described by diagnosis code 999.33, Local infection due to central venous catheter is a local infection, it identifies the fact that a patient acquired the infection as a result of a central venous catheter. Therefore, we continue to believe it is appropriate to finalize this code for inclusion in this HAC category.

In response to the recommendation that CMS conduct and publish data analyses to provide further detailed information related to volume and cost for codes 999.31, 999.32 and 999.33, we note that we have provided the results for each selected condition within each HAC category beginning with FY 2009 data analysis presented in FY 2011. We refer the commenter and readers to the RTI evaluation of the HAC-POA program for years FY 2009 through FY 2011 on the following Web site: http://www.rti.org/reports/cms/. As codes 999.32 and 999.33 became effective October 1, 2011 (FY 2012), results of the FY 2012 data analysis are not currently available.

After consideration of the public comments we received, we are finalizing our proposal to add diagnosis codes 999.32 (Bloodstream infection due to central venous catheter) and 999.33 (Local infection due to central venous catheter) to the Vascular Catheter-Associated Infection HAC category for discharges occurring on or after October 1, 2012.

b. New Candidate HAC Condition: Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894 through 27896), we discussed our rationale for proposing a new condition, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures, for selection for FY 2013 as a HAC under section 1886(d)(4)(D) of the Act. As described in more detail in section II.F.1. of this preamble, each HAC must be: (1) High cost, high volume, or both; (2) 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 (3) could reasonably have been prevented through the application of evidence-based guidelines. We also discuss other considerations relating to the selection of a HAC, including any administrative or operational issues associated with a proposed condition. For example, the condition may only be able to be identified by multiple codes, thereby requiring the development of special GROUPER logic to also exclude similar or related ICD-9-CM codes from being classified as a CC or an MCC. Similarly, a condition acquired during a hospital stay may arise from another condition that the patient had prior to admission, making it difficult to determine whether the condition was reasonably preventable. In the proposed rule, we invited public comment on the degree to which these conditions fulfill these statutory requirements, as well as clinical, coding, and prevention issues on our proposal to add SSI Following CIED Procedures as a condition subject to the HAC payment provision for discharges occurring on or after October 1, 2012.

CIED therapy reduces morbidity and mortality in selected patients with cardiac rhythm disturbances. [1] More than 500,000 CIEDs are implanted each year in the United States and 70 percent of CIED recipients are age 65 or older. [2] However, this benefit with regard to the treatment of cardiac rhythm disturbances is somewhat reduced by complications following device placement, including infections. Patients can present with early or late infections because of CIED placement. [3] Two-thirds of these infections are caused by Staphylococcus aureus and coagulase-negative Staphylococcus species. Treatment of these infections usually entails surgical explantation of the device, sometimes under general anesthesia and a prolonged course of intravenous antibiotics, along with external electrical support in a monitored intensive care setting. The rate of CIED infection is increasing faster than the rate of CIED implantation, [4] and there are published data on the mortality and cost associated with CIED infection or the relationship of these outcomes to different CIED types.

There is not a unique code that identifies SSI Following CIED Procedures. However, the condition can be identified as a subset of discharges with ICD-9-CM diagnosis code 996.61 (Infection and inflammatory reaction due to cardiac device, implant and graft) or 998.59 (Other postoperative infection). Our clinical advisors believe that diagnosis code 996.61 or 998.59, in combination with the associated procedure codes below, can accurately identify SSI Following CIED Procedures. The procedure codes are:

  • 00.50 (Implantation of cardiac resynchronization pacemaker without mention of defibrillation, total system [CRT-P]);
  • 00.51 (Implantation of cardiac resynchronization defibrillator, total system [CRT-D]);
  • 00.52 (Implantation or replacement of transvenous lead [electrode] into left ventricular coronary venous system);
  • 00.53 (Implantation or replacement of cardiac resynchronization pacemaker pulse generator only [CRT-P]);
  • 00.54 (Implantation or replacement of cardiac resynchronization defibrillator pulse generator device only [CRT-D]);
  • 37.80 (Insertion of permanent pacemaker, initial or replacement, type of device not specified);
  • 37.81 (Initial insertion of single-chamber device, not specified as rate responsive);
  • 37.82 (Initial insertion of single-chamber device, rate responsive);
  • 37.83 (Initial insertion of dual-chamber device);
  • 37.85 (Replacement of any type pacemaker device with single-chamber device, not specified as rate responsive);
  • 37.86 (Replacement of any type of pacemaker device with single-chamber device, rate responsive);
  • 37.87 (Replacement of any type pacemaker device with dual-chamber device);
  • 37.94 (Implantation or replacement of automatic cardioverter/defibrillator, total system [AICD]);
  • 37.96 (Implantation of automatic cardioverter/defibrillator pulse generator only);
  • 37.98 (Replacement of automatic cardioverter/defibrillator pulse generator only);
  • 37.74 (Insertion or replacement of epicardial lead [electrode] into epicardium);
  • 37.75 (Revision of lead [electrode]);
  • 37.76 (Replacement of transvenous atrial and/or ventricular lead(s) [electrode]);
  • 37.77 (Removal of lead(s) [electrode] without replacement);
  • 37.79 (Revision or relocation of cardiac device pocket); and
  • 37.89 (Revision or removal of pacemaker device).

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27894 through 27896), we proposed to identify SSI Following CIED Procedures with diagnosis code 996.61 or 998.59 in combination with one or more of the above associated procedure codes. We believe the condition meets the three criteria for inclusion on the HAC list, as discussed in greater detail below.

First, the condition is one that is high cost and high volume. We reviewed Medicare claims data in the FY 2011 MedPAR file. For FY 2011, we found that there were 859 inpatient discharges coded with SSI Following CIED Procedures as specified by diagnosis code 996.61 or 998.59 when reported with one or more of the above cited associated procedure codes submitted through Medicare claims. The cases had an average cost of $51,795 for the entire hospital stay. We found that there were 583 inpatient discharges coded with SSI Following CIED Procedures as specified by diagnosis code 996.61 or 998.59 when reported with one or more of the above cited associated procedure codes submitted through Medicare claims reported as POA. These POA cases had an average cost of $41,999. We also found that there were 276 inpatient discharges coded with SSI Following CIED Procedures as specified by diagnosis code 996.61 or 998.59 when reported with one or more of the above cited associated procedure codes submitted through Medicare claims reported as NPOA. These NPOA cases had an average cost of $72,485. We note that these data are consistent with other data presented for current HACs. Therefore, we believe this condition is high cost and high volume.

In addition, we reviewed the literature regarding this condition. Infection associated with CIED procedures resulted in a substantial incremental increase in admission mortality and long-term mortality and varies with the type of CIED. For the purposes of the proposal, we considered CIED procedures in the aggregate. Several large studies showed CIED infection associated with an approximately 5 percent to 8 percent inhospital mortality as well as a 17.5 percent to 35.1 percent one year mortality. [5] Additionally, there is a significant cost impact for patients who suffer infections after CIED implantation. A recent large analysis of 2007 data on over 200,000 Medicare beneficiaries demonstrated the mean hospital cost of CIED infections ranges from $28,676 to $53,349, compared with a mean hospital cost ranging from $12,468 to $36,851 for beneficiaries without infection. [6] This additional information supports our conclusion from our analysis of data in the MedPAR file that this condition is high cost.

Second, the condition of SSI Following CIED Procedures, as specified in our proposal, is a CC under the MS-DRG system. We did not identify any additional administrative or operational difficulties associated with proposing this condition as a HAC.

Third, because there are widely recognized guidelines for the prevention of SSI Following CIED Procedures, we believe the condition is reasonably preventable through application of evidence-based guidelines. A large randomized controlled trial demonstrated that prophylactic preoperative antibiotics reduced CIED infection by 81 percent in patients who received them. [7] Well-accepted guidelines for the prevention and prophylaxis of CIED infection now exist supporting the use of prophylactic antibiotics.

In the proposed rule, we invited public comment on whether SSI Following CIED Procedures meets the requirements set forth under section 1886(d)(4)(D) of the Act, as well as other coding and prevention issues associated with our proposal to add this condition as a proposed condition subject to the HAC payment provision for FY 2013 (for discharges occurring on or after October 1, 2012). We indicated that we were particularly interested in receiving comments on the degree to which SSI Following CIED Procedures is reasonably preventable through the application of evidence-based guidelines.

Comment: The majority of commenters supported SSI Following CIED Procedures as a new addition to the HAC/POA condition list, citing its clinical relevance to the Medicare beneficiary population and concerns about the increasing incidence of these infections in conjunction with increased morbidity and mortality, and the associated costs with these infections. One commenter, a State program, indicated that it uses these codes in a statewide HAC payment incentive program.

Response: We appreciate the commenters' support.

Comment: Some commenters raised concerns that the inclusion of SSI Following CIED Procedures as a HAC candidate does not meet the statutory conditions of section 1886(d)(4)(D) of the Act because “CMS points out that there were only 859 cases of SSI Following CIED Procedures during FY 2011. This constitutes only 0.25 percent of all CIED cases.” These commenters asserted that the HAC candidate condition does not meet the high-volume criterion and, therefore, should not be included as a HAC.

Response: We appreciate the commenters' concern regarding whether this candidate condition meets the standards of the statutory criteria. We note that we consider all cases where HAC codes are on the claim as a secondary diagnosis, regardless of their POA indicator, in evaluating conditions based on cost and volume and also use external data sources when available. With regard to cost, the proposed rule included data analyses that showed that the average cost per case of SSI Following CIED Procedures is $51,795 and also included literature that describes the increase in the mean cost of admissions with CIED infection to those CIED placements without infection. Therefore, we reiterate our belief that this condition meets the high-cost criterion. As discussed previously, section 1886(d)(4)(D) of the Act specifies that a condition on the HAC list may be high-volume or high-cost or both. It does not require the condition to be both, and a condition that is only high-cost would meet this statutory criterion. Therefore, we believe that the statutory criterion has been met.

In the proposed rule, we characterized this condition as “high-cost and high-volume” and described an analysis that showed 859 cases. While 859 cases may seem like a small number of cases as the commenters pointed out, we note that, in past rules, we have had similar numbers for HACs, such as in FY 2008, where we stated that there were “764 cases reported of Medicare patients who had an object left in during surgery reported as a secondary diagnosis” (72 FR 24720). Therefore, a volume of 859 cases is not as high as the volume for some other HACs and is higher than the volume for some HACs.

Comment: Some commenters were opposed to the SSI Following CIED Procedures becoming a HAC because they believed that this HAC selection “will result in hospitals dedicating time and effort to avoiding this extremely low-incidence adverse event (when resources could have been devoted to more highly prevalent safety concerns).”

Response: We appreciate and understand the concern of the commenters. We note that SSIs are an established HAC category and that a similar condition has been identified by public commenters in prior rulemaking. In the FY 2008 IPPS final rule with comment period (72 FR 47213), SSIs were identified as a broad category for consideration. However, at the time, we determined that coding of SSI with only ICD-9-CM code 998.59 (Other postoperative infection) did not meet the statutory criteria for being subject to the provision because it does not uniquely identify SSIs. We stated that we would explore ways to identify SSIs and would reevaluate the condition in FY 2009. In response to public comment in the FY 2008 final rule with comment period, we finalized one SSI, mediastinitis after coronary artery bypass graft (CABG) surgery, and continued to ask for public input so that further specific SSIs could be identified.

In FY 2009, we expanded our selection of the SSI for elective procedures as HACs. In the FY 2009 IPPS final rule (73 FR 48477 through 48479), we discussed how, in response to commenters' suggestions, we selected certain orthopedic procedures in the HAC SSI category using ICD-9-CM diagnosis code 996.67 (Infection and inflammatory reaction due to other orthopedic device and implant graft) or 998.59 (Other postoperative infection) and selected 81.XX orthopedic ICD-9-CM procedure codes. Another SSI condition that was proposed and finalized during FY 2009 based on public comment was “Surgical Site Infection Following Bariatric Surgery for Obesity.” The ICD-9-CM codes that are used to describe “Surgical Site Infection Following Bariatric Surgery for Obesity” are: 278.01 (Morbid Obesity) and 998.59 (Other postoperative infection), and procedure code 44.38 (Laparoscopic gastroenterostomy) or 44.39 (Other gastroenterostomy), or 44.95 (Laparoscopic gastri restrictive procedure).

As discussed in that same final rule for FY 2009 (73 FR 48478 through 48479), a commenter recommended adding Surgical Site Infection following Implantation of Cardiac Devices as a HAC. The commenter provided the following information regarding this recommended HAC:

  • A recent estimate that approximately 300,000 pacemaker implants had been performed in 2007.
  • A reference stating that the estimated rate of infection following cardiac device implantation is 4 percent and that the cost to treat each pacemaker infection is approximately $25,000.
  • Evidence-based guidelines for preventing these infections.

Our response in that FY 2009 final rule was that “surgical site infection following certain cardiac device procedures is a strong candidate HAC.” We stated the condition is high-cost, high-volume, triggers a higher-paying MS-DRG, and may be considered reasonably preventable through the application of evidence-based guidelines. We further explained that we did not propose this specific condition in the FY 2009 IPPS proposed rule; however, we expect to propose surgical site infection following certain cardiac device procedures, as well as surgical site infection following other types of device procedures, as future candidates. We also stated that we looked forward to working with stakeholders to identify additional procedures, such as device procedures, in which SSIs could be considered reasonably preventable through the application of evidence-based guidelines. We continue to agree with public commenters from FY 2009 that SSI Following Implantation of Cardiac Device Procedures is a strong candidate and made this specific proposal for FY 2013 for that reason.

In light of the public comments we received, and given our prior establishment of a broad HAC category for SSIs in relation to HACs and historical discussion of SSI following certain cardiac device procedures as a strong candidate, in this final rule, we are modifying our proposal so that, rather than this procedure being a new HAC category, we are finalizing SSI Following CIED Procedures as a new subcategory under SSIs (for example, HAC 9D Surgical Site Infection Following Cardiac Implantation).

Comment: Some commenters opposed the use of administrative/claims data to identify HAIs in the HAC/POA Program and noted that the proposed rule stated that there is no unique code that identifies SSI Following CIED procedures, and thus CMS proposed to use a combination of codes to capture these data. The commenters believed the use of claims data for the determination of HAIs/HACs has limited value in improving patient care because claims data do not provide precise identification of HAIs, nor do they provide information in a timely manner to provide effective treatment.

Response: We appreciate the commenters' concern that administrative data may not provide the most precise identification of HAIs and their comments about the codes used to identify the conditions proposed for addition to the HAC list. However, we point out that the statute establishes this policy as a payment policy, which is implemented on a per claim basis by adjusting the MS-DRG assignment. The statute further requires that the conditions on the HAC list must be identifiable through ICD-9-CM codes. The conditions identified on the HAC list and the corresponding codes or combinations of codes used to make a payment adjustment are not intended to provide information in a timely manner to provide treatment to any particular individual. The statute establishes a payment adjustment that can encourage hospitals to make improvements with regard to a limited number of conditions that, if they did not occur, could have otherwise resulted in an increased payment for a reasonably avoidable complication.

Comment: One commenter did not believe that punitive payment mechanisms coupled with the lack of risk adjustment for the conditions on the HACs list is the most appropriate or effective method to reduce complications. Commenters also asserted that CMS is expanding the HAC program “without fully understanding the impact of appropriate risk adjustment.”

Response: We appreciate the commenters' response, but disagree with their assumptions. We received similar comments regarding the addition of two new codes to another existing HAC category. We note that our response is similar. The HAC/POA Program is part of an array of tools used by the Medicare program to promote increased quality and efficiency of care. These tools include quality measurement, as well as payment adjustments. Because of their importance, HACs have been included in multiple tools used by Medicare to measure quality of services provided and performance, and to determine payment adjustments. 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, such as when a nonselected CC/MCC appears on a claim, 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.

With regard to risk adjustment, risk adjustment is not a requirement under section 1886(d)(4)(D) of the Act for inclusion of a condition on the HAC list for payment adjustment. We believe the commenters may be confusing the HAC payment adjustment policy with quality measurement policies, where risk adjustment is sometimes used. We believe meeting the statutory criteria as specified encourages hospitals to promote measures to protect all patients from reasonably preventable HACs.

Comment: One commenter stated: “It is inappropriate for CMS to deny payment for HAC related complications without taking into consideration whether a patient did, in fact, receive optimal evidence-based care given that the rates of many of the HACs cannot reach zero.”

Response: We appreciate the commenter's response. We believe that, although it may be difficult to reduce the incidence of conditions on the HAC list to zero, the incidence of conditions can be significantly reduced in cases where evidence-based guidelines for the prevention of the condition exist and are used. Additionally, we point out that payment is not denied, but could be made at a lower paying MS-DRG rate. If any nonselected CC/MCC appears on the claim when a HAC is not present on admission, the claim will be paid at the higher MS-DRG rate, so the hospital would not receive a lower payment. Finally, in accordance with 42 CFR 412.60(d), hospitals may appeal the DRG assignment on a claim within 60 days of the initial notice of the DRG assignment. This may be of interest to the public, as the commenter expressed concern about those cases where a HAC occurs and a lower paying MS-DRG assignment is made.

After consideration of the public comments we received, in this final rule, we are modifying our proposal to add SSI Following CIED Procedures as a HAC condition. Our final policy makes SSI following CIED Procedures a sub-HAC condition within the SSI HAC category subject to the HAC payment provision for discharges occurring on or after October 1, 2012.

c. New Candidate HAC Condition: Iatrogenic Pneumothorax With Venous Catheterization

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27896 through 27897), we discussed our rationale for proposing a new condition, Iatrogenic Pneumothorax with Venous Catheterization, for selection as a HAC for FY 2013 under section 1886(d)(4)(D) of the Act. We previously proposed Iatrogenic Pneumothorax more generally as a HAC in the FY 2009 IPPS rulemaking (73 FR 48485).

In the FY 2009 IPPS final rule (73 FR 48485), we considered Iatrogenic Pneumothorax as a condition but did not finalize it due to commenters' concerns about the preventability of the condition when following the evidence-based guidelines. Most commenters opposed the selection of Iatrogenic Pneumothorax as a HAC and indicated that the evidence-based guidelines often acknowledge that Iatrogenic Pneumothorax is a known relatively common risk for certain procedures. Further, with regard to evidence-based guidelines, many commenters opposed designation of this condition as a HAC due to a lack of consensus within the medical community regarding its preventability. [8] Some commenters offered suggestions to exclude certain procedures or situations, including central line placement, thoracotomy, and the use of a ventilator, if Iatrogenic Pneumothorax were to be selected as a HAC. In that rule, we noted that we would continue to review the development of evidence-based guidelines for the prevention of Iatrogenic Pneumothorax if evidence warranted and consider Iatrogenic Pneumothorax as a HAC in the future. We refer readers to that final rule for a more detailed discussion (73 FR 48485). To address concerns raised by commenters in FY 2009, we reviewed changes in the standard of care and evidence-based guidelines to identify specific situations where Iatrogenic Pneumothorax would be considered reasonably preventable and identified venous catheterization as one such instance.

Pneumothorax is defined as the presence of air or gas in the pleural cavity, which is the space between the covering of the tissue of the lung and parietal pleura, or the part of the pleura that lines the chest wall. The presence of air in this space partially or completely collapses the lung and is life threatening. Air can enter the intrapleural space through a passage through the chest wall. Iatrogenic Pneumothorax is a type of traumatic pneumothorax that results from incursion into the pleural space secondary to diagnostic or therapeutic medical intervention, such as needle placement for central line catheter guidance.

There is no unique code that identifies Iatrogenic Pneumothorax with Venous Catheterization. However, Iatrogenic Pneumothorax with Venous Catheterization can be identified as a subset of discharges with ICD-9-CM diagnosis code 512.1 (Iatrogenic pneumothorax). Our clinical advisors believe that diagnosis code 512.1, in combination with the associated procedure code 38.93 (Venous catheterization NEC), can accurately identify Iatrogenic Pneumothorax with Venous Catheterization. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27896 through 27897), we proposed to identify Iatrogenic Pneumothorax with Venous Catheterization reported in combination with diagnosis code 512.1 (Iatrogenic pneumothorax) and procedure code 38.93 (Venous catheterization NEC). We recognize that, in quality measurement such as with the Agency for Healthcare Research and Quality (AHRQ) Patient Safety Indicator (PSI) Number 6 (Iatrogenic Pneumothorax Rate), exclusion criteria are used to increase the accuracy of identifying these cases. We believe that, by limiting our proposal to include Iatrogenic Pneumothorax as a HAC only in the context of venous catheterization, we have improved our ability to accurately identify these cases. While we did not propose exclusion criteria, we welcomed public comment in this regard. In addition, we believe this more narrowly tailored condition meets the three criteria for inclusion on the HAC list, as discussed in greater detail below.

First, the condition is one that is high cost and high volume. We reviewed Medicare claims data in the FY 2011 MedPAR file. We found that there were 4,467 inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous Catheterization as specified by diagnosis code 512.1 reported with procedure code 38.93. The cases had an average cost of $39,128 for the entire hospital stay. We found that there were 612 inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous Catheterization as specified by diagnosis code 512.1 reported with procedure code 38.93 submitted through Medicare claims reported as POA. These POA cases had an average cost of $26,693. We also found that there were 3,855 inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous Catheterization as specified by diagnosis code 512.1 reported with procedure code 38.93 submitted through Medicare claims reported as NPOA. These NPOA cases had an average cost of $41,102. We note that these data are consistent with other data presented for current HACs. Therefore, we believe this condition is high cost and high volume.

In addition, we reviewed the literature regarding this condition. The cannulation of veins (that is, insertion of a catheter) with central venous catheterization is an important aspect of patient care for the administration of fluids and medications and for monitoring purposes. Eight percent of hospitalized patients receive a central venous catheter, and more than 5 million central venous catheters are inserted in the United States each year. Indwelling catheters have several known complications and side effects associated with their use, such as infections or vessel damage. Additionally, there are risks associated with the placement of central venous catheters including the risk of pneumothorax for central catheters placed in the upper area of the patient's neck or chest when placed in the internal jugular or subclavian veins. Mechanical complications associated with Iatrogenic Pneumothorax are reported to occur in 5 to 19 percent of patients. [9]

Second, the condition of Iatrogenic Pneumothorax with Venous Catheterization as specified in our proposal is a CC under the MS-DRGs.

Third, there are widely recognized guidelines that address the prevention of Iatrogenic Pneumothorax with Venous Catheterization, and we believe that Iatrogenic Pneumothorax in the context of venous catheterization is reasonably preventable through application of these evidence-based guidelines.

In terms of guidelines, the AHRQ, in a 2001 report “Making Health Care Safer: A Critical Analysis of Patient Safety Practices” (AHRQ Publication No. 01-EO58) recommended the use of ultrasound for the placement of all central venous catheters as one of its 11 practices aimed at improving patient care. Current standard placement techniques for these venous catheters rely on the knowledge of anatomic landmarks and other indicators to guide the initial cannulation of the vein. The increase in the number of small, advanced, and portable 2D ultrasound devices has inspired the use of these newer ultrasound devices in central venous line placement, as now direct visualization of the target vessel can be achieved, making it easier to avoid these complications. Recommendations for the use of ultrasound as an adjunct to central venous line placement now exist and are based on supportive literature Category A (Randomized controlled trials report statistically significant (P> .01) differences between clinical interventions for a specified clinical outcome) with a Level 1 weight of scientific evidence (multiple randomized controlled trials with the aggregated findings supported by meta-analysis). [10] Several studies have shown a decrease in the mechanical complication rate with the use of ultrasound during line placement. [11] Guidelines for performing ultrasound guided vascular cannulation have been recently published. [12]

We believe new evidence-based guidelines provide substantial clinical guidance for reasonable prevention when this condition occurs in the context of venous catheterization. In the proposed rule, we invited public comment on whether Iatrogenic Pneumothorax with Venous Catheterization meets the requirements set forth under section 1886(d)(4)(D) of the Act, as well as other coding and prevention issues associated with our proposal to add this proposed condition, as a condition subject to the HAC payment provision for discharges occurring on or after October 1, 2012. We stated that we were particularly interested in public comment on how limiting the condition to situations in which it occurs in conjunction with venous catheterization influences preventability, and whether additional limits should be considered in the context of venous catheterization.

Comment: Some commenters supported CMS' proposal to include Iatrogenic Pneumothorax with Venous Catheterization as a candidate condition for the HAC list. Some commenters noted that this proposal aligns with and encourages use of “widely recognized” guidelines based in research evidence, including AHRQ's 2001 published report, “Making Healthcare Safer: A Critical Analysis of Patient Safety Practices” (AHRQ Publication No. 01-E058), that shows iatrogenic pneumothorax can be a reasonably preventable complication when performing the venous catheterization using an ultrasound. One commenter stated, “Recent studies have highlighted the cost savings and increased quality of care that ultrasound guided catheterization can provide * * * [and that] fewer complications from needle placement result in improved patient outcomes and greater clinician efficiency.”Another commenter listed additional guidelines, such as the 2002 guidance from CDC regarding the use of ultrasound and the prevention of intravascular catheter-related complications, the 2002 guidance from the National Institute for Health and Clinical Excellence (NICE) on the use of ultrasound for placing central venous catheters, the 2001 (revised in 2008) guidance from the American College of Emergency Physicians which represents the first specialty specific comprehensive guidelines for the use of ultrasound in emergency medicine, and the 2012 practice guideline from the American Society of Anesthesiologists (ASA) Taskforce on Central Venous Access for central venous access defined as placement of a catheter such that the catheter is inserted into a venous great vessel.

Another commenter noted that “Since 2001, controlled trials have been published evaluating ultrasound guided central venous catheterization in various types of patient populations * * * and found significantly higher success rates and reduced complication rates in all studies.”

Response: We agree with commenters' input and appreciate the commenters' support.

Comment: One commenter encouraged CMS to add exclusion criteria “to prevent reporting errors” of the Iatrogenic Pneumothorax with Venous Catheterization HAC. Another commenter recommended that CMS add the following exclusion codes to distinguish iatrogenic and spontaneous pneumothorax; pneumothorax and air leaks: ICD-9-CM codes 512.2 (Postoperative air leak), 512.81 (Primary Spontaneous Pneumothorax), 512.82 (Secondary spontaneous pneumothorax), 512.83 Chronic pneumothorax), 512.84 (Other air leak), and 512.89 (Other Pneumothorax). One of the commenters noted that Iatrogenic Pneumothorax does not have an ICD-9-CM code.

Response: We thank the commenters for their response. At this time, we continue to believe that, by limiting our proposal to include Iatrogenic Pneumothorax as a HAC only in the context of venous catheterization, we have improved our ability to accurately identify these cases and that no further exclusion criteria are needed. We believe that the commenter may have misunderstood our proposed policy in offering the specific suggestions for exclusion codes. First, the commenter is mistaken about there not being a code for Iatrogenic Pneumothorax in ICD-9-CM. The condition is indexed clearly to diagnosis code 512.1 (Iatrogenic pneumothorax). Also, as specified, this HAC would not include the codes for spontaneous pneumothorax because it is not a complication as a result of a medical intervention and, therefore, is not iatrogenic. ICD-9-CM diagnosis code 512.1 is specific enough to capture those complications that have been caused through medical intervention in the context of venous catheterization.

Comment: Some commenters opposed the addition of the Iatrogenic Pneumothorax with Venous Catheterization condition “because it puts hospitals at risk of being penalized twice for the same event.” Commenters pointed out that CMS proposed to add a patient safety composite measure that includes Iatrogenic Pneumothorax with Venous Catheterization to the Hospital VBP Program. In the commenters' view, this penalizes hospitals twice for the same event. The commenters noted that they supported reducing iatrogenic pneumothorax as a patient safety goal for CMS, and urged CMS to “select only one program in which to measure hospitals' performance on IPs with venous catheterization.” In addition, the commenters stated that “CMS has continued to add additional components to the HAC list without fully understanding the impact of appropriate risk adjustment.”

Response: We received similar public comments regarding our proposal to include SSI Following CIED Procedures in the existing HAC category, and, similarly, we appreciate the commenters' response but disagree with their assumptions. As we responded above with regard to the SSI Following CIED Procedures condition, the HAC/POA program is part of an array of tools used by the Medicare program to promote increased quality and efficiency of care. These tools include quality measurement, as well as payment adjustments. Because of their importance, HACs have been included in multiple tools used by the Medicare program to measure quality of services provided and performance, and to determine payment adjustments. 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, such as when a nonselected CC/MCC appears on a claim, 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 and would not generally “penalize hospitals twice.”

With regard to risk adjustment, risk adjustment is not a requirement under section 1886(d)(4)(D) of the Act for inclusion of a condition on the HAC list for payment adjustment. We believe the commenters may be confusing the HAC payment adjustment policy with quality measurement policies, where risk adjustment is sometimes used. We believe meeting the statutory criteria as specified encourages hospitals to promote measures to protect all patients from reasonably preventable hospital-acquired conditions.

Comment: Some commenters opposed the inclusion of Iatrogenic Pneumothorax with Venous Catheterization as a HAC candidate condition because they did not believe that this proposed HAC condition is high-volume.

Response: We received similar comments with regard to our proposal to include SSI Following CIED Procedures as a HAC candidate condition. We similarly point out that our proposal characterized this condition as “high-cost and high-volume” and described analysis that showed 4,467 cases and an average cost of $39,128. Furthermore, as discussed previously, section 1886(d)(4)(D) of the Act specifies that a condition on the HAC list may be high-volume or high-cost or both. It does not require the condition to be both and a condition that was only high-cost would still meet this statutory criterion.

Comment: Other commenters “recommended that CMS work with CDC and other quality organizations to identify more robust measures for HAC[s] prior to implementing these two proposed conditions, as their inclusion is not currently endorsed by national quality organizations.”

Response: In establishing the HAC payment policy under section 1886(d)(4)(D) of the Act, our experts have worked closely with the public health and infectious disease professionals from across the Department of Health and Human Services to identify the candidate preventable HACs. New HAC proposals are made in consultation with the CDC to ensure the clinical soundness of the proposal.

Comment: A few commenters stated that “For many conditions on the HAC list, occurrence rates cannot be reduced to zero or near zero even when the evidence-based guidelines are followed.” In addition, one commenter stated “We believe that effective preventive measures make Iatrogenic Pneumothorax reducible but not 100 percent preventable. However, the same report states that these prevention strategies may reduce the incidence but not necessarily eliminate it. CMS should recognize the reality that a target rate of zero (“never event”) is perhaps not attainable with this condition at this time.”

Response: We appreciate the commenters' response. We believe that, although it may be difficult to reduce the incidence of conditions on the HAC list to zero, the incidence of conditions can be significantly reduced in cases where evidence-based guidelines for the prevention of the condition exist and are used. For Iatrogenic Pneumothorax with Venous Catheterization, the use of the improved newly published evidence-based guidelines has shown the complication rate can be markedly reduced in the placement of the venous catheter into the internal jugular vein.

Comment: A few commenters expressed that the inclusion of the Iatrogenic Pneumothorax with Venous Catheterization condition may have unintended and deleterious consequences, which may lead providers toward using alternative sites for central line placement that are less prone to pneumothorax, but carry increased risk of mechanical and infectious complications. They indicated that alternative sites could be the internal jugular or femoral veins. Because of these consequences, these commenters did not support the addition of Iatrogenic Pneumothorax with Venous Catheterization to the HAC list.

Response: We believe the commenters may have misunderstood our proposal. The new HAC condition will apply to a population of patients who have iatrogenic pneumothorax as a complication of central venous placement of a catheter in the internal jugular vein. We do not believe hospitals will be led to consider alternative, suboptimal sites for central venous access because of this new addition to the HAC list.

Comment: Some commenters expressed concerns regarding the use of ultrasound in academic medical centers and Level 1 Trauma Centers for venous catheter placement versus the use of ultrasound for venous catheter placement in small community hospitals. They stated that “there is little to no data on how often ultrasound guidance is used in small community medical centers.” Furthermore, they stated that “ultrasound guidance is less commonly used in procedures involving central venous access via the subclavian vein, and is often impossible to use in trauma cases.”

Response: We believe that, in applying evidence-based guidelines, hospitals will have appropriately trained hospital personnel. Also, we point out that the lesser paying MS-DRG is not assigned when additional nonselected CC/MCCs appear on a claim, and that trauma cases may likely involve additional nonselected CC/MCCs.

As we indicated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27897), with the exception of the condition of Iatrogenic Pneumothorax with Venous Catheterization, at this time, we do not believe that additional analysis exists that would require us to change our previous determinations regarding the previously considered candidate HACs in the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 through 51511). We refer readers to these rules for a detailed discussion that supports our determination regarding each of the previously considered candidate HACs and continue to encourage public dialogue about refinements to the HAC list.

After consideration of the public comments we received, we are finalizing our proposal to add Iatrogenic Pneumothorax with Venous Catheterization with the codes specified above as a condition subject to the HAC payment provision for discharges occurring on or after October 1, 2012.

6. RTI Program Evaluation Summary

On September 30, 2009, a contract was awarded to Research Triangle Institute, International (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, the Office of Public Health and Science (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. The evaluation includes conditions that are currently treated as HACs and also previously considered candidate conditions. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50085 through 50101) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 51522) for a fuller description of this evaluation and findings to date regarding analysis of FY 2009 and FY 2010 data, respectively. Summary and detailed data were made publicly available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web site at: http://www.rti.org/reports/cms/.

RTI's analysis of the FY 2011 MedPAR data file for the HAC-POA program evaluation is included as follows in this FY 2013 IPPS/LTCH PPS final rule. These summary and detailed data are available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html and the RTI Web site at: http://www.rti.org/reports/cms/.

a. RTI Analysis of FY 2011 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.

Using MedPAR claims data from October 2010 through September 2011, RTI found a total of approximately 89.3 million secondary diagnoses across approximately 8.94 million discharges. As shown in Chart A below, the majority of all secondary diagnoses (77.57 percent) were reported with a POA indicator of “Y,” meaning the condition was POA.

Chart A—POA Code Distribution Across All Secondary Diagnoses Back to Top
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.
Number Percentage  
Total Discharges in Final File 8,941,507  
Total Number of Secondary Diagnoses Across Total Discharges 89,252,194 100.00  
POA Indicator Description
Y Condition present on admission 69,231,189 77.57
W Status cannot be clinically determined 21,796 0.02
N Condition not present on admission 5,748,769 6.44
U Documentation not adequate to determine if condition was present on admission 207,258 0.23
1 Exempted ICD-9-CM code 14,043,182 15.73

b. RTI Analysis of FY 2011 POA Indicator Reporting of Current HACs

Following the initial analysis of POA indicator reporting for all secondary diagnoses, RTI 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 8.94 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 181,157 HAC-associated diagnosis codes being reported for that HAC category. Of these 181,157 diagnoses, 4,738 reported a POA indicator of “N” for not POA and 175,831 diagnoses reported a POA indicator of “Y” for POA. The lowest frequency appears in the Blood Incompatibility HAC category with only 22 HAC-associated secondary diagnosis codes reported.

