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Proposed Rule

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Proposed Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific Providers; Hospital Conditions of Participation

Action

Proposed Rule.

Summary

We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems. Some of the proposed 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 proposed changes would be applicable to discharges occurring on or after October 1, 2013, unless otherwise specified in this proposed rule. We also are proposing to update 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 proposed updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2013.

We are proposing to update the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implement certain statutory changes made by the Affordable Care Act. Generally, these proposed changes would be applicable to discharges occurring on or after October 1, 2013, unless otherwise specified in this proposed rule.

In addition, we are proposing a number of changes relating to direct graduate medical education (GME) and indirect medical education (IME) payments. We are proposing to establish 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 are proposing to update policies relating to the Hospital Value-Based Purchasing (VBP) Program and the Hospital Readmissions Reduction Program. In addition, we are proposing to revise the conditions of participation (CoPs) for hospitals relating to the administration of vaccines by nursing staff as well as the CoPs for critical access hospitals relating to the provision of acute care inpatient services.

Unified Agenda

Changes to the Hospital Inpatient and Long-Term Care Prospective Payment System for FY 2014 (CMS-1599-F)

3 actions from May 10th, 2013 to August 2013

  • May 10th, 2013
  • June 25th, 2013
    • NPRM Comment Period End
  • August 2013
    • Final Action
 

Table of Contents Back to Top

Tables Back to Top

DATES: Back to Top

Comment Period: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. EDT on June 25, 2013.

Application Deadline for GME FTE Resident Slots from Closed Hospital. Applications from hospitals to receive GME FTE resident slots from a hospital's closure as described in section V.J.3.c. of the preamble of this proposed rule must be received, not postmarked, by 5 p.m. EST on July 25, 2013.

ADDRESSES: Back to Top

When commenting, please refer to file code CMS-1599-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may submit electronic comments on this regulation at http://www.regulations.gov. Follow the instructions for “Comment or Submission” and enter the file code CMS-1599-P to submit comments on this proposed rule.

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

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1599-P, P.O. Box 8011, Baltimore, MD 21244-1850.

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

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

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1599-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

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

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

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

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

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

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

FOR FURTHER INFORMATION CONTACT: Back to Top

Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, 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.

Mollie Knight, (410) 786-7948 and Bridget Dickensheets, (410) 786-8670, Market Basket for IPPS Hospitals and 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, PPS-Exempt Cancer Hospital Quality Reporting Issues.

Allison Lee, (410) 786-8691 and Jeffrey Buck, (410) 786-0407, Inpatient Psychiatric Facility Quality Reporting Issues.

Sarah Fahrendorf, (410) 786-3112, Conditions of Participation (CoPs) for CAHs Issues.

Commander Scott Cooper, USPHS, (410) 786-9465, Hospital Conditions of Participation (CoPs)—Pneumococcal Vaccine Issues.

Jennifer Dupee, (410) 786-6537, and Jennifer Phillips, (410) 786-1023, Medical Review Criteria for Hospital Inpatient Services under Medicare Part A.

Ann Marshall, (410) 786-3059, Requirement for Physician Order for Payment of Hospital Inpatient Services under Medicare Part A.

SUPPLEMENTARY INFORMATION: Back to Top

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

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

Electronic Access Back to Top

This Federal Register document is also available from the Federal Register online database through Federal Digital System (FDsys), a service of the U.S. Government Printing Office. This database can be accessed via the Internet at: http://www.gpo.gov/fdsys.

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

In the past, a majority of the tables referred to throughout this preamble and in the Addendum to this proposed rule and the final rule were published in the Federal Register as part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables are no longer published in the Federal Register. Instead, these tables will be available only through the Internet. The IPPS tables for this proposed 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 2014 IPPS Proposed Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2014 proposed 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-1599-P. For complete details on the availability of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this proposed rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Michael Treitel at (410) 786-4552.

Acronyms Back to Top

3M3M Health Information System

AAMCAssociation of American Medical Colleges

ACGMEAccreditation Council for Graduate Medical Education

ACoSAmerican College of Surgeons

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

APRNAdvanced practice registered nurse

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

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

ASITNAmerican Society of Interventional and Therapeutic Neuroradiology

ATRAAmerican Taxpayer Relief Act of 2012, Public Law 112-240

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

CAUTICatheter-associated urinary tract infection

CBSAsCore-based statistical areas

CCComplication or comorbidity

CCNCMS Certification Number

CCRCost-to-charge ratio

CDAC[Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CDCCenter for Disease Control and Prevention

CERTComprehensive error rate testing

CDI Clostridium difficile

CFRCode of Federal Regulations

CLABSICentral line-associated bloodstream infection

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

DACAData Accuracy and Completeness Acknowledgement

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 American Hospitals

FDAFood and Drug Administration

FFYFederal fiscal year

FPLFederal poverty line

FQHCFederally qualified health center

FRFederal Register

FTEFull-time equivalent

FYFiscal year

GAAPGenerally Accepted Accounting Principles

GAFGeographic Adjustment Factor

GMEGraduate medical education

HACHospital-acquired condition

HAIHealthcare-associated infection

HBIPSHospital-based inpatient psychiatric services

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

IPFQRInpatient Psychiatric Facility Quality Reporting [Program]

IPPS[Acute care hospital] inpatient prospective payment system

IRFInpatient rehabilitation facility

IQRInpatient Quality Reporting

IVRInteractive voice response

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

MAPMeasure Application Partnership

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

NOPNotice of Participation

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

OQR[Hospital] Outpatient Quality Reporting

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]

PQRSPhysician Quality Reporting 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

SCIP Surgical Care Improvement Project

SFYState fiscal year

SICStandard Industrial Classification

SNFSkilled nursing facility

SOCsStandard occupational classifications

SOMState Operations Manual

SSISurgical site infection

SSISupplemental Security Income

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

VBP[Hospital] Value Based Purchasing [Program]

VTEVenous thromboembolism

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), the Health Care and Education Reconciliation Act of 2010

(Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (Pub. L. 112-240)

D. Summary of Provisions of This Proposed Rule

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

A. Background

B. MS-DRG Reclassifications

C. Adoption of the MS-DRGs in FY 2008

D. Proposed FY 2014 MS-DRG Documentation and Coding Adjustment

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

2. Adjustment to the Average Standardized Amounts Required by Public Law 110-90

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

b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Section 7(b)(1)(B) Public Law 110-90

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

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90

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

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA).

7. Additional Prospective Adjustments for the MS-DRG Documentation and Coding Effect through FY 2010 Authorized under Section 1886(d)(3)(A)(vi) of the Act

E. Proposed Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Discussion and Proposal for FY 2014

F. Adjustment to MS-DRGs for 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. Proposal Regarding Current HACs and Previously Considered Candidate HACs

6. RTI Program Evaluation

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

G. Proposed Changes to Specific MS-DRG Classifications

1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and Liver Transplants

2. MDC 1 (Diseases and Disorders of the Nervous System): Tissue Plasminogen Activator (tPA) (rtPA) Administration within 24 Hours Prior to Admission

3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)

a. Endoscopic Placement of a Bronchial Valve

b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory Arrest

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

a. Discharge/Transfer to Designated Disaster Alternative Care Site

b. Discharges/Transfers with a Planned Acute Care Hospital Inpatient Readmission

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. Reverse Shoulder Procedures

b. Total Ankle Replacement Procedures

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

a. Persons Encountering Health Services for Specific Procedures, Not Carried Out

b. Discharges/Transfers of Neonates with a Planned Acute Care Hospital Inpatient Readmission

7. Proposed Medicare Code Editor (MCE) Changes

a. Age Conflict Edit

b. Discharge Status Code Updates

8. Surgical Hierarchies

9. Complications or Comorbidity (CC) Exclusions List

a. Background of the CC List and the CC Exclusion List

b. Proposed CC Exclusions List for FY 2014

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

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

11. Proposed 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

H. Recalibration of Proposed FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights

2. Methodology for Calculation of the Proposed Relative Weights

3. Development of National Average CCRs

4. Bundled Payments for Care Improvement (BPCI) Initiative

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

1. Background

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

3. FY 2014 Status of Technology Approved for FY 2013 Add-On Payments

a. AutoLaser Interstitial Therapy (Auto LITT TM) System

b. Glucarpidase (Trade Brand Voraxaze®)

c. DIFICID TM (Fidaxomicin) Tablets

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

4. FY 2014 Applications for New Technology Add-On Payments

a. Kcentra TM

b. Argus® II Retinal Prosthesis System

c. Responsive Neurostimulator (RNS) System

d. Zilver® PTX® Drug Eluting Stent

e. MitraClip® System

III. Proposed 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 Proposed FY 2014 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 Proposed FY 2014 Unadjusted Wage Index

F. Proposed Occupational Mix Adjustment to the Proposed FY 2014 Wage Index

1. Development of Data for the Proposed FY 2014 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

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

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2014

G. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2014 Occupational Mix Adjusted Wage Index

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

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

a. Proposed Rural Floor

b. Proposed Imputed Floor

c. Proposed Frontier Floor

3. Proposed FY 2014 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 2014 MGCRB Reclassifications

a. FY 2014 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2015

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

4. Reclassifications under Section 1886(d)(8)(B) of the Act seeking Reclassification by the MGCRB

5. Waiving Lugar Redesignation for the Out-Migration Adjustment

I. Proposed FY 2014 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Process for Requests for Wage Index Data Corrections

K. Proposed Labor-Related Share for the Proposed FY 2014 Wage Index

IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

A. Background

B. Rebasing and Revising the IPPS Market Basket

1. Development of Cost Categories and Weights

2. Cost Category Computation

3. Selection of Price Proxies

4. Labor-Related Share

C. Market Basket for Certain Hospitals Presently Excluded from the IPPS

D. Rebasing and Revising the Capital Input Price Index (CIPI)

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

A. Proposed Inpatient Hospital Updates for FY 2014 (§§ 412.64(d) and 412.211(c))

1. Proposed FY 2014 Inpatient Hospital Update

2. Proposed FY 2014 Puerto Rico Hospital Update

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

1. Case-Mix Index (CMI)

2. Discharges

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

1. Background

a. Original Implementation of the Low-Volume Hospital Payment Adjustment

b. Affordable Care Act Provisions for FYs 2011 and 2012

2. Provisions of the ATRA for FY 2013

a. Background

b. Proposed Conforming Regulatory Changes

3. Proposed Low-Volume Hospital Definition and Payment Adjustment for FY 2014 and Subsequent Years

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

1. IME Adjustment Factor for FY 2014

2. Other Proposed Policy Changes Affecting GME

E. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) § 412.106)