Chart B—POA Status of Current HACS: October 2010 Through September 2011 Back to Top
Selected HAC Frequency as a secondary diagnosis Not present on admission Present on admission
POA = N POA = U POA = Y POA = W
Number Percent Number Percent Number Percent Number Percent
* More than one HAC-associated diagnosis code can be reported per discharge; therefore, 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.
1. Foreign Object Retained After Surgery (CC) 606 283 46.7 1 0.2 321 53.0 1 0.2
2. Air Embolism (MCC) 45 34 75.6 0 0.0 11 24.4 0 0.0
3. Blood Incompatibility (CC) 22 10 45.5 1 4.5 11 50.0 0 0.0
4. Pressure Ulcer Stages III & IV (MCC) 102,172 1,742 1.7 75 0.1 100,328 98.2 27 0.0
5. Falls and Trauma (MCC & CC) 181,157 4,738 2.6 510 0.3 175,831 97.1 78 0.0
6. Catheter-Associated UTI (CC) 16,807 3,906 23.2 32 0.2 12,835 76.4 34 0.2
7. Vascular Catheter-Associated Infection (CC) 11,324 5,910 52.2 25 0.2 5,366 47.4 23 0.2
8. Poor Glycemic Control (MCC) 15,360 612 4.0 7 0.0 14,734 95.9 7 0.0
9A. Surgical Site Infection Mediastinitis CABG (CC) 58 50 86.2 0 0.0 8 13.8 0 0.0
9B. Surgical Site Infection Following Certain Orthopedic Procedures (CC) 356 247 69.4 0 0.0 109 30.6 0 0.0
9C. Surgical Site Infection Following Bariatric Surgery for Obesity (CC) 25 24 96.0 0 0.0 1 4.0 0 0.0
10. Pulmonary Embolism & DVT Orthopedic (MCC) 3,368 2,715 80.6 20 0.6 611 18.1 22 0.7
Total * 331,300 20,271 6.1 671 0.2 310,166 93.6 192 0.1

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 data on a total of 671 HAC-associated secondary diagnoses reported with a POA indicator of “U.” Of those diagnoses, 510 (0.3 percent) were assigned to the Falls and Trauma HAC category.

We continue to believe that better documentation will result in more accurate public health 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.”

We encourage 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 detailed RTI report, readers can view that code 998.4 was reported 591 times and code 998.7 was reported 15 times, across all MS-DRGs, for a total of 606 times. The RTI detailed report is available at the following Web site: http://www.rti.org/reports/cms/.

c. RTI Analysis of FY 2011 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 45 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 45 reported discharges, 34 discharges (75.56 percent) had a POA indicator of “N” or “U” and were identified as a HAC discharge. There were a total of 34 discharges to which the HAC policy applied 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 was 14 (41.18 percent of the 34 discharges with a POA indicator of “N” or “U”). Thus, while there were 34 discharges (75.56 percent of the original 45) 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 14 (41.18 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. of the preamble of this final rule and will be discussed in further detail in section II.F.3.e. of this preamble.

Chart C below also shows that, of the 287,993 discharges with a HAC-associated diagnosis as a secondary diagnosis, 3,006 discharges ultimately resulted in MS-DRG reassignment. As will be discussed below, there were 15 claims that resulted in MS-DRG reassignment where 2 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 (CAUTI). Codes falling under the Falls and Trauma HAC category were the most frequently reported secondary diagnoses with 143,920 discharges. Of these 143,920 discharges, 4,555 (3.16 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 4,555 discharges within this HAC category that were not POA, 1,241 (27.24 percent) resulted in an MS-DRG reassignment.

Of the 287,993 total discharges reporting HAC-associated diagnoses as a secondary diagnosis, 3,044 discharges were coded with a secondary diagnosis of Orthopedic PE/DVT. Of these 3,044 discharges, 2,473 (81.24 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 2,473 discharges in this HAC category that were not POA, 1,082 discharges (43.75 percent) resulted in an MS-DRG reassignment.

The Pressure Ulcer Stages III & IV category had the second most frequently coded secondary diagnoses, with 96,646 discharges. Of these discharges, 1,770 (1.83 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 1,770 discharges in this HAC category that were not POA, 286 discharges (16.16 percent) resulted in an MS-DRG reassignment.

The Catheter-Associated UTI category had the third most frequently coded secondary diagnoses, with 16,807 discharges. Of these discharges, 3,918 (23.31 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 3,918 discharges in this HAC category that were not POA, 160 discharges (4.08 percent) resulted in an MS-DRG reassignment.

The remaining 6 HAC categories only had 237 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 20 of the 5,921 Vascular Catheter-Associated Infection secondary diagnoses that were coded as not POA and identified as HAC discharges resulted in an MS-DRG reassignment.

There were a total of 431 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 an MCC that are disregarded by the GROUPER logic when reported with certain principal diagnoses. For example, a claim with a 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 5 HAC categories: Pressure Ulcer Stages III and IV (30 cases), Falls and Trauma (303 cases), Catheter-Associated UTI (20 cases), Vascular Catheter-Associated Infection (14 cases), and Manifestations of Poor Glycemic Control (64 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 287,993 discharges with a reported HAC-associated secondary diagnosis. Of the total 287,993 discharges, 19,839 (6.54 percent) discharges were HACs reported with a POA indicator of “N” or “U” that were identified as a HAC discharge. Of these 19,839 discharges, the number of discharges resulting in MS-DRG reassignments was 3,006 (15.96 percent).

Chart C—Discharge Frequencies of Current CMS HACS October 2010 Through September 2011 Back to Top
Selected HAC category Discharges with this condition as secondary diagnosis Discharges Identified as a HAC Discharges that change MS-DRG due to HAC
Number (column A) Percent2 (column B) Number (column C) Percent3 (column D) Number (column E) Percent4 (column F)
1Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with more than one HAC that appear as secondary diagnoses (15 of these resulted in MS-DRG reassignment).
2Percent computed relative to total discharges “at risk” for this HAC. For HACs 1-8, this is 8,941,507. For HAC 9a, this is 77,744. For HAC 9b, this is 112,951. For HAC 9c, this is 13,404. For HAC 10, this is 401,246.
3Percent computed relative to discharges with condition as a secondary diagnosis.
4Percent computed relative to discharges with this HAC (Column C).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.
1. Foreign Object Retained After Surgery 606 0.01 284 46.86 37 13.03
2. Air Embolism 45 0.00 34 75.56 14 41.18
3. Blood Incompatibility 22 0.00 11 50.00 1 9.09
4. Pressure Ulcer Stages III & IV 96,646 1.08 1,770 1.83 286 16.16
5. Falls and Trauma 147,684 1.65 4,596 3.11 1,259 27.39
a. Fracture 128,065 1.43 3,829 2.99 996 26.01
b. Dislocation 1,014 0.01 22 2.17 2 9.09
c. Intracranial Injury 15,478 0.17 694 4.48 258 37.18
d. Crushing Injury 55 0.00 1 1.82 0 0.00
e. Burn 2,147 0.02 42 1.96 3 7.14
f. Electric Shock 925 0.01 8 0.86 0 0.00
Less: Discharges with multiple Falls & Trauma 3,764 0.04 41 1.09 18 43.90
5. Falls & Trauma: Unduplicated Total 143,920 1.61 4,555 3.16 1,241 27.24
6. Catheter-Associated UTI 16,807 0.19 3,918 23.31 160 4.08
7. Vascular Catheter-Associated Infection 11,324 0.13 5,921 52.29 20 0.34
8. Poor Glycemic Control 15,145 0.17 555 3.66 152 27.39
9a. SSI Mediastinitis CABG 58 0.07 50 86.21 5 10.00
9b. SSI Orthopedic 351 0.31 244 69.52 6 2.44
9c. SSI Bariatric 25 0.19 24 96.00 2 8.33
10. Pulmonary Embolism & DVT Orthopedic 3,044 0.76 2,473 81.24 1,082 43.75
Total1 287,993 3.22 19,839 6.54 3,006 15.96

A small number of discharges had multiple HAC categories reported during the same stay. In reviewing the 8.94 million claims, RTI found 207 cases in which at least two different HAC categories were reported on the same discharge. Chart D below summarizes these cases. The Vascular Catheter-Associated Infection HAC category had the highest number of discharges involving another HAC category with 126 total discharges. Of these 126 discharges, 47 involved a code from the Pressure Ulcer Stages III & IV HAC category and 62 discharges involved a code from the Catheter-Associated UTI HAC category.

Some of these cases with multiple HACs reported had both HAC codes ignored in the MS-DRG assignment. Of these 207 claims, 15 did not receive higher payments based on the presence of these reported HACs and we describe these claims below in section II.F.3.f.(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.

Chart D—Claims With More Than One HAC Secondary Diagnosis October 2010 Through September 2011 Back to Top
HAC 1. Foreign object retained after surgery (CC) 4. Pressure ulcer Stages III & IV (MCC) 5. Falls and trauma (MCC & CC) 6. Catheter-associated UTI (CC) 7. Vascular catheter-associated infection (CC) 8. Poor glycemic control (MCC) Total
*In total, there were 207 discharges with more than one HAC secondary diagnosis. However, there were 4 discharges involving 3 HAC secondary diagnoses. These discharges included the following HAC secondary diagnoses:
Discharge 1: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter-Associated Infection (CC);
Discharge 2: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection (CC);
Discharge 3: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection (CC);
Discharge 4: Catheter-Associated Infection (CC), Vascular Catheter Associated Infection (CC), and Poor Glycemic Control (MCC).
3. Blood Incompatibility (CC) 1 1
5. Falls and Trauma (MCC & CC) 8 8
6. Catheter-Associated UTI (CC) 1 17 8 26
7. Vascular Catheter-Associated Infection (CC) 2 47 15 62 126
8. Poor Glycemic Control (MCC) 1 2 1 4 5 13
9A. Surgical Site Infection Mediastinities CABG (CC) 1 1 3 5
9B. Surgical Site Infection Following Certain Orthopedic Procedures (CC) 1 3 2 6
10. Pulmonary Embolism & DVT Orthopedic (MCC) 10 7 1 18
Total Discharges with 2 HACs * 4 77 35 76 10 1 203

d. 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. 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 an 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 an 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 diagnosis 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 175 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 12,335 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); and
  • 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 an 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 1,922 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 a 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 an 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 2,570 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 an 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 six 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 a principal diagnosis code of 724.02 (Spinal stenosis, lumbar region, without neurogenic claudication) with a 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,” and “N,” respectively, and procedure code 84.80 (Insertion or replacement of interspinous process device(s)) results in an assignment to MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/ Neurostimulator). In this case, the disc device (code 84.80) 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); and
  • MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents).

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

In conclusion, a total of 16,833 cases (12,335 + 1,922 +2,570 + 6) did not have a change in MS-DRG assignment, regardless of the presence of a HAC. The reasons described above explain why only 3,006 cases had a change in MS-DRG assignment despite the fact that there were 19,839 HAC cases with a POA of “N” or “U.”

Chart E—Reasons HAC Did Not Change MS-DRG Assignment Back to Top
Selected HAC category Number of discharges with this condition as secondary diagnosis Number of discharges identified as a HAC Number of HAC discharges that change MS-DRG due to HAC HAC discharges that do not change MS-DRG
Number of other MCCs/CCs that prevent reassignment Number of MS-DRGs with two severity levels where HAC does not impact MS-DRG Assignment* Number of MS-DRGs with No Severity Levels Other MS-DRG logic issues **
[October 2010 through September 2011]
1Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with more than one HAC that appear as secondary diagnoses (15 of these resulted in MS-DRG reassignment).
*Examples where an HAC classified as a CC would not impact the DRG assignment if it were removed. The MS-DRG is subdivided by the presence or absence of an MCC. A CC would not impact this DRG assignment.
MS-DRGs 100 and 101 (Seizures with or without MCC, respectively).
MS-DRGs 102 and 103 (Headaches with or without MCC, respectively).
**Cases where HAC did not change MS-DRG assignment because of the MS-DRG logic.
MS-DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators).
MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or Major Device).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.
(Column A) (Column B) (Column C) (Column D) (Column E) (Column F) (Column G)
1. Foreign Object Retained After Surgery—CC 606 284 37 175 56 16 0
2. Air Embolism—MCC 45 34 14 17 0 3 0
3. Blood Incompatibility—CC 22 11 1 7 1 2 0
4. Pressure Ulcer Stages III & IV—MCC 96,646 1,770 286 991 0 493 0
5. Falls and Trauma—MCC & CC 143,920 4,555 1,241 2,449 488 375 2
6. Catheter-Associated UTI-CC 16,807 3,918 160 2,952 424 379 3
7. Vascular Catheter-Associated Infection—CC 11,324 5,921 20 4,551 158 1,191 1
8. Poor Glycemic Control—MCC & CC 15,145 555 152 358 0 45 0
9A. Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass Graft (CABG)—MCC 58 50 5 28 0 17 0
9B. Surgical Site Infection Following Certain Orthopedic Procedures—CC 351 244 6 155 67 16 0
9C. Surgical Site Infection Following Bariatric Surgery for Obesity—CC 25 24 2 19 0 3 0
10. Pulmonary Embolism & DVT Orthopedic—MCC & CC 3,044 2,473 1,082 633 728 30 0
Total1 287,993 19,839 3,006 12,335 1,922 2,570 6

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

In addition to studying claims from October 2010 through September 2011 (FY 2011), RTI evaluated claims data from 4 years prior to determine if there were significant changes in the number of discharges with a HAC being reported as a secondary diagnosis. RTI examined claims from FY 2007 through FY 2010 and compared these data to the FY 2011 data.

We refer readers to the RTI detailed report for all the conditions in each fiscal year (FY 2007 through FY 2011) as described above at the following Web site: http://www.rti.org/reports/cms/.

f. RTI Analysis of Estimated Net Savings for Current HACs

RTI determined estimates of the net savings generated by the HAC payment policy based on MedPAR claims from October 2010 through September 2011.

(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:

There were three providers with discharges in the final HAC analysis file that did not appear in either of the impact files. 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/List.asp. These three providers were not eligible for IME or DSH adjustments.

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

Step 1: Re-run 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 (including all secondary diagnoses in the file) 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/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/04_outlier/ASP#TopOfPage, and modified to accommodate FY 2011 factors. RTI's first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers or HSP amounts.

Step 3: Model the base payment and outlier amounts associated with the final MS-DRG (excluding the HAC-related secondary diagnoses) 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/Medicare/Medicare-Fee-for-Payment/AcuteInpatientPPS/index.html?redirect=/04_outlier.asp#TopOfPage and modified to accommodate FY 2011 factors. RTI's first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers or hospital-specific amounts.

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 payment 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. Ten percent of all FY 2011 HAC discharges showed at least some Part A coinsurance amount due from the beneficiary, although less than 2 percent of reassigned discharges (43 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 2010 through September 2011, based on the methodology described above. Column A shows the number of discharges where an MS-DRG reassignment for each HAC category occurred. For example, there were 14 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 14 discharges with an MS-DRG reassignment resulted in a total net savings of $124,620. Column C shows the net savings per discharge for each HAC category. For the Air Embolism HAC category, the net savings per discharge is $8,901.

Chart F—Estimated Net Savings of Current HACs Back to Top
Selected HAC Number of discharges that change MS-DRG due to HAC Net savings (in dollars) Net savings per discharge (in dollars)
[October 2010 Through September 2011]
1Discharges can have more than one Falls and Trauma subcategory HAC and therefore appear in more than one row.
2Total net savings is adjusted by $136,645 for 15 claims that have multiple HACs.
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.
(Column A) (Column B) (Column C)
1. Foreign Object Retained After Surgery 37 $167,818 $4,536
2. Air Embolism 14 124,620 8,901
3. Blood Incompatibility 1 7,115 0
4. Pressure Ulcer Stages III & IV 286 1,846,449 6,456
5. Falls and Trauma:      
a. Fracture 996 6,232,020 6,257
b. Dislocation 2 9,075 4,538
c. Intracranial Injury 258 1,222,290 4,738
d. Crushing Injury 0 0 0
e. Burn 3 4,583 1,528
f. Other injuries 0 0 0
Less: Discharges with multiple Falls & Trauma −18 −105,430 −5,857
5. Falls & Trauma: Unduplicated Total 1,241 7,362,538 5,933
6. Catheter-Associated UTI 160 491,053 3,069
7. Vascular Catheter-Associated Infection 20 92,100 4,605
8. Poor Glycemic Control 152 1,002,378 6,595
9a. SSI Mediastinitis CABG 5 60,438 12,088
9b. SSI Orthopedic 6 41,503 6,917
9c. SSI Bariatric 2 3,312 0
10. Pulmonary Embolism & DVT Orthopedic 1,082 8,313,098 7,683
Total1 3,006 19,512,422 6,491
Less: Discharges with Multiple HACs2 −15 −136,645 −9,110
Unduplicated Total 2,991 19,375,777 6,478

As shown in Chart F above, the total net savings calculated for October 2010 through September 2011 was roughly $19.4 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 $17.5 million of net savings for the fiscal year. Estimated net savings for FY 2011 associated with the Falls and Trauma category were $7.4 million. Estimated net savings associated with Orthopedic PE/DVT for the fiscal year were $8.3 million and for Pressure Ulcer Stages III & IV were $1.85 million.

The mean net savings per discharge calculated for October 2010 through September 2011 was roughly $6,478. The HAC category of SSI, Mediastinitis, Following Coronary Artery Bypass Graft (CABG) 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 this HAC was low. The HAC categories of Blood Incompatibility, where only one discharge resulted in MS-DRG reassignment, and SSI Following Bariatric Surgery for Obesity, where only two discharges resulted in MS-DRG reassignment 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 we discuss in section II.F.1. 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 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 would likely decline as the number of such discharges decline. However, we believe that the sentinel effect resulting from CMS identifying these conditions is critical. 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.

As mentioned previously, a small number of cases analyzed by RTI for FY 2011 had multiple HACs during the same stay. In reviewing our 8.94 million claims, RTI found 207 cases where at least two HACs were reported on the same admission as noted in section II.F.3.g.(2) of this preamble. Of these 207 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, seven discharges involved Orthopedic PE/DVT, while four discharges involved the Pressure Ulcer Stages III & IV and Falls and Trauma HAC categories.

Chart G—Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred Back to Top
Selected HAC 4. Pressure ulcer stages III & IV—MCC 5. Falls and trauma—MCC & CC 10. Pulmonary embolism & DVT orthopedic (MCC) Total
[October 2010 Through September 2011]
5. Falls and Trauma—MCC & CC 1 3 4
6. Catheter-Associated Urinary Tract Infection (UTI)—CC 2 3 3 8
7. Vascular Catheter-Associated Infection—CC 1 1 2
8. Poor Glycemic Control (MCC) 1 1
Total 4 4 7 15

g. 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 8.94 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 90,347 secondary diagnoses codes being reported for that condition, of which 30,176 reported a POA indicator of “N”; (2) Methicillin Resistant Staphylococcus aureus, with a total of 83,976 secondary diagnosis codes being reported for that condition, with 3,498 of those reporting a POA indicator of “N”; and (3) Iatrogenic Pneumothorax, with a total of 20,309 secondary diagnoses codes being reported for that condition, with 17,828 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), 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.

Chart H—POA Status of Previously Considered “Candidate” HAC Conditions—October 2010 Through September 2011 Back to Top
Previously considered HAC condition Frequency as a secondary diagnosis Not present on admission Present on admission
POA = N POA = U POA = Y POA = W
Number Percent Number Percent Number Percent Number Percent
1. Clostridium Difficile-Associated Disease (CDAD) 90,347 30,176 33.40 354 0.39 59,700 66.08 117 0.13
2. Delirium 752 246 32.71 2 0.27 504 67.02 0 0.00
3. Legionnaire's Disease 520 29 5.58 3 0.58 488 93.85 0 0.00
4. Staphylococcus aureus Septicemia 18,844 4,043 21.46 37 0.20 14,736 78.20 28 0.15
5. Methicillin-Resistant Staphylococcus aureus 83,976 3,498 4.17 173 0.21 80,280 95.60 25 0.03
6. Iatrogenic Pneumothorax 20,309 17,828 87.78 5 0.02 1,476 7.27 0 0.00
7. Ventilator-Associated Pneumonia 4,715 3,634 77.07 4 0.08 1,074 22.78 3 0.06

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 90,347 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 90,347 discharges, 30,530 discharges (33.79 percent) had a POA indicator of “N” or “U.” Therefore, there were a total of 30,530 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 784 (2.57 percent). Thus, while there were 30,530 discharges with CDAD reported with a POA indicator of “N” or “U” that could potentially have had an MS-DRG reassignment, the result was 784 (2.57 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 an MS-DRG reassignment.

In summary, Chart I below demonstrates there were a total of 219,397 discharges with a previously considered candidate HAC reported as a secondary diagnosis. Of those, 60,025 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 3,544.

Chart I—Previously Considered “Candidate” HAC Discharge Frequencies—October 2010 Through September 2011 Back to Top
Previously considered HAC condition Discharges with this condition as secondary diagnosis2 Discharges with this condition not present on admission (POA = “N” or “U”)3 Cases that could change MS-DRG due to previously considered candidate HAC4
Number (Column A) Percent (Column B) Number (Column C) Percent (Column D) Number (Column E) Percent (Column F)
1Discharges can appear in more than one row.
2Percent computed relative to total cases “at risk,” which is 8,941,507 for all candidate conditions.
3Percent computed relative to discharges with condition as a secondary diagnosis.
4Percent computed relative to discharges with condition as a secondary diagnosis and identified as a previously considered HAC (that is, coded as not present on admission).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.
1. Clostridium Difficile-Associated Disease (CDAD) 90,347 1.01 30,530 33.79 784 2.57
2. Delirium 752 0.01 248 32.98 18 7.26
3. Legionnaire's Disease 520 0.01 32 6.15 3 9.38
4. Staphylococcus aureus Septicemia 18,806 0.21 4,073 21.66 84 2.06
5. Methicillin-Resistant Staphylococcus aureus (MRSA) 83,948 0.94 3,671 4.37 1 0.03
6. Iatrogenic Pneumothorax 20,309 0.23 17,833 87.81 2,652 14.87
7. Ventilator-Associated Pneumonia 4,715 0.05 3,638 77.16 2 0.05
Total1 219,397 2.45 60,025 27.36 3,544 5.90

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

The RTI program evaluation includes a report that provides references for all evidence-based guidelines available for 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.

RTI prepared a final report to summarize its findings regarding evidence-based guidelines, which can be found on the Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

i. Proposals Regarding Current HACs and Previously Considered Candidate HACs

We believe that the RTI analysis summarized above does not provide additional information that would require us to change our previous determinations regarding current HACs. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed discussion supporting our determination regarding each of these conditions.

In the FY 2013 IPPS/LTCH PPS proposed rule, we discussed our rationale for proposing two new conditions, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) procedures (77 FR 27894 through 27896), and Iatrogenic Pneumothorax with Venous Catheterization (77 FR 27896 through 27897) for selection as HACs under section 1886(d)(4)(D) of the Act. (We previously proposed Iatrogenic Pneumothorax more generally as a HAC in the FY 2009 IPPS rulemaking (73 FR 48485).) We also discussed a proposal to revise the Vascular Catheter-Associated Infection HAC category with the addition of two new diagnosis codes 999.32 (Bloodstream infection due to central venous catheter), and 999.33 (Local infection due to central venous catheter) (77 FR 27894). Accordingly, we are finalizing those proposals as discussed in section II.F.5. of this preamble.

In addition to the evaluation of HAC and POA MedPAR claims data, RTI has conducted analyses on readmissions due to HACs and the incremental costs of HACs to the health care system, a study of spillover effects and unintended consequences, as well as an analysis on the accuracy of coding of HACs and POA indicators. Reports on these analyses are publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

Comment: Commenters encouraged CMS to more carefully evaluate this program and its potential for unintended consequences, and to explore how information learned from POA coding could be used to better understand and prevent HACs before it considers the inclusion of any additional categories of HACs.

Response: We appreciate the commenters' response. We routinely, either internally or through our contractors, review the significant aspects of the HAC/POA Program.

G. Changes to Specific MS-DRG Classifications

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27898), 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.

CMS encourages input from our stakeholders concerning the annual IPPS updates when that input is made available to us by December of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2013, comments and suggestions should have been submitted by early December 2011. The comments that were submitted in a timely manner are discussed below in this section.

Below we summarize the public comments we received on the FY 2013 proposed rule, if any, present our responses, and state our final policies.

1. Pre-Major Diagnostic Categories (Pre-MDCs)

a. Ventricular Assist Devices (VADs)

A ventricular assist device (VAD) is a mechanical circulatory device or pump that is used to partially or completely support heart function and blood flow in patients with a damaged or weakened heart. The device takes blood from the ventricles of the heart and helps pump the blood to the rest of the body.

Some VADs are intended for short-term use, often for patients who are recovering from heart attacks or heart surgery, while other VADs are intended for long-term use (months to years and, in some cases, for life). VADs are not the same device as artificial hearts, which are designed to completely take over cardiac function and generally require the removal of the patient's native heart.

VADs are designed to assist the ventricles, either the right (RVAD) or the left (LVAD), and, in some cases, both ventricles at once (BiVAD). The type of VAD used depends on the patient's underlying heart disease and the pulmonary arterial resistance that determines the load on the right ventricle. LVADs are the most commonly used, but when pulmonary arterial resistance is high, right ventricular assistance becomes necessary and an RVAD may be inserted. Long-term VADs are normally used to help maintain a patient's quality of life while he or she awaits a heart transplant. This process is known as a “bridge to transplant.” However, sometimes the insertion of an LVAD becomes the final treatment for the patient, which is known as “destination therapy.” In this case, the VAD is a permanent implant, and no heart transplantation occurs. In a smaller number of cases, the implantation of a VAD, combined with pharmaceutical therapy, has enabled the native heart to recover sufficiently to allow the VAD to be explanted, a “bridge to recovery.”

CMS has issued a national coverage determination (NCD) entitled “Artificial Hearts and Related Devices” under Section 20.9 of the Medicare Coverage Manual (Pub. No. 100-3). This NCD, which describes CMS' requirements for coverage of medical services provided to Medicare beneficiaries for the insertion of VADs, can be found at the CMS Web site at: https://www.cms.gov/medicare-coverage-database/details/ncd-details.aspx?NCDId=246&ncdver=5&NCAId=211&ver=20&NcaName=Artificial+Hearts&bc=ACAAAAAAIAAA&. We refer readers to this Web page for the complete viewing of the NCD for the insertion of VADs.

The assignment of procedure codes used to describe the insertion of VADs has been discussed repeatedly in IPPS rulemaking, for the CMS-DRGs (in effect prior to FY 2008) and more recently for the MS-DRGs (FY 2008 to present). We refer readers to the FY 2003 IPPS final rule (67 FR 49989) for a complete discussion of the assignment of these procedure codes up to that date. In addition, the topic was discussed in FY 2005; we refer readers to the FY 2005 IPPS final rule (69 FR 48927 through 48930) for a complete discussion regarding the assignment of these procedure codes for FY 2005. Specifically, for FY 2005, we moved ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist system) from CMS-DRG 525 (Other Heart Assist System Implant) to CMS-DRG 103 (Heart Transplant). When we adopted the MS-DRG classification system in FY 2008, former CMS-DRG 103 remained in the Pre-MDC section but was renamed and subdivided into MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with MCC) and MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without MCC).

For FY 2013, we received a request to restructure MS-DRGs 001 and 002 by removing all of the procedure codes that describe the insertion of a device, leaving only procedure codes 33.6 (Combined heart-lung transplantation) and 37.51 (Heart transplantation) in the heart transplant DRGs. The requestor further asked that the remaining device codes be assigned to newly created MS-DRGs. The requestor believed that, within the existing MS-DRG grouping, CMS is underpaying for services to patients who have a VAD implanted and overpaying for services to patients who have heart transplantations. The requestor believed that the recommended restructuring “would allow defined grouping of cases with the higher level of resource [sic] required reflected in payment.”

In the FY 2013 IPPS/LTCH PPS proposed rule, we indicated that we had reviewed data in the September 2011 update of the FY 2011 MedPAR file and found that the average length of stay for heart transplantations and VAD implantation cases are very similar (35.1 days for heart transplantations and 36.63 days for VAD implantations). We also found that the average cost for VAD implantation cases alone is higher than the average cost of heart transplantation cases. The table below includes our findings.

MS-DRG Number of cases Average length of stay Average cost
MS-DRG 001—All Cases 1,235 36.97 $164,846
MS-DRG 001—Cases with Heart Transplant without VAD 384 35.1 123,472
MS-DRG 001—Cases with VAD Insertion Alone 811 36.85 181,915
MS-DRG 002—All Cases 313 19.66 89,818
MS-DRG 002—Cases with Heart Transplant without VAD 172 15.1 58,890
MS-DRG 002—Cases with VAD Insertion Alone 140 25.31 128,069

We believe that this higher average cost could be attributable to the cost of the device itself. There are very few VADs approved by FDA; therefore, we believe this small group of manufacturers is able to set their own charges in the market. We pointed out that the IPPS is not designed to pay solely for the cost of devices. The MS-DRG classification system (and more importantly, the IPPS) is not based solely on the cost of devices.

Rather, the MS-DRG system is a patient classification system that provides an average means of relating the type of patients a hospital treats (that is, case-mix) to the costs incurred by the hospital. We have previously stated that, “Central to the success of the Medicare inpatient hospital prospective payment system is that DRGs have remained a clinical description of why the patient required hospitalization. We believe it would be undesirable to transform DRGs into detailed descriptions of the technology and processes used by the hospital to treat the patient. If such a transformation were to happen, the DRGs would become largely a repackaging of fee-for-service without the management and communication benefits. The separation of the clinical and payment weight methodologies allows a stable clinical methodology to be maintained, while the payment weights evolve in response to changing practice patterns. The packaging of all services associated with the care of a particular type of patient into a single payment amount provides the incentive for efficiency inherent in a DRG-based prospective payment system. Substantial disaggregation of the DRGs into smaller units of payment, or a substantial number of cases receiving extra payments, would undermine the incentives and communication value in the DRG system.” (66 FR 46904)

The results of our review of the claims data for MS-DRGs 001 and 002 are summarized in the following table.

Code Description of code(s) Number of cases
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with MCC)    
All codes 1,235
33.6 or 37.51 Combined heart-lung transplantation or Heart transplantation 384
33.6 or 37.51 with 37.66 Combined heart-lung transplantation or Heart transplantation with Insertion of implantable heart assist system (VAD) 11
37.52 Implantation of total internal biventricular heart replacement system (Artificial heart) 2
37.66 Insertion of implantable heart assist system (VAD) 811
37.60 with 37.64 Implantation or insertion of biventricular external heart assist system + Removal of external heart assist system(s) or device(s) 1
37.63 with 37.64 Repair of heart assist system + Removal of external heart assist system(s) or device(s) 0
37.64 with 37.65 Removal of external heart assist system(s) or device(s) + plant of single ventricular (extracorporeal) external heart assist system 22
Multiple VADs without heart transplant 22
MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without MCC)    
All codes 313
33.6 or 37.51 Combined heart-lung transplantation or Heart transplantation 172
33.6 or 37.51 with 37.66 Combined heart-lung transplantation or Heart transplantation with Insertion of implantable heart assist system (VAD) 0
37.52 Implantation of total internal biventricular heart replacement system (Artificial heart) 0
37.66 Insertion of implantable heart assist system (VAD) 140
37.60 with 37.64 Implantation or insertion of biventricular external heart assist system plus Removal of external heart assist system(s) or device(s) 0
37.63 with 37.64 Repair of heart assist system + Removal of external heart assist system(s) or device(s) 0
37.64 with 37.65 Removal of external heart assist system(s) or device(s) + plant of single ventricular (extracorporeal) external heart assist system 1
Multiple VADs without heart transplant 4

In the proposed rule, we stated that we believe that the IPPS should accurately recognize differences in utilization for clinically distinct procedures. However, we also reiterated the language in the FY 2009 IPPS final rule that the payments under a prospective payment system are predicated on averages (73 FR 48443). We believe that to create a new MS-DRG specific to VAD implantation would require basing that MS-DRG almost exclusively on the presence of procedure code 37.66, representing a single procedure and currently one manufacturer with FDA approval. Currently, other manufacturers are reported to be in clinical trials with their VADs. We indicated that this approach negates our longstanding method of grouping like procedures and diminishes the concept of averaging. Further, we are concerned that ignoring the structure of the MS-DRG system solely for the purpose of increasing payment for one device would set an unwarranted precedent for defining all of the other MS-DRGs in the system (73 FR 48497 and 48498).

The commenter requested that we create two new MS-DRGs for the VADs and that the requested MS-DRGs be divided based on the presence or absence of an MCC. We pointed out that the final rule establishing the MS-DRGs sets forth five criteria, all five of which are required to be met in order to warrant creation of a CC or an MCC subgroup within a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule with comment period (72 FR 47169). The original criteria were based on average charges; we now use average costs (FY 2007 IPPS final rule (71 FR 47882)). To reiterate, these criteria are as follows:

  • A reduction in variance of costs of at least 3 percent.
  • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
  • At least 500 cases are in the CC or MCC subgroup.
  • There is at least a 20-percent difference in average costs between subgroups.
  • There is a $2,000 difference in average cost between subgroups.

As procedure code 37.66 predominates in our claims data for VAD implantations, as we did in the proposed rule, we are including the following table to demonstrate the cost difference between MS-DRG 001 and MS-DRG 002.

MS-DRG Number of cases Average cost
001—Cases with procedure code 37.66 811 $181,915
002—Cases with procedure code 37.66 140 128,069

As stated in the FY 2008 IPPS final rule with comment period, all five criteria must be met in order to subdivide an MS-DRG into MCC and non-MCC severity levels. In this instance, the number of cases in MS-DRG 002 containing procedure code 37.66 is 140, not the minimum number of 500 cases as established by the MS-DRG severity criteria. Therefore, even if we were to create a new MS-DRG for VAD implantation, unless we further divided the MS-DRG based on the presence of an MCC, we would substantially overpay approximately 15 percent of total VAD cases. However, we could not create multiple MS-DRGs for VAD implantation without ignoring our rules for subdividing MS-DRGs.

For these reasons, for FY 2013, we did not propose to make any changes to the structure of MS-DRGs 001 and 002. We invited public comment on our proposal.