1. Background

2. Counting of Patient Days Associated with Patients Enrolled in Medicare Advantage Plans in the Medicare and Medicaid Fractions of the Disproportionate Share Patient Percentage (DPP) Calculation

3. New Payment Adjustment Methodology for Medicare DSH under Section 3133 of the Affordable Care Act

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

1. Background

2. Provisions of the ATRA for FY 2013

a. Background

b. Proposed Conforming Regulatory Changes

c. Expiration of the MDH Program

G. Hospital Readmissions Reduction Program: Proposed Changes (§§ 412.150 through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Overview

3. FY 2014 Proposals for the Hospital Readmissions Reduction Program

a. Overview

b. Proposed Refinement of the Readmission Measures and Related Methodology for FY 2014 and Subsequent Years Payment Determinations

c. Proposed Expansion of the Applicable Conditions for FY 2015

d. Proposals for Hospitals Paid under Section 1814(b)(3) of the Act, Including the Process to be Exempt from the Hospital Readmissions Reduction Program and Definition of “Base Operating DRG Payment Amount” for Such Hospitals (§ 412.152 and § 412.154(d))

e. Proposed Floor Adjustment Factor for FY 2014 (§ 412.154(c)(2))

f. Proposed Applicable Period for FY 2014

g. Proposed Refinements of the Methodology to Calculate the Aggregate Payments for Excess Readmissions

h. Clarification of Reporting Hospital-Specific Information, Including Opportunity to Review and Submit Corrections

H. Hospital Value-Based Purchasing Program (§§ 412.160 through 412.165)

1. Statutory Background

2. Overview of the FY 2013 Hospital VBP Program

3. FY 2014 Payment Details

4. FY 2014 Hospital VBP Program Measures

5. FY 2015 Hospital VBP Program Measures

6. FY 2016 Hospital VBP Program Measures

a. Measures Previously Adopted and Proposal to Remove AMI-8a, PN-3b, and HF-1

b. Proposed New Measures for the FY 2016 Hospital VBP Program

c. Future Measures for the Efficiency Domain

7. Proposed Performance Periods and Baseline Periods

a. Background

b. Proposed Clinical Process of Care Domain Performance Period and Baseline Periods for the FY 2016 Hospital VBP Program

c. Proposed Experience of Care Domain Performance Period and Baseline Period for the FY 2016 Hospital VBP Program

d. Proposed Efficiency Domain Measure Performance Period and Baseline Period for the FY 2016 Hospital VBP Program

e. Proposed Outcome Domain Performance Periods and Baseline Periods for the FY 2017 through FY 2019 Hospital VBP Programs

8. Proposed Performance Standards for the Hospital VBP Program

a. Background

b. Performance Standards for the FY 2016 Hospital VBP Program Measures

c. Certain Performance Standards for the FY 2017, FY 2018, and FY 2019 Hospital VBP Programs

9. Proposed FY 2016 Hospital VBP Program Scoring Methodology

a. Proposed General Hospital VBP Program Scoring Methodology

b. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals That Receive a Score on All Domains

c. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals Receiving Scores on Fewer than Four Domains

d. Proposed Domain Reclassification and Domain Weighting for the FY 2017 Hospital VBP Program

e. Proposed Disaster/Extraordinary Circumstance Waivers under the Hospital VBP Program

10. Applicability of the Hospital VBP Program to Hospitals

a. Background

b. Proposed Minimum Numbers of Cases and Measures for the FY 2016 Hospital VBP Program Outcome Domain

c. Hospitals Paid under Section 1814(b)(3) of the Act

I. Hospital-Acquired Condition (HAC) Reduction Program

1. Background

2. Statutory Basis for the HAC Reduction Program

3. Proposals to Implement the HAC Reduction Program

a. Proposed Definitions

b. Proposed Payment Adjustment under the HAC Reduction Program, Including Exemptions

c. Proposed Measure Selection and Conditions, Including a Proposed Risk-Adjustment and Scoring Methodology

d. Criteria for Applicable Hospitals and Performance Scoring

e. Reporting Hospital-Specific Information, Including the Review and Correction of Information

f. Limitation on Administrative and Judicial Review

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

1. Background

2. Proposed Inclusion of Labor and Delivery Days in the Calculation of Medicare Utilization for Direct GME Payment Purposes and for Other Medicare Inpatient Days Policy

3. Notice of Closure of Teaching Hospital and Opportunity to Apply for Available Slots

4. Payments for Residents Training in Approved Residency Programs at CAHs

a. Background

b. Residents in Approved Medical Residency Training Programs That Train at CAHs

5. Expiration of Inflation Update Freeze for High Per Resident Amounts (PRAs)

K. Rural Community Hospital Demonstration Program

1. Background

2. Proposed FY 2014 Budget Neutrality Offset Amount

L. Hospital Emergency Services under EMTALA: Technical Change (§§ 4189.24(f))

M. Hospital Services Furnished under Arrangements

N. Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A

1. Background

2. Requirements for Physician Orders

3. Proposed Inpatient Admission Guidelines

a. Background

b. Correct Coding Reviews

c. Complete and Accurate Documentation

d. Medical Necessity Reviews

4. Proposed Payment Adjustment

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

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

C. Other Proposed Changes for FY 2014—Proposed Adjustment to Offset the Cost of the Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A

D. Proposed Annual Update for FY 2014

VII. Proposed Changes for Hospitals Excluded from the IPPS

A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2014

B. Critical Access Hospitals (CAHs): Proposed Changes to Conditions of Participation (CoPs) Relating to Furnishing of Acute Care Inpatient Services

1. Background

2. Proposed Policy Changes

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2014

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. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2014

1. Background

2. Patient Classifications into MS-LTC-DRGs

a. Background

b. Proposed Changes to the MS-LTC-DRGs for FY 2014

3. Development of the Proposed FY 2014 MS-LTC-DRG Relative Weights

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

b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2014

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

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

f. Proposed Low-Volume MS-LTC-DRGs

g. Steps for Determining the Proposed FY 2014 MS-LTC-DRG Relative Weights

C. Proposed LTCH PPS Payment Rates for FY 2014

1. Overview of Development of the Proposed LTCH Payment Rates

2. Proposed FY 2014 LTCH PPS Annual Market Basket Increase

a. Overview

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

c. Adjustment to the Annual Update to the LTCH PPS Standard Federal Rate under the Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Background

2. Proposed Reduction to the Annual Update to the LTCH PPS Standard Federal Rate under the LTCHQR Program

d. Proposed Market Basket Under the LTCH PPS for FY 2014

e. Proposed Annual Market Basket Update for LTCHs for FY 2014

3. Proposed Adjustment for the Second Year of the Phase-In of the One-Time Prospective Adjustment to the Standard Federal Rate under § 412.523(d)(3)

D. Expiration of Certain Payment Rules for LTCH Services—The 25-Percent Threshold Payment Adjustment

E. Research on the Development of a Patient Criteria-Based Payment Adjustment under the LTCH PPS

1. Overview

2. MedPAC's 2004 Report to Congress

3. LTCHs in the Medicare Program

4. CMS' Research: The RTI Report

5. CMS' Report to Congress: Determining Medical Necessity and Appropriateness of Care for Medicare Long-Term Care Hospitals

6. Current Practices in LTCHs

7. Identification of Chronically Critically Ill/Medically Complex (CCI/MC) Patients

8. LTCH PPS Payments for CCI/MC Patients

IX. Proposed 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. Proposed 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 Rulemaking

c. Proposed Removal of Hospital IQR Program Measures for the FY 2016 Payment Determination and Subsequent Years

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

3. Process for Retaining Previously Adopted Hospital IQR Program Measures for Subsequent Payment Determinations

4. Additional Considerations in Expanding and Updating Quality Measures under the Hospital IQR Program

5. Proposed Changes to Hospital IQR Program Measures Previously Adopted for the FY 2015 and FY 2016 Payment Determinations and Subsequent Years

a. Previously Adopted Hospital IQR Program Measures for the FY 2015 Payment Determination and Subsequent Years

b. Proposed Refinements to Existing Measures in the Hospital IQR Program

6. Proposed Additional Hospital IQR Program Measures for the FY 2016 Payment Determination and Subsequent Years

a. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization Measure (NQF #1891)

b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization Measure (NQF #1893)

c. Proposed Hospital 30-day, All-Cause Risk-Standardized Rate of Readmission Following Acute Ischemic Stroke (Stroke Readmission) Measure

d. Proposed Hospital 30-Day, All-Cause Risk-Standardized Rate of Mortality Following an Admission for Acute Ischemic Stroke (Stroke Mortality) Measure

e. Proposed Hospital Risk-Standardized Payment Associated with a 30-day Episode of Care for Acute Myocardial Infarction (AMI) Measure

7. Electronic Clinical Quality Measures

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

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

a. Background

b. Procedural Requirements for the FY 2016 Payment Determination and Subsequent Years

c. Proposed Data Submission Requirements for Chart-Abstracted Measures

d. Proposed Data Submission Requirements for Quality Measures That May be Voluntarily Electronically Reported for the FY 2016 Payment Determination

e. Sampling and Case Thresholds for the FY 2016 Payment Determination and Subsequent Years

f. Proposed HCAHPS Requirements for the FY 2017 Payment Determination and Subsequent Years

g. Proposed Data Submission Requirements for Structural Measures for the FY 2015 and FY 2016 Payment Determinations