Comment: Several commenters stated that they had no objections to CMS' proposal to maintain the current structure of MS-DRG 001 and MS-DRG 002 and not create separate MS-DRGs for VAD and heart transplants. The commenters stated that this proposal seems reasonable given the data and information provided.

One commenter stated that MS-DRG weights should reflect the overall costs of all of the services involved in an admission and that it would be inappropriate to bifurcate these MS-DRGs solely due to the cost of a single device, especially when that device is currently distributed by a single manufacturer. The commenter agreed with our proposal to maintain the existing structure of MS-DRGs 001 and 002, but urged CMS to continue to monitor the composition and costs of these MS-DRGs moving forward, especially as new VAD devices are approved for implantation.

Response: We appreciate the commenters' support for our proposal to maintain the existing structure of MS-DRG 001 and MS-DRG 002 for FY 2013. We will continue to monitor the composition and costs of these MS-DRGs as new VAD devices are approved for implantation.

Comment: One commenter stated that keeping the existing MS-DRG 001 and MS-DRG 002 structure may ultimately be a deterrent for appropriate provision of care to Medicare beneficiaries because of the discrepancy of cost between cardiac transplantation and implantation of VADs. The commenter stated that the cost of the VAD implantation is commonly more than $50,000 greater than the cost of a cardiac transplantation. The commenter stated that providing two MS-DRGs for heart transplants and two for VAD implantations will assure access to the best available technology.

Response: We acknowledge the commenter's concern about the potential for problems with future beneficiary access to VAD implantations and heart transplants. There are currently a limited number of FDA-approved VADs on the market. We will continue to monitor these MS-DRGs as additional VADs come onto the market and technologies change. We believe that creating separate MS-DRGs for VAD implantations and heart transplants could lead to significant reductions in the payment for heart transplants. Considering the limited number of FDA-approved VADs and the negative impact that creating separate MS-DRGs for VAD implantations and heart transplants would have on heart transplant cases, we do not believe the creation of separate MS-DRGs for VAD implantations and heart transplants is appropriate at this time.

After consideration of the public comments we received, we are finalizing our proposal to make no changes to MS-DRG 001 and MS-DRG 002 for FY 2013.

b. Allogeneic Bone Marrow Transplant

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), we deleted MS-DRG 009 (Bone Marrow Transplant) and created two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone Marrow Transplant). We created MS-DRGs 014 and 015 because of differences in costs associated with the procedures in these two MS-DRGs. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51525 through 51526), we further subdivided MS-DRG 015 into two severity levels, by deleting MS-DRG 015 and creating MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC); and MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC). We created MS-DRGs 014 and 015 as these groups meet all five criteria for subdivision by severity level that we established in the FY 2008 IPPS final rule with comment period (72 FR 47169). As we discussed in the FY 2012 IPPS/LTCH PPS final rule, MS-DRG 014 did not meet the criteria for subdivision by severity level.

During the comment period for the FY 2012 IPPS/LTCH PPS proposed rule, we received a public comment regarding related and unrelated allogeneic bone marrow transplants (which are captured in MS-DRG 014) that had not been the subject of a proposal in that proposed rule. This issue was referred to briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), but we did not address the issue because we considered the comment to be out of the scope of provisions of the proposed rule. However, we addressed this issue in the FY 2013 proposed rule. The commenter recommended that MS-DRG 014 be subdivided into two MS-DRGs based on related and unrelated transplant donor source.

Allogeneic bone marrow transplantation utilizes the blood stem cells in bone marrow, umbilical cord blood, or peripheral blood from a donor that is either biologically related (sibling or other biologically close family member) or biologically unrelated (not a biologically close family member of the recipient) in the treatment of certain cancers and bone marrow diseases. Allogeneic transplant recipients must have a tissue type that matches the donor. According to the commenter, a related donor will typically be managed by the transplant facility from human leukocyte antigen (HLA) molecular typing through mobilization and collection, while an unrelated donor requires the use of donor registry for searching and collection process. According to the commenter, the unrelated donor setting adds significant costs to the transplant that would not be incurred in the related transplant setting.

Currently, there are three ICD-9-CM procedure codes that identify the transplant donor source:

  • 00.91 (Transplant from live related donor)
  • 00.92 (Transplant from live non-related donor)
  • 00.93 (Transplant from cadaver)

In our analysis of data in the FY 2011 MedPAR file, we found 467 cases assigned to MS-DRG 014 with average costs of approximately $64,403 and an average length of stay of approximately 24.8 days. There were 125 cases that reported procedure code 00.91 on the claim as the related transplant donor source with average costs of approximately $55,969 and an average length of stay of approximately 24.1 days. In our analysis of the unrelated donor source, we included the cases reported with the transplant from a cadaver donor source (code 00.93) with the transplant from a live nonrelated donor source (code 00.92). There were 213 cases that reported either code 00.92 or 00.93 as the transplant donor source with average costs of approximately $64,837 and an average length of stay of approximately 23 days. There were 129 cases that did not report a transplant donor source with average costs of approximately $71,859 and an average length of stay of approximately 28.5 days. The following table illustrates our findings:

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 014—All cases 467 24.8 $64,403
MS-DRG 014—Live related donor (code 00.91) 125 24.1 55,969
MS-DRG 014—Live nonrelated donor (code 00.92) or cadaver (code 00.93) 213 23 64,837
MS-DRG 014—No donor source 129 28.5 71,859

As we noted in the proposed rule, one quarter of the cases (129 out of 467 cases) that did not report a transplant donor source code had the highest average costs of approximately $71,859, compared to $55,969 for live related donors and $64,837 for live nonrelated or cadaver donors and $64,403 for the overall average cost of cases within MS-DRG 014. The cases without a transplant donor source code also had a longer length of stay (28.5 days) than the live-related donor cases (24.1 days), the live nonrelated or cadaver cases (23 days), and the overall cases (24.8 days) assigned to MS-DRG 014.

Based on these findings, we stated that we believe that it would not be advisable to include cases without a transplant donor source code with the live nonrelated or cadaver donor cases, as we believe it would encourage providers not to report the transplant donor source code. All possible options must be included in any MS-DRG reconfiguration. Therefore, cases with no reported transplant donor source code must be included in the updated logic because this is the group with the highest average costs. Our clinical advisors reviewed this issue and do not support splitting MS-DRG 014 into two MS-DRGs because a quarter of the cases did not provide a transplant donor source. Therefore, we concluded that the cases reported with a transplant donor source code are appropriately assigned to MS-DRG 014 and that MS-DRG does not warrant further subdivision. Without more complete information on donor source, we did not propose that MS-DRG 014 be subdivided in the proposed rule. We invited public comment on our proposal not to subdivide MS-DRG 014 into two MS-DRGs based on related and unrelated donor source.

Comment: Several commenters stated that they had no objections to CMS' proposal to maintain the current structure of MS-DRG 014. The commenters stated that the proposal seems reasonable based on the data and information provided. One commenter supported the subdivision to distinguish between related and unrelated allogeneic bone marrow transplants. However, the commenter stated that if CMS continues to believe that there is not sufficient data to support a split, CMS should require data collection of search and procurement costs. The commenter suggested that CMS establish a specific revenue code or line item on the hospital cost report to require hospitals to document the search and procurement costs in order to receive payment.

Response: We agree with the commenters that stated that, based on data and our analysis, we should not subdivide MS-DRG 014 without more complete information on the donor source. As stated previously, one quarter of the cases (129 out of 467 cases) did not report a transplant donor source code. We believe that we have sufficient methods of reporting donor source on the claim by reporting ICD-9-CM code 00.91, 00.92, or 00.93 and associated costs.

After consideration of the public comments we received, we are not making any changes to MS-DRG 014 for FY 2013.

2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): Influenza With Pneumonia

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), we discussed a public comment that we considered out of the scope of the FY 2012 proposed rule. Therefore, we did not address the issues in the final rule. The commenter requested that we consider reassigning cases with a combined diagnosis of influenza with pneumonia from a set of simple pneumonia MS-DRGs to a set of MS-DRGs that captures a more severe type of pneumonia. The specific request involves cases now assigned to MS-DRGs 193 (Simple Pneumonia and Pleurisy with MCC), 194 (Simple Pneumonia and Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy without MCC/CC) being moved to MS-DRGs 177 (Respiratory Infections and Inflammations with MCC), 178 (Respiratory Infections and Inflammations with CC), and 179 (Respiratory Infections and Inflammations without MCC/CC).

For the FY 2013 proposed rule, we examined data in the FY 2011 MedPAR file on cases that reported diagnosis code 487.0 (Influenza with pneumonia) as the principal diagnosis with an additional secondary diagnosis code for one of the following types of pneumonia:

  • 482.0 (Pneumonia due to Klebsiella pneumoniae)
  • 482.1 (Pneumonia due to Pseudomonas)
  • 482.40 (Pneumonia due to Staphylococcus, unspecified)
  • 482.41 (Methicillin susceptible pneumonia due to Staphylococcus aureus)
  • 482.42 (Methicillin resistant pneumonia due to Staphylococcus aureus)
  • 482.49 (Other Staphylococcus pneumonia)
  • 482.81 (Pneumonia due to anaerobes)
  • 482.82 (Pneumonia due to Escherichia coli [E. coli])
  • 482.83 (Pneumonia due to other gram-negative bacteria)
  • 482.84 (Pneumonia due to Legionnaires' disease)
  • 482.89 (Pneumonia due to other specified bacteria)

Currently, when one of the pneumonia codes listed above is reported as a principal diagnosis, the case is assigned to MS-DRG 177, 178, or 179. However, when the patient has been diagnosed with one of these types of pneumonia and also has influenza, the ICD-9-CM coding book directs the coder to report diagnosis code 487.0 as the principal diagnosis and to assign an additional secondary code to describe the specific type of pneumonia. This reporting results in cases with diagnoses of both influenza and specific types of pneumonia being assigned to MS-DRG 193, 194, or 195 (Simple Pneumonia and Pleurisy with MCC, with CC, or without CC/MCC, respectively), instead of MS-DRG 177, 178, or 179. The commenter requested that we reassign cases reporting code 487.0 as the principal diagnosis with one of the specific pneumonia codes listed above as a secondary diagnosis to MS-DRGs 177, 178, and 179.

We analyzed data from the MedPAR file on cases with patients with pneumonia and found the following:

MS-DRG Number of cases Average length of stay Average cost
MS-DRG 177—All cases 69,128 8.20 $13,002
MS-DRG 178—All cases 59,559 6.40 9,193
MS-DRG 179—All cases 14,108 4.65 6,365
MS-DRG 193—All cases 125,892 6.28 9,589
MS-DRG 193—Cases with principal diagnosis code 487.0 and with a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89 57 9.3 15,867
MS-DRG 193—Cases with principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89 1,320 6.93 10,416
MS-DRG 194—All cases 191,030 4.73 6,524
MS-DRG 194—Cases with principal diagnosis code 487.0 and with a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89 59 6.9 9,752
MS-DRG 194—Principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89 2,088 5.16 6,871
MS-DRG 195—All cases 80,253 3.53 4,660
MS-DRG 195—Cases with a principal diagnosis code 487.0 and a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89 12 4.8 5,842
MS-DRG 195—Cases with principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89 1,065 3.78 4,580

The data showed that cases reporting a principal diagnosis code 487.0 with one of the pneumonia codes listed above as a secondary diagnosis have significantly higher average costs ($15,867 in MS-DRG 193, $9,752 in MS-DRG 194, and $5,842 in MS-DRG 195) than those cases reported without one of the pneumonia codes listed above as a secondary diagnosis ($10,416 in MS-DRG 193, $6,871 in MS-DRG 194, and $4,580 in MS-DRG 195), and also the overall average costs for all cases in MS-DRGs 193, 194, and 195 ($9,589, $6,524, and $4,660, respectively). The influenza and pneumonia cases had average costs that more closely align with the average costs of cases currently assigned to MS-DRGs 177, 178, and 179 ($13,002, $9,193, and $6,365, respectively).

As a result of our analysis, the data support the commenter's request that we reassign cases reporting a principal diagnosis code 487.0 and an additional secondary diagnosis code for one of the pneumonia codes listed above, from MS-DRGs 193, 194, and 195 to MS-DRGs 177, 178, and 179. Our clinical advisors also support reassigning these cases to MS-DRGs 177, 178, and 179. Therefore, for FY 2013, we proposed to reassign cases with a principal diagnosis code 487.0 and an additional secondary diagnosis code of one of the following pneumonia codes listed as a secondary diagnosis codes from MS-DRGs 193, 194, and 195 to MS-DRGs 177, 178, and 179: 482.0; 482.1; 482.40; 482.41; 482.42; 482.49; 482.81; 482.82; 482.83; 482.84; and 482.89.

We invited public comment on our proposal for FY 2013.

Comment: Commenters supported our proposal to reassign cases with a principal diagnosis code of 487.0 with an additional secondary diagnosis code for the specified types of pneumonia from MS-DRGs 193 and 195 to MS-DRGs 177, 178, and 179. The commenters stated that these proposed reassignments better capture the more severe type of pneumonia that results in significantly higher average costs. Other commenters stated the proposed reassignments were reasonable, given the data and information provided.

Response: We appreciate the commenters' support of our proposals.

After consideration of the public comments we received, we are finalizing our proposal of reassigning cases with a principal diagnosis code of 487.0 and an additional secondary diagnosis code of one of the following pneumonia codes as a secondary diagnosis code from MS-DRGs 193, 194, and 195 to MS-DRGs 177, 178, and 179: 482.0; 482.1, 482.40, 482.41, 482.42; 482.49; 482.81; 482.82; 482.83, 482.84; and 482.89.

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

a. Percutaneous Mitral Valve Repair With Implant

We received a request to reassign procedure code 35.97 (Percutaneous mitral valve repair with implant) to the following MS-DRGs:

  • MS-DRG 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac with MCC);
  • MS-DRG 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac with CC);
  • MS-DRG 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac without CC/MCC);
  • MS-DRG 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac with MCC);
  • MS-DRG 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac with CC); and
  • MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac without CC/MCC).

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51528 through 51529), we discussed reassigning procedure code 35.97 from MS-DRGs 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, respectively) and MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC), 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC), and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC). In that final rule, we stated that we did not have sufficient claims data on which to base and evaluate any proposed changes to the current MS-DRG assignment. Procedure code 35.97 was created for use beginning October 1, 2010 (FY 2011) after the concept of percutaneous valve repair was presented at the March 2010 ICD-9-CM Coordination and Maintenance Committee meeting. Procedure code 35.97 was created at that time to describe the MitraClip TM device and any other percutaneous mitral valve repair devices currently on the market. This procedure code was assigned to the following MS-DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, respectively); 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC); 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC).

According to the Food and Drug Administration's (FDA's) terms of the clinical trial for MitraClip TM, the device is to be implanted in patients without any additional surgeries performed. Therefore, based on these terms, we stated that while the procedure code is assigned to MS-DRGs 246 through 251, the most likely MS-DRG assignments would be MS-DRGs 250 and 251, as described above. As we stated in the FY 2012 IPPS/LTCH PPS final rule, because procedure code 35.97 had only been in use since October 1, 2010, there were no claims data in the most recent update of the MedPAR file at that time to evaluate any alternative MS-DRG assignments. Therefore, we did not make any MS-DRG assignment changes for procedure code 35.97 for FY 2012.

For the FY 2013 proposed rule, we analyzed claims data from the FY 2011 MedPAR file on the procedure that describes mitral valve repair with implant and found the following:

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 216—All Cases 9,624 16.44 $61,015
MS-DRG 217—All Cases 5,655 10.24 41,324
MS-DRG 218—All Cases 995 7.43 34,587
MS-DRG 219—All Cases 15,336 12.53 50,176
MS-DRG 220—All Cases 18,455 7.53 34,150
MS-DRG 221—All Cases 4,719 5.59 29,082
MS-DRG 231—All Cases 1,170 12.17 49,728
MS-DRG 231—Cases with Procedure Code 35.97 4 13.75 35,409
MS-DRG 232—All Cases 1,010 9.16 37,820
MS-DRG 232—Cases with Procedure Code 35.97 9 13.56 46,008
MS-DRG 246—All Cases 29,299 5.20 20,725
MS-DRG 247—All Cases 109,661 2.39 13,014
MS-DRG 248—All Cases 13,562 6.35 19,785
MS-DRG 248—Cases with Procedure Code 35.97 1 32.00 110,262
MS-DRG 249—All Cases 35,100 2.86 11,806
MS-DRG 250—All Cases 8,313 7.07 19,673
MS-DRG 250—Cases with Procedure Code 35.97 39 9.77 29,753
MS-DRG 251—All Cases 31,316 2.92 12,658
MS-DRG 251—Cases with Procedure Code 35.97 98 2.69 18,651

We note that most of the cases were found in MS-DRGs 250 and 251, as we predicted in the FY 2012 IPPS/LTCH PPS final rule based on FDA's terms of the clinical trial for MitraClip TM. As stated earlier, the device is to be implanted in patients without any additional surgeries performed. There were 39 cases in MS-DRG 250 with average costs of $29,753 (which includes cases with an MCC). These average costs are significantly lower than the average costs of $61,015 for cases in MS-DRG 216, and the average costs of $50,176 for cases in MS-DRG 219 (which includes cases with an MCC). There were 98 cases in MS-DRG 251 (without MCC) with average costs of $18,651. These average costs also are lower than the average costs of comparable cases in MS-DRGs 217, 218, 220, and 221, whose average costs range from a high of $41,324 to a low of $29,082. While the average costs of mitral valve repair cases are higher than the average costs of other cases assigned to MS-DRGs 250 and 251, they are significantly less than the average costs of cardiac valve replacement cases assigned to MS-DRGs 216 through 221. Our analysis of the claims data does not support reassigning the procedure that describes percutaneous mitral valve repair with implant from MS-DRGs 250 and 251 to MS-DRGs 216 through 221. Our clinical advisors also support maintaining the current assignment of this procedure in MS-DRGs 250 and 251. Therefore, based on our findings, we did not propose to reassign procedure code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 216 through 221.

We invited public comment on our proposal to maintain the current assignment of procedure code 35.97 in MS-DRGs 250 and 251 and not to reassign the procedure code to MS-DRGs 217 through 221.

Comment: Several commenters supported our proposal not to make any MS-DRG modifications for procedure code 35.97 cases, which are currently assigned to MS-DRGs 250 and 251. The commenters stated that the proposal was reasonable, given the data and information provided.

Response: We appreciate the commenters' support for our proposal for FY 2013.

Comment: A number of commenters recommended that CMS reassign code 35.97 to MS-DRGs 216, 217, and 218. The commenters stated that percutaneous mitral valve repair offers an alternative to open surgery and is used in high risk patients. The commenters believed that the current payment is too low and that their hospitals may decide not to perform these procedures if the payment is not increased. The commenters stated that MS-DRGs 216, 217, and 218 more accurately reflect the associated comorbidities and the intensity of resources required to perform percutaneous mitral valve repairs with implant. Commenters also stated that the procedure is complex and requires a complex team of surgeon, imaging specialist, anesthesiologist, and interventionalist. Given this team approach, complexity, and lengthy procedure time, the commenters stated that MS-DRGs 216, 217, and 218 were more appropriate MS-DRG assignments.

One commenter, a manufacturer of a mitral valve repair device, echoed the comments above. The manufacturer also expressed concern that CMS' claims data may not fully reflect the costs of the mitral valve repair devices. The manufacturer stated that the data analyzed may have included some mitral valve repair cases that were performed in clinical trials and reflected trial-only device prices that were much lower than the planned commercial device prices.

Response: We note that MS-DRGs 216, 217, 218 currently include the requirement that a cardiac catheterization be performed during the hospital stay. We assume that the commenters meant to include the complete range of MS-DRGs for cardiac valve and other major cardiothoracic procedures (that is, MS-DRG 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac with MCC), MS-DRG 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac with CC), and MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac without CC/MCC), in addition to MS-DRGs 216, 217, and 218). MS-DRGs 216, 217, and 218 include the provision of cardiac catheterizations, while MS-DRGs 219, 220, and 221 do not include the use of a cardiac catheterization.

The claims data do not support adding percutaneous mitral valve repairs with implant to MS-DRGs 216, 217, and 218 (those with cardiac catheterizations) or to the complete range of DRGs that includes both those with and without cardiac catheterization (MS-DRGs 216 through 221). As stated earlier, there were 39 cases in MS-DRG 250 with average costs of $29,753 (which includes an MCC). These average costs are significantly lower than the $61,015 average costs for cases in MS-DRG 216 and the $50,176 average costs for cases in MS-DRG 219, which includes an MCC. There were 98 cases in MS-DRG 251 (without MCC) with average costs of $18,651. These average costs are also lower than the average costs of comparable cases in MS-DRG 217, 218, 220, and 221 whose average costs range from a high of $41,324 to a low of $29,082. While the average costs for these cases are higher than for others in MS-DRGs 250 and 251, they are significantly less than those cardiac replacement valve cases assigned to MS-DRGs 216 through 221. Our data indicate that the average cost for this procedure, including the significant cost of the devices, is much closer to the average cost of the percutaneous procedures that comprise the remaining 99 percent of the claims in the MS-DRGs 250 and 251 than it is to the proposed MS-DRGs, where payments are twice the reported cost of this procedure.

In this case it is true that costs of the percutaneous mitral valve implantations are more than the average for MS-DRGs 250 and 251. However it is a fundamental principle of an averaged payment system that half of the procedures in a group will have above average costs. It is expected that there will be higher cost and lower cost subsets, especially when a subset has low numbers. In this case the other ninety-nine percent of the claims that make up the assigned DRG will be expected to continue to include cases with similar costs but also include many cases with below average costs. In an average payment system, the “profit” of low-cost cases balances the “loss” of the high-cost cases, and hospitals and manufacturers cannot expect to see “profit” on every possible subset of cases in a DRG.

Our clinical advisors state that the current MS-DRG assignment is reasonable because the operating room resource utilizations of percutaneous procedures, such as those found in MS-DRGs 250 and 251, tend to group together, and are generally less costly than open procedures, such as those found in MS-DRGs 216 through 221. Percutaneous procedures by organ system represent groupings that are reasonably clinically coherent. More significantly, our clinical advisors state that postoperative resource utilization is significantly higher for open procedures with the much greater morbidity and consequent recovery needs. Because the equipment, technique, staff, patient populations and physician specialty all tend to group by type of procedure (percutaneous versus open), separately grouping percutaneous and open procedures is more clinically consistent. Therefore, our clinical advisors recommend that we not move percutaneous mitral valve repairs with implants into MS-DRGs 216 through 221. Based on the claims data and the advice of our clinical advisors, we do not believe the findings warrant moving code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 216 though 221.

After consideration of the public comments we received, we are finalizing our proposal to not make any MS-DRG modifications for procedure code 35.97 cases, which currently are assigned to MS-DRGs 250 and 251, for FY 2013.

b. Endovascular Implantation of Branching or Fenestrated Grafts in Aorta

The fenestrated (with holes) graft device is designed to treat patients with abdominal aortic aneurysms (AAA). Current treatment options for patients with AAAs include open surgical repair, endovascular repair using stent-grafts, or medical management.

Aneurysmal disease that extends proximally to the level of the renal arteries is usually indicative of more extensive aortic disease and comorbidities. As a result, many of these patients are at a higher overall risk when undergoing open surgical repair. In addition, these patients are often not suitable for endovascular treatment with currently available endografts because the length of healthy aorta is insufficient to provide an adequate seal at the proximal end. The indications for use for many of the standard endografts call for an aortic neck length greater than or equal to 15 millimeters.

Published industry reports estimate that 8 percent to 30 percent of patients with AAAs that need repair have aortic necks of less than 15 millimeters in length. One institution has reported that over half of its patients with AAAs were considered ineligible for endovascular aneurysm repair or endovascular aortic repair (EVAR) due to an inadequate length of nondiseased aorta. These patients also were predominantly contraindicated for open repair.

Prior to the development of a fenestrated graft device, the only treatment option available to a large number of these high-risk patients would have been medical management. Open surgical repair is too challenging to frail patients, as it requires supraceliac clamping of the aorta and may result in renal ischemia, mesenteric ischemia, or atheroembolization of the visceral vessels of the aorta. EVAR with a standard endograft is not a viable option either because the shortened neck precludes an adequate proximal end seal, which can lead to type I endoleaks (leaking of blood around the device into the aneurysm resulting in continued pressurization of the aneurysm). Medical management alone leaves these patients at high risk for AAA-related morbidity and mortality. These suboptimal choices led to the creation of fenestrated endografts that can seal above the renal arteries while maintaining access and uninterrupted blood flow to branch vessels of the aorta.

The fenestrated graft is currently under clinical trial in the United States. Effective April 4, 2012, the Zenith® Fenestrated AAA Endovascular Graft (Cook® Medical) received FDA approval. Another manufacturer of fenestrated grafts expects to receive FDA approval for its device within 3 years.

At the September 15, 2010 meeting of the ICD-9-CM Coordination and Maintenance Committee, the topic of fenestrated graft was presented with a request for a unique procedure code. As a result of that meeting, and additional meetings with manufacturers throughout the year, procedure code 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta) was created for use beginning October 1, 2011 (FY 2012). This code is assigned to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively).

We have received a request from a manufacturer to reassign procedure code 39.78 from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and without MCC, respectively). The requestor stated that the assignment to MS-DRGs 252, 253, and 254 violates both of CMS' stated principles regarding assigning new codes to MS-DRGs that reflect both clinical coherence and similar consumption of resources.

From the standpoint of clinical coherence, the requestor noted that, while procedures in MS-DRGs 252, 253, and 254 are vascular procedures, the procedures do not involve the aorta. The requestor further noted that AAA repairs, both open and endovascular, are assigned to MS-DRGs 237 and 238. From the standpoint of similar consumption of resources, the requestor included anticipated device costs of $17,424 to $21,824 for a fenestrated endovascular procedure. The requestor noted that these costs only represent the device and do not include any additional resources required during the hospitalization. The requestor believed that the device costs are more similar to devices used in MS-DRGs 237 and 238.

CMS' practice is to assign new codes to MS-DRGs where similar procedures are also located. In terms of clinical coherence, CMS assigned the new code to the vascular procedure MS-DRGs (252, 253, and 254) where other noncoronary endovascular procedures for blood vessel repair also are assigned. This decision was based on our practice to group similar procedures together, in this case repairs to blood vessels, especially for new codes when CMS has no data history.

With regard to resource consumption, we point out that procedure code 39.78 was created for use effective with discharges on or after October 1, 2011. Our review of data in the MedPAR file shows no utilization of this code because it is too new. That is, we have no claims data that would either prove or disprove the requestor's supposition that procedure code 39.78 is not adequately paid under MS-DRGs 252, 253, and 254. As discussed elsewhere in this preamble, the MS-DRG system is not a device classification system. Therefore, because there are very few companies currently marketing their fenestrated graft devices, we are concerned that these companies are able to set their own charges in the market.

In addition, the requestor opined that “an argument could possibly be made that the increased device costs and longer procedural times for [procedure code] 39.78 suggest assignment into MS-DRG 237 alone would be appropriate,” although the requestor further stated that, without a significant volume of actual claims data, it might be more reasonable [for CMS] to take a conservative approach and assign these procedures to either MS-DRG 237 or MS-DRG 238. We note that MS-DRGs 237 and 238 are paired MS-DRGs, with both MS-DRGs containing the same procedure codes, but which have been subdivided based on the formula for the presence or absence of comorbid or complicating conditions. It is not an inherent part of the GROUPER logic to assign a code to only one DRG in a set of paired or triplicate MS-DRGs.

Because there is no data history for procedure code 39.78 that would justify a reassignment based on either clinical coherence or resource consumption, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27903 and 27904), we did not propose to make a change to the MS-DRG assignment of procedure code 39.78 for FY 2013. We stated our belief that procedure code 39.78 has been appropriately placed within the MS-DRG structure. We also stated that we would continue to evaluate the clinical coherence and resource consumption costs that impact this code and the current MS-DRG assignment. We invited public comment on our proposal.

Comment: Many commenters agreed or did not have any specific objections regarding our proposal to not reassign procedure code 39.78 from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 for FY 2013 based on the information we provided.

Response: We appreciate the commenters' support for our proposal for FY 2013.

Comment: Numerous commenters representing various professional organizations and device manufacturers disagreed with our proposal to maintain the current MS-DRG structure for procedure code 39.78. The commenters urged CMS to reevaluate the proposal and reassign procedure code 39.78 to MS-DRGs 237 and 238 for FY 2013.

The commenters stated that the proposed MS-DRG assignment for procedure code 39.78 is not clinically correct. Specifically, the commenters stated that the association of a fenestrated graft procedure to peripheral arterial endovascular interventions is not representative of the complexities involved in performing the fenestrated graft surgery, nor does it adequately depict a hospital's utilization of resources. The commenters further noted that the implantation of fenestrated grafts is more similar, from a clinical and resource consumption perspective, to the other endovascular graft procedures within MS-DRGs 237 and 238 than it is to the vascular procedures assigned to MS-DRGs 252, 253, and 254.

One commenter provided detailed information outlining the specific FDA-approved indications for both the standard and fenestrated endovascular graft procedures for treatment of aneurysms to further demonstrate how clinically similar the procedures actually are. Other commenters clarified that fenestrated grafts require all the resources of a standard endovascular graft procedure in addition to all the resources required for placement of stents in the renal and visceral arteries to maintain perfusion. Another commenter reported that the devices required to perform a fenestrated graft procedure are “(1) more complicated, more numerous, and, in aggregate, significantly more expensive than those required for the predecessor [standard] procedures; and (2) the fenestrated/branch procedure itself is more complex and time consuming, requiring significantly greater hospital operating room time and resources.” Therefore, according to the commenters, the resources required to perform implantation of a fenestrated graft are far more extensive in comparison to the resources utilized to perform procedures assigned to MS-DRGs 252, 253, and 254.

Some commenters also believed that CMS may have misunderstood some of the aspects of the fenestrated graft procedure. The commenters indicated that if the standard endovascular graft procedure (for example, procedure code 39.71 (Endovascular implantation of other graft in abdominal aorta) is currently assigned to MS-DRGs 237-238 and the fenestrated endovascular graft procedure requires greater utilization of resources, logically procedure code 39.78 should be assigned to MS-DRGs 237 and 238.

Other commenters reiterated the benefits of fenestrated graft procedures to those patients who are not candidates for standard endovascular grafts or open surgical repair. These commenters indicated that the patients necessitating fenestrated grafts are a complex patient population. Some commenters also stated that, despite the lack of sufficient MedPAR claims data for procedure code 39.78, CMS should consider the clinical similarities between fenestrated graft procedures and the other procedures that currently group to MS-DRGs 237 and 238.

The commenters stated that, by reassigning procedure code 39.78 to MS-DRGs 237 and 238, patients would no longer be restricted access to this technology for treatment of juxtarenal/pararenal (next to or at renal arteries) aneurysms and hospitals would be more appropriately paid for the services they are providing.

Response: Although we did not propose to reassign procedure code 39.78 from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 238 for FY 2013, upon further review and consideration of the comments received, we agree with the commenters that the fenestrated grafts are more similar from a clinical and resource consumption perspective to the other endovascular graft procedures within MS-DRGs 237 and 238.

Therefore, as final policy for FY 2013, we are reassigning procedure code 39.78 from MS-DRG 252, 253, and 254 to MS-DRGs 237 and 238.

4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders): Disorders of Porphyrin Metabolism

We received a request for the creation of a new MS-DRG to better identify cases where patients with disorders of porphyrin metabolism exist, to recognize the resource requirements in caring for these patients, to ensure appropriate payment for these cases, and to preserve patient access to necessary treatments. Porphyria is defined as a group of rare disorders (“porphyrias”) that interfere with the production of hemoglobin that is needed for red blood cells. While some of these disorders are genetic (inborn) and others can be acquired, they all result in the abnormal accumulation of hemoglobin building blocks, called porphyrins, which can be deposited in the tissues where they particularly interfere with the functioning of the nervous system and the skin.

Treatment for patients suffering from disorders of porphyrin metabolism consists of an intravenous injection of Panhematin® (hemin for injection). In 1984, this pharmaceutical agent became the first approved drug for a rare disease to be designated under the Orphan Drug Act. It is the only FDA-approved prescription treatment for acute intermittent porphyria, being approved for manifestations temporarily related to the menstrual cycle in susceptible women.

ICD-9-CM diagnosis code 277.1 (Disorders of porphyrin metabolism) describes these cases, which are currently assigned to MS-DRG 642 (Inborn and Other Disorders of Metabolism). We analyzed data from the FY 2011 MedPAR file for cases assigned to this MS-DRG. As shown in the table below, we found a total of 1,447 cases in MS-DRG 642 with an average length of stay of 4.63 days and average costs of $7,400. We then analyzed the data for cases reporting diagnosis code 277.1 as the principal diagnosis in this same MS-DRG. We found a total of 330 cases, with an average length of stay of 6.12 days and average costs of $11,476.

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 642—All cases 1,447 4.63 $7,400
MS-DRG 642- Cases with principal diagnosis code 277.1 330 6.12 11,476

While the average costs for the 330 cases reporting a principal diagnosis code of 277.1 were higher than all cases in MS-DRG 642 ($11,476 versus $7,400), the volume of affected cases is small, representative of approximately 20 percent of all of the cases in MS-DRG 642. Under our existing policy (76 FR 51487 and 51488), 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 from the remaining patients in the MS-DRG. We evaluate the utilization of resources related to patient care using average costs and length of stay and rely 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 consider both the absolute and percentage differences in average costs between the cases we selected for review and the reminder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that were extreme in terms of costs or length of stay. Further, we consider the number of patients who have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. Therefore, in the FY 2013 proposed rule, we determined that the findings do not support the creation of a new MS-DRG.

We acknowledge the importance of ensuring that patients diagnosed with a disorder of porphyrin metabolism have adequate access to care and receive the necessary treatment. Despite the fact that our data analysis did not demonstrate support for the creation of a new MS-DRG at this time, we also explored an alternative option. In reviewing the medical MS-DRGs in terms of resources and clinical coherence that are also located within MDC 10, we found three MS-DRGs that we believe are similar to MS-DRG 642. We analyzed data from the MedPAR file on cases in MS-DRGs 643, 644, and 645 (Endocrine Disorders with MCC, with CC, and without CC/MCC, respectively) to determine if the cases reporting a principal diagnosis code of 277.1 would be more appropriately reassigned from MS-DRG 642 to MS-DRGs 643, 644, and 645. Upon examination of the data, we found that the average costs of these cases were $10,835, $6,816, and $4,762, respectively, as shown in the table below.

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 643—Cases with principal diagnosis code 277.1 6,562 7.11 $10,835
MS-DRG 644—Cases with principal diagnosis code 277.1 12,769 4.89 6,816
MS-DRG 645—Cases with principal diagnosis code 277.1 5,979 3.40 4,762

Based on these findings, if we were to reassign cases where disorders of porphyrin metabolism (diagnosis code 277.1) were reported as the principal diagnosis with a secondary diagnosis designated as a CC (MS-DRG 644) or with a secondary diagnosis that was not a CC/MCC (MS-DRG 645), Medicare would pay significantly less for these cases than they are now paid under MS-DRG 642. Therefore, it would not be appropriate to reassign cases reporting a principal diagnosis code of 277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645. In addition, our clinical advisors did not support this reassignment. The MS-DRG classification system on which the IPPS is based comprises a system of averages. As such, it is understood that, in any particular MS-DRG, it is not unusual for a small number of cases to demonstrate higher than average costs, nor is it unusual for a small number of cases to demonstrate lower than average costs. Upon review of the MedPAR data and the alternative option discussed, our clinical advisors agree that the current MS-DRG assignment for diagnoses of disorders of porphyrin metabolism (diagnosis code 277.1) to MS-DRG 642 is most appropriate at this time.

In the proposed rule, we acknowledged and recognized the severity of symptoms that patients diagnosed with disorders of porphyrin metabolism may experience. We also stated that we are sensitive to concerns about access to care and treatment for these patients. We further indicated that we would continue to monitor this issue and determine how to better account for the variation in resource utilization within the IPPS for these cases.

In summary, we did not propose to create a new MS-DRG or to reassign cases reporting a principal diagnosis code of 277.1 to MS-DRGs 643, 644, and 645 for FY 2013. We invited public comment on our proposal.

Comment: Several commenters agreed with our proposal to not create a new MS-DRG or to reassign cases reporting a principal diagnosis code of 277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645 for FY 2013.

Response: We appreciate the commenters' support for our proposal.

Comment: Two commenters, representing organizations dedicated to the treatment, education, and study of patients diagnosed with disorders of porphyrin metabolism, appreciated the attention that CMS devoted to this issue. However, these commenters expressed concern that CMS' proposal to not create a new MS-DRG for these cases would negatively impact beneficiary access to necessary treatments. For example, according to one of the commenters, certain facilities are unable to provide the needed Panhematin® therapy as a result of the costs incurred and the present MS-DRG assignment. The commenters believed that for beneficiaries who experience an acute porphyric attack, there are not any alternative therapies compared to the effectiveness of Panhematin®.

One of the commenters also submitted data from its own analysis indicating that not only are the average costs of porphyria cases greater than the average costs of all cases in MS-DRG 642, but also that the average costs of porphyria cases are greater than the average costs of other cases that contain the top 10 principal diagnoses (by volume of discharges) assigned to MS-DRG 642. The commenter asserted that, based on its analysis, as well as the analysis conducted and presented by CMS in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 through 27905), porphyria cases undoubtedly satisfy the criteria to create a new MS-DRG.

Additionally, the commenters opposed CMS' position regarding the inadequate number of cases in which to establish a new MS-DRG for porphyria cases. One of the commenters reported that, based on its own analysis, the number of porphyria cases demonstrated a significant subset of the total cases that grouped to MS-DRG 642. The other commenter acknowledged that the number of porphyria cases is small; however this commenter maintained that CMS may inadvertently be sending the message that rare diseases affecting smaller populations are not as significant as those diseases affecting larger populations by not creating a new MS-DRG for porphyria cases. The commenters urged CMS to reconsider the proposal and create a new MS-DRG for cases with a principal diagnosis of porphyria to ensure these beneficiaries have access to treatment for this potentially life-threatening disease.

Response: We acknowledge the commenters' concerns. CMS is committed to improving the lives and quality of care for Medicare beneficiaries. We take this opportunity to note that it is not appropriate for facilities to deny treatment to beneficiaries needing a specific type of therapy or treatment that involves increased costs. The MS-DRG system is a system of averages and it is expected that across the 571 diagnostic related groups that within certain groups, some cases may demonstrate higher than average costs, while other cases may demonstrate lower than average costs.

As discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 through 27905), we recognize the average costs of the small number of porphyria cases are greater than all the cases in MS-DRG 642. While the commenter's analysis found that approximately 50 percent of porphyria cases were more expensive than the average cost of the other cases in this MS-DRG, it is not alarming and, in fact, is what we would expect (as the remaining percent of cases are less expensive than the average). The data provided by the commenter demonstrates that it is a subset of the porphyria cases that has the significantly higher cost exactly as it is a subset of the MS-DRG that has significantly higher costs. An averaged payment system depends on aggregation of similar cases with a range of costs, and these data are not unusual. In fact, it is usually possible to define subsets with higher values and subsets with lower values. We continue to follow our usual practice of identifying sufficiently large sets of claims data with a resource/cost similarity and clinical similarity and do not wish to abandon our use of diagnostic related groups in favor of smaller “single diagnosis payments” or even, as suggested by the commenter's data, subsets within a single diagnosis.

We disagree with the commenter that our proposal to not create a new MS-DRG for porphyria cases sends the message that rare diseases and patient access to treatment are not a significant cause for concern to the Agency in comparison to other well known and publicly recognized conditions. Although it was not included as part of the commenter's initial request for a new MS-DRG, we also explored an alternative option to reassign cases with a principal diagnosis of porphyria as was discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27904 through 27905). Furthermore, we indicated our intent to continue to monitor this issue.

As mentioned previously, we are sensitive to the commenters' concerns and access to treatment for beneficiaries who have been diagnosed with this condition. However, for the reasons summarized above, we are finalizing our proposal for FY 2013 to not create a new MS-DRG or to reassign cases with a principal diagnosis of porphyria (code 277.1) from MS-DRG 642 to MS-DRGs 643, 644, and 645.

5. Medicare Code Editor (MCE) Changes

The Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.

a. MCE New Length of Stay Edit for Continuous Invasive Mechanical Ventilation for 96 Consecutive Hours or More

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27905 and 27906), we proposed to make a change to the MCE edits which included the creation of a new length of stay edit for continuous invasive mechanical ventilation for 96 consecutive hours or more.

It was brought to our attention that a number of hospitals reporting ICD-9-CM procedure code 96.72 (Continuous invasive mechanical ventilation for 96 consecutive hours or more) may be inaccurately reporting this code. As the title of the procedure code implies, a patient must have received continuous mechanical ventilation for 96 hours or more in order for this code to be assigned. This equates to a patient being hospitalized for at least a 4-day length of stay and having received continuous invasive mechanical ventilation for a minimum of 4 days. Therefore, a patient with a length of stay less than 4 days who received continuous invasive mechanical ventilation should not have procedure code 96.72 reported on the claim.

The ICD-9-CM classification system contains three procedure codes that identify and describe continuous invasive mechanical ventilation: procedure code 96.70 (Continuous invasive mechanical ventilation of unspecified duration); procedure code 96.71 (Continuous invasive mechanical ventilation for less than 96 consecutive hours); and procedure code 96.72 (Continuous invasive mechanical ventilation for 96 consecutive hours or more). To assist in the accurate assignment of these codes, guidance in the form of a “Note” is provided within the designated procedure section of ICD-9-CM. This “Note” describes the calculation of the number of hours during a hospitalization in which a patient receives continuous invasive mechanical ventilation. In addition, coding advice pertaining to appropriate code assignment for mechanical ventilation has been published in various editions of the American Hospital Association's (AHA's) Coding Clinic for ICD-9-CM.

For the proposed rule, we analyzed the FY 2011 MedPAR data to determine how many cases reported procedure code 96.72 with a length of stay less than 4 days. Specifically, we reviewed cases reporting procedure code 96.72 with a length of stay of 1 day, 2 days, or 3 days. We found a total of 595 cases meeting those criteria. The data analysis showed there were 89 cases reporting procedure code 96.72 with a length of stay of 1 day and average costs of $5,948, 134 cases reporting procedure code 96.72 with a length of stay of 2 days and average costs of $7,776, and 372 cases reporting procedure code 96.72 with a length of stay of 3 days and average costs of $11,613.

The data also demonstrated that the 595 cases found were distributed across a wide range of MS-DRGs, with the top two (in terms of volume) being MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support 96+ Hours) and MS-DRG 870 (Septicemia or Severe Sepsis with Mechanical Ventilation 96+ hours). We note that the two MS-DRGs with the highest volume of cases reporting procedure code 96.72 and having a length of stay less than 4 days are the two MS-DRGs that specifically reference “96+ hours” in their titles. More importantly, a large percentage of these cases reporting procedure code 96.72 in error are being grouped to the incorrect MS-DRGs, resulting in significant overpayments. For example, of the 89 cases reporting procedure code 96.72 with a length of stay of 1 day, 31 cases were grouped to MS-DRGs 207 and 870. Of the 134 cases reporting procedure code 96.72 with a length of stay of 2 days, 54 cases were grouped to MS-DRGs 207 and 870. Lastly, of the 372 cases reporting procedure code 96.72 with a length of stay of 3 days, 160 cases were grouped to MS-DRGs 207 and 870. Therefore, the data show that a total of 245 cases (41 percent) were grouped to MS-DRGs 207 and 870 in error, resulting in approximately $25,000 in increased payments for each case (or approximately $6 million in increased payments for all 245 cases). Based on the results of these figures for that portion of the total 595 cases found, there is an even larger dollar amount that is being overpaid to hospitals. These overpayments justify corrective actions.

However, we also noted that the presumed amount of overpayments for claims having a length of stay less than 4 days, as discussed above, is merely an estimate based on the data analysis that has been conducted at this time. We are aware that, for particular circumstances such as those patients who may require observation services, it is possible to have procedure code 96.72 reported on the claim with a length of stay less than 4 days. Although unlikely, a patient might be briefly ventilated in an extended outpatient stay following a toxic ingestion with loss of protective reflexes or following outpatient procedures with a prolonged effect of anesthesia. A subsequent conversion to an inpatient stay would cause the costs to be attributable to the stay, while the days themselves were not reported in the inpatient date span on the claim. Similar effects could occur following an observation stay for a patient on chronic home or skilled nursing facility ventilation. It is for this reason that we proposed a new edit in which claims found to have procedure code 96.72 with a length of stay less than 4 days would be returned to the provider for validation and resubmission. We indicated in the proposed rule that we would issue instructions in the form of a Change Request (CR) prior to the implementation date. We invited the public to comment on our proposal to create this edit, effective for FY 2013.

Comment: Commenters urged CMS to reconsider the proposed new edit for claims reporting procedure code 96.72 with a length of stay less than 4 days that would result in these claims being returned to the provider for validation and resubmission. Although several commenters agreed with the concept of the edit, the commenters expressed concern that the proposed process would be administratively burdensome to hospitals that may be accurately reporting the code according to established coding rules. For example, the commenters noted that coding rules allow the counting of hours a patient is on mechanical ventilation to begin from the time ventilation is initiated in the emergency room department or upon admission. The commenters also stated that for those instances where patients may require observation services, as CMS noted in the proposed rule, it is possible that procedure code 96.72 can be reported on a claim with a length of stay less than 4 days. These commenters recommended that CMS work with the Medicare administrative contractors (MACs) to develop a less burdensome process for providers to implement this edit.

Response: We appreciate and acknowledge the commenters' concerns. In developing systems requirements, we will continue to work with MACs. Recent programming enhancements now allow the use of data fields that were not previously available for claims processing. We believe that these enhancements will eliminate the concern regarding additional administrative burden to hospitals.

After consideration of the public comments received, for FY 2013, we are finalizing our proposal to make a change to the MCE edits to include the creation of a new length of stay edit for procedure code 96.72 when reported on a claim with a length of stay less than 4 days. Detailed instructions will be issued in a future Change Request (CR) prior to the implementation date.

b. Sleeve Gastrectomy Procedure for Morbid Obesity

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51539 through 51541), we discussed the issue of sleeve gastrectomy procedures for morbid obesity under the section of the rule titled “MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders)” as well as under the section for “Medicare Code Editor (MCE) Changes.” We refer the reader to these sections for additional details and background information.

Effective October 1, 2011, procedure code 43.82 (Laparoscopic vertical (sleeve) gastrectomy) was created and designated as a noncoverage procedure in the Medicare Code Editor. A Decision Memo related to Bariatric Surgery for the Treatment of Morbid Obesity was issued effective June 27, 2012, which describes a change in coverage to Medicare beneficiaries for this procedure. Information related to this decision memo can be located at the following CMS Web page: http://www.cms.gov/medicare-coverage-database/details/nca-decision-memo.aspx?NCAId=258&fromdb=true.

As this noncovered procedure edit for procedure code 43.82 is no longer valid, we are removing it from the MCE for FY 2013. Instructions in the form of a Change Request will be issued prior to October 1, 2012. In addition, updates to the Medicare National Coverage Determinations Manual, Section 100.1, Nationally Noncovered Indications for Bariatric Surgery for Treatment of Morbid Obesity, will be revised to reflect this change in coverage.

6. Surgical Hierarchies

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

Because the relative resource intensity of surgical classes can shift as a function of MS-DRG reclassification and recalibrations, for FY 2013, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 001 and 002 and surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.

This methodology may occasionally result in assignment of a case involving multiple procedures to the 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 lower average costs than the class ordered below it.

In the FY 2013 IPPS/LTCH PPS proposed rule, we proposed limited changes to the MS-DRG classifications for FY 2013, as discussed in sections II.G.1. and 4. of this preamble. In our review of these proposed changes, we did not identify any needed changes to the surgical hierarchy. Therefore, in the proposed rule (77 FR 27906), we did not propose any changes to the surgical hierarchy for Pre-MDCs and MDCs for FY 2013.

Comment: Several commenters stated that our proposal to make no changes to the surgical hierarchy seems reasonable, given the data and information provided.

Response: Based on these public comments and our review of the proposal to make no revisions to the surgical hierarchy using the March 2012 update of the FY 2011 MedPAR file and the revised GROUPER software, we found that the proposal to make no revisions is still supported by the data. Therefore, in this final rule, we are making no changes to the surgical hierarchy for FY 2013.

7. Complications or Comorbidity (CC) Exclusions List

a. Background

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 2013

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. [13]

(1) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for FY 2013

For FY 2013, we did not propose to make any revisions to the CC Exclusions List. There were no changes made to the ICD-9-CM coding system, effective October 1, 2012, due to the partial code freeze. (We refer readers to section II.G.9. of the preamble of this final rule for a discussion of the ICD-9-CM coding system.)

(2) Suggested Changes to the MS-DRG Severity Levels for Diagnosis Codes for FY 2013

(A) Protein-Calorie Malnutrition

We received a request that we consider changing the severity levels for the following protein-calorie malnutrition diagnosis codes:

  • 263.0 (Malnutrition of moderate degree)
  • 263.1 (Malnutrition of mild degree)
  • 263.9 (Unspecified protein-calorie malnutrition)

It was suggested that we change the severity level for diagnosis codes 263.0 and 263.1 from a non-CC to a CC, while changing the severity level for diagnosis code 263.9 from a CC to a non-CC. We received this comment during the comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we considered this comment outside of the scope of the proposed rule, as we did not propose any severity level changes to these codes for FY 2012, and did not address it in the final rule. However, we addressed this issue in the FY 2013 proposed rule (77 FR 27907 through 27908) and are finalizing our policy in this final rule.

For the proposed rule, we analyzed the claims data in the FY 2011 MedPAR file for diagnosis codes 263.0, 263.1, and 263.9. We used the same approach we used in initially creating the MS-DRGs and classifying secondary diagnosis codes as non-CCs, CCs, or MCCs. A detailed discussion of the process and criteria we used in this process is described in the FY 2008 IPPS final rule with comment period (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 an MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is an MCC. A value close to 1.0 in the C1 field suggests 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 with comment period (72 FR 47158 through 47161).

The following chart shows the analysis for each of the protein-calorie malnutrition diagnosis codes:

Code Diagnosis description CC Level Cnt 1 Cnt 1 Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact
263.0 Malnutrition of moderate degree Non-CC 6,040 2.14 21,383 2.61 21,635 3.20
263.1 Malnutrition of mild degree Non-CC 4,139 2.22 11,598 2.50 8,921 3.13
263.9 Unspecified protein-calorie malnutrition CC 2,737 2.16 165,825 2.54 178,044 3.34

We ran the following data as described in the FY 2008 IPPS final rule with comment period (72 FR 47158 through 47161). The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is an MCC.

The chart above shows that the C1 findings ranged from a low of 2.14 to a high of 2.22. As stated earlier, a C1 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. The C1 findings suggest that these codes are more like a CC than a non-CC. The C2 findings ranged from 2.50 to 2.61. 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. The C2 findings of 2.50 for diagnosis code 263.1 and 2.54 for diagnosis code 263.9 suggest these codes are more similar to a CC than a non-CC, while the finding of 2.61 for diagnosis code 263.0 is borderline more similar to an MCC than a CC or non-CC when there is at least one other secondary diagnosis code that is a CC but none that is an MCC.

CC conditions typically have a C1 value over 1.75, a C2 value under 2.5, and a C3 value under 3.2. MCC conditions typically have a C1 value over 2.4, a C2 value over 2.8, and a C3 value over 3.3. We concluded that diagnosis code 263.0 is more similar to a CC than an MCC.

Therefore, the C1 and C2 findings support changing diagnosis codes 263.0 and 263.1 from a non-CC to a CC and maintaining code 263.9 as a CC. Our clinical advisors reviewed this issue and are in support of these findings that these conditions are more appropriately classified as CCs. Based on the data and clinical analysis, we proposed for FY 2013 to change diagnosis codes 263.0 and 263.1 from a non-CC to a CC. We did not propose any change to the severity level for diagnosis code 263.9. We invited public comment on our proposals.

Comment: Several commenters supported our proposal to change the severity level for codes 263.0 and 263.1 from a non-CC to a CC and to maintain the severity level of code 263.9 as a CC. Several commenters stated that the proposal seems reasonable, given the data and information provided. Some commenters expressed appreciation for CMS' recognition of the increased costs of care associated with these conditions and support efforts to more accurately reflect its impact.

Response: We appreciate the support of the commenters.

After consideration of the public comments we received, we are finalizing our proposal to change diagnosis codes 263.0 and 263.1 from a non-CC to a CC and to maintain the severity level of a CC for diagnosis code 263.9 for FY 2013.

(B) Antineoplastic Chemotherapy Induced Anemia

We received a request from a commenter that the severity level for diagnosis code 285.3 (Antineoplastic chemotherapy induced anemia) be changed from a non-CC to a CC. We received this comment during the comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). In that rule, we indicated that we considered this comment outside of the scope of the proposed rule because we did not propose any severity level changes to diagnosis code 285.3 for FY 2012; therefore, we did not address the issue in the final rule. However, we addressed this issue in the FY 2013 proposed rule and are finalizing our policy in this final rule. For the proposed rule, we examined claims data in the FY 2011 MedPAR file for diagnosis code 285.3 according to the approach that we used in FY 2008 as described above. The following table illustrates our findings:

Code Diagnosis description CC Level Cnt 1 Cnt 1 Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact
285.3 Antineoplastic chemotherapy induced anemia Non-CC 1,937 1.36 11,858 2.21 6,036 3.11

As discussed above, a value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a non-CC. A value of 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. The C1 finding for diagnosis code 285.3 of 1.36 supports the current severity level of a non-CC. The C2 finding of 2.21 for diagnosis code 285.3 suggests that this code is more similar to a CC than a non-CC but not as significant as an MCC when there is at least one other secondary diagnosis code that is a CC. CC conditions typically have a C1 value over 1.75, a C2 value under 2.5, and a C3 value under 3.2.

Therefore, the C1 and C2 findings do not support changing the severity level for diagnosis code 285.3 to a CC. In addition, our clinical advisors reviewed this issue and support the decision not to change the severity level for diagnosis code 285.3 because the anemia is inherent in the treatment of cancer and does not qualify as a CC. As a result of our data analysis as well as the advice of our clinical advisors, we did not propose any change to the severity level for diagnosis code 285.3 for FY 2013. We invited public comment on our proposal.

Comment: Several commenters stated that our proposal to maintain the severity level of a non-CC for code 285.3 seems reasonable, given the data and information provided.

Response: We appreciate the support of the commenters for our proposal.

After consideration of the public comments we received, we are finalizing our proposal to not change the severity level for diagnosis code 285.3 for FY 2013.

(C) Cardiomyopathy and Congestive Heart Failure, Unspecified

We received a comment that recommended changes to the severity levels for the cardiomyopathy and congestive heart failure, unspecified codes. The commenter recommended that cardiomyopathy codes, which are currently classified as CCs, be changed to non-CCs and diagnosis code 428.0 (Congestive heart failure, unspecified) be changed from a non-CC to a CC. According to the commenter, these recommended changes would better represent the resources utilized in caring for this population and reduce the administrative burden in clarifying these diagnoses with providers. We received this comment during the comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we considered this comment outside of the scope of the proposed rule because we did not propose any severity level changes to these codes for FY 2012; therefore, we did not address it in the final rule. However, we addressed this issue in the FY 2013 proposed rule and are finalizing our policy in this final rule.

The commenter did not provide a list of the cardiomyopathy codes. We identified the following codes for analysis of the claims data in the FY 2011 MedPAR file:

  • 425.4 (Other primary cardiomyopathies)
  • 425.5 (Alcoholic cardiomyopathy)
  • 425.7 (Nutritional and metabolic cardiomyopathy)
  • 425.8 (Cardiomyopathy in other diseases classified elsewhere)
  • 425.9 (Secondary cardiomyopathy, unspecified)
  • 428.0 (Congestive heart failure, unspecified)

We did not include diagnosis codes 425.11 (Hypertrophic obstructive cardiomyopathy) and 425.18 (Other hypertrophic cardiomyopathy) for our analysis because these two codes were created in FY 2012 and the data are not yet available. We examined claims data according to the approach that we used in FY 2008 as described above. The following table illustrates our findings:

Code Diagnosis description CC Level Cnt 1 Cnt 1 Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact
425.4 Other primary cardiomyopathies CC 39,489 1.47 243,719 2.18 139,689 3.20
425.5 Alcoholic cardiomyopathy CC 438 1.68 2,643 2.19 1,670 3.26
425.7 Nutritional and metabolic cardiomyopathy CC 60 1.18 869 2.17 799 3.14
425.8 Cardiomyopathy in other diseases classified elsewhere CC 940 1.19 5,967 2.15 5,171 3.14
425.9 Secondary cardiomyopathy, unspecified CC 356 1.56 2,078 2.07 1.372 3.22
428.0 Congestive heart failure, unspecified Non-CC 304,963 1.40 634,241 2.16 748,649 3.06

The table above shows that the C1 findings for the cardiomyopathy codes ranged from a low of 1.18 to a high of 1.68. A value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a non-CC. A value of 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. The C1 findings suggest that the majority of these cardiomyopathy codes are more similar to a non-CC than a CC. The C2 findings ranged from a low of 2.07 to a high of 2.19. These findings suggest that these cardiomyopathy codes are more similar to a CC.

The C1 finding for diagnosis code 428.0 of 1.40 suggests that the condition is more similar to a non-CC than a CC. The C2 finding for diagnosis code 428.0 of 2.16 suggests that the secondary diagnosis is more similar to a CC than a non-CC.

The data are mixed between the C1 and C2 findings for the cardiomyopathy codes and do not consistently support a change in the severity level. Our clinical advisors reviewed these issues and are not in support of proposing any changes to the severity levels for these codes. Our clinical advisors stated that the diagnosis of cardiomyopathy (diagnosis codes 425.4 through 425.9) is generally severe, with significant impact on the patient requiring additional monitoring resources and cognitive effort, and is appropriately classified as a CC.

The data are mixed between the C1 and C2 findings for the congestive heart failure, unspecified, diagnosis code 428.0. Our clinical advisors reviewed these issues and are not in support of proposing any changes to the severity level of code 428.0. They indicated that diagnosis code 428.0 is very nonspecific and does not identify the severity of the heart failure, and concluded that the current classification for code 428.0 as a non-CC is appropriate. As a result of our data analysis and clinical advisors' review of these issues, we did not propose any changes to the severity level for the cardiomyopathy and congestive heart failure, unspecified codes for FY 2013. We invited public comment on our proposal.

Comment: Several commenters stated that our proposal to make no changes to the severity level for cardiomyopathy and congestive heart failure, unspecified codes seems reasonable, given the data and information provided.

Response: We appreciate the support of the commenters for our proposal.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current severity level for cardiomyopathy and congestive heart failure, unspecified codes for FY 2013.

(D) Chronic Total Occlusion of Artery of the Extremities

We received a request to change the severity level designation for diagnosis code 440.4 (Chronic total occlusion of artery of the extremities) to a CC. Currently, the diagnosis code is classified as a non-CC. Chronic total occlusion of artery of the extremities forms when plaque accumulates in an artery over an extended period of time, resulting in total cessation of blood flow. We analyzed claims data in the FY 2011 MedPAR file for this diagnosis code according to the approach that we used in FY 2008 as described above. The following table illustrates our findings:

Code Diagnosis description CC Level Cnt 1 Cnt 1 Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact
440.4 Chronic total occlusion of artery of the extremities Non-CC 8,439 1.38 8,057 2.70 5,366 3.23

The C1 finding of 1.38 for diagnosis code 440.4 supports the current designation of this diagnosis code as a non-CC. However, the C2 findings of 2.70 suggests that this code is similar to a CC or perhaps an MCC, as this value is near to 3.0, which suggests that this condition is similar to an MCC. However, we would expect a higher C1 value such as 2.4 for this condition to qualify as an MCC.

The C1 and C2 findings support changing diagnosis code 440.4 from a non-CC to a CC. Our clinical advisors reviewed this issue and are in support of changing the severity level because this condition behaves as a CC. Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to change the severity level for diagnosis code 440.4 from a non-CC to a CC for FY 2013. We invited public comment on our proposal.

Comment: Several commenters supported our proposed change to the severity level from a non-CC to a CC for code 440.4. Several commenters stated that the proposal seems reasonable, given the data and information provided.

One commenter stated that crossing a stenotic occlusive lesion typically requires manipulation of the guidewire with a single catheter that remains in the vessel lumen. In contrast, crossing a chronic total occlusion typically requires multiple wires and catheters whereby the wire leaves the vessel lumen, dissects through the subintimal plane around the occlusive lesion, and then must be manipulated back into the true outflow lumen. According to the commenter, the additional time, intensity of work, and resources necessary to perform an endovascular revascularization of a chronic total occlusion justify the proposed increase in severity level.

Response: We appreciate the support of the commenters for our proposal.

After consideration of the public comments we received, we are finalizing our proposal to change the severity level for diagnosis code 440.4 from a non-CC to a CC for FY 2013.

(E) Acute Kidney Failure With Other Specific Pathological Lesion in Kidney

We received a request to consider changing the severity level for diagnosis code 584.8 (Acute kidney failure with other specified pathological lesion in kidney). This diagnosis code's severity level is currently classified as an MCC. We examined claims data for this code in the FY 2011 MedPAR file according to the approach described above. The following table illustrates those findings.

Code Diagnosis description Severity level Cnt 1 Cnt 1 Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact
584.8 Acute kidney failure with other specified pathological lesion in kidney MCC 12 0.98 13 1.89 1,350 3.17

As discussed above, a C1 value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a diagnosis code that has been classified as a non-CC. A value close to 2.0 in the C1 field suggests that the condition is more similar to a CC severity level than a non-CC severity level, but not as significant in resource usage as an MCC severity level. In this case, the C1 value finding for diagnosis code 584.8 of 0.98 suggests that this diagnosis code is more similar to a non-CC than an MCC. A C2 value close to 3.0 suggests that the condition is more similar to an MCC than a CC or a non-CC. A C2 value close to 2.0 suggests that the condition is more similar to a CC than a non-CC. The C2 value finding for diagnosis code 584.8 of 1.89 supports classifying the severity level of this diagnosis code as a CC. Therefore, the C1 and C2 value findings support changing the severity level of diagnosis code 584.8 from an MCC to a lower severity level, that is, a CC. Our clinical advisors reviewed this issue and stated that this condition behaves as a CC. Therefore, they supported changing the severity level of this diagnosis code to a CC. Based on the clinical analysis and consistent with supporting claims data, we believe that the severity level of diagnosis code 584.8 should be changed from an MCC to a CC. Therefore, in the FY 2013 IPPS/LTCH PPS proposed rule, we proposed to change the severity level of diagnosis code 584.8 from an MCC to a CC for FY 2013. We invited public comment on our proposal.

Comment: Commenters stated CMS' proposed change to the severity level of diagnosis code 584.8 from an MCC to a CC was reasonable, given the data and information provided.

Response: We appreciate the support of the commenters for our proposal.

Comment: One commenter opposed the proposal to change the severity level of diagnosis code 584.8 from an MCC to a CC. The commenter stated that this downgrade penalizes hospitals willing to take on sicker patients because additional care is required to treat patients with this condition. The commenter stated that this change would also hurt hospitals whose clinical documentation staff, in conjunction with providers, perform the additional work of identifying the underlying cause of the kidney failure.

Response: Information from our claims data does not support the commenter's statement that these are sicker patients who should be classified at the MCC severity level. As discussed above, our claims data suggests that code 584.8 is more appropriately classified as a CC. The C1 finding of 0.98 suggests that this code is more like a non-CC than an MCC. The C2 finding of 1.89 supports classifying this code as either a non-CC or CC. Therefore, the C1 and C2 findings support changing code 584.8 from an MCC to a lower severity level. Our clinical advisors reviewed this issue and support changing the severity level of this code to a CC. Our clinical analysis and consistent claims data support changing code 584.8 from an MCC to CC.

We disagree with the commenter's statement that this severity level change would hurt hospitals whose clinical documentation staff, in conjunction with providers, perform the additional work of identifying the underlying cause of the kidney failure. CMS supports improved documentation practices by providers, which leads to better patient care. Providers should consistently work on improved clinical documentation for all patients, not just those who have a secondary diagnosis on the MCC list. We do not agree that changing the severity level of procedure code 584.8 hurts hospitals who attempt to improve the clinical document in their medical records.

After consideration of the public comments we received, we are finalizing our proposal to change the severity level of diagnosis code 584.8 from an MCC to a CC.

(F) Pressure Ulcer, Unstageable

We received a request to consider changing the severity level for diagnosis code 707.25 (Pressure ulcer, unstageable) from its current classification as a non-CC to an MCC. This issue was referred to as an out-of-scope public comment in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), but was not addressed in that rule.

For the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27910), we analyzed claims data for diagnosis code 707.25 from the FY 2011 MedPAR file according to the process and approach described above. The following table illustrates our findings:

Code Diagnosis description CC level Cnt 1 Cnt 1 Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact
707.25 Pressure ulcer, unstageable Non-CC 1,839 1.87 7,161 2.46 13,285 3.08

As discussed above, a C1 value close to 2.0 suggests the condition is more similar to a CC than a non-CC severity level but not as significant in resource usage as an MCC. The C1 value finding of 1.87 for diagnosis code 707.25, which is near but not that close to a 2.0, suggests that this code is more similar to a CC than an MCC. A C2 value of close to 3.0 suggests the condition is more similar to an MCC than a CC or non-CC. The C2 value finding for diagnosis code 707.25 is 2.46, which is not close to 3.0 and, therefore, the data do not support classifying this as an MCC. The C1 and C2 findings are more supportive of a classification as a CC than an MCC. There is another problem with this request to change diagnosis code 707.25 from a non-CC to an MCC. Currently, only stages III and IV pressure ulcers are MCCs. This unstageable code captures a pressure ulcer whose stage has not been determined. It would be inappropriate to assume that a pressure ulcer reported with diagnosis code 707.25 might be a stage III or IV pressure ulcer. Our claims data C1 and C2 findings do not support the fact that this code acts as an MCC. As mentioned earlier, the claims data are more supportive of a classification as a CC than an MCC. We asked our clinical advisors to review this issue. Our clinical advisors agree that the data findings and their own clinical evaluation support not changing the severity level of this diagnosis code to a CC or an MCC. Our clinical advisors recommend that unstageable pressure ulcers should continue to be classified as a non-CC because the stage is not clearly designated as a stage III or IV. Unstageable codes do not delineate what the stage of the ulcer might be. As a result of our data analysis as well as the advice of our clinical advisors, we believe that unstageable pressure ulcers should continue to be classified as a non-CC. Therefore, we proposed that diagnosis code 707.25 remain a non-CC for FY 2013.

We invited public comment on our proposal not to change the severity level for diagnosis code 707.25 for FY 2013.

Comment: Several commenters supported our proposal not to change the severity level for diagnosis code 707.25. The commenters stated the proposal seems reasonable, given the data and information provided.

Response: We appreciate the support of the commenters.

Comment: One commenter questioned whether a “not examined ulcer” would be classified the same as unstageable. The commenter stated that an ulcer should not be classified as unstageable simply because it was not examined.

Response: If a pressure ulcer is documented in the medical record and the stage is unspecified, code 707.20 (Pressure ulcer, unspecified stage) would be assigned.

Comment: Some commenters did not support our proposal. The commenters pointed out that the National Pressure Ulcer Advisory Panel defines unstageable pressure ulcers as at least a stage III pressure ulcer and suggested that the resource expenditures associated with treating this condition would meet the definition of an MCC. Another commenter recommended that the severity level for code 707.25 be changed to a CC.

Response: Based on the data and our analysis presented above, we concluded that diagnosis code 707.25 did not warrant a change to the severity level. Our clinical advisors recommend that unstageable pressure ulcers should continue to be classified as a non-CC because the stage is not clearly designated as a stage III or IV. Without knowing the stage of the ulcer, an assumption should not be made.

After consideration of the public comments we received, we are finalizing our proposal to not change the severity level for code 707.25 for FY 2013.

For FY 2013, we proposed changes to Table 6G (Additions to the CC Exclusion List). As we discussed earlier, we are finalizing our proposed changes to the severity level for diagnosis codes 263.0, 263.1, and 440.4 from a non-CC to a CC. There are no proposed and finalized changes to Table 6H (Deletions to the CC Exclusion List). These tables, which contain codes that are effective for discharges occurring on or after October 1, 2012, 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/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Each of these principal diagnoses for which there is a CC exclusion is shown in Tables 6G and 6H with an asterisk, and the conditions that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Beginning with discharges on or after October 1, 2011, the indented diagnoses were not 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 occur as a result of our review of severity levels for several ICD-9-CM diagnosis codes, we are providing the following summaries of those MCC and CC changes for FY 2013. There are no new, revised, or deleted diagnosis codes for FY 2013. Therefore, there are no Tables 6A, 6C, and 6E published for FY 2013.