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

10. Proposed Modifications to the Validation Process for Chart-Abstracted Measures under the Hospital IQR Program

a. Proposed Timing and Number of Quarters Included in Validation

b. Proposed Selection of Measures and Sampling of Charts to be Included in Validation

c. Proposed Procedures for Scoring Records for Validation

d. Proposed Procedures to Select Hospitals for Validation

e. Proposed Procedures for Submitting Records for Validation

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

12. Public Display Requirements for the FY 2016 Payment Determination and Subsequent Years

13. Proposed Reconsideration and Appeal Procedures for the FY 2015 Payment Determination and Subsequent Years

14. Hospital IQR Program Extraordinary Circumstances Extensions or Waivers

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

1. Statutory Authority

2. Covered Entities

3. Previously Finalized Quality Measures for PCHs Beginning with the FY 2014 Program

4. Considerations in the Selection of the Quality Measures

5 Proposed New Quality Measures

a. Proposed New Measure Beginning with FY 2015—NHSN Healthcare-Associated Infection (HAI) Measure: Surgical Site Infection (SSI) (NQF #0753)

b. Proposed New Measures Beginning with the FY 2016 PQHQR Program

6. Possible New Quality Measure Topics for Future Years

7. Maintenance of Technical Specifications for Quality Measures

8. Public Display Requirements Beginning with FY 2015 Program Year

9. Form, Manner, and Timing of Data Submission Beginning with FY 2015 Program Year

a. Background

b. Proposed Waivers from Program Requirements

c. Proposed Reporting Periods and Submission Timelines for the Proposed SSI Measure

d. Proposed Exceptions to Reporting and Data Submission for HAI Measures (CAUTI, CLABSI, and Proposed SSI)

e. Proposed Reporting and Data Submission Requirements for the Proposed Clincial Process/Oncology Care Measures

f. Proposed Reporting and Data Submission Requirements for the Proposed SCIP Measures

g. Proposed HCAHPS Requirements

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

1. Statutory History

2. General Consideratons Used for Selection of Quality Measures for the LTCHQR Program

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

4. Process for Adopting Changes to LTCHQR Program Measures

5. Previously Adopted Quality Measures for the FY 2014 and FY 2015 Payment Determinations and Subsequent Payment Determinations

6. Previously Adopted Quality Measures for the FY 2016 Payment Determination and Subsequent Payment Determinations

7. Proposed Revisions to Previously Adopted Quality Measures

a. Proposed Revisions for Influenza Vaccination Coverage among Health Care Personnel (NQF #0431)

b. Proposed Revisions for Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680)

c. Proposed Revisions for Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF #0678)

8. Proposed New LTCHQR Program Quality Measures Affecting the FY 2017 and FY 2018 Payment Determinations and Subsequent Payment Determinations

a. Considerations in Updating and Expanding Quality Measures under the LTCHQR Program for the FY 2017 Payment Determination and Subsequent Payment Determinations

b. Proposed New LTCHQR Program Quality Measures for the FY 2017 Payment Determination and Subsequent Payment Determinations

c. Proposed New LTCHQR Program Quality Measure for the FY 2018 Payment Determination and Subsequent Payment Determinations

d. LTCHQR Program Quality Measures and Concepts under Consideration for Future Years Payment Determinations

9. Form, Manner, and Timing of Quality Data Submission for the FY 2016 Payment Determination and Subsequent Payment Determinations

a. Background

b. Finalized Timeline for Data Submission under the LTCHQR Program for the FY 2016 Payment Determination

c. Proposed Timeline for Data Submission for the NQF #0431 Influenza Vaccination Coverage Among Healthcare Personnel Measure for the FY 2016 Payment Determination and Subsequent Payment Determinations

d. Proposed Timeline for Data Submission for the NQF #0680 Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) Measure for the FY 2016 Payment Determination and Subsequent Payment Determinations

e. Proposed Timeline for Data Submission under the LTCHQR Program for the FY 2017 Payment Determination and Subsequent Program Determinations

f. Proposed Timeline for Data Submission under the LTCHQR Program for the FY 2018 Payment Determination and Subsequent Payment Determinations

10. Public Display of Data Quality Measures for the LTCHQR Program

11. Proposed LTCHQR Program Submission Waiver Requirements for the FY 2015 Payment Determination and Subsequent Payment Determinations

12. Proposed LTCHQR Program Reconsideration and Appeals for the FY 2015 Payment Determination and Subsequent Payment Determinations

D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority

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

3. Covered Entities

4. Considerations in Selecting Quality Measures

5. Proposed Quality Measures for the FY 2015 Payment Determination and Subsequent Years

a. Background

b. Proposed New Quality Measures Beginning with the FY 2016 Payment Determination and Subsequent Years

c. Maintenance of Technical Specifications for Quality Measures

6. Proposed Request for Voluntary Information—Facility Assessment of Patient Experience of Care

7. Request for Recommendations for New Quality Measures for Future Years

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

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

a. Background

b. Procedural Requirements

c. Proposed Submission Requirements for the FY 2016 Payment Determination and Subsequent Years

d. Reporting Requirements for the FY 2016 Payment Determination and Subsequent Years

e. Proposed Population, Sampling, and Minimum Case Threshold for the FY 2016 Payment Determination and Subsequent Years

f. Data Accuracy and Completeness Acknowledgement (DACA) Requirements

10. Reconsideration and Appeals Procedures for the FY 2014 Payment Determination and Subsequent Years

11. Waivers from Quality Reporting Requirements for the FY 2014 Payment Determination and Subsequent Years

12. Electronic Health Records (EHRs)

E. Electronic Health Records (EHRs) Incentive Program and Meaningful Use (MU)

1. Background

2. Proposed Expanded Electronic Submission Period for CQMs

3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2014

4. Case Number Threshold Exemption—Proposed Requirements Regarding Data Submission

X. Proposed Change to the Medicare Hospital Conditions of Participation (CoPs) Relating to the Administration of Pneumococcal Vaccines

XI. MedPAC Recommendations

XII. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

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

3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 2014 Wage 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 Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

C. Response to Public Comments

Regulation Text

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2013 and Payment Rates for LTCHs Effective With Discharges Occurring on or After October 1, 2013

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2014

A. Calculation of the Proposed Adjusted Standardized Amount

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

C. Calculation of the Proposed Prospective Payment Rates

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2014

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

B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2014

C. Capital Input Price Index

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase Percentages for FY 2014

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2014

A. Proposed LTCH PPS Standard Federal Rate for FY 2014

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for FY 2014

1. Background

2. Proposed Geographic Classifications/Labor Market Area Definitions

3. Proposed LTCH PPS Labor-Related Share

4. Proposed LTCH PPS Wage Index for FY 2014

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

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

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

E. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for FY 2014

VI. Tables Referenced in this Proposed 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 Proposed Policy Changes Under the IPPS for Operating Costs

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Proposed Policy Changes

1. Effects of Proposed Policy on MS-DRGs for Preventable HACs, Including Infections

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

3. Effects of Proposed Payment Adjustment for Low-Volume Hospitals for FY 2014

4. Effects of Extension of the MDH Program

5. Effects of Changes Under the FY 2014 Hospital Value-Based Purchasing (VBP) Program

6. Effects of the Implementation of the HAC Reduction Program

7. Effects of Proposed Policy Changes Relating to Payments for Direct GME and IME Costs

8. Effects of Implementation of Rural Community Hospital Demonstration Program

9. Effects of the Extended Effective Date for Policy on Hospital Services Furnished Under Arrangements

I. Effects of Proposal Relating to the Furnishing of Acute Care Inpatient Services by CAHs

J. Effects of Proposed Changes to the COPs for Hospitals Relating to the Administration of Pneumococcal Vaccines

K. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

2. Results

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

1. Introduction and General Considerations

2. Impact on Rural Hospitals

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

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

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

N. Effects of Proposed Changes in the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

O. Effects of Proposed Changes in the LTCH Quality Reporting (LTCHQR) Program

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

II. Alternatives Considered

III. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

IV. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

V. Regulatory Flexibility Act (RFA) Analysis

VI. Impact on Small Rural Hospitals

VII. Unfunded Mandate Reform Act (UMRA) Analysis

VIII. Executive Order 12866

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

I. Background

II. Inpatient Hospital Update for FY 2014

A. Proposed FY 2014 Inpatient Hospital Update

B. Proposed Update for SCHs for FY 2014

C. Proposed FY 2014 Puerto Rico Hospital Update

D. Proposed Update for Hospitals Excluded From the IPPS

E. Proposed Update for LTCHs for FY 2014

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

Under various statutory authorities, we are proposing to make changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 2014 and subsequent fiscal years. These statutory authorities include, but are not limited to, the following:

  • Section 1886(d) of the Social Security Act (the Act), which sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).
  • Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; 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 1866(k) of the Act, as added by section 3005 of the Affordable Care Act, which establishes a quality reporting program for hospitals described in section 1886(d)(1)(B)(v) of the Act, referred to as “PPS-Exempt Cancer Hospitals.”
  • Section 1886(d)(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.
  • Section 1886(p) of the Act, as added by section 3008 of the Affordable Care Act, which establishes an adjustment to hospital payments for hospital-acquired conditions (HACs), or a Hospital-Acquired Condition (HAC) Reduction Program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions, effective for discharges beginning on October 1, 2014.
  • Section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act and amended by section 10309 of the Affordable Care Act, which establishes the “Hospital Readmissions Reduction Program” effective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals under section 1886(d) of the Act will be reduced to account for certain excess readmissions.
  • Section 1886(r) of the Act), as added by section 3313 of the Affordable Care Act, which provides for a reduction to disproportionate share payments under section 1886(d)(5)(f) of the Act and for a new uncompensated care payment to eligible hospitals. Specifically, section 1886(r) of the Act now requires that, for “fiscal year 2014 and each subsequent fiscal year,” “subsection (d) hospitals” that would otherwise receive a “disproportionate share payment . . . made under subsection (d)(5)(F)” will receive two separate payments: (1) 25 percent of the amount they previously would have received under subsection (d)(5)(F) for DSH (“the empirically justified amount”), and (2) an additional payment for the DSH hospital's proportion of uncompensated care, determined as the product of three factors. These three factors are: (1) 75 percent of the payments that would otherwise be made under subsection (d)(5)(F); (2) 1 minus the percent change in the percent of individuals under the age of 65 who are uninsured (minus 0.1 percentage points for FY 2014, and minus 0.2 percentage points for FY 2015 through FY 2017); and (3) a hospital's uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percentage.
  • Section 1886(s)(4) of the Act, as added and amended by section 3401(f) and 10322(a) of the Affordable Care Act, respectively, which requires the Secretary to implement a quality reporting program for inpatient psychiatric hospitals and psychiatric units. Under this program, known as the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program, beginning with FY 2014, the Secretary must reduce any annual update to a standard Federal rate for discharges occurring during a fiscal year by 2.0 percentage points for any inpatient psychiatric hospital or psychiatric unit that does not comply with quality data submission requirements with respect to an applicable fiscal year.