Summary of Additions to the MS-DRG MCC List—Table 6I.1 Back to Top

There are no additions to the MS-DRG MCC List.

Summary of Deletions From the MS-DRG MCC List—Table 6I.2 Back to Top
Code Description
584.8 Acute kidney failure with other specified pathological lesion in kidney.
Summary of Additions to the MS-DRG CC List—Table 6J.1 Back to Top
Code Description
263.0 Malnutrition of moderate degree.
263.1 Malnutrition of mild degree.
440.4 Chronic total occlusion of artery of the extremities.
584.8 Acute kidney failure with other specified pathological lesion in kidney.

Summary of Deletions From the MS-DRG CC List—Table 6J.2 Back to Top

There are no deletions from the MS-DRG CC list.

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 29.0, is available on a CD for $225.00. Version 30.0 of this manual, which will include the final FY 2013 MS-DRG changes, will be available on a CD 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.

8. 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. [14]

Our review of MedPAR claims data showed that there were no cases that merited movement or should logically be assigned to any of the other MDCs. Therefore, for FY 2013, we did not propose to change the procedures assigned among these MS-DRGs.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 for FY 2013.

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

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. As noted above, there were no cases that merited movement or that should logically be assigned to any of the other MDCs. Therefore, for FY 2013, 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. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 for FY 2013.

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

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of those procedures should be reassigned from one of these three MS-DRGs to another of the three MS-DRGs based on average costs and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

There were no cases representing shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical, or that merited movement so that cases should logically be assigned to any of the other MDCs. Therefore, for FY 2013, we did not propose to move any procedure codes among these MS-DRGs.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not moving any procedures assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 for FY 2013.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs as described above in sections II.G.1. through 4. of this preamble, we did not propose to add any diagnosis or procedure codes to MDCs for FY 2013. We did not receive any public comments on our proposal. Therefore, as we proposed, we are not adding any diagnosis or procedure codes to MDCs for FY 2013.

9. 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

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 $29.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05CDROM.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 2013 at a public meeting held on September 14, 2011 and finalized the coding changes after consideration of comments received at the meetings and in writing by November 18, 2011.

The Committee held its 2012 meeting on March 5, 2012. New codes for which there was consensus of public support and for which complete tabular and indexing changes were made by May 2012 are included in the October 1, 2012 update to ICD-9-CM. Code revisions that were discussed at the March 5, 2012 Committee meeting but that could not be finalized in time to include them in the tables listed in section VI. of the Addendum to the proposed rule are included in Table 6B which is listed in section VI. of the Addendum to this final rule and available via the Internet on the CMS Web site, and are marked with an asterisk (*).

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27912), we stated that, for FY 2013, there were no changes to the ICD-9-CM coding system due to the partial code freeze or for new technology. However, at the March 5, 2012 meeting there was a request for a code for a new technology. As discussed below, only codes for new technologies or new diagnoses are being considered during the partial code freeze. After discussions at the meeting and public comment received after the meeting, it was decided that there will be one new procedure code effective October 1, 2012: new code 00.95 (Injection or infusion of glucarpidase).

Therefore, there are no new, revised, or deleted diagnosis codes and no revised or deleted procedure codes that are usually announced in Tables 6A (New Diagnosis Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F (Revised Procedure Codes). The new procedure code is listed in Table 6B (New Procedure Codes) for this final rule, which is available via the Internet on the CMS Web site.

Copies of the minutes of the procedure codes discussions at the Committee's September 14, 2011 meeting and March 5, 2012 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 14, 2011 meeting and March 5, 2012 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 Email 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 Email to: patricia.brooks2@cms.hhs.gov.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

While section 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to identify the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes 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 1, 2012 implementation of an ICD-9-CM code at the September 14, 2011 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2012.

Current addendum and code title information is published on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/01overview.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 is to be implemented on October 1, 2013, as described in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Administrative Simplification: Modifications to Medical Data Code Set Standards to Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362, January 16, 2009). However, the Secretary of Health and Human Services issued a proposed rule that would delay, from October 1, 2013, to October 1, 2014, the compliance date for the International Classification of Diseases, 10th Edition diagnosis and procedure codes (ICD-10). The proposed rule, CMS-0040-P, went on display at the Office of the Federal Register on April 9, 2012, and was published in the Federal Register on April 17, 2012 (77 FR 22950) and is available for viewing at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR.

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.

HHS responded to comments in the ICD-10 final rule that the ICD-9-CM Coordination and Maintenance Committee has jurisdiction over any action impacting the ICD-9-CM and ICD-10 code sets. Therefore, HHS indicated that the issue of consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the Committee at a future public meeting.

The code freeze was discussed at multiple meetings of the ICD-9-CM Coordination and Maintenance Committee and public comment was actively solicited. The Committee evaluated all comments from participants attending the Committee meetings as well as written comments that were received. There was an announcement at the September 15-16, 2010 and September 14, 2011 ICD-9-CM Coordination and Maintenance Committee meetings that a partial freeze of both ICD-9-CM and ICD-10 codes will be implemented as follows:

  • The last regular annual update to both ICD-9-CM and ICD-10 code sets was made on October 1, 2011.
  • On October 1, 2012, there will be only limited code updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new diseases.
  • On October 1, 2013, there were to be only limited code updates to ICD-10 code sets to capture new technology and diagnoses as required by section 503(a) of Public Law 108-173. There were to be no updates to ICD-9-CM on October 1, 2013, as the system would no longer be a HIPAA standard and, therefore, no longer be used for reporting. With the proposed ICD-10 implementation delay, there will be only limited code updates to both ICD-9-CM and ICD-10 to capture new technology and new diagnoses on October 1, 2013.
  • On October 1, 2014, regular updates to ICD-10 were to begin. As stated earlier, HHS has issued a proposed rule that would delay the compliance date of ICD-10 from October 1, 2013, to October 1, 2014. If this delay is implemented as proposed, there would be only limited ICD-10 code updates for new technologies and new diseases on October 1, 2014. There would be no updates to ICD-9-CM on October 1, 2014, as the system would no longer be a HIPAA standard and, therefore, no longer be used for reporting. Full ICD-10 updates would begin on October 1, 2015, one year after the implementation of ICD-10.

The ICD-9-CM Coordination and Maintenance Committee announced that it would continue to meet twice a year during the freeze. At these meetings, the public will be encouraged to comment on whether or not requests for new diagnosis and procedure codes should be created based on the need to capture new technology and new diseases. Any code requests that do not meet the criteria will be evaluated for implementation within ICD-10 on or after October 1, 2014, once the partial freeze is ended.

Complete information on the partial code freeze and discussions of the issues at the Committee meetings can be found on the ICD-9-CM Coordination and Maintenance Committee Web site at: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/icd9ProviderDiagnosticCodes/03.asp#TopOfPage. A summary of the September 14, 2011 Committee meeting, along with both written and audio transcripts of this meeting, are posted on the “Download” section of this Web page.

Comment: Several commenters expressed concern about the delay in the implementation of ICD-10. Some commenters supported a delay, while others opposed any delay.

Response: Proposals on ICD-10 implementation are being addressed through a separate rulemaking as we have indicated above. These comments will be addressed as part of that separate rulemaking.

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

CMS is currently processing all 25 diagnosis codes and 25 procedure codes submitted on electronic hospital inpatient claims. Prior to January 1, 2011, hospitals could submit up to 25 diagnoses and 25 procedures; however, CMS' system limitations allowed for the processing of only the first 9 diagnosis codes and 6 procedure codes. We discussed this change in processing claims in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127), in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25843), in a correction notice issued in the Federal Register on June 14, 2011 (76 FR 24633), and in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51553). As discussed in these prior rules, CMS undertook an expansion of our 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 HIPAA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system update. 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 process up to 25 diagnosis codes and 25 procedure codes when received on the 5010 format.

d. ICD-10 MS-DRGs

In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received comments on the creation of the ICD-10 version of the MS-DRGs, which will be implemented at the same time as ICD-10 (75 FR 50127 and 50128). As we stated earlier, the Secretary of Health and Human Services has issued a proposed rule that would delay the compliance date of ICD-10 from October 1, 2013 to October 1, 2014. While we did not propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we noted that we have been actively involved in converting 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. We 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 Version 26.0 (FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS went about completing this project and suggestions for others to follow. All of this information can be found on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. We have continued to keep the public updated on our maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems as well as the General Equivalence Mappings that assist in conversion through the ICD-9-CM Coordination and Maintenance Committee. Information on these committee meetings can be found at: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

During FY 2011, we developed and posted Version 28.0 of the ICD-10 MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRGs Version 28.0 also included the CC Exclusion List and the ICD-10 version of the hospital-acquired conditions (HACs), which was not posted with Version 26.0. We also discussed this update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM Coordination and Maintenance Committee. The minutes of these two meetings are posted on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made updates as a result of these comments. We called the updated version the ICD-10 MS-DRGs Version 28 R1. We posted a Definitions Manual of ICD-10 MS-DRGs Version 28 R1 on our ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. To make the review of Version 28 R1 updates easier for the public, we also made available pilot software on a CD ROM that could be ordered through the National Technical Information Service (NTIS). A link to the NTIS ordering page was provided on the CMS ICD-10 MS-DRG Web page. We stated that we believed that, by providing the ICD-10 MS-DRG Version 28 R1 Pilot Software (distributed on CD ROM), the public would be able to more easily review and provide feedback on updates to the ICD-10 MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28 R1 at the September 14, 2011 ICD-9-CM Coordination and Maintenance Committee meeting. We encouraged the public to continue to review and provide comments on the ICD-10 MS-DRGs so that CMS could continue to update the system.

In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on the FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 IPPS/LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-DRGs Version 29.0 on our ICD-10 MS-DRGs Web site. We also prepared a document that describes changes made from Version 28.0 to Version 29.0 to facilitate a review. The ICD-10 MS-DRGs Version 29.0 was discussed at the ICD-9-CM Coordination and Maintenance Committee meeting on March 5, 2012. Information was provided on the types of updates made. Once again the public was encouraged to review and comment on the most recent update to the ICD-10 MS-DRGs.

We provided information on a study conducted on the impact on converting MS-DRGs to ICD-10. Information on this study is summarized in a paper entitled “Impact of the Transition to ICD-10 on Medicare Inpatient Hospital Payments.” This paper is posted on the CMS ICD-10 MS-DRG conversion Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The paper describes CMS' approach to the conversion of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was undertaken using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010) and converted to the ICD-10 MS-DRGs Version 27.0. The study estimated the impact on aggregate payment to hospitals and the distribution of payments across hospitals. The paper was distributed and discussed at the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee. The impact of the conversion from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was estimated using 2009 Medicare data. The study found a hospital payment increase of 0.05 percent using the ICD-10 MS-DRGs Version 27.0. For detailed information on this study, we refer readers to the complete report which is posted on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp.

CMS provided an overview of this hospital payment impact study at the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee meeting. This presentation followed presentations on the creation of ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be found on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. At this March 2012 meeting, CMS announced that it would produce an update on this impact study based on an updated version of the ICD-10 MS-DRGs. This update will provide additional information to the public as CMS is evaluating refinements made to the ICD-10 MS-DRGs based on public comments.

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 will be implemented at the same time as ICD-10 and 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.

10. Public Comments on Issues Not Addressed in the Proposed Rule

We received a number of public comments regarding MS-DRG issues that were outside of the scope of the proposals included in the FY 2013 IPPS/LTCH PPS proposed rule. We have summarized these public comments below. However, because these public comments were outside of the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.G. of this preamble, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than December of each year so they can be considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. We will consider these comments for possible proposals in future rulemaking as part of our annual review process.

Some commenters requested that CMS create a new MS-DRG for total ankle replacement procedures. One commenter requested that CMS eliminate the severity levels for heart and liver transplants and implement one MS-DRG for heart transplants and one MS-DRG for liver transplants.

One commenter requested that CMS conduct an analysis of diagnosis code V45.88 (Status post administration of tPA (rt-PA) in a different facility within the last 24 hours prior to admission to current facility) to determine whether new data warrant any change in the MS-DRG structure for these cases.

One commenter recommended that bronchial valve procedures reported with ICD-9-CM procedure codes 33.71 (Endoscopic insertion or replacement of bronchial valve(s), single lobe) and 33.73 (Endoscopic insertion or replacement of bronchial valve(s), multiple lobes), that are assigned to medical MS-DRGs 190 and 192 (Chronic Obstructive Pulmonary Disease with MCC, with CC, or without MCC/CC, respectively) be assigned instead to surgical MS-DRGs 163 and 165 (Major Chest Procedures with MCC, with CC, or without MCC/CC, respectively).

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Weights

In developing the FY 2013 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 2011 MedPAR data used in this final rule include discharges occurring on October 1, 2010, through September 30, 2011, based on bills received by CMS through March 31, 2012, 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 2011 MedPAR file used in calculating the relative weights includes data for approximately 10,804,695 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 31, 2012 update of the FY 2011 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the relative weights for FY 2013 also excludes claims with claim type values not equal to “60.” The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the HCRIS. Normally, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year (that is, for the calculation of the FY 2013 MS-DRG relative weights, we use data from the FY 2010 HCRIS, which are data from cost reports that began on or after October 1, 2009 and before October 1, 2010). However, during the development of this final rule, as was the case with the proposed rule, we have found that those cost reports in the FY 2010 HCRIS dataset with fiscal year begin dates that are on or after May 1, 2010, and before October 1, 2010, are not accessible. This is because cost reports with fiscal year begin dates of May 1, 2010, through September 30, 2010, were filed on the new cost report Form 2552-10, and cost reports filed on Form 2552-10 are not currently accessible in the HCRIS. However, because data from cost reports filed on Form 2552-10 are not currently available, to ensure that the FY 2013 MS-DRG relative weights are calculated with a dataset that is as comprehensive and accurate as possible, as we proposed, we are calculating the final FY 2013 MS-DRG relative weights with data from FY 2010 cost reports for providers with fiscal year begin dates of on or after October 1, 2009 and before May 1, 2010, and backfilling with data from FY 2009 cost reports for those providers that have fiscal year begin dates on or after May 1, 2010 through September 30, 2010. We used cost report data from the March 31, 2012 update of the HCRIS for FY 2009 and FY 2010 in calculating the FY 2013 cost-based relative weights.

2. Methodology for Calculation of the Relative Weights

The methodology we used to calculate the FY 2013 MS-DRG cost-based relative weights based on claims data in the FY 2011 MedPAR file and data from the FY 2009 and FY 2010 Medicare cost reports is as follows:

  • To the extent possible, all the claims were regrouped using the proposed FY 2013 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 2010 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 96.2 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 geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
  • Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. 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 an “N” or a “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 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 2009 and FY 2010 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

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 2009 and FY 2010 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-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 FY 2013 cost-based relative weights were then normalized by an adjustment factor of 1.5916044904 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 2013 are as follows:

Group CCR
Routine Days 0.514
Intensive Days 0.442
Drugs 0.199
Supplies & Equipment 0.335
Therapy Services 0.370
Laboratory 0.143
Operating Room 0.238
Cardiology 0.145
Radiology 0.136
Emergency Room 0.226
Blood and Blood Products 0.389
Other Services 0.397
Labor & Delivery 0.450
Inhalation Therapy 0.189
Anesthesia 0.109

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 2013 IPPS/LTCH PPS proposed rule (77 FR 27930), we proposed to use that same case threshold in recalibrating the MS-DRG weights for FY 2013. Using data from the FY 2011 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients aged 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients aged 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have received frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. Newborns are unique and require separate MS-DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs listed below are for newborns. In FY 2013, 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 2012 weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

Low-Volume MS-DRG MS-DRG Title Crosswalk to MS-DRG
768 Vaginal Delivery with O.R. Procedure Except Sterilization and/or D&C FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
789 Neonates, Died or Transferred to Another Acute Care Facility FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
790 Extreme Immaturity or Respiratory Distress Syndrome, Neonate FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791 Prematurity with Major Problems FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792 Prematurity without Major Problems FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793 Full-Term Neonate with Major Problems FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794 Neonate with Other Significant Problems FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795 Normal Newborn FY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).

We did not receive any public comments on this section. In this final rule, we are adopting the national average CCRs as proposed without modification, with the MS-DRG weights recalibrated based on these CCRs.

4. Bundled Payments for Care Improvement (BPCI) Initiative

a. Background

Section 3021 of the Affordable Care Act, codified at section 1115A of the Act, authorizes CMS to test innovative payment and service delivery models with the goal of reducing Medicare program expenditures while preserving or enhancing the quality of care furnished to individuals. Because initiatives established under this authority could result in IPPS hospitals receiving a payment different than what they otherwise would receive under the IPPS, we believe it is important to identify how these initiatives are addressed in the context of MS-DRG recalibration and ratesetting, budget neutrality, and the impact analysis in the Addendum of this final rule, as we did in the proposed rule.

Under the Bundled Payments for Care Improvement (BPCI) initiative, CMS would link payments for multiple services that patients receive during an episode of care. CMS is working in partnership with providers to develop and test models of bundling payments through the BPCI initiative. On August 23, 2011, CMS invited providers to apply to help develop and test four different models of bundling payments. For additional information, we refer readers to the CMS Web site at: http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html. We are providing below a brief overview of payments under each model. However, the BPCI initiative Request for Application and related information on the CMS Web site at http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html/ provide more details of this initiative.

As described below and also in the Addendum to the proposed rule and this final rule, we generally proposed to include, and for this final rule are including, data from hospitals participating in the BPCI initiative and to treat these hospitals without regard to their participation in the BPCI initiative for the purposes of IPPS ratesetting.

We did not receive any public comments about our proposals. Therefore, as discussed in greater detail below, we are finalizing the treatment of hospitals participating in the BPCI initiative as proposed. For hospitals participating in Models 1, 2, and 4, we are finalizing treating these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within these bundled payment models (that is, as if they are not participating in those models under the BPCI initiative).

Model 1

In Model 1, the episode of care is defined as the inpatient hospital services for the acute care hospital stay only. Applicants for this model were asked to propose discount percentages for various periods of the 3-year program, which would be applied to the IPPS operating MS-DRG payment for each participating hospital's MS-DRGs over the lifetime of the initiative. That is, for hospitals participating in Model 1, Medicare would continue to pay participating acute care hospitals under the IPPS. However, these payments to participating acute care hospitals would be at a reduced payment amount that reflects the applicable discount percentage for cases in all MS-DRGs for the specific period of the program. We note that an adjustment would be made such that payments for IME, DSH, and outliers would be calculated based on the nondiscounted MS-DRG operating IPPS payment amount and then paid, if applicable, in addition to the discounted MS-DRG operating IPPS payment. The minimum discount percentage that awardees are expected to offer would be phased in over time, with the discount percentage updated as frequently as every 6 months.

Model 2

In Model 2, the episode of care is defined as the inpatient acute care hospital stay for specific clinical conditions and a specified period of time following discharge (with a minimum episode length of at least 30 days following hospital discharge). The payment bundle for Model 2 would encompass all Medicare Part A payments for designated MS-DRGs, Part B professional services paid under the Medicare Physician Fee Schedule (MPFS) during the hospital stay, and related professional services furnished after discharge during the episode, “related readmissions” (as defined under the BPCI initiative), care by a postacute care provider such as an HHA, IRF, SNF, LTCH, and other related services furnished during the episode (that is, all Medicare Part A and Part B with the exception of hospice care). Applicants, which may be a Medicare supplier or provider, groups of such entities, or other organizations that bring together providers and suppliers to test the model, were asked to propose specific MS-DRG(s) for the clinical condition(s) to be tested in Model 2. Furthermore, the applicants were asked to propose the target price on an MS-DRG basis for the episode that includes a single rate of discount off of the expected Medicare payment (including hospital, postacute care, Medicare Part B professional services, and other services, as applicable) for all Model 2 beneficiaries discharged from the inpatient hospital stay with the specified MS-DRG(s). We note that, when proposing the target price, applicants were instructed to include IPPS outlier payments in their calculation; however, IPPS IME and DSH payments should be excluded from the target price. In Model 2, payments would be made at the usual fee-for-service payment rates to the participating providers through the regular claims processing system, after which the aggregate Medicare payment for the episode would be reconciled against the target price. If aggregate Medicare expenditures are less than the target price, the awardee would be paid the difference as a reconciliation payment. Conversely, if aggregate Medicare expenditures exceed the target price, CMS would recoup that amount from the awardee.

Model 3

In Model 3, the episode of care begins at initiation of postacute services at one of four postacute care providers (HHAs, IRFs, SNFs, and LTCHs) within 30 days after discharge from any acute care hospital for specific clinical conditions. As with the other three models, applicants may be one or more Medicare providers or supplier or other organization(s) bringing those entities together to test the model. Applicants were asked to propose an episode length that would extend to at least 30 days following initiation of care at an HHA, IRF, SNF, or LTCH. The payment bundle for Model 3 would encompass care by a postacute care provider, and other related services furnished during the episode, including Medicare Part B professional services paid under the MPFS, and inpatient hospital readmissions (as defined under the BPCI initiative). In contrast to Model 2, the payment bundle for Model 3 does not include services provided in the initial acute care hospital stay. We note that, while the episode is initiated at one of the four postacute care providers rather than at an acute care hospital, applicants were asked to specify the clinical condition(s) to be tested in Model 3 by proposing relevant MS- DRG(s). Therefore, applicable to all Model 3 beneficiaries discharged from any inpatient acute care hospital stay with the specified MS-DRG(s), applicants were to propose a target price on an MS-DRG basis for the episode that includes a single rate of discount off of the expected Medicare payment, which includes care by a postacute care provider, related Medicare Part B professional services paid under the MPFS, inpatient hospital readmissions, and other related services furnished during the episode. In Model 3, payments would be made at the usual fee-for-service payment rates to the participating providers through the regular claims processing process, after which the aggregate Medicare payment for the episode would be reconciled against the target price. Like Model 2, if aggregate Medicare expenditures are less than the target price, the awardee would be paid the difference as a reconciliation payment. Conversely, if aggregate Medicare expenditures exceed the target price, CMS would recoup that amount from the awardee. We note that Model 3 does address payment for related hospital readmissions.

Model 4

In Model 4, the episode of care is defined as the acute care hospital stay and includes all “related readmissions” (as defined under the BPCI initiative). The payment bundle for Model 4 would encompass Medicare inpatient hospital services, Medicare Part B professional services paid under the MPFS furnished during the initial hospitalization, as well as hospital services and Medicare Part B professional services during any related readmissions. Applicants were asked to propose specific MS-DRG(s) for the clinical condition(s) to be tested in Model 4. Applicants for this model were asked to propose a target price for the episode that includes a single rate of discount off of expected Medicare payment (including both Medicare Part A hospital services and Part B professional services) for all beneficiaries discharged from the inpatient hospital stay with the specified MS-DRG(s).

In contrast to Models 2 and 3, where usual Medicare fee-for-service payments are made to all providers and reconciliation of Medicare spending against the target price for the episode is conducted retrospectively, under Model 4, hospitals would receive a prospectively established bundled payment for specified MS-DRGs. This payment would include both the MS-DRG payment for the hospital and a fixed payment amount for the Medicare Part B professional services anticipated to be furnished during the episode. That is, separate payment for providers' professional services furnished during the inpatient hospital stay would not be made. Participating Model 4 hospitals receiving payment would take responsibility for distributing payment to providers that would otherwise be paid separately. We note that IPPS IME and DSH payments to Model 4 hospitals would be calculated based on the nondiscounted base MS-DRG operating IPPS payment that would have been made in the absence of the model. Other applicable payment adjustors would also be calculated based on the base MS-DRG operating IPPS payment amount that would otherwise have applied to the case, as opposed to the prospectively established amount paid through this initiative, which would be higher as it includes payment for Part B services as well as the base MS-DRG payment. Under Model 4, no separate IPPS outlier payments would be made.

b. Treatment of Data From Hospitals Participating in the BPCI Initiative

As discussed above, acute care hospitals had the opportunity to apply and participate in the BPCI payment models described above. As we discussed in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932), for Model 1 and Model 2, participating acute care hospitals would continue to receive an IPPS payment under section 1886(d) of the Act (subject to a predetermined discount for hospitals participating in Model 1). For Model 2, participating hospitals may also receive a reconciliation payment under the BPCI initiative (based on their predetermined target price). Under Model 3, services provided in the initial acute care hospital stay are not included; however, the model does address payment for possible hospital readmissions. Under Model 1, hospitals participate for all MS-DRGs, while, under Model 2, hospitals participate for only pre-selected MS-DRGs. We believe it is appropriate to include all applicable data from these subsection(d) hospitals in our IPPS payment modeling and ratesetting calculations because these hospitals are still receiving IPPS payments under section 1886(d) of the Act (in addition to, with respect to Model 2 hospitals, any reconciliation payment the hospital may receive under the BPCI initiative). Moreover, even if these hospitals were not receiving IPPS payments under section 1886(d) of the Act (and were participating in Models 1 and 2), the Secretary has the authority to make appropriate adjustments for payment amounts under section 1886(d)(5)(I)(i) of the Act to include all applicable data from these subsection(d) hospitals in our IPPS ratesetting calculations. We believe it is appropriate to use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act to include all IPPS, short-term, acute care hospitals within the IPPS ratesetting calculations because excluding these hospitals would diminish the number of providers used to determine the IPPS rates, which could cause fluctuations in the IPPS rates and could produce instability to the IPPS rates. Therefore, because we believe it is appropriate to include all claims from hospitals participating within Models 1 and 2 within the IPPS ratesetting calculations, using the Secretary's authority under section 1886(d)(5)(I)(i) of the Act, in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932), we proposed to include all applicable data from “subsection (d)” hospitals participating in Models 1 and 2 under the BPCI initiative in our IPPS payment modeling and ratesetting calculations (which includes recalibration of the MS-DRG weights, ratesetting, calculation of the budget neutrality factors, and the impact analysis). In essence, we proposed to continue to treat these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within these two bundled payment models (that is, we would treat these hospitals as if they are not participating in Model 1 or Model 2 under the BPCI initiative). We did not receive any public comments on our proposal. Therefore, we are finalizing treating these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within these two bundled payment models (that is, we would treat these hospitals as if they are not participating in Model 1 or Model 2 under the BPCI initiative), as we proposed.

In contrast to BPCI Models 1 and 2 (wherein participating IPPS hospitals would receive an IPPS payment under section 1886(d) of the Act, and, in the case of Model 2, may also receive a reconciliation payment under the BPCI initiative), IPPS hospitals participating in Model 4 would receive a predetermined bundled payment for Medicare Part A and Part B services for a pre-specified MS-DRG “episode” (and any “related readmissions” as defined under the BPCI initiative). These bundled payments are for certain pre- specified MS-DRG(s) episodes (not all cases) and would be made in accordance with the terms of the model, as authorized by section 1115A of the Act (these IPPS hospitals would also receive “regular” IPPS payments under section 1886(d) of the Act for those MS-DRGs not included in the bundling model). Similar to Models 1 and 2, we believe it is appropriate to keep all applicable data from these “subsection (d)” hospitals in our IPPS payment modeling and ratesetting calculations because the majority of Medicare payments these hospitals would receive would be IPPS payments under section 1886(d) of the Act (that is, payments for cases in MS-DRGs that are not included in the bundled payment model). Moreover, although these hospitals are not receiving payments under 1886(d) of the Act for the cases included in the prospective bundled payment under Model 4, the Secretary has the authority to make appropriate adjustments for payment amounts at section 1886(d)(5)(I)(i) of the Act to include all applicable data from these subsection (d) hospitals in our IPPS ratesetting calculations. We believe it is appropriate to use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act to include all IPPS, short-term, acute care hospitals and their claims within the IPPS ratesetting calculations because excluding these hospitals would diminish the number of providers used to determine the IPPS rates, which could cause fluctuations in the IPPS rates and could produce instability to the IPPS rates. Therefore, because we believe it is appropriate to include all claims from hospitals participating within Models 1 and 2 within the IPPS ratesetting calculations and use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act to include those hospitals and claims, we also believe it is appropriate to include all applicable data from subsection (d) hospitals participating in Model 4 in our IPPS payment modeling and ratesetting calculations (which includes recalibration of the MS-DRG weights, ratesetting, calculation of the budget neutrality factors, and the impact analysis) and proposed to do so in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27932 through 27933). In essence, we proposed to continue to treat these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within this bundled payment model (that is, we would treat these hospitals as if they are not participating in Model 4 under the BPCI initiative). We did not receive any public comments on our proposal. Therefore, we are finalizing treating these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within these two bundled payment models (that is, we would treat these hospitals as if they are not participating in Model 4 under the BPCI initiative), as we proposed.

We note that Model 3 only addresses payments for related readmissions and postacute care services (rather than IPPS payments). Therefore, we believed it was not necessary to propose to address the treatment of any data for participating hospitals in Model 3. We continue to believe it is not necessary to address the treatment of any data for participating hospitals in Model 3. We did not receive any public comments on our decision not to propose to address the treatment of any data for participating hospitals in Model 3.

Because we did not receive any public comments, we are finalizing the treatment of hospitals participating in the BPCI initiative as proposed. For hospitals participating in Models 1, 2, and 4, we are finalizing treating these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within these bundled payment models (that is, as if they are not participating in those models under the BPCI initiative).

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 discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations at 42 CFR 412.87 implement these provisions and specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. The regulations at 42 CFR 412.88 also implement these provisions and describe the additional payment for the new medical service or technology. Below, we highlight some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria, as well as other information. For a complete discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574).

Under the first criterion, as reflected in 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. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to a technology that was approved by FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final rule (70 FR 47351) and FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our policy regarding substantial similarity in detail.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. Table 10 that was released with the FY 2012 IPPS/LTCH PPS final rule contains the final thresholds that we used to evaluate applications for new technology add-on payments for FY 2013 in this final rule. We refer readers to the Web site http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FR2012/list.asp#TopOfPage for a complete viewing of Table 10 from the FY 2012 IPPS/LTCH PPS final rule.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for complete information on this issue.

Under the third criterion, § 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. We refer readers to the September 7, 2001 final rule for a 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, the additional Medicare payment for new medical services and technologies is limited to the full MS-DRG payment plus 50 percent of the estimated costs of the new technology.

Section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulations at § 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criterion, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We also amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval or clearance for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered.

The Council on Technology and Innovation (CTI) at CMS oversees the 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 Center of Clinical Standards and Quality (CCSQ) and the Director of the Center for Medicare (CM), who is also designated as the CTI's Executive Coordinator.

The specific processes for coverage, coding, and payment are implemented by CM, CCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements, rather than replaces, these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care. At the same time, the CTI also works to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

To improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an “Innovator's Guide” to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.

As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any potential applicants, such as 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 and/or payment decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov.

We note that applicants for add-on payments for new medical services or technologies for FY 2014 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2014, the Web site also will post the tracking forms completed by each applicant.

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

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of 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 2013 prior to publication of the FY 2013 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on November 18, 2011 (76 FR 71571 through 71572), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 14, 2012. 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 2013 new medical service and technology add-on payment applications before the publication of the FY 2013 proposed rule.

Approximately 70 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. Four of the five FY 2013 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 that were received by the due date of March 6, 2012, in our evaluation of the new technology add-on payment applications for FY 2013 in the proposed rule.

In response to the published notice and the new technology town hall meeting, commenters submitted and presented public comments that were unrelated to the substantial clinical improvement criterion in regard to the new technology applications for FY 2013. We also received public comments on the proposed rule relating to topics such as marginal cost factors for new technology add-on payments, and the use of external data in determining the cost threshold and mapping new technologies to the appropriate MS-DRG. Because we did not request public comments nor propose to make any changes to any of the issues above, we are not summarizing these public comments nor responding to them in this final rule.

3. FY 2013 Status of Technology Approved for FY 2012 Add-On Payments: 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] . 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 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 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.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for the AutoLITT [TM] and consideration of the public comments we received in response to the FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional analysis of clinical data and supporting information submitted by the applicant, we approved the AutoLITT [TM] for new technology add-on payments for 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 limited the new technology add-on payment to cases involving the AutoLITT [TM] in MS-DRGs 025 (Craniotomy and Endovascular Intracranial Procedures with MCC), 026 (Craniotomy and Endovascular Intracranial Procedures with CC), and 027 (Craniotomy and Endovascular Intracranial Procedures without CC or MCC). Cases involving the AutoLITT [TM] that are eligible for the new technology add-on payment are identified by assignment to MS-DRGs 025, 026, and 027 with a procedure code of 17.61 (Laser interstitial thermotherapy of lesion or tissue of brain under guidance) in combination with a principal diagnosis code that begins with a prefix of 191 (Malignant neoplasm of brain). We note that using the procedure and diagnosis codes above and restricting the add-on payment to cases that map to MS-DRGs 025, 026, and 027 is consistent with information provided by the applicant, which demonstrated that cases of the AutoLITT [TM] would only map to MS-DRGs 025, 026, and 027. Procedure code 17.62 (Laser interstitial thermotherapy of lesion or tissue of head and neck under guidance) does not map to MS-DRGs 025, 026, or 027 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.

The new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology” (42 CFR 412.87(b)(2)). Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362). In the proposed rule, with regard to the newness criterion for the AutoLITT [TM] , we stated that we consider the beginning of the newness period for the device to commence from the market release date of December 2009. Therefore, for FY 2013, as of December 2012, the AutoLITT [TM] will have been on the market for 3 years, and would therefore no longer be considered “new” as of December 2012 nor be considered eligible for new technology add-on payments in FY 2013. However, we received information from the applicant that the market release date of the AutoLITT [TM] occurred after April 2010 (which occurs in the latter half of the fiscal year) and, therefore, it appears that the AutoLITT [TM] would still be considered “new” for FY 2013 and would still be eligible for new technology add-on payments in FY 2013. We note that we received this information in close proximity to the publication of the proposed rule and anticipated receiving further information on the delayed market release date from the applicant and welcomed public comment as well.

Comment: The applicant submitted a public comment to demonstrate that the AutoLITT [TM] was first available on May 11, 2010, which would make the AutoLITT [TM] eligible for new technology add-on payments in FY 2013 (because the 3-year anniversary date of AutoLITT [TM] would take place in the latter half of the fiscal year). The manufacturer explained that some of the sterile disposable products were not released from quarantine until May 11, 2010, which prevented the AutoLITT [TM] from being used prior to May 11, 2010. Therefore, the manufacturer asserted that the first time the AutoLITT [TM] was available on the market was May 11, 2010.

Response: We appreciate the manufacturer providing this information and we agree that the AutoLITT [TM] is considered new as of May 11, 2010, instead of December 2009. As stated above, in general, we extend new technology 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). Because the 3-year anniversary date of the AutoLITT [TM] entry on the market occurs in the latter half of the fiscal year, we still consider the AutoLITT [TM] to be new for FY 2013. Therefore, we are continuing to make new technology add-on payments for the AutoLITT [TM] in FY 2013. We discuss the coding and payment policies for the AutoLITT [TM] earlier in this section.