2. Summary of the Major Provisions

a. MS-DRG Documentation and Coding Adjustment

Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-240) amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment to the standardized amount of Medicare payments to acute care hospitals to account for changes in MS-DRG documentation and coding that do not reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law 110-90.

While our actuaries estimate that a −9.3 percent adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to delay or phase in rate adjustments over more than one year, in order to moderate the effects on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, we are proposing a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. Although we are not proposing an additional prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effects through FY 2010, we are soliciting public comments as to whether any portion of the proposed −0.8 percent recoupment adjustment to the operating IPPS standardized amount should be reduced and instead applied as a prospective adjustment to the operating IPPS standardized amount (and hospital-specific rates) for the cumulative MS-DRG documentation and coding effect through FY 2010.

b. Proposed Refinement of the MS-DRG Relative Weight Calculation

Beginning in FY 2007, we implemented relative weights for DRGs based on cost report data instead of charge information. To address the issue of charge compression (the hospital practice of applying higher charges to lower cost items and applying lesser charges to higher cost items) when using cost report data to set the MS-DRG relative weights, in FYs 2009 and 2010, we created additional cost centers on the Medicare cost report to distinguish implantable devices from other medical supplies, MRIs and CT scans, respectively, from other radiology services, and cardiac catheterization from other cardiology services. As compared to previous years, we currently have a significant volume of hospitals completing all, or some, of these new cost centers on the Medicare cost report. In section II.E. of the preamble of this proposed rule, we provide various data analyses based on comparison of the FY 2014 relative weights computed using 15 cost-to-charge ratios (CCRs), as we have done in the past, and the FY 2014 relative weights computed using 19 CCRs, with distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization.

We believe that the analytic findings described in section II.E. of the preamble of this proposed rule support our original decision to break out and create new cost centers for implantable devices, MRIs, CT scans, and cardiac catheterization. Therefore, beginning in FY 2014, we are proposing to calculate the MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost report data for implantable devices, MRIs, CT scans, and cardiac catheterization.

c. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

In section IV. of the preamble of this proposed rule, we are proposing to rebase and revise the acute care hospital operating and capital market baskets used to update IPPS payment rates. For both market baskets, we are proposing to update the base year cost weights from a FY 2006 base year to a FY 2010 base year. We also are proposing to recalculate the labor-related share using the proposed FY 2010-based hospital market basket, for discharges occurring on or after October 1, 2013. We would use the FY 2010-based market basket in developing the FY 2014 update factor for the operating and capital prospective payment rates and the FY 2014 update factor for the excluded hospital rate-of-increase limits. We also are setting forth the data sources used to determine the proposed revised market basket relative weights.

d. Reduction of Hospital Payments for Excess Readmissions

We are proposing a number of changes in 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 to account for excess readmissions of selected applicable conditions. These conditions are acute myocardial infarction, heart failure, and pneumonia. For FY 2014, we are proposing additional exclusions to the three existing readmission measures (that is, the excess readmission ratio) that account for planned readmissions. We also are proposing additional readmission measures to be used in the payment determination for FY 2015. In addition, we are proposing that the readmissions payment adjustment factors for FY 2014 can be no more than a 2-percent reduction (there is a 1-percent cap in FY 2013), consistent with the statute. We are proposing a change in the methodology we use to calculate the readmissions payment adjustment factors to make it more consistent with the calculation of the excess readmission ratio.

e. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act 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.

In this proposed rule, we are outlining payment details for the FY 2014 Hospital VBP Program. In addition, we are proposing numerous policies for the FY 2016 Hospital VBP Program, including measures, performance standards, and performance and baseline periods. We also are proposing a disaster/extraordinary circumstances waiver process, domain reclassification and weighting based on CMS' National Quality Strategy for the FY 2017 Hospital VBP Program, and certain measures, performance and baseline periods, and performance standards for the FY 2017 through FY 2019 Programs.

f. Hospital-Acquired Condition (HAC) Reduction Program

In this proposed rule, we are proposing measures, scoring, and risk adjustment methodology to implement the FY 2015 payment adjustment under the HAC Reduction Program. Section 1886(p) of the Act, as added under section 3008(a) of the Affordable Care Act, establishes an adjustment to hospital payments for HACs, or a HAC Reduction program, under which payments to applicable hospitals are adjusted to provide an incentive to reduce HACs, effective for discharges beginning on October 1, 2014 and for subsequent program years. The amount of payment shall be equal to 99 percent of the amount of payment that would otherwise apply to such discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable.

g. Counting of Inpatient Days for Medicare Payment or Eligibility Purposes

In response to a comment we received on the FY 2013 IPPS/LTCH PPS final rule and consistent with the inpatient day counting rules for DSH as clarified in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we are proposing that patient days associated with maternity patients who were admitted as inpatients and were receiving ancillary labor and delivery services at the time the inpatient routine census is taken, regardless of whether the patient actually occupied a routine bed prior to occupying an ancillary labor and delivery bed and regardless of whether the patient occupies a “maternity suite” in which labor, delivery recovery, and postpartum care all take place in the same room, would be included in the Medicare utilization calculation. We understand that including labor and delivery inpatient days in the Medicare utilization calculation invariably would reduce direct GME payments because direct GME payments are based, in part, on a hospital's Medicare utilization ratio and the denominator of that ratio, which includes the hospital's total inpatient days, would increase at a higher rate than the numerator of the ratio, which includes the hospital's Medicare inpatient days. However, because the Medicare utilization ratio is a comparison of a hospital's total Medicare inpatient days to its total inpatient days, we believe that revising the ratio to include labor and delivery days is appropriate because they are inpatient days and therefore should be counted as such. We are proposing to include labor and delivery days as inpatient days in the Medicare utilization calculation effective for cost reporting periods beginning on or after October 1, 2013.

h. Proposed Changes to the DSH Payment Adjustment and the Provision of Additional Payment for Uncompensated Care

Section 3133 of the Affordable Care Act modified the Medicare disproportionate share hospital (DSH) payment methodology beginning in FY 2014. Currently, Medicare DSHs qualify for a DSH payment adjustment under a statutory formula that considers their Medicare utilization due to beneficiaries who also receive Supplemental Security Income benefits and their Medicaid utilization. Under section 1886(r) of the Act, which was added by section 3133 of the Affordable Care Act, starting in FY 2014, DSHs will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments. The remaining amount, equal to 75 percent of what otherwise would have been paid as Medicare DSH payments, will be paid as additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured. Each Medicare DSH will receive its additional amount based on its share of the total amount of uncompensated care for all Medicare DSH hospitals for a given time period. In this proposed rule, we are proposing to implement these statutory changes.

i. Proposal Relating to Admission and Medical Review Criteria for Hospital Inpatient Services Under Medicare Part A

To reduce uncertainty regarding the requirements for payments to hospitals and CAHs under Medicare Part A related to when a Medicare beneficiary should be admitted as a hospital inpatient, in this proposed rule, we are proposing to clarify the rules governing physician orders of hospital inpatient admissions for payment under Medicare Part A. We are proposing to clarify and specify in the regulations that an individual becomes an inpatient of a hospital, including a critical access hospital, pursuant to an order for inpatient admission by a physician or other qualified practitioner and, therefore, the order is required for payment of hospital inpatient services under Medicare Part A. We are proposing that hospital inpatient admissions spanning 2 midnights in the hospital would generally qualify as appropriate for payment under Medicare Part A. This would revise our guidance to hospitals and physicians relating to when hospital inpatient admissions are determined reasonable and necessary for payment under Part A. We also are proposing to use our exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to offset the additional IPPS expenditures under this proposal by reducing the standardized amount, the hospital-specific amount, and the Puerto Rico-specific standardized amount by 0.2 percent.

j. Proposed LTCH PPS Standard Federal Rate

In section VIII.A. of the preamble of this proposed rule, we present the proposed LTCH PPS standard Federal rate for FY 2014, which includes a proposed adjustment factor of 0.98734 for the second year of the 3-year phase-in of the permanent one-time adjustment to the standard Federal rate. In addition, under the LTCH Quality Reporting (LTCHQR) Program, the proposed annual update to the standard Federal rate will be reduced by 2 percentage points for LTCHs that fail to submit data for FY 2014 on specific measures under section 3004 of the Affordable Care Act.

k. Expiration of Certain Payment Rules for LTCH Services and Research on the Development of a Patient Criteria-Based Payment Adjustment Under the LTCH PPS

In section VIII.D. of the preamble of this proposed rule, we note the expiration of the moratorium on the full implementation of the “25 percent threshold” payment adjustment to LTCHs under the LTCH PPS for cost reporting periods beginning on or after October 1, 2013.

In section VIII.E. of the preamble of this proposed rule, we describe the results of research being done by a CMS contractor, Kennell and Associates (Kennell) and its subcontractor, Research Triangle Institute, International (RTI), on the development of a payment adjustment under the LTCH PPS based on the establishment of LTCH patient criteria.

l. 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 proposed rule, we are proposing to make several changes to: (1) The measure set, including the removal of some measures, the refinement of some measures, and the adoption of several new measures; (2) the administrative processes; and (3) the validation methodologies. We also are proposing to allow hospitals the option of reporting the measures in four measure sets electronically for the FY 2016 payment determination. These proposed changes would improve the timeliness and efficiency of the Hospital IQR Program and begin the process of incorporating electronic reporting into the Hospital IQR Program.

3. Summary of Costs and Benefits

  • Proposed Adjustment for MS-DRG Documentation and Coding Changes. We are proposing a −0.8 percent recoupment adjustment to the standardized amount for FY 2014 to implement, in part, the requirement of section 631 of the ATRA that the Secretary make an adjustment totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, and 2017. This recoupment adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. Prior to the ATRA, this amount could not have been recovered under Public Law110-90.

While our actuaries estimate that a −9.3 percent recoupment adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to delay or phase in rate adjustments over more than one year, in order to moderate the effects on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, we are proposing a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. We estimate that this level of adjustment would recover $0.96 billion in FY 2014, with approximately $10.4 billion remaining to be addressed. We are not proposing any future adjustments at this time but note that if recoupment adjustments of approximately −0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, we estimate that the entire $11 billion will be recovered by the end of the statutory 4-year timeline.

  • Proposed Refinement of the MS-DRG Relative Weight Calculation