Comment: Several public commenters recommended extending new technology add-on payments for the AutoLITT [TM] in FY 2013.

Response: As stated above, we still consider the AutoLITT [TM] to be new for FY 2013, and will continue to make new technology add-on payments for the AutoLITT [TM] in FY 2013.

4. FY 2013 Applications for New Technology Add-On Payments

We received six applications for new technology add-on payments for FY 2013. However, two applicants withdrew their applications prior to the publication of the proposed rule.

a. Glucarpidase (Trade Brand Voraxaze®)

BTG International, Inc. (BTG) submitted an application for new technology add-on payments for Glucarpidase (trade brand Voraxaze®) for FY 2013. In the proposed rule, we summarized this application, and stated that Glucarpidase is used in the treatment of patients who have been diagnosed with toxic methotrexate (MTX) concentrations as a result of renal impairment. The administration of Glucarpidase causes a rapid and sustained reduction of toxic MTX concentrations.

Methotrexate (MTX) is a widely used anticancer agent. The administration of high-dose methotrexate (HDMTX) is an important component of the treatment provided to patients who have been diagnosed with various types of cancer. According to the applicant, HDMTX, in particular, is specifically used in the treatment of patients who have been diagnosed with osteosarcoma, acute lymphoblastic leukemia, non-Hodgkin's lymphoma, or primary CNS lymphoma. The applicant further stated that the administration of HDMTX can cause renal dysfunction. Renal dysfunction impairs the elimination of MTX, which in turn causes the levels of MTX to rise to the point of life-threatening toxicity.

The applicant maintains that there are not any currently FDA-approved pharmaceutical treatment options available to rapidly decrease MTX levels in patients who have been diagnosed with toxic MTX concentrations as a result of renal impairment. The applicant asserts that extracorporeal treatment options that are routinely employed to rapidly treat this condition, such as hemodialysis, hemodiafiltration, high-flux hemodialysis, charcoal hemoperfusion or hemofiltration, peritoneal dialysis, exchange transfusion, or plasma exchange, are invasive, may add excess morbidity to the treatment regimen, and have proven to have limited effects. [15] High flux hemodialysis is the most effective method of extracorporeal MTX removal, but this method requires 5 to 6 days of daily treatment (4 to 6 hours per session). [16] The risks associated with repeated hemodialysis procedures such as anemia, infection, and increased mortality, especially in neutropenic or thrombocytopenic patients, are significant and cause rebounds in MTX levels. The applicant maintains that other treatment options, such as the administration of leucovorin, hydration, and urinary alkalinization, also are commonly used to reduce harmful levels of MTX. However, these treatment options do not reduce toxic MTX concentrations in all patient populations. [17]

Voraxaze® was approved by the FDA on January 17, 2012. Beginning in 1993, certain patients could obtain expanded access for treatment use to Voraxaze® as an investigational drug. Since 2007, the applicant has been authorized to recover the costs of making Voraxaze® available through its expanded access program. We describe expanded access for treatment use of investigational drugs and authorization to recover certain costs of investigational drugs in more detail below. Voraxaze® was available on the market in the United States as a commercial product to the larger population as of April 30, 2012.

With regard to newness, in the proposed rule we expressed concern that Voraxaze® may no longer be considered “new.” Specifically, 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”. In addition, the regulations at § 412.87(b)(2) state that “A medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (depending on when a new code is assigned and data on the new service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered `new' under the criterion of this section.” As we have indicated in the past, we generally believe that the newness period begins on the date that FDA approval is granted. The FDA approval date is typically the date when new technologies are available on the market and as a result begin to be reflected within the MS-DRGs cost data.

As noted above, Voraxaze® was approved by the FDA in January 2012. However, starting in 1993, certain patients were able to obtain access to Voraxaze® as an investigational drug through an expanded access program, and the applicant has been authorized to recover certain costs of making Voraxaze® available through its expanded access program since 2007. We discuss below in more detail whether the cost of Voraxaze® is already reflected within the MS-DRG relative weights.

To determine the date of newness for Voraxaze®, as we stated in the proposed rule, we believe it is appropriate to compare investigational drugs provided under the expanded access program to devices eligible for the Humanitarian Use Device (HUD) Program because these programs contain similarities for the purpose of evaluating the newness criterion.

In prior final rules, we have evaluated and approved technologies with a Humanitarian Device Exemption (HDE) approval. In the FY 2010 IPPS/LTCH PPS final rule, we approved new technology add-on payments for the Spiration® IBV®, which received a HDE approval from the FDA on October 24, 2008, and had its first Institutional Review Board (IRB) approval on March 12, 2009 (74 FR 43754, 43819). Therefore, technologies with an HDE approval may be eligible for new technology add-on payments. In other words, we have concluded that HDE approval constitutes an FDA approval in the context of the newness criterion and would begin the newness period, subject to market availability.

There are separate processes and standards for providing expanded access to investigational drugs for treatment use and for the HUD Program. The term “expanded access” refers to the use of investigational drugs, or approved drugs where availability is limited by a risk evaluation or mitigation strategy, when the primary purpose is to diagnose, monitor, or treat a patient's disease or condition. When the requirements in (FDA's regulations at) 21 CFR Part 312, Subpart I are met, a patient or group of patients with a serious or immediately life-threatening disease or condition, and no comparable or satisfactory alternative therapy, may obtain expanded access to an investigational drug. When patients obtain expanded access to an unapproved investigational drug, the safety and effectiveness of the drug have not been fully established, and the drug does not have formal FDA approval under a New Drug Application (NDA) or Biologics Licensing Application (BLA) for commercial marketing. Manufacturers may continue conducting clinical trials in parallel to the expanded access program in order to pursue formal market approval from the FDA under an NDA or BLA for commercial marketing. The FDA's Office of Orphan Products Development administers the Humanitarian Use Device (HUD) Program. A HUD is a device that is intended to benefit patients by treating or diagnosing a disease or condition that affects fewer than 4,000 individuals in the United States per year. To obtain approval for a HUD, a HDE application is submitted to FDA. A HDE application is similar in both form and content to a Premarket Approval (PMA) application, but is exempt from the effectiveness requirements of a PMA. A HDE application must, however, contain sufficient information for FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use, taking into account the probable risks and benefits of currently available devices or alternative forms of treatment. An approved HDE authorizes marketing of the HUD, however, an HDE approval requires that the device only be used in facilities that have established a local IRB to supervise clinical testing of devices, and that an IRB approve the use of the device to treat or diagnose the specific disease. Although HUDs can be marketed, they are subject to a general prohibition on profit; that is, they may not, except in narrow circumstances, be sold for an amount that exceeds the cost of research and development, fabrication and distribution.

Expanded access to investigational drugs and the HUD Program have similarities and differences that are relevant to the newness criterion as we stated in the proposed rule. Both have limits on who is eligible to receive a drug or use a device. In addition, to satisfy the requirements for expanded access in FDA's regulations, and for a HDE to meet the standard for approval, a sponsor is not required to demonstrate effectiveness of the product at the same level as for approval of a PMA, NDA, or BLA. Expanded access to investigational drugs and the HUD Program differ in many ways, including that the HUD Program is for devices, and the expanded access programs provide access to drugs. In addition, under the HUD Program, the device is granted FDA approval for limited use. However, while FDA authorizes expanded access to an investigational drug, FDA does not approve the investigational drug when it authorizes expanded access.

This second difference is key to our interpretation of our policy to recognize a HDE approval as an FDA approval. We believe that the availability of a drug through the expanded access program would not constitute FDA approval in the context of the newness criterion because unapproved, investigational drugs made available to certain patients through the expanded access program do not receive FDA approval prior to enrollment in the program and cannot be marketed. In other words, we believe that for the purposes of evaluating whether a new technology meets the newness criterion, it may be appropriate not to consider the date when Voraxaze® became available to certain patients through the applicant's expanded access program as the date of market availability.

We note that cost recovery for investigational drugs is of concern with regard to the newness criterion. Although a sponsor (for example, a drug manufacturer) may not commercially distribute an investigational drug, in certain circumstances, a sponsor of a clinical trial or an expanded access program may receive authorization from FDA to charge for certain costs associated with making an investigational drug available. The applicant has been authorized to recover certain costs by making Voraxaze® available since 2007. As we stated earlier, once CMS has recalibrated the DRGs based on available data to reflect the costs of an otherwise new technology, that technology will no longer be considered “new”' for the purposes of the new technology add-on payments. It is possible that a hospital may have submitted a claim to Medicare for the cost of Voraxaze® provided through the applicant's expanded access program. Therefore, it is also possible that the costs associated with this technology may already be reflected in some limited fashion in the data used to determine the MS-DRG relative weights. While these are possibilities, we have not in the past been confronted with a situation where an applicant has indicated that hospitals have sought cost recovery for their technology when the technology was available through the expanded access program. We also have not been confronted with a situation where an applicant has indicated that cost recovery was sought for technologies (that were not available via an expanded access program) during clinical trials. We note that our data do not distinguish charges for drugs by FDA approval status, and, therefore, we do not exclude from the relative weight calculation costs (as derived from charges) associated with investigational drugs if they are included by hospitals on a claim. Therefore, cost data for non-FDA approved technologies (that is, still involved in clinical trials) may be present in the relative weights on a very limited basis prior to FDA approval, regardless of whether a technology received new technology add-on payments.

We invited public comment regarding the issue of whether a drug is considered “new” for the purposes of new technology add-on payments starting with its availability in the expanded access program, and how that may differ from devices being considered “new” starting from the date the device received FDA approval under a HDE (subject to market availability or availability to Medicare beneficiaries) and specifically requested comment on these considerations in the context of Voraxaze®. We also invited public comment on whether the costs of Voraxaze®, or more generally, any unapproved investigational drug for which cost recovery is authorized are already included in data used to determine relative weights, and how that influences the start of a newness period, if at all. In addition, we invited public comment regarding the market availability of Voraxaze® between its FDA approval date of January 17, 2012, and the market availability date according to the applicant of April 2012 and the reasons for the delay in availability.

Comment: Several public commenters responded with opinions regarding whether Voraxaze® should be considered new for the purposes of new technology add-on payments. One commenter stated that Voraxaze® was available on a “very limited basis” since 1993, and recommended that it be considered “new” for the purpose of new technology add-on payments. The commenter also stated that because the manufacturer was only covering its costs under the expanded access program, existing charge data do not adequately reflect the “true price” of the technology. The commenter further noted that the frequency with which the technology is used is low, and that the associated relative weights are “likely artificially low.”

The applicant submitted information through the submittal of a public comment documenting that Voraxaze® was approved by the FDA in January 2012 and that marketing of Voraxaze did not begin until April 2012. The applicant added that the FDA's Office of Prescription Drug Promotion (OPDP) considers a product new from the point of initial marketing and promotion, stating that, “OPDP generally considers that `new' is an accurate description of the marketing phase for six months from the time a product is initially marketed and this should be distinguished from the time a product is cleared by FDA for marketing.” The applicant concluded that the FDA recognizes a time delay between approval and commercial availability as standard in the pharmaceutical industry.

In addition, the applicant provided supplemental information that demonstrated that Voraxaze was not available on the market until April 30, 2012. This documentation included specific information regarding training, manufacturing/packaging and trade/distribution activities that needed to take place prior to April 30, 2012. Once these activities were completed, the applicant stated that it discontinued the treatment of IND/cost recovery program for Voraxaze® on April 29, 2012, and that market availability of Voraxaze® began on April 30, 2012.

The applicant also noted that one of the reasons it did not initiate commercialization activities prior to the FDA approval date of January 30, 2012 was because the company was awaiting final FDA labeling approval (that is, prescribing information) for Voraxaze®, which was delivered to BTG on the day of approval, which was January 17, 2012. The applicant believed it would not have been prudent for BTG to initiate commercialization activities before receiving the final labeling approval because it would have required expensive and time-consuming rework.

One commenter stated that Voraxaze® meets the newness criteria. The commenter explained that the FDA approval date is reasonable to use for determination of newness. The commenter stated that prior to FDA approval, Voraxaze® was only available through a laborious expanded access process that many oncology centers did not have in place. Thus, it was truly only available at many centers for the first time as of April 30, 2012.

Another commenter stated that it believed that Voraxaze® does not meet the newness criterion but did not provide additional information.

Response: Generally, our policy is to begin the newness period on the date of FDA approval/clearance or, if later, the date of market availability for the technology. Availability under the expanded access program neither represents the date of FDA approval (in this case, January 2012) nor the date of market availability (April 30, 2012). Therefore, we consider Voraxaze® to be “new” as of April 30, 2012, its date of market availability.

We note, as discussed in section II.G.7. of the preamble to this final rule, we are creating a new ICD-9-CM procedure code 00.95 (Injection or infusion of glucarpidase) to identify this new technology. This new code is effective October 1, 2012.

With respect to the cost criterion, as we described in the proposed rule, the applicant researched the 2009 Standard Analytic Inpatient File (SAF) for cases with a principal or secondary diagnosis of osteosarcoma (ICD-9-CM code series 170.xx), acute lymphoblastic leukemia (ICD-9-CM code series 204.0x), non-Hodgkin's lymphoma (ICD-9-CM code series 200.xx and 202.xx), or primary CNS lymphoma (ICD-9-CM code series 200.5x) with a corresponding ICD-9-CM procedure code for chemotherapy (99.25) that may be eligible for Voraxaze®, based on the product's approved indications. The applicant's search yielded potentially eligible cases within 249 MS-DRGs, of which 56 MS-DRGs captured 12 or more cases.

Using this universe of cases (249 MS-DRGs), the applicant added the additional costs of Voraxaze® to the case-weighted average standardized charge per case. Although the applicant submitted data related to the estimated cost of Voraxaze®, the applicant noted that the cost of the technology was proprietary information. According to the applicant, it did not convert the costs to charges for this analysis because of the technology's high cost. The applicant maintains that an average adult receiving treatment for one of the diagnoses above would require a minimum of four vials of Voraxaze®.

The applicant used the following multiple analysis of different subsets of MS-DRGs to compare the average case-weighted standardized charge per case to the average case-weighted threshold to determine that Voraxaze® met the cost criteria:

  • The applicant found 12,324 eligible cases within 249 MS-DRGs, and determined a case-weighted average standardized charge per case of $87,582 (which includes the cost of Voraxaze®) and a case-weighted threshold of $39,216. The applicant maintains that Voraxaze® meets the cost criterion because the case-weighted average standardized charge per case exceeds the case-weighted threshold.
  • The applicant excluded those MS-DRGs that had fewer than 11 cases, which resulted in 12,134 eligible cases within 56 MS-DRGs. The applicant determined a case-weighted average standardized charge per case of $84,039 (which includes the cost of Voraxaze®) and a case-weighted threshold of $37,195. The applicant maintains that Voraxaze® meets the cost criterion because the case-weighted average standardized charge per case exceeds the case-weighted threshold.
  • The applicant analyzed the 20 MS-DRGs that contained the highest number of cases and, based on the 11,534 cases they stated they found, determined a case-weighted average standardized charge per case of $80,400 (which includes the cost of Voraxaze®) and a case-weighted threshold of $34,990. The applicant maintains that Voraxaze® meets the cost criterion because the case-weighted average standardized charge per case exceeds the case-weighted threshold.

We invited public comment on whether or not Voraxaze® meets the cost criterion. Specifically, we welcomed public comment on the methodologies used in the applicant's analysis, including (1) the methods used to identify the eligible cases used in the cost analysis of this technology, especially if there are cases that should be excluded from the analysis because of clinical reasons, and if there are other ways to identify cases for which this technology may be appropriate, and (2) the appropriateness of not converting the costs to charges for the purposes of this analysis and what would be an accurate and appropriate CCR for this technology.

Comment: The applicant submitted a public comment stating that it believed that Voraxaze® meets the cost criterion because the commercial costs of Voraxaze® are not reflected in the MS-DRG relative weights. The applicant added that Voraxaze® was available via expanded access since 2007 and hospitals were not allowed to submit for reimbursement of Voraxaze® because it was an investigational drug. Even if hospitals attempted to submit for reimbursement, the applicant noted that the Voraxaze® cost recovery price is substantially lower than its commercial price of $22,500 (effective April 30, 2012) and any existing data prior to April 30, 2012 used to determine MS-DRG relative weights would not capture such a price difference and would largely underestimate the cost of Voraxaze®. Other commenters stated that Voraxaze® clearly meets the cost criterion. The commenters explained that they believed the situations where Voraxaze® is indicated for use were rare, and in those situations they believed that the cost of care for the affected patient rises substantially.

Response: We appreciate the commenters' input. We agree that Voraxaze® meets the cost criterion.

With regard to substantial clinical improvement, the applicant maintains that Voraxaze® is a clinical improvement compared to current treatment options because it is less time intensive, allows certain patient populations to avoid risks associated with current treatment options, and has characteristics that allows it to reduce MTX concentrations more effectively. As noted above, the applicant maintains that current treatment options for renal impairment as a result of toxic MTX concentrations are limited to extracorporeal methods that are time-intensive and could subject patients in certain populations to harm from the associated risks. The applicant states that the administration of Voraxaze® to patients who have been diagnosed with HDMTX-induced renal dysfunction metabolizes circulating MTX to the inactive metabolite DAMPA. The applicant asserts that this characteristic action of the technology represents a substantial clinical improvement over current treatment options available to patients who have toxic MTX concentrations in a more effective, and rapid way, and provides protection to eligible patient populations against potential harm associated with current treatment options.

In addition, the applicant provided the results from a study of 23 patients diagnosed with MTX-induced renal dysfunction treated with Voraxaze®. During this study, the applicant reported that the administration of Voraxaze® lowered toxic MTX concentrations in patients within 15 minutes after the administration by more than 98 percent. Because the administration of Voraxaze® could metabolize both leucovorin and its active metabolite, 5-mTHF, these patients were also administered Leucovorin, a drug used to enhance the treatment for patients with high levels of MTX. The applicant noted that the combination of Voraxaze® and Leucovorin rescue was well tolerated by the 23 patients studied, and MTX-related toxicities were reduced from severe to mild to moderate. The range of age of these 23 patients was 19 to 94 years old with 18 of the 23 patients being 50 years or older. [18] The applicant asserted that the types of health conditions treated with HDMTX, such as acute lymphoblastic leukemia, osteosarcoma, central nervous system (CNS) lymphoma, and leptomeningeal cancer, tend to occur within the Medicare population and cites research that states “HD-MTX-induced renal failure with persistence of toxic blood MTX levels is a rare but life threatening complication that occurs more frequently in adults, particularly those with advanced age and CNS lymphoma.” [19] When these malignancies arise which require treatment with HDMTX, HDMTX-induced renal failure with persistent toxic MTX levels is a complication that occurs more frequently in adults. The applicant asserted that the administration of Voraxaze® has been shown to be well-tolerated by older adult patients, while achieving similar reduction rates in younger patient populations who have been diagnosed with toxic MTX concentrations and treated with Voraxaze®. [20] The applicant also provided additional published peer-reviewed articles [21,22,23,24,25,26] relevant to their application to support their assertion that they meet the substantial clinical improvement criteria.

We invited public comment on whether or not Voraxaze® meets the criterion of representing a substantial clinical improvement for Medicare beneficiaries.

Comment: The applicant submitted public comments that stated, “Voraxaze® meets the substantial clinical benefit criterion because the FDA accepted, reviewed, and approved the biologic licenses application (BLA) for Voraxaze® on an accelerated timeline. The FDA initiates an expedited review when a high unmet need exists and when an applicant has a product that may qualify as a substantial clinical improvement.”

Several other public comments also stated that Voraxaze® meets the substantial clinical improvement criteria. One of the commenters, a pediatric oncologist, asserted that prior to Glucarpidase, there were no reliably effective interventions for patients suffering from high dose MTX induced renal dysfunction, a life threatening medical emergency. The commenter further noted that numerous interventions historically employed were generally invasive (that is, charcoal hemoperfusion), had variable but limited impact, and were not readily available at most treatment centers. The commenter concluded that Glucarpidase is a highly effective pharmacologic rescue that can be readily delivered to patients at high risk of or experiencing a life threatening complication of cancer therapy, that there is no other comparable pharmacologic intervention available, and that Glucarpidase is superior to less reliable, invasive measures. Another commenter stated that when Voraxaze® is used in a timely fashion, it can improve severe MTX-induced toxicity, prevent the need for dialysis and other invasive procedures, and can be lifesaving. The commenter believed that Voraxaze® is a unique medication, which can treat a rare and life-threatening complication of methotrexate therapy which has no alternative mediation. The commenter believed that alternative supportive care to Voraxaze®, including hospitalization and dialysis, is exceptionally expensive.

Another commenter who also supported new technology add-on payments for the Voraxaze® believed that Voraxaze® is a drug that can provide life-saving reversal of toxic levels of methotrexate. The commenter further stated that patients with toxic levels of methotrexate are hospitalized and receive the drug during an inpatient admission. However, due to its high cost, the commenter explained that many hospitals are reluctant to stock Voraxaze® in the pharmacy or use it at all due to the lack of reimbursement available when used as an inpatient medication. The commenter continued by stating that the alternative is to provide Leucovorin rescue and vigorous hydration, which often is effective and significantly cheaper. However, the commenter noted that this approach results in prolonged hospital stays, which have their own costs (to the system at large) and expose the patient to potential iatrogenic complications. If a new technology add-on payment is available, the commenter believed that Voraxaze® would become the standard of care for methotrexate toxicity and enable a more rapid discharge of the patient from the inpatient setting. Another commenter stated that it believed “certain new biologic agents that prevent toxicity but have high drug acquisition costs are underused because of financial disincentives,” and cited this technology as an example. The commenter noted that this technology “can reduce the need for dialysis, reduce morbidity and decrease the length of hospital stay,” and cited this background as an oncologist for support.

Response: After reviewing the totality of the evidence and the public comments we received, we agree that Voraxaze® represents a substantial clinical improvement for Medicare beneficiaries. It appears that Voraxaze® is less time intensive and allows select patient populations to avoid risks associated with current treatment options. Also, Voraxaze® is able to treat patients who have toxic MTX concentrations in a more effective and rapid way than existing treatment options in certain situations, and provides protection to eligible patient populations against potential harm associated with current treatment options. Specifically, the applicant provided the results from a study of 23 patients diagnosed with MTX-induced renal dysfunction treated with Voraxaze®. Based on the clinical trial data, the administration of Voraxaze® lowered toxic MTX concentrations in patients within 15 minutes after the administration by more than 98 percent. Therefore, we believe that Voraxaze® represents a substantial clinical improvement for Medicare beneficiaries. However, we remain interested in seeing clinical endpoints that show that reduction in methotrexate levels leads to improved renal function.

Voraxaze® has met all three criteria for new technology add-on payments and is eligible for new technology add-on payments in FY 2013. Cases of Voraxaze® will be identified with ICD-9-CM procedure code 00.95 (Injection or infusion of glucarpidase). The cost of Voraxaze® is $22,500 per vial. The applicant stated that an average of four vials is used per Medicare beneficiary. Therefore, the average cost per case for Voraxaze® is $90,000 ($22,500 × 4). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the technology or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for Voraxaze® is $45,000 per case.

b. DIFICID TM (Fidaxomicin) Tablets

Optimer Pharmaceuticals, Inc. submitted an application for new technology add-on payments for FY 2013 for the use of DIFICID TM (Fidaxomicin) tablets. In the proposed rule, we summarized this application and stated that the applicant asserts that Fidaxomicin is a major clinical advancement in the options available to treat Clostridium difficile-associated diarrhea (CDAD).

Clostridium difficile (C. Diff.) is a bacterium that can cause infection with symptoms that range from diarrhea to life-threatening inflammation of the colon, and is also commonly referred to as CDAD. The symptoms associated with CDAD can be treated by stopping administration of an antibiotic because often antibiotics can alter the native intestinal microflora and thus trigger CDAD. For mild cases of CDAD, this step may be sufficient to relieve the associated symptoms. However, many patients who have been diagnosed with more severe cases of CDAD require further treatment. Further treatment options include prescribing antibiotics such as Metronidazole or Vancomycin, prescribing probiotics administered in conjunction with antibiotics, and performing surgery using a fecal transplant to restore healthy intestinal bacteria by placing donor stool in the colon. According to the applicant, about one-fourth of the patients diagnosed with CDAD experience a recurrence of these associated symptoms.

As indicated on the labeling submitted to the FDA, the applicant noted that Fidaxomicin is taken twice a day as a daily dosage (200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The applicant asserts that Fidaxomicin provides potent bactericidal activity against C. Diff., and moderate bactericidal activity against certain other gram-positive organisms, such as enterococcus and staphylococcus. Unlike other antibiotics used to treat CDAD, the applicant noted that the effects of Fidaxomicin preserve bacteroides organisms in the fecal flora. These are markers of normal anaerobic microflora. The applicant asserts that this helps prevent pathogen introduction or persistence, which potentially inhibits the re-emergence of C. Diff., and reduces the likelihood of overgrowths as a result of vancomycin-resistant Enterococcus (VRE). Because of this narrow spectrum of activity, the applicant asserts that Fidaxomicin does not alter this native intestinal microflora. [27]

With regard to the newness criterion, Fidaxomicin was approved by the FDA on May 27, 2011, for the treatment of CDAD in adult patients, 18 years of age and older. Fidaxomicin was commercially available on the market within 7 weeks after the FDA's approval was granted. Currently, there are not any ICD-9-CM diagnosis or procedure codes that exist to uniquely identify the use of Fidaxomicin, or any oral drug, as a procedure. Optimer submitted a request to the ICD-9-CM Coordination and Maintenance Committee for a new ICD-9-CM procedure code, which was discussed at the committee's meeting on March 5, 2012. For further information regarding the code proposal, we refer readers to the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.

In the proposed rule, we stated that we believe that under our current new technology add-on payment policy, eligibility for consideration for new technology add-on payments is limited to new technologies associated with procedures described by ICD-9-CM codes. In the FY 2002 IPPS final rule, we established the framework for our current policy (66 FR 46907 through 46915). The discussion of technologies in that rule focuses on those technologies identifiable by ICD-9-CM codes. We also discuss in response to comments the feasibility and appropriateness of HCPCS codes and V-codes. Similar to ICD-9-CM codes, HCPCS codes are also a procedure-based system and identify procedures. We noted in that rule that V-codes would not be appropriate to use for identification of new technology because they are not a substitute for procedure coding. Volume 3 of ICD-9-CM contains codes that describe inpatient procedures (65 FR 50325). In other words, we have not considered drugs that are only taken orally to be eligible for consideration for new technology add-on payments, because there is no procedure associated with these drugs and, therefore, no ICD-9-CM code(s).

As we stated in the proposed rule, this interpretation is also consistent with other Medicare payment policies. For example, when drugs taken orally are given as part of an outpatient encounter, they would likely be considered self-administered drugs under the Hospital Outpatient Prospective Payment System (OPPS). If a Medicare beneficiary who has outpatient status were to be provided a self-administered drug by a hospital or wholly-owned or wholly-operated entity of that hospital and that beneficiary were subsequently admitted to that hospital for a related reason within three days, the hospital may not include these self-administered drugs on the inpatient bill (under the 3-day payment window policy), because self-administered drugs are not covered under the OPPS. However, they would be required to include nondiagnostic services related to admission and all other diagnostic services on the inpatient bill (under the 3-day payment window).

We invited public comment on our interpretation of our policy regarding drugs that are only self-administered for consideration for new technology add-on payments. Further, we invited public comment on whether or not Fidaxomicin meets the newness criterion.

Comment: A number of public commenters, including the applicant, stated that the technology meets the newness criterion. Specifically, commenters discussed: (1) The ICD-9-CM coding for this technology, (2) the statutory authority for the policy in relation to the coding of oral therapies, (3) CMS' current policy and practices regarding coding, (4) CMS' practices with regard to establishing new codes to implement payment policies, (5) the use of V-codes in the ICD-9-CM system for oral drugs, and (6) the non-ICD-9-CM options for coding this technology for the new technology add-on payments. We summarize each issue, in turn, in the following comments and responses below.

Response: We appreciate the commenters' supporting rationale for how this technology meets the newness criterion under the new technology add-on payment policy. We respond to each of the six points, in turn, below. We note that, as a result of our analysis of the public comments we received, in our responses below, we, in this final rule, revised our policy to allow the use of National Drug Codes (NDCs) to identify oral medications that have no inpatient procedure for the purposes of new technology add-on payments. This change will be effective for payments for discharges occurring on or after October 1, 2012. We note that this does not preclude CMS from using additional ICD-9-CM procedure or diagnosis codes to identify cases for this new technology in conjunction with NDCs. In particular, for this technology, we established a methodology to identify cases for new technology add-on payments by using the NDC for the drug (52015-0080-01) and ICD-9-CM diagnosis code 008.45, Intestinal infection due to Clostridium difficile. Furthermore, we establish that the beginning of the newness period for this technology is its FDA approval date of May 27, 2011.

Comment: The applicant submitted a public comment asserting that it believed that an ICD-9-CM procedure code would be the “best option” and noted that this should be limited to the “sole purpose of tracking use of the product” for new technology add-on payments. The applicant indicated that it did not believe this created a precedent for inpatient procedure coding.

Response: With regard to use of an ICD-9-CM procedure code for this technology, subsequent to and as recommended by CMS at the March 12, 2012 ICD-9-CM Coordination and Maintenance (C&M) Committee meeting, no new ICD-9-CM procedure code for the administration of this technology was created. Public comments received during and subsequent to the public meetings opposed the establishment and addition of codes for self-administered drugs. The commenters stated that this type of service has never been included in ICD-9-CM procedure codes. Other commenters believed that such an addition to the ICD-9-CM system would be setting a major new precedent. Hospitals currently code and report procedures and more invasive services such as surgeries, infusion of drugs, and specialized procedures such as cardiac catheterizations. Hospitals do not code nor report self-administered drugs. While we appreciate the commenters' belief that a new ICD-9-CM procedure code should be created and that this code could be limited to new technological procedures and would thus not create a precedent for inpatient procedure codes, we disagree for the reasons stated above and described in more detail below. While the ICD-9-CM procedure coding system has been used to create codes for categories of service not previously coded for the purpose of new technology add-on payments, these new codes have been limited to inpatient procedures associated with their respective technologies. The commenters cited, as an example, the creation of procedure code 00.11, Infusion of drotrecogin alfa (activated) [Xigris], as an example of where CMS has “created unique new ICD-9-CM codes in categories of service that did not previously exist.” We note that infusions of drugs have been part of the ICD-9-CM inpatient procedure coding system since it was created in 1979. Infusion of drugs requires specialized health care personnel to administer the infusion procedure. Patients taking self-administered drugs do not require the use of hospital or health care personnel to perform a procedure. Since the inception of the ICD-9-CM coding system, drugs given to a patient through use of an infusion have been considered procedures described by ICD-9-CM codes. The identification of a patient taking a self-administered drug has never been described by ICD-9-CM codes because it was not deemed to be a hospital procedure. This technology is an orally administered drug and, as noted by the applicant in its public comment, “must be administered orally to effectively treat CDAD”. Orally-administered drugs require no inpatient procedure to administer. Therefore, we believe it would be inappropriate to establish an ICD-9-CM procedure code for their administration, even for the purpose of new technology add-on payments.

Comment: One commenter asserted that the statutory authority exists for new technology add-on payments for oral therapies with no inpatient procedure (that is, infusion). The commenter reiterated our statement in the proposed rule that, “we believe that under our current new technology add-on payment policy, eligibility * * * is limited to new technologies associated with procedure codes described by ICD-9-CM codes” (77 FR 27939). Similarly, another commenter stated that, “CMS asked whether DIFICID [TM] could qualify under the statute and regulations for new technology because it is an oral therapy.” Both commenters stated that the proposed rule “does not assert that there is any corresponding statutory or regulatory bar to granting a [new technology add-on payment] to an oral therapy, and indeed there is none.” Another commenter stated that, while self-administered drugs are not covered by Part B, they are covered by Part A. Another commenter stated that, “the fact that DIFICID [TM] must be administered orally to effectively treat [clostridium dificile associated disease] should not preclude it from being considered under the [new technology add-on] policy.” Commenters pointed out that the statute “require[s] that the agency `shall' establish a mechanism to recognize costs of new medical services or technologies * * * which `shall' provide for additional payment when such services are used.” Another commenter further stated that it believed that “the Congressional intent was explicit” and stated that the statute “allow[s] `any code such as ICD-9-CM and its subsequent revision' (emphasis added [in the public comment]).” Another commenter stated that, “the FY2002 [final rule on the new technology add-on payment] exemplifies CMS' authority and flexibility to use codes broadly for [the new technology add-on payment], if needed.” Another commenter recognized that the statute explicitly points out the use of ICD-9-CM codes, but reminded the agency that they believed that “the regulation permits administrative flexibility.” Additionally, the commenter described the application form, and noted that, “this policy document includes 5 specific questions not necessarily reflected directly in statute or regulation.” Of the five items pointed out by the commenter, four refer to FDA approval, and one to ICD-9-CM procedure coding.

Response: With regard to the question of whether or not statutory authority exists to allow new technology add-on payments for oral medications without inpatient procedures (that is, infusion), we note that, as the commenters pointed out, in the proposed rule, we did not assert that such statutory authority did not exist. We believe that under our current new technology add-on payment policy, eligibility for new technology add-on payments is limited to new technologies associated with procedure codes described by ICD-9-CM codes (77 FR 27939). We believe that the statute could be interpreted in a manner that does not preclude new technology add-on payments for oral medications that have no inpatient procedure (that is, infusion) insofar as such an oral medication meets the other aspects of the newness criterion in addition to meeting the cost and substantial clinical improvement criteria. We interpret our current policy as limiting new technology add-on payments to technologies associated with inpatient procedures, as described in the FY 2002 final rule on CMS' new technology add-on payment policy (66 FR 46915). We note that this technology is the first application we have received for a technology that is an oral medication where no inpatient procedure is associated. In light of public comments we received, we are revising our policy to allow for the use of an alternative code set to identify oral medications where no inpatient procedure is associated for the purposes of new technology add-on payments. We are establishing the use of NDCs as the alternative code set for this purpose and describe our rationale for this particular code set in response to comments below. This change will be effective for payments for discharges occurring on or after October 1, 2012. We note that this does not preclude CMS from using additional ICD-9-CM procedure or diagnosis codes to identify cases for this new technology in conjunction with this alternative code set. We also agree with the comment that these oral medications for which no inpatient procedure is associated may be considered self-administered drugs under Part B and are not payable under the outpatient prospective payment system (OPPS). We remind hospitals that, although hospitals are required to bundle related therapeutic services within the 3 days prior to and on the day of inpatient admission on the inpatient claim, hospitals may not include services that are not payable under the OPPS within the 3 days prior to and on the day of inpatient admission as part of the inpatient claim (42 CFR 412.2(c)(5)).

Comment: Commenters reviewed our current policy and practice with regard to identification of new technologies for new technology add-on payments. They reiterated statements from the FY 2002 final rule on CMS' new technology add-on payment policy, while one commenter pointed out that, “CMS considered several coding options to track new procedures and technologies * * * and discussed use of ICD-9-CM V-codes, HCPCS Level II codes, and G codes to classify new technologies.” Another commenter stated that CMS has in the past created ICD-9-CM codes for new technology add-on payments, and cited as an example the creation of procedure code 00.11, Infusion of drotrecogin alfa (activated) [Xigris], as an example of where CMS has “created unique new ICD-9 codes in categories of service that did not previously exist.”

Response: With regard to our current policy and practice on the use of code sets to identify new technologies for new technology add-on payments, we appreciate the commenters' input. As we stated in response to other public comments, we interpret our current policy as limiting new technology add-on payments to technologies associated with inpatient procedures, as described in the FY 2002 final rule on the new technology add-on payment policy. We note that this technology is the first application we have received for a technology that is an oral medication with no inpatient procedure. Also, as we stated in response to other comments, we point out that the example the commenters cite, procedure code 00.11, Infusion of drotrecogin alfa (activated) [Xigris], is for an infusion and that infusion can be an inpatient procedure.

Comment: Commenters reviewed our practice with regard to establishing new codes to implement Medicare policies. Specifically, they mentioned the creation of a claim modifier to reflect the use of surgical devices that CMS created to “implement claims processing of a new policy” and also the creation of policy claim codes MX (wrong surgery on patient), MY (wrong surgery on body part), and MZ (surgery on wrong patient) to identify claims to implement a national coverage decision regarding certain never events. They asserted that CMS is able to establish new codes to implement policies.

Response: With regard to the examples of CMS' practices of establishing new codes to implement Medicare policies, we appreciate the commenters' responses. We agree that from time to time CMS will implement, as needed, new codes and processes to implement Medicare policies, including payment and coverage policies. The examples provided by the commenters do not specifically address the new technology add-on payment policy, instead, they address other Medicare payment policies and national coverage decisions.

Comment: One commenter pointed out that V-codes currently exist for oral drugs. Specifically, the commenter cited code V58.66 for long term (current) use of aspirin and code V58.68 for long-term (current) use of bisphosphonates. The commenter also pointed out that three codes in subcategory V07.5 for the use of agents affecting estrogen receptors and estrogen levels have inclusion notes for multiple medications, some of which are oral.

Response: With regard to the existence of V-codes for oral drugs, we agree with the commenters that V-codes exist that capture the long term use of certain drugs, including those that may be orally administered. V-codes are used to capture additional information about factors influencing health status and contact with health services. The codes for long-term (current) drug use were created to assist in following patients who use certain drugs over a long period of time. The codes do not necessarily indicate that a patient received the specific drug during the current health care encounter. The patient may be taking the drug based on a prescription received during a prior health care encounter and did not receive it during the current encounter.

However, we have not adopted the use of V-codes for use in the new technology add-on payment policy. Currently, the new technology add-on payment policy is based on the use of ICD-9-CM procedure codes, which indicate that a procedure or service is provided during the hospital stay. The long-term (current) drug use V-codes described do not provide this information. As indicated earlier, the V-codes indicate the patient has been on certain drugs on a long-term basis, and do not necessarily indicate that the patient received the drug during the current health care encounter. We continue to believe that V-codes are not appropriate for new technology add-on payments because we do not believe the nature of these codes appropriately identifies new technologies; they indicate that some circumstance or problem is present which influences the person's health status, but is not in itself a current illness or injury. Common V-codes are status codes, history codes, aftercare codes, and follow-up codes. In addition, V-codes do not identify items related to current resource use for an inpatient stay. For the most part, V-codes do not impact the DRG, and they are not taken into consideration when forming DRG assignment and, thus, are not used in setting relative weights for the IPPS. However, we note that we continue to explore the usefulness of these and other alternatives, such as those available in ICD-10, for coding and identifying technologies for the purposes of new technology add-on payments.

Comment: One commenter described non-ICD-9-CM alternatives for coding this technology for the purposes of the new technology add-on payment policy. One option described by the commenter was the use of a value code and condition code to identify this technology. The commenter pointed out that a value code, value code 77, currently exists to identify when a new technology add-on payment is being claimed. The commenter noted that value codes are used with condition codes, and suggested that an option could be for CMS to submit a request to the National Uniform Billing Committee (NUBC) for a “unique Condition Code to describe DIFICID TM administration.” A second option described by the commenters was to use a national drug code (NDC) on the claim to identify the technology for the purposes of new technology add-on payments. The commenter described two ways to implement such an option, one where the NDC would be used in isolation (as product information in Box 80 of the UB-04 claims form) and one where it would be used in combination with ICD-9 diagnosis code 008.45, Intestinal infection due to Clostridium difficile (where the NDC would be reported on the UB-04 in Box 43 and the diagnosis code reported on the UB-04 in Box 65). The commenter pointed out that using the NDC in isolation may require hospitals to “make changes to their billing systems” and that using the NDC in combination with a diagnosis code may require hospitals to “make substantial reprogramming to their systems.” Because of the possibility that hospitals may need to make changes, the commenter stated that they believed that other options would be preferable and that an ICD-9-CM code is the “best option.”

Response: With regard to the non-ICD-9-CM options for identifying this technology and new technologies for new technology add-on payments, we appreciate the commenters' suggestions. The commenters first discussed a value code or condition code option for identifying new technologies. We agree that currently value code 77 is used to identify claims for new technology add-on payments. Commenters suggested that CMS could request a condition code from the NUBC to be used in conjunction with this value code to identify this new technology. While we appreciate the commenters' suggestion, we believe that this unnecessarily subjects eligibility for new technology add-on payments to a non-CMS claims identifier field. Furthermore, we note that even on an expedited basis, it is not likely that the NUBC process would necessarily result in the timely creation of a condition code to identify this technology. Therefore, we disagree with the commenters that this is a feasible option for coding and identifying technologies for the purposes of new technology add-on payments. Commenters then discussed two ways to use the NDC to identify this technology. We agree that NDCs can be used to identify drugs and that, in the instance where no inpatient procedures are associated with a drug, the NDC could be used to identify an oral drug for new technology add-on payments. While commenters stated that they believed this may require hospitals to change their “billing practices” or “make substantial reprogramming to their systems,” we believe that these changes, insofar as they might be needed, would not represent a large burden for hospitals. We note that currently the NDC code is used on outpatient claims for the ESRD-PPS to identify oral equivalent ESRD drugs. We further note that the hospital would be required to report the NDC code for the purposes of new technology add-on payments so that it could receive a new technology add-on payment which, by definition, is an increase relative to the payment they would have received in the absence of such an add-on payment. Specifically, the commenter discussed using the NDC in Box 43 in conjunction with the diagnosis code 008.45 (Intestinal infection due to Clostridium difficile) or using the NDC as product information in Box 80. We agree with the applicant and the other commenters that it is important to identify cases for new technology add-on payments using the diagnosis code 008.45. Because the NDC can specifically identify this technology, and other technologies that are oral drugs where no inpatient procedure is associated, we believe it can be used to identify these technologies for purposes of new technology add-on payments. We continue to believe our current policy to recognize new technologies associated with inpatient procedures through ICD-9-CM coding is appropriate and, in response to public comments we received, are expanding our policy prospectively for discharges occurring on or after October 1, 2012, to recognize oral medications where no inpatient procedure can be associated through the coding of NDCs. In the case of this application, we agree with the commenter that the NDC code of 52015-0080-01 can be used in conjunction with diagnosis code 008.45 to identify the use of this technology, and establish that the use of both codes will identify this technology for the purposes of new technology add-on payments. We discuss our broader policy change to allow NDCs as an alternative code set to identify oral drugs where no inpatient procedure is associated in response to other comments.

With regard to the cost criterion, Optimer researched the FY 2010 MedPAR file for cases that would be eligible for treatment with Fidaxomicin to determine if it would qualify for the cost criterion for new technology add-on payments. Based on its analysis, the applicant identified cases in which a patient had been diagnosed with CDAD by searching the MedPAR file for claims that included ICD-9-CM diagnosis code 008.45 (Intestinal infection due to Clostridium difficile) as a principal diagnosis or secondary diagnosis. Optimer provided three examples of how the results of the analyses of different MS-DRGs demonstrate that it meets the cost criterion.

Under the first analysis, the applicant researched the FY 2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a principal or secondary diagnosis across all MS-DRGs. The applicant found 162,310 cases within 536 MS-DRGs, and determined a case-weighted average standardized charge per case (excluding charges for the cost of Fidaxomicin) of $50,136. Using a factor of 6.5 percent to inflate the charges to 2012 rates based on the Medical Consumer Price Index (CPI), the applicant determined a case weighted standardized charge per case that equals $53,394. The applicant then added the charges related to the technology to the inflated charges. Finally, the applicant determined a final case-weighted average standardized charge per case of $58,994, which exceeds the case-weighted threshold of $43,673. Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this first analysis, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

Under the second analysis, the applicant researched the FY 2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 only as a principal diagnosis, which mapped to MS-DRGs 371 (Major Gastrointestinal Disorders and Peritoneal Infections with MCC), 372 (Major Gastrointestinal Disorders and Peritoneal Infections with CC), and 373 (Major Gastrointestinal Disorders and Peritoneal Infections without CC/MCC). The applicant found 55,410 cases, and determined a case-weighted average standardized charge per case (excluding charges for the cost of Fidaxomicin) of $28,007. Using a factor of 6.5 percent to inflate the charges to 2012 rates based on the Medical CPI, the applicant determined a case-weighted standardized charge per case that equals $29,828. The applicant then added the charges related to the drug to the inflated charges. The applicant then determined a final case-weighted average standardized charge per case of $35,428, which exceeds the case-weighted threshold of $34,730. Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this second analysis, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

Under the third analysis, the applicant again researched the FY 2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a principal or secondary diagnosis across all MS-DRGs. The applicant then narrowed the results of the analysis to include only the top 37 MS-DRGs (in volume of cases), which accounted for 75 percent of all cases. The applicant's methodology resulted in 121,748 cases, and the applicant determined a case-weighted average standardized charge per case (excluding charges for the cost of Fidaxomicin) of $45,523. Using a factor of 6.5 percent to inflate the charges to 2012 rates based on the Medical CPI, the applicant determined a case-weighted standardized charge per case that equals $48,482. The applicant then added the charges related to the drug to the inflated charges. The applicant then determined a final case- weighted average standardized charge per case of $54,082, which exceeds the case-weighted threshold of $42,452. Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this third analysis, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

In the three analyses discussed above, the applicant submitted data related to the estimated cost and charge of the drug (using a charge markup). However, the applicant has not released the cost of the technology, asserting that it is proprietary information. The applicant converted the cost of the technology to a charge using a charge markup (a factor of 6.5 percent based on the Medical CPI) that represented a 10-day dosage.

In the proposed rule, we expressed concern that these analyses do not take into account situations in which patients would be prescribed Fidaxomicin later in the duration of their inpatient stay, and may finish the course of Fidaxomicin sometime after being discharged from the hospital. In addition, as discussed above, if Fidaxomicin is prescribed and self-administered during the 3-day period prior to admission to an IPPS hospital for a related encounter, we do not believe that this service is payable under the OPPS, and we do not believe that charges associated with it can be included on the inpatient claim submitted to Medicare because of the 3-day payment window policy. Therefore, in the proposed rule, we noted that it may not be appropriate to include in the applicant's calculations the full charges related to Fidaxomicin and the corresponding proprietary charges for the 10-day dose. In addition, in the proposed rule, we stated that we believed that it is necessary for the applicant to adjust its estimates to remove from the MedPAR file's claims for the charges that describe other types of treatment options such as Vancomycin, since use of these treatments would preclude use of Fidaxomicin. Furthermore, to identify the cases that may be eligible for the technology's use, the applicant researched and analyzed claims that included ICD-9-CM diagnosis code 008.45 as the principal diagnosis or as the principal or secondary diagnosis. We are concerned that this baseline for eligible cases may not represent the appropriate universe of cases, such as if all MS-DRGs were considered or if a subset of MS-DRGs were considered.

We invited public comment on whether or not Fidaxomicin meets the cost criterion. In addition, we invited public comment on the methodologies used by the applicant in its analyses, in particular the assumptions made about the dosage in developing the cost analysis. We were also interested in comments about the applicant's selection of claims with an ICD-9-CM diagnosis code 008.45 as the principal diagnosis or secondary diagnosis, and whether those cases accurately represented the Medicare population that may benefit from the technology's use.

Comment: The applicant submitted public comments responding to our concerns from the proposed rule. Our first concern was that these analyses did not take into account situations in which patients would be prescribed Fidaxomicin later in the duration of their inpatient stay and may finish the course of Fidaxomicin sometime after being discharged from the hospital. The applicant responded by providing a sample of claims of patients that received DIFICID [TM] during their inpatient stay to determine the amount of days that DIFICID [TM] is used within the inpatient setting. The applicant collected 116 inpatient stays across 26 unique MS-DRGs for patients who received DIFICID [TM] during their stay of which, 71 of the claims were Medicare fee-for-services (FFS) cases which mapped to 22 unique MS-DRGs. Regarding these data (from all 116 cases) the applicant noted the following: the average length of stay for all DIFICID [TM] (Fidaxomicin) cases is 13.9 days; on average, patients started DIFICID [TM] (Fidaxomicin) on day 6.7 of their stay; and on average, patients received DIFICID [TM] for 6.2 days of their stay. Using the subset of 71 Medicare claims also demonstrated that patients received DIFICID [TM] on average of 6.2 days of their stay.

Using the 116 cases from the sample, the applicant computed a case-weighted average standardized charge per case of $92,684, which exceeds the case-weighted threshold of $45,388. The applicant also conducted a similar analysis using the Medicare subset of 71 Medicare cases. The applicant computed a case-weighted average standardized charge per case of $100,146, which exceeds the case-weighted threshold of $44,980. Because the case-weighted average standardized charge per case for both scenarios exceeds the case-weighted threshold amount (in both scenarios), the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

Our second concern was with regard to the 3-day payment window. If Fidaxomicin is prescribed and self-administered during the 3-day period prior to admission to an IPPS hospital for a related encounter, as we noted in the proposed rule, we do not believe that this service is payable under the OPPS, and we do not believe that charges associated with it can be included on the inpatient claim submitted to Medicare because of the 3-day payment window policy. Therefore, it may not be appropriate to include in the applicant's calculations the full charges related to Fidaxomicin and the corresponding proprietary charges for the 10-day dose. The applicant noted that all cases from the sample data show that treatment was initiated well after admission to the inpatient setting. Even for those patients who presented at admission with a clostridium difficile infection (CDI) diagnosis, DIFICID [TM] (Fidaxomicin) began an average of 4.6 days after the patient was admitted. The applicant believed that these data address CMS' concern over the potential for outpatient administration of DIFICID [TM] (Fidaxomicin) prior to inpatient admission. The applicant asserted that to date, utilization patterns of DIFICID [TM] (Fidaxomicin) show that the drug is used primarily in the inpatient setting and that outpatient use prior to admission is very limited.

Our third concern was that the applicant's analyses may not represent the appropriate universe of cases, such as if all MS-DRGs were considered or if a subset of MS-DRGs were considered. The applicant reiterated that it submitted three different types of MedPAR analysis, one of which captured all cases where C. Difficile infection (CDI) occurred. The applicant added that the first MedPAR analysis contained no restrictions on its search for cases of CDI and as such should represent the complete universe of patients who may be eligible for DIFICID [TM] . The applicant further stated that its data sample of 116 inpatient claims contains the actual MS-DRGs and standardized charges of patients who received DIFICID [TM] which meets the cost criteria.

The applicant noted that the sample data (of 116 claims) does not represent the full universe of eligible DIFICID [TM] (Fidaxomicin) patients for the following reasons: First, because DIFICID [TM] was new, the applicant asserted that hospitals may not have been aware of the full benefit of the drug. Second, the applicant asserted that hospitals may have believed they were not adequately compensated for the cost of DIFICID [TM] within the existing MS-DRG payment and, therefore, may not have considered DIFICID [TM] for treatment except in cases where the patient's costs were significantly higher than average and additional outlier payments were anticipated. The applicant concluded that it believed that its original analysis of the FY 2010 MedPAR data with all patients diagnosed with CDI during their inpatient stay represents the full universe of potential DIFICID [TM] cases, and is the most appropriate case scenario for purposes of calculating DIFICID [TM] 's (Fidaxomicin's) qualifications for the new technology add-on payment cost criterion.

We were also concerned that it is necessary for the applicant to adjust its estimates to remove from the MedPAR file's claims the charges that describe other types of treatment options such as Vancomycin because use of these treatments would preclude use of Fidaxomicin. The applicant replied in its comment that it performed a cost criterion estimate with DIFICID [TM] removed from the inflation-adjusted weighted average standardized charge. The applicant explored additional data analyses to separate Vancomycin charges from the total MedPAR charges. However, the applicant asserted that no approach was viable due to (1) Lack of distinct coding to identify inpatient cases in which Vancomycin was administered, (2) lack of data on Vancomycin dosing per case, and (3) lack of data on the appropriate hospital mark-up applied to Vancomycin costs. Therefore, the applicant stated that it believed, in the absence of data to estimate Vancomycin charges included in the MedPAR CDI cases, one methodology to approximate this was by, removing the inflated adjusted charges for DIFICID [TM] from the case-weighted average standardized charge per case of the first scenario. The applicant also noted that, although it determined an average use of DIFICID [TM] for 6.2 days within the inpatient setting based on the sample of 116 claims, it recommended that CMS consider 6.5 days of inpatient administration of DIFICID [TM] . The applicant justified this increase based on its belief that hospitals and physicians will use it more. In particular, the applicant believed that the increased adoption of DIFICID [TM] would lead to earlier prescription of DIFICID [TM] by physicians for primary CDAD treatment in the inpatient setting as opposed to a secondary treatment. Using this methodology (of removing inflated adjusted charges for DIFICID [TM] and assuming utilization of DIFICID [TM] for 6.5 days within the inpatient setting), the applicant revised its calculation for the first analysis (which included all cases of C. Diff) and determined a case-weighted average standardized charge per case of $55,214, which exceeds the case-weighted threshold of $43,673. Because the case-weighted average standardized charge per case exceeds the case-weighted threshold amount, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

Response: We appreciate the applicant's response to our concerns and believe that the sample of claims the applicant submitted substantiates the average use of DIFICID [TM] within the inpatient setting. We agree with the applicant that the appropriate universe of cases is the first MedPAR analysis which contained no restrictions on its search for cases of CDI and as such should represent the complete universe of patients who may be eligible for DIFICID [TM] . However, at this time we believe it is appropriate to use an estimate of 6.2 days of inpatient administration of DIFICID [TM] from the sample of claims rather than the 6.5 days that the applicant recommended. The estimate of 6.2 days is based on actual data while the extra 0.3 days (for a total of 6.5 days) is based on projected assumptions by the applicant. Therefore, we are revising the applicant's analysis described above of the first MedPAR analysis by substituting 6.2 days instead of 6.5 days for the administration of DIFICID [TM] within the inpatient setting. We also appreciate the applicant's discussion of the difficulties associated in the removing of charges associated with Vancomycin, which represents one potential treatment option this technology could replace. We do not disagree with the applicant's suggestion to remove inflated adjusted charges for DIFICID [TM] as an alternative. Using this methodology (of removing inflated adjusted charges for DIFICID [TM] and assuming utilization of DIFICID [TM] for 6.2 days within the inpatient setting), we determined a case weighted average standardized charge per case of $55,130, which still exceeds the case-weighted threshold of $43,673. Because the case-weighted average standardized charge per case exceeds the case-weighted threshold amount, we believe the applicant has met the cost criterion.

With regard to the substantial clinical improvement criterion, in the proposed rule, we stated that the applicant maintained that Fidaxomicin represents a substantial clinical improvement to the treatment options currently available. According to the applicant, Fidaxomicin represents the first major clinical advancement in the treatment options available to address CDAD in more than 25 years, and it is one of only two agents indicated by the FDA to treat this condition. The applicant noted that reports from its clinical trials show that a higher proportion of patients achieve positive clinical response to treatment with Fidaxomicin as opposed to treatment with Vancomycin. The applicant reported that these patients did not experience recurrences of associated symptoms for at least 25 days after the end of treatment. The applicant asserted that Fidaxomicin has longer acting antimicrobial activity and inhibits spore formation in C. difficile in vitro. The applicant stated that C. difficile cells produce spores when exposed to air; therefore, transmission of infection occurs even when the cells themselves are killed.

The applicant reported on two randomized, double-blinded trials. 28 29 A non-inferiority design was utilized to demonstrate the efficacy of administering Fidaxomicin (200 mg twice daily for 10 days) compared to administering Vancomycin (125 mg four times daily for 10 days) to adult patients diagnosed with CDAD. The demographic profile and baseline CDAD characteristics of the subjects enrolled in both trials were similar. These patients had a median age of 64 years, were mainly white (90 percent), female (58 percent), and inpatients (63 percent).

The applicant reported that the primary efficacy endpoint (for both trials) was the clinical response rate at the end of therapy, based upon improvement in diarrhea or other symptoms such that, in the investigator's judgment, further CDAD treatment was not needed. An additional efficacy endpoint was a sustained clinical response 25 days after the end of treatment. Sustained response was only evaluated for patients who were clinical successes at the end of treatment. Sustained response was defined as clinical response at the end of treatment, and survival without proven or suspected reoccurrence of a diagnosis of CDAD beyond 25 days after the end of treatment. The results for clinical response at the end of treatment in both trials, which the applicant submitted in the table below, indicate that the effects of administering Fidaxomicin is noninferior to the effects of administering Vancomycin based on the 95 percent confidence interval (CI) lower limit being greater than the non-inferiority margin of −10 percent.

The applicant stated that the results for sustained clinical response at the end of the follow-up period, also shown in the table below, indicate that the effects of administering Fidaxomicin is superior to the effects of administering Vancomycin on this endpoint. Because clinical success at the end of treatment and mortality rates were similar across treatment arms (approximately 6 percent in each group), the applicant determined that the differences in sustained clinical response were due to lower rates of proven or suspected reoccurrence of diagnoses of CDAD in patients during the follow-up period. In addition, the applicant asserts that the effects of administering Fidaxomicin has minimal impact on normal gut flora due to its limited specificity, and could be associated with a lower risk of acquisition of VRE if used as a treatment option instead of administering Vancomycin.

Clinical Response Rates at End-of-Therapy and Sustained Response at 25 days Post-Therapy Back to Top
Clinical response at end of treatment Sustained response at follow-up
FIDAXOMICIN % (N) Vancomycin % (N) Difference (95% CI) FIDAXOMICIN % (N) Vancomycin % (N) Difference (95% CI)
Trial 1 88% (N=289) 86% (N=307) 2.6% (−2.9%, 8.0%) 70% (N=289) 57% (N=307) 12.7% (4.4%, 20.9%)
Trial 2 88% (N=253) 87% (N=256) 1.0% (−4.8%, 6.8%) 72% (N=253) 57% (N=256) 14.6% (5.8%, 23.3%)

Based on the analysis described above, the applicant asserts Fidaxomicin meets the substantial clinical improvement criterion as a treatment option with the potential to decrease hospitalizations and physician office visits, as well as to improve the quality of life for patients who have been diagnosed with CDAD.

We expressed concern in the proposed rule that this technology may not offer a substantial clinical improvement compared to other effective treatment alternatives already available in the treatment of patients who have been diagnosed with CDAD. In addition, although the applicant maintains that there is no evidence of significant clinical resistance developing with the use of this drug, in the proposed rule, we expressed concern about the long-term possibility that patients may develop resistance to this drug since the applicant provided no data to substantiate its claim. We invited public comment on whether or not Fidaxomicin meets the substantial clinical improvement criterion based on the analysis and results presented by the applicant.

Comment: Regarding our concern that the technology may not offer a substantial clinical improvement, the applicant noted that “DIFICID [TM] is the only agent proven to provide a superior sustained clinical response versus Vancomycin—meaning a higher proportion of patients achieve clinical response and remain free of potentially devastating recurrences through 25 days after the end of treatment * * * Recurrences are a unique challenge in the management of CDAD in large part due to the ability of C. difficile to form spores.” The applicant also noted that its technology prevents sporulation while other existing medications do not. In addition, the applicant discussed oral administration as being “advantageous in treating CDAD”.

Regarding our concern about the long-term possibility that patients may develop resistance to this drug, the applicant responded with several pieces of information. First, the applicant cited advice from “antimicrobial stewardship programs, such as those recommended by the CDC `Get Smart' program (http://www.cdc.gov/getsmart/) and SHEA/IDSA policy (http://www.idsociety.org/StewardshipPolicy/),” which the applicant noted, “advise utilizing the most narrow spectrum agent to treat an infection to help decrease the likelihood of resistant development.” The applicant believed Fidaxomicin “uniquely fits in this profile as, unlike broad spectrum antibacterial drugs, it is targeted specifically against C. difficile with minimal impact on other bacteria, including the normal flora found in the gastrointestinal tract.” Second, the applicant further stated that, “The potential for resistance to antibacterial agents increases when bacteria are exposed to suboptimal drug concentrations at the site of infection. However, DIFICID [TM] has minimal absorption from the intestines and fecal concentrations that are >1000 times that required to kill C. difficile.” Third, the applicant also noted that, “In laboratory testing, DIFICID [TM] exhibited no crossresistance with other classes of antibacterial drugs.” and “The low potential for patients to develop resistance to DIFICID [TM] was also demonstrated in two pivotal phase 3 clinical trials.” Fourth, the applicant noted that, “resistance to treating agents is not an issue with this disease, as it has not been reported with the other two commonly used agents, Metronidazole and Vancomycin.” Further, the applicant stated that, “Despite Metronidazole and Vancomycin being utilized to treat C. difficile infection (CDI) and C. difficile-associated diarrhea (CDAD) for over 25 years, resistance has not been reported for either agent.” Fifth, the applicant refers to the SHEA/IDSA guidelines noting that these “specifically state that considering the high fecal concentrations achieved with oral Vancomycin, emergence of resistance is likely not a concern.” The applicant then concluded that, “Fidaxomicin is similar in this regard given its extremely high fecal concentrations.” and that, “This indicates that the potential for resistance is extremely low when treating CDAD.”

Response: We appreciate the applicant's response to our concerns from the proposed rule. We considered this information in our decision below on whether DIFICID TM meets the substantial clinical improvement criterion.

Comment: Several public commenters stated that Fidaxomicin meets the substantial clinical improvement criterion. One commenter noted, “In the past year, DIFICID TM clinically has been invaluable in treating some of these more difficult cases. The drug has been well tolerated, and we have seen fewer patients with recurrence after therapy with DIFICID TM* * * DIFICID TM is revolutionary because it offers a significant advancement that we have not seen in previous CDI therapies: targeted therapy and reduced recurrences.” Another commenter expressed support for the literature, research, and data pertaining to the use of DIFICID TM on its patients with C. difficile infections. The commenter added that it has had the opportunity to use DIFICID TM on a few occasions thus far and has had very good outcomes, especially regarding the rapid improvement in symptoms.

Response: We appreciate the commenters' input. After reviewing the totality of the evidence and the public comments we received, we agree with the commenters that DIFICID TM (Fidaxomicin) represents a substantial clinical improvement over existing technologies. We believe that DIFICID TM represents a treatment option with the potential to decrease hospitalizations and physician office visits, and reduce the recurrence of CDAD, as well as to improve the quality of life for patients who have been diagnosed with CDAD.

Therefore, DIFICID TM (Fidaxomicin) has met all three criteria for the new technology add-on payment policy and is eligible for new technology add-on payments in FY 2013. Cases of DIFICID TM (Fidaxomicin) will be identified with ICD-9-CM diagnosis code 008.45 in combination with NDC code 52015-0080-01. Providers must code the NDC on the 837i Health Care Claim Institutional form (in combination with ICD-9-CM diagnosis code 008.45) in order to receive the new technology add-on payment. Further guidance will be issued after this final rule with how to code the NDC code on the 837i form. According to the applicant, the cost of DIFICID TM (Fidaxomicin) is $2,800 for a 10-day dosage. The average cost per day for DIFICID TM is $280 ($2,800/10). As discussed above, cases of DIFICID TM (Fidaxomicin) within the inpatient setting typically incur an average dosage of 6.2 days, which results in an average cost per case for DIFICID TM of $1,736 ($280 × 6.2). We note, as stated above in our discussion of the cost criteria, we are not using an average dosage of 6.5 days for DIFICID TM because we prefer to rely on statistical data from the sample of 116 claims that received DIFICID TM rather than information based on multiple assumptions. However, the applicant is welcome to submit additional data for FY 2014 that demonstrate changes to the average dosage of 6.2 days (within the inpatient setting). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the technology or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum new technology add-on payment for FY 2013 for DIFICID TM (Fidaxomicin) is $868.

c. Zilver® PTX® Drug Eluting Stent

Cook® Medical submitted an application for new technology add-on payments for the Zilver® PTX® Drug Eluting Stent (Zilver® PTX®) for FY 2013. In the proposed rule, we summarized this application. The Zilver® PTX® is intended for use in the treatment of peripheral artery disease (PAD) of the above-the-knee femoropopliteal arteries (superficial femoral arteries). According to the applicant, the stent is percutaneously inserted into the artery(s), usually by accessing the common femoral artery in the groin. The applicant states that an introducer catheter is inserted over the wire guide and into the target vessel where the lesion will first be treated with an angioplasty balloon to prepare the vessel for stenting. The applicant indicates that the stent is self-expanding, made of nitinol (nickel titanium), and is coated with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and for use with coronary stents to reduce the risk of renarrowing of the coronary arteries after stenting procedures.

The applicant maintains that there are currently no FDA approved drug-eluting stents used for superficial femoral arteries. At the time of the proposed rule, the applicant expected to receive FDA approval for the stent in the second quarter of 2012. However, at the time of this final rule, the technology has still not received FDA approval. The technology is currently described by ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of the superficial femoral artery). We invited public comment regarding how the Zilver® PTX® meets the newness criterion.

Comment: The applicant stated that it received a letter from the FDA indicating that the FDA's Center for Devices and Radiological Health considers the device to be “approvable.” The applicant added that it expects formal FDA approval before September 2012. With FDA approval imminent and expected before the implementation date of October 1, 2012, the applicant requested that the “approvable” letter from the FDA's Center for Devices and Radiological Health be allowed to serve as a proxy for FDA approval.

Response: In accordance with § 412.87(c) of the regulations, we require that all applicants for new technology add-on payments must have FDA approval or clearance for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered. Because the Zilver® PTX® is not approved by the FDA as of such date, we cannot consider this application for new technology add-on payments for FY 2013. Therefore, the Zilver® PTX® does not meet the newness criteria.

With regard to the cost criterion, the applicant believes that cases of superficial femoral arteries typically map to MS-DRGs 252 (Other Vascular Procedures with MCC), 253 (Other Vascular Procedures with CC), and 254 (Other Vascular Procedures without CC/MCC). The applicant searched the FY 2009 MedPAR file for cases with a procedure code of 39.90 (Insertion of non-drug-eluting peripheral vessel stents) in combination with a diagnosis code of 440.20 (Atherosclerosis of the extremities, unspecified), 440.21 (Atherosclerosis of the extremities, with intermittent claudication), 440.22 (Atherosclerosis of the extremities with rest pain), 440.23 (Atherosclerosis of the extremities with ulceration), and 440.24 (Atherosclerosis of the extremities with gangrene). The applicant found 7,144 cases (or 24.4 percent of all cases) in MS-DRG 252; 9,146 cases (or 31.2 percent of all cases) in MS-DRG 253; and 13,012 cases (or 44.4 percent of all cases) in MS-DRG 254. The average charge per case was $78,765 for MS-DRG 252, $63,758 for MS-DRG 253, and $47,586 for MS-DRG 254, equating to a case-weighted average charge per case of $60,236.

The case-weighted average charge per case above does not include charges related to the Zilver® PTX®; therefore, it is first necessary to remove the amount of charges related to the nondrug-eluting peripheral vessel stents and replace them with charges related to the Zilver® PTX®. The applicant used two methodologies to remove the charges of the nondrug-eluting peripheral vessel stents and replace them with charges related to the Zilver® PTX®. Although the applicant submitted data related to the estimated cost of the nondrug-eluting peripheral vessel stents and the Zilver® PTX®, the applicant noted that the cost of these devices was proprietary information.

Under the first methodology, the applicant determined the amount of stents per case based on the following ICD-9-CM codes on each claim: 00.45 (Insertion of one vascular stent), 00.46 (Insertion of two vascular stents), 00.47 (Insertion of three vascular stents) and 00.48 (Insertion of four or more vascular stents). If a claim had a code of 00.48, the applicant assumed a maximum of four stents per case. The applicant multiplied the amount of stents used per case by the average market price for nondrug-eluting peripheral vessel stents and then converted the cost of the stents used per case to a charge by dividing the results by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case and then standardized the charges per case. Because the applicant used FY 2009 MedPAR data, it was necessary to inflate the charges from FY 2009 to FY 2012. Using data from the U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index, the applicant inflated the average standardized charge per case with an inflation factor of 6 percent. To determine the amount of Zilver® PTX® stents per case, instead of using the amount of stents used per case based on the ICD-9-CM codes above, the applicant used an average of 1.9 stents per case based on the Zilver® PTX® Global Registry Clinical Study. [30] The applicant believed that it is appropriate to use data from the clinical study (to determine the average amount of stents used per case) rather than the actual data from the claims because the length of a nondrug-eluting peripheral vessel stent typically ranges from 80 mm to 120 mm, while the length of the Zilver® PTX® is 80 mm (which could cause a variance in the actual amount of stents used per case when using the Zilver® PTX®). Similar to above, the applicant multiplied the average of 1.9 stents used per case by the future market price for the Zilver® PTX® and then converted the cost of the stents used per claim to a charge by dividing the results by the national average CCR of 0.329 for supplies and equipment. The applicant then added the amount of charges related to the Zilver® PTX® to the inflated average standardized charge per case and determined a final case-weighted average standardized charge per case of $60,014. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount, the applicant maintains that the Zilver® PTX® meets the cost criterion.

The second methodology was similar to the first methodology described above, but the applicant used hospital-specific CCRs from the FY 2009 IPPS impact file to convert the cost of the nondrug-eluting peripheral vessel stents and the cost of the Zilver® PTX® to charges. In summary, the applicant determined the amount of nondrug-eluting peripheral vessel stents used per case based on the ICD-9-CM codes on each claim (as discussed above). The applicant multiplied the amount of stents used per case by the average market price for nondrug-eluting peripheral vessel stents and then converted the cost of the stents used per case to a charge by dividing by the hospital-specific CCR (from the FY 2009 IPPS impact file). The applicant removed the appropriate amount of charges per case and then standardized the charges per case. Similar to the step described above, because the applicant used FY 2009 MedPAR data, it was necessary to inflate the charges from FY 2009 to FY 2012. Using data from the Bureau of Labor Statistics Consumer Price Index, the applicant inflated the average standardized charge per case with an inflation factor of 6 percent. To determine the amount of Zilver® PTX® stents per case, instead of using the amount of stents used per case based on the ICD-9-CM codes above, the applicant used an average of 1.9 stents per case based on the Zilver® PTX® Global Registry Clinical Study (because of the reason stated in the first methodology). The applicant then multiplied the average of 1.9 stents used per case by the future market price for the Zilver® PTX® and then converted the cost of the stents used per claim to a charge by dividing the results by the hospital-specific CCR (from the FY 2009 IPPS impact file). The applicant then added the amount of charges related to the Zilver® PTX® to the inflated average standardized charge per case and determined a final case-weighted average standardized charge per case of $60,339. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount, the applicant maintains that the Zilver® PTX® would meet the cost criterion.

We invited public comment on whether or not the Zilver® PTX® meets the cost criterion. Additionally, we invited public comment on the methodologies used by the applicant in its analysis, including its assumptions regarding the types of cases in which this technology could potentially be used, the number of stents required for each case, and the CCRs used in the cost calculation.

Comment: We received several public comments regarding whether the Zilver® PTX® meets the cost criterion.

Response: Because the Zilver® PTX® has not yet received FDA approval, and therefore, does not meet the newness criterion, as discussed above, it is not eligible for the IPPS new technology add-on payments for FY 2013. Therefore, we are not summarizing the details of these comments nor responding to them in this final rule.

In an effort to demonstrate that the technology meets the substantial clinical improvement criterion, the applicant shared several findings from the clinical trial data. The applicant stated that current treatment options for patients who have been diagnosed with PAD includes angioplasty, bare metal stenting, bypass graft and endarterectomy. The applicant asserts that the Zilver® PTX® meets the substantial clinical improvement because it decreases the recurrence of symptoms arising from restenotic SFA lesions, the rate of subsequent diagnostic or therapeutic interventions required to address restenotic lesions, and the number of future hospitalizations.

The applicant cited a 480-patient, multicenter, multinational randomized controlled trial that compared the Zilver® PTX® to balloon angioplasty; an additional component of the study allowed a direct comparison of the Zilver® PTX® to a bare (uncoated) metal Zilver® stent. The primary safety endpoint of the randomized controlled study was “Event-Free Survival” (EFS), defined as “freedom from the major adverse events of death, target lesion revascularization, target limb ischemia requiring surgical intervention or surgical repair of the target vessel, and freedom of worsening systems as described by the Rutherford classification by 2 classes or to class 5 or 6.” The primary effectiveness endpoint was primary patency (defined as a less than 50 percent re-narrowing).

The applicant noted that the Zilver® PTX® had an EFS of 90.4 percent compared to balloon angioplasty, which had an EFS of 83.9 percent, demonstrating that the Zilver® PTX® is as safe or safer than balloon angioplasty. In addition, the applicant noted that the Zilver® PTX® demonstrated a 50-percent reduction in restenosis rates compared to angioplasty and a 20- percent reduction compared to bare metal stents. The 12-month patency rate for the Zilver® PTX® was 83.1 percent, which compared favorably to the balloon angioplasty patency rate of 32.8 percent. In the provisional stenting arm of the study, which allowed a direct comparison of the Zilver® PTX® and a bare metal stent, the Zilver® PTX® primary patency exceeded the bare metal stent patency by nearly 20 percent (89.9 percent versus 73.0 percent [1] ). The applicant stated that these differences are significant, as they result in a substantial clinical improvement compared to angioplasty and bare metal stenting, with patients being spared a recurrence of their leg pain and the need to be admitted to the hospital for repeat procedures on these treated lesions.

The applicant also cited a prospective, multicenter, multinational, 787-patient single arm study on the Zilver® PTX® that demonstrated similar safety and effectiveness results consistent with those from the pivotal randomized controlled study above. The applicant cited an EFS for the Zilver® PTX® of 89.0 percent and an 86.2 percent primary patency rate. The applicant stated that these results confirm the safety and effectiveness of the Zilver® PTX®, and compare favorably to current results for angioplasty and bare metal stenting. The applicant added that these results also demonstrate a 67 to 81 percent relative reduction in Target Lesion Revascularization (the need to retreat an already treated lesion that has restenosed, resulting in a recurrence of symptoms) rates compared to recently published results of contemporary bare metal stents. [31]

We invited public comment regarding whether the Zilver® PTX® meets the substantial clinical improvement criterion.

Comment: Several commenters commented on whether the Zilver® PTX® meets the substantial clinical improvement criterion.

Response: Because the Zilver® PTX® has not yet received FDA approval, and therefore, does not meet the newness criterion, as discussed above, it is not eligible for IPPS new technology add-on payments for FY 2013. Therefore, we are not summarizing the details of these public comments or responding to them in this final rule d. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft.

Cook® Medical submitted an application for new technology add-on payments for the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft (Zenith® F. Graft) for FY 2013. In the proposed rule, we summarized this application. The applicant stated that the current treatment for patients who have had an AAA is an endovascular graft. The applicant explained that the Zenith® F. Graft is an implantable device designed to treat patients who have an AAA and who are anatomically unsuitable for treatment with currently approved AAA endovascular grafts because of the length of the infrarenal aortic neck. The applicant noted that, currently, an AAA is treated through an open surgical repair or medical management for those patients not eligible for currently approved AAA endovascular grafts.

The applicant stated that the Zenith® F. Graft is custom-made for each patient. It is a modular system consisting of three components: a two-part main body graft and one iliac leg. The two-part main body of the graft consists of a proximal tubular graft and a distal bifurcated graft body. The proximal body graft contains precisely located holes (fenestrations) and/or cut-outs from the proximal margin (scallops) of the polyester graft material along with a bare proximal stent with barbs to provide fixation. The iliac leg component, which couples with the main bifurcated body, completes the basic fenestrated endograft.

With respect to newness, the applicant stated that FDA approval for the use of the Zenith® F. Graft was granted on April 4, 2012. The technology is described by ICD-9-CM procedure code 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta), which became effective October 1, 2011. While procedure code 39.78 maps to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without MCC/CC, respectively), the applicant believes that MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and without MCC, respectively) would be a more appropriate assignment for procedure code 39.78. We note that in section III.G.3.b. of this preamble, we discuss our final policy which reassigns procedure code 39.78 from MS-DRG 252, 253, and 254 to MS-DRGs 237 and 238. We invited public comment regarding whether the Zenith® F. Graft meets the newness criterion for new technology add-on payment.

We did not receive any public comments regarding whether the Zenith® F. Graft meets the newness criterion. However, because the Zenith® F. Graft was approved by the FDA on April 4, 2012, we believe the Zenith® F. Graft meets the newness criterion as of that date.

With regard to the cost criterion, the applicant used clinical trial data and three separate analyses of FY 2010 MedPAR data to demonstrate that the Zenith® F. Graft meets the cost criteria. We note that in the proposed rule the applicant believed that it met the cost criteria since it demonstrated that the case weighted average charge per case exceeded the threshold for MS-DRGs 252-254 since at that time procedure code 39.78 was assigned to MS-DRG 252-254. However, as mentioned above, in this final rule we have reassigned procedure code 39.78 from MS-DRG 252-254 to MS-DRGs 237-238. Therefore, for this final rule, in order for the applicant to meet the cost criteria, it must demonstrate that the case weighted average standardized charge per case exceeds the thresholds for MS-DRGs 237-238.

The applicant submitted clinical trial data [32] which was based on 173 claims (all Medicare patients except one patient). The applicant found that, of the 173 cases, 35 cases (or 20.2 percent of all cases) mapped to MS-DRG 252, 86 cases (or 49.7 percent of all cases) mapped to MS-DRG 253, and 52 cases (or 30.1 percent of all cases) mapped to MS-DRG 254, equating to a case-weighted average charge per case of $87,733.

The applicant noted that the investigational devices (the bare metal renal stents that are used in the procedure and the Zenith® F. Graft) were sold to the trial sites at reduced prices. Therefore, the average charge per case cited above contains reduced charges for the investigational devices rather than commercial charges. As a result, the applicant believes it is necessary to remove the reduced charges for the investigational devices and replace them with commercial charges, in order to determine the cost of the investigational devices for each of the three analyses. Although the applicant submitted data related to the estimated cost of the investigational devices, the applicant noted that the cost of these devices was proprietary information.

To remove the reduced charges for the investigational devices, the applicant searched the clinical trial claims data and removed those charges with a revenue code of 0624 (investigational device exempt). Because the claims data for the clinical trial ranged from 2002 to 2010, it was necessary to inflate the charges. Using data from the U.S. Department of Labor Bureau of Labor Statistics (BLS) Consumer Price Index, the applicant applied an inflation factor to the claim charges ranging from 3 percent to 27 percent, depending on the year of the claim. After inflating the charges, the applicant then added the commercial charges of the investigational devices to the inflated charge per case. To determine the amount of commercial charges related to the investigational devices, the applicant divided the cost of the investigational devices by the hospital-specific CCR from the FY 2012 IPPS Final Rule Impact File. After adding the charges of the investigational devices to the inflated charges, the applicant then standardized the charges on each claim. As a result, the applicant determined a final case-weighted average standardized charge per case of $122,821. In the proposed rule, the applicant used the FY 2013 Table 10 thresholds for MS-DRGs 252, 253, and 254 and determined a case-weighted threshold of $53,869 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for MS-DRGs 252, 253, and 254 exceeds the case-weighted threshold amount, the applicant maintained that the Zenith® F. Graft met the cost criterion for new technology add-on payments. As noted above, for this final rule the applicant must demonstrate that it meets the cost criteria for MS-DRGs 237 and 238. The thresholds for MS-DRGs 237 and 238 are $101,728 and $69,591, respectively. If the applicant compared the final case-weighted average standardized charge per case of $122,821 (under MS-DRGs 252, 253, and 254) to the highest threshold for MS-DRGs 237 and 238 ($101,728), it would still exceed the threshold in excess of $20,000. Therefore, under this analysis the applicant would meet the cost criterion since the final case-weighted average standardized charge per case would exceed the threshold under MS-DRGs 237 and 238.

We note that, in addition to the analysis above, the applicant conducted a similar cost analysis using drug eluting renal stents instead of bare metal renal stents. The applicant noted that the price of drug eluting renal stents exceeds the price of bare metal renal stents by approximately $2,200 per stent. Therefore, the applicant asserted that if the price of drug eluting renal stents is more expensive than bare metal renal stents and the Zenith® F. Graft meets the cost criteria with bare metal renal stents, the Zenith® F. Graft also meets the cost criteria when the applicant uses drug eluting renal stents in its analysis.

As mentioned above, the applicant conducted three separate analyses using FY 2010 MedPAR data to identify cases eligible for the Zenith® F. Graft to demonstrate that it meets the cost criterion. Because procedure code 39.78 was effective October 1, 2011, the applicant noted that it was unable to conduct a MedPAR data analysis with claims that contained a procedure code of 39.78. Therefore, in order to identify cases eligible for the Zenith® F. Graft prior to October 1, 2011, the applicant searched the MedPAR file for the following three scenarios. The first analysis searched the FY 2010 MedPAR file for cases with procedure code 39.71 (Endovascular implantation of graft in abdominal aorta) in combination with a diagnosis code of 441.4 (Abdominal aneurysm without mention of rupture). Procedure code 39.71 maps to MS-DRGs 237 and 238. The applicant found 1,679 cases (or 9.1 percent of all cases) in MS-DRG 237 and 16,793 cases (or 90.9 percent of all cases) in MS-DRG 238. The average charge per case was $122,252 for MS-DRG 237 and $76,883 for MS-DRG 238, equating to a case-weighted average charge per case of $81,006.

The applicant noted that these MedPAR claims data included charges for the existing stent graft but did not include charges for the Zenith® F. Graft. Therefore, the applicant stated that it was first necessary to remove the amount of charges related to the existing stent graft and replace them with charges for the Zenith® F. Graft. Although the applicant submitted data related to the estimated cost of the existing stent graft and the Zenith® F. Graft, the applicant noted that the cost of these devices was proprietary information.

To determine the amount of charges for the existing stent graft, the applicant divided the costs for the existing stent graft by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case from the average charge per case. Because the applicant used FY 2010 MedPAR data, it was necessary to inflate the charges from FY 2010 to FY 2012. Using data from the BLS' Consumer Price Index, the applicant inflated the case-weighted average standardized charge per case with an inflation factor of 4 percent. The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. The applicant determined a final case-weighted average standardized charge per case of $80,509. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $72,512 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount under this first analysis, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payment.

For its second analysis, the applicant searched the FY 2010 MedPAR file for cases with procedure code 38.44 (Resection of vessel with replacement, aorta) in combination with a diagnosis code of 441.4. Similar to the first analysis, the applicant conducted this analysis using MS-DRGs 237 and 238 because procedure code 38.44 maps to MS-DRGs 237 and 238. The applicant found 1,310 cases (or 37.9 percent of all cases) in MS-DRG 237 and 2,145 cases (or 62.1 percent of all cases) in MS-DRG 238. The average charge per case was $110,708 for MS-DRG 237 and $64,095 for MS-DRG 238, equating to a case-weighted average charge per case of $81,769.

The next steps of the applicant's second analysis were similar to the steps in the first analysis. The applicant noted that the MedPAR claims data included charges for the vascular graft for open procedures but did not include charges for the Zenith® F. Graft. Therefore, the applicant indicated that it was first necessary to remove the amount of charges related to the vascular graft for open procedures and replace them with charges for the Zenith® F. Graft. Although the applicant submitted data related to the estimated cost of the vascular graft for open procedures and the Zenith® F. Graft, the applicant noted that the cost of these devices was proprietary information.

To determine the amount of charges for the vascular graft for open procedures, the applicant divided the costs for the vascular graft for open procedures by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case from the average charge per case. Similar to the first analysis, the applicant inflated the case-weighted average charge per case with an inflation factor of 4 percent (based on data from the BLS' Consumer Price Index). The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. The applicant determined a final case-weighted average standardized charge per case of $118,774. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $81,776 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this second analysis, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payments. In the proposed rule, we noted that while the applicant removed charges for the vascular graft for open procedures, we were concerned that the applicant did not remove charges for other services such as extra operating room time and other possible charges that would be incurred during an open procedure but would possibly not be incurred during cases when the Zenith® F. Graft is implanted.

Comment: In response to our concerns, the applicant took the following steps to demonstrate that the Zenith® F. Graft meets the cost criterion under the second analysis. The applicant first determined the average hospital length of stay (LOS), ICU time and OR time for open AAA repairs versus fenestrated AAA repairs. The applicant researched several peer reviewed studies that contain data for OR time, LOS and ICU time for open procedures. Based on these studies, the applicant calculated a weighted average for each of these measures. The weighted average was a LOS of 9.53 days, 4.07 ICU days, and 261 minutes of OR time.

The applicant used clinical trial data to determine the average OR time, LOS, and ICU time for AAA fenestrated procedures. Based on Cook's clinical trial data, [33] the applicant determined an average LOS of 3.5 days and ICU time of 0.5 days for AAA fenestrated procedures. To determine the amount of OR minutes, the applicant used literature from eight studies including the Cook clinical trial data and determined a weighted average of 235 OR minutes. The applicant noted that the reported hospital LOS and ICU length of stay for fenestrated procedures from outside the United States is significantly longer than those experienced in the study in the United States. Because the applicant believed that the standard of care related to length of hospital stay and ICU stay from European experience are dissimilar to practices within the United States, it only used data from the Cook clinical trial rather than other clinical trial data (which included data from Europe) to determine the average for ICU days and LOS.

The applicant then calculated the percentage savings or rate of savings for the OR time, LOS and ICU time with the following formula: (open procedure minutes or days—fenestrated minutes or days)/open procedure minutes or days. This resulted in savings of 9.96 percent for OR minutes, 87.71 percent for ICU days, and 63.27 percent for LOS days. The applicant then applied the savings at a claim level by applying the rate of savings to the service charge categories from the MedPAR data (rate of savings * open device service charge category). Savings of 9.96 percent for OR time was applied to Service Category 12 (which contains OR charges for revenue centers 36X, 71X and 72X), savings of 87.71 percent for ICU days was applied to Accommodation Charge Category 4 (which includes total ICU charges), and savings of 63.27 percent for LOS was applied to Accommodation Charge Category 1 (which includes standard room charges). To determine the case-weighted average standardized charge per case, the applicant deducted the reduced charges (savings) from the case-weighted average charge per case ($81,769), which resulted in a revised case-weighted average charge per case of $66,206. The applicant then inflated the revised case-weighted average charge per case by 4 percent (based on data from the BLS' Consumer Price Index), which resulted in an inflated case weighted average charge per case of $68,854. Next, the applicant determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. The applicant determined a final case-weighted average standardized charge per case of $106,731. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $81,776 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this revised second analysis, the applicant maintains that the Zenith®F. Graft Meets the Cost Criterion for New Technology Add-On Payments.

Response: We appreciate the applicant's response and submittal of this supplemental analysis, which addresses our concerns from the proposed rule.

The third analysis was a combination of the first and second analyses discussed above. The applicant searched the FY 2010 MedPAR file for cases with a procedure code of 38.44 or 39.71 in combination with a diagnosis code of 441.4. Similar to the first and second analyses, the applicant conducted this analysis using MS-DRGs 237 and 238 because both procedure codes map to MS-DRGs 237 and 238. The applicant found 2,981 cases (or 13.6 percent of all cases) in MS-DRG 237 and 18,928 cases (or 86.4 percent of all cases) in MS-DRG 238. The applicant removed those cases that had both procedure codes 38.44 and 39.71 on the claim. The average charge per case was $116,826 for MS-DRG 237 and $75,298 for MS-DRG 238, equating to a case-weighted average charge per case of $80,948.

The applicant noted that the MedPAR claims data included charges for the existing stent graft or vascular graft for open procedures but did not include charges for the Zenith® F. Graft. Therefore, the applicant stated that it was first necessary to remove the amount of charges related to the existing stent graft or vascular graft for open procedures and replace them with charges for the Zenith® F. Graft. Similar to the first and second analyses, to determine the amount of charges for the existing stent graft or vascular graft for open procedures, the applicant divided the costs for these devices by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case from the average charge per case. The applicant inflated the case-weighted average standardized charge per case with an inflation factor of 4 percent (based on data from the BLS' Consumer Price Index). The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. As a result, the applicant determined a final case-weighted average standardized charge per case of $86,081. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $73,964 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payment.

In the proposed rule, similar to our concerns with the second analysis, we were concerned that for this third analysis the applicant did not remove charges for other services such as extra operating room time and other possible charges that would be incurred during an open procedure, but would possibly not be incurred during cases when the Zenith® F. Graft is implanted.

Comment: The applicant applied the same analysis above and deducted the reduced charges (savings) for OR time, LOS, and ICU days from the case-weighted average charge per case ($80,948), which resulted in a revised case-weighted average charge per case of $39,756. The applicant then inflated the revised case-weighted average charge per case by 4 percent (based on data from the BLS' Consumer Price Index), which resulted in an inflated case-weighted average charge per case of $41,346. The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. The applicant determined a final case-weighted average standardized charge per case of $82,497. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $73,964 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this revised second analysis, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payments.

Response: We thank the commenter for submitting this supplemental analysis which addresses our concerns from the proposed rule.

We appreciate the multiple analyses of the FY 2010 MedPAR data provided by the applicant and as stated above we believe the commenter has addressed our concerns from the proposed rule. Therefore, we believe that the Zenith® F. Graft meets the cost criterion for new technology add-on payments.

The applicant maintains that the technology also meets the substantial clinical improvement criterion. The applicant first explained that current treatment for those patients who are not eligible for standard endovascular AAA devices is an open repair. The applicant referenced data from a published series [34] that demonstrated an open repair can lead to a high risk of morbidity and increased mortality. The applicant added that an open procedure requires suprarenal aortic cross-clamping. [35] The applicant also noted that there is a high risk of blood loss during an open procedure and the de-branching of vessels increases the level of surgical risk. The applicant further noted that 30 to 40 percent of patients who have an infrarenal AAA cannot be treated with current commercial devices because of anatomical reasons (for example, insufficient neck length to achieve graft adequate seal). [36] The applicant added that use of standard endografts in patients with neck lengths less than 10 mm can result in a fourfold increase in an endoleak. [37]

The applicant also stated that the intended use of the Zenith® F. Graft differs from standard AAA endovascular grafts in that the fenestrated device provides physicians the ability to treat patients who have infrarenal aortic neck lengths as short as 4 mm, where standard endovascular AAA devices require an infrarenal aortic neck length of at least 10 to 15 mm. Therefore, the applicant believes that the Zenith® F. Graft offers an additional AAA repair option to those patients who have limited surgical treatment options (for example, if short infrarenal neck lengths make the patients at too high a risk to be candidates for open surgical repair).

The applicant also stated, for patients who have AAAs and short infrarenal neck lengths, the Zenith® F. Graft offers a less invasive treatment option than open surgical repair. The applicant referred to several sources of literature to support the following endpoints for fenestrated endovascular aortic repair (EVAR) versus open repair of the juxtarenal AAA relative to open repair of the juxtarenal AAA: reduced peri-operative mortality (2.4 percent (range: 0 to 5.7 percent)) 38,39,40,41,42,43,44,45,46 reported for fenestrated EVAR repairs versus 2.9 percent (range 0 to 7.4 percent) 47,48 reported for open repair of juxtarenal AAA); reduced morbidity by reducing renal failure requiring permanent dialysis (1.9 percent (pooled average) for fenestrated EVAR repairs versus 3.4 percent reported for open repair of juxtarenal AAA); shorter hospital stay and less operative blood loss to open repair. The applicant maintains that fenestrated EVAR repair results in an average length of stay of 3.5 days, compared to 14.2 days for open repair of juxtarenal AAA, and blood loss of 537 ml, compared to 2586 ml for open repair of juxtarenal AAA.

In the proposed rule, we noted that the information provided by the applicant to evaluate substantial clinical improvement compares this technology to open surgical repair. We expressed concern that the applicant did not present publicly available information comparing the technology to medical management, which the applicant mentions as another method for treating patients anatomically unsuited for currently approved AAA endovascular grafts. In these comparisons, we were also concerned that information regarding the longevity of the Zenith® F. Graft as well as long-term complications and secondary interventions or reinterventions has not been presented. In terms of the data presented by the applicant, we were concerned that these clinical study data were nonrandomized, did not differentiate between patients by infrarenal neck length and/or suitability for other endovascular grafts, and were of noninferiority. We invited public comment on whether or not the Zenith® F. Graft meets the substantial clinical improvement criterion.

Comment: The applicant responded to our concerns from the proposed rule by submitting a public comment with supplemental information. With respect to the concern that the applicant did not compare the technology to medical management which the applicant listed as a treatment option (in addition to an open procedure), the applicant cited the FDA indications of the device and noted that while the application referred to medical management it was not intended to suggest that medical management was a reasonable alternative treatment option for AAAs at heightened risk of rupture. Therefore, the applicant assumed that medical management had already been maximized in the patients' treatment regimen and that some type of surgical intervention was necessary to treat the aneurysm and prevent rupture. Additionally, the applicant further explained that in its application, prior to the Zenith® F. Graft, surgery was considered the most appropriate option for patients who have a suitably large aneurysm. However, certain patient factors may prevent surgical intervention including anatomical limitations that prevent the use of current endovascular stents or the patient's attendant comorbidities may alter the risk/benefit equation so that surgery is not a viable option. As a result, the applicant stated that medical management represented the default treatment and at risk of aneurysm rupture but is still considered inferior to a definitive surgical intervention. The applicant concluded that it is for these patients that the Zenith® F. Graft was developed.

The applicant also cited clinical data that demonstrated little improvement has been achieved in the survival rates of patients who do not undergo a surgical intervention for their aneurysm (because the aneurysm may rupture) in contrast to the published series on fenestrated repair, which has indicated low 30-day mortality rates. Therefore, the applicant believed that surgical intervention with the Zenith® F. Graft is considered a suitable treatment for a patient population (where a surgical intervention was not an option prior to the Zenith® F. Graft) when considering the potential risk and benefit of the procedure.

The applicant also responded to the concern that there is a lack of data on long term complications and secondary interventions or re-interventions. The commenter noted that Mastracci et al presented at the 2012 Society of Vascular Surgery annual meeting on the durability of branched and fenestrated endografts reported that 650 patients underwent endovascular aortic repair with branched or fenestrated devices at the Cleveland Clinic. Approximately one-third of these patients underwent a fenestrated AAA repair; the balance were branched thoracoabdominal and thoracic aortic aneurysm repairs. Through 9 years of follow-up (with a mean of 3 years), secondary procedures were performed for 0.6 percent of celiac, 4 percent of SMA, 6 percent of right renal, and 5 percent of left renal arteries. The average time to reintervention was 237 days and the 30 days, 1 year and 5 year freedom from any intervention was 98 percent, 94 percent, and 84 percent, respectively. Death resulted from branch stent complications in only two patients (related to SMA thrombosis). Mastracci et al concluded that branches, following branched or fenestrated aortic repair, appear to be durable, and are rarely the cause of patient death; the absence of long-term data on the branch patency in open repair precludes comparison, yet the lower morbidity and mortality risk coupled with longer-term durability data will further alter the balance of repair options. The applicant noted that this conclusion is consistent with the applicant's conclusion.

Finally, in response to the concern that the studies conducted were non randomized, did not differentiate between patients by infrarenal neck length and/or suitability for other endovascular grafts and were of non inferiority, the commenter responded that a randomized test was not conducted because it was anticipated that the clinical trial conducted for FDA registration would primarily enroll high risk patients in whom open surgical repair would present an unacceptably high risk of operative mortality. The applicant stated that this precluded a randomized study design. With regard to the concern about not considering other endovascular graft options, the applicant explained that the shortest FDA-approved neck length indication of an available standard AAA graft is >10 mm (IFU—Medtronic Endurant Endovascular Graft). The Zenith® F. Graft is designed to treat neck lengths of ≥4 mm, and there is no other endovascular graft available in the USA indicated to treat such short neck lengths. The applicant also clarified that the study of non-inferiority was for the IDE clinical study performed for FDA approval. One of the study's goals was to show non-inferiority in 6-month treatment success, comparing matched patients treated with a standard Zenith AAA Endovascular Graft (used to treat AAAs anatomically suited for treatment) with patients treated with a standard endovascular device. The purpose was to demonstrate that the Zenith® F. Graft could offer a treatment option to patients with a juxtarenal AAA that was not worse than the well-established treatment success experienced with a standard AAA endovascular graft when used to treat patients anatomically suited for a standard device (not when using a standard AAA graft to treat a short-necked, juxtarenal aneurysm). The applicant concluded that for this device, this intended patient population, and this comparator a non-inferiority design is a valid study design demonstrating non-inferiority to the high standard of success experienced in standard AAA endovascular repair and provides compelling evidence of Zenith® F. Graft's effectiveness.

Response: We appreciate the applicant's response in regard to our concerns presented in the proposed rule. We agree that the Zenith® F. Graft represents a substantial clinical improvement over existing technologies because it offers a treatment option to a patient population that would otherwise require an open procedure or a treatment option to those patients who are ineligible for an open procedure. The Zenith® F. Graft offers a less invasive treatment option compared to an open procedure which results in reduced mortality, reduced morbidity, shorter hospital stays and less operative blood loss.

Comment: Other commenters were concerned that the Zenith® F. Graft may not meet the substantial clinical criterion because of the concerns expressed by CMS in the proposed rule.

Response: As discussed above, the applicant has responded to our concerns and we agree that the Zenith® F. Graft meets the substantial clinical improvement criterion.

Based on the discussion above, the Zenith® F. Graft meets all of the new technology add-on payment policy criteria. Therefore, we are approving the Zenith® F. Graft for new technology add-on payments in FY 2013. Cases involving the Zenith® F. Graft that are eligible for new technology add-on payments will be identified by ICD-9-CM procedure code 39.78. In the application, the applicant provided a breakdown of the costs of the Zenith® F. Graft. The total cost of the Zenith® F. Graft utilizing bare metal (renal) alignment stents was $17,264. Of the $17,264 in costs for the Zenith® F. Graft, $921 are for components that are used in a standard Zenith AAA Endovascular Graft procedure. Because the costs for these components are already reflected within the MS-DRGs (and are no longer “new”), we do not believe it is appropriate to include these costs in our determination of the maximum cost to determine the add-on payment for the Zenith® F. Graft. Therefore, the total maximum cost for the Zenith® F. Graft is $16,343 ($17,264 − $921). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the Zenith® F. Graft is $8,171.50.

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 delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2013 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.B. 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 2013 is discussed in section II.B. of the Addendum to this final rule.

As discussed below in section III.H. 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 2013 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, 2012 (the FY 2013 wage index) appears under section III.F. of this preamble.

In response to concerns frequently expressed by providers and other relevant parties that the current wage index system does not effectively reflect the true variation in labor costs for a large cross-section of hospitals, two studies were undertaken by the Department. First, section 3137(b) of the Affordable Care Act required the Secretary to submit to Congress a report that includes a plan to comprehensively reform the Medicare wage index applied under section 1886(d) of the Act. In developing the plan, the Secretary was directed to take into consideration the goals for reforming the wage index that were set forth by the Medicare Payment Advisory Commission (MedPAC) in its June 2007 report entitled “Report to Congress: Promoting Greater Efficiency in Medicare” and to “consult with relevant affected parties.” Second, the Secretary commissioned the Institute of Medicine (IOM) to “evaluate hospital and physician geographic payment adjustments, the validity of the adjustment factors, measures and methodologies used in those factors, and sources of data used in those factors.” Reports on both of these studies recently have been released. We refer readers to section IX.B. of this preamble for summaries of the studies, their findings, and recommendations on reforming the wage index system.

B. 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 delineations of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582) that, in 2013, OMB plans to announce new area delineations based on new standards adopted in 2010 (75 FR 37246) and the 2010 Census of Population and Housing data. For the FY 2013 wage index, to be effective October 1, 2012 and before the availability of OMB's new area delineations, we proposed to use the same labor market areas that we used for the FY 2012 wage index (76 FR 51581).

We did not receive any public comments on the use of labor market areas for the FY 2013 wage index. Therefore, we are finalizing, for FY 2013, the use of the same labor market areas that we used for the FY 2012 wage index.

C. Worksheet S-3 Wage Data for the FY 2013 Proposed Wage Index

The FY 2013 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2009 (the FY 2012 wage indices were based on data from cost reporting periods beginning during FY 2008).

1. Included Categories of Costs

The FY 2013 wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):

  • Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty)
  • Home office costs and hours
  • Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315))
  • Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590) and other deferred compensation costs.

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2012, the wage index for FY 2013 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The FY 2013 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).

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

Data collected for the IPPS wage index are also currently used to calculate wage indices applicable to other providers, such as SNFs, home health agencies (HHAs), and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note that, in the IPPS rules, we do not address comments pertaining to the wage indices for non-IPPS providers, other than for LTCHs. Such comments should be made in response to separate proposed rules for those providers.

D. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2013 wage index were obtained from Worksheet S-3, Parts II and III of the Medicare cost report for cost reporting periods beginning on or after October 1, 2008, and before October 1, 2009. For wage index purposes, we refer to cost reports during this period as the “FY 2009 cost report,” the “FY 2009 wage data,” or the “FY 2009 data.” Instructions for completing Worksheet S-3, Parts II and III are in the Provider Reimbursement Manual (PRM), Part II, Sections 3605.2 and 3605.3. The data file used to construct the wage index includes FY 2009 data submitted to us as of June 27, 2012. As in past years, we performed an extensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

We asked our fiscal intermediaries/MACs to revise or verify data elements that result in specific edit failures. For the FY 2013 proposed wage index, we identified and excluded 32 providers with data that were too aberrant to include in the proposed wage index, although we stated that if data elements for some of these providers are corrected, we intended to include some of these providers in the FY 2013 final wage index. We have received corrected data for 8 providers, and therefore, we are including the data for these 8 providers in the FY 2013 final wage index. However, we also have determined that the data for 14 additional providers are too aberrant to include in the FY 2013 final wage index. Thus, in total we are excluding the data of 38 providers from the FY 2013 final wage index.

In constructing the FY 2013 proposed wage index, we included the wage data for facilities that were IPPS hospitals in FY 2009, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397). For the proposed rule, we removed 7 hospitals that converted to CAH status between February 15, 2011, the cut-off date for CAH exclusion from the FY 2012 wage index, and February 14, 2012, the cut-off date for CAH exclusion from the FY 2013 wage index. However, after the issuance of the proposed rule, we have learned that one provider which we believed was a CAH actually is an IPPS hospital with valid wage data for FY 2013. Therefore, we have added that provider's wage data for purposes of the FY 2013 final wage index. Accordingly, for this final rule, we removed the data of only 6 (not 7) hospitals that have converted to CAH status between February 15, 2011 and February 14, 2012. After removing hospitals with aberrant data and hospitals that converted to CAH status, the FY 2013 final wage index is calculated based on 3,447 hospitals.

For the FY 2013 final wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located in the same manner we allotted such hospitals' data in the FY 2012 wage index (76 FR 51591). Table 2 containing the FY 2013 wage index associated with this final rule (available on the CMS Web site) includes separate wage data for the campuses of four multicampus hospitals.

E. Method for Computing the FY 2013 Unadjusted Wage Index

The method used to compute the FY 2013 wage index without an occupational mix adjustment follows the same methodology that we used to compute the FY 2012 final wage index without an occupational mix adjustment (76 FR 51591 through 51593).

As discussed in that final rule, in “Step 5,” for each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2008, through April 15, 2010, for private industry hospital workers from the BLS'Compensation and Working Conditions. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and as we proposed, we are not making any changes to the usage for FY 2013. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated below.

Midpoint of Cost Reporting Period Back to Top
After Before Adjustment factor
10/14/2008 11/15/2008 1.03003
11/14/2008 12/15/2008 1.02786
12/14/2008 01/15/2009 1.02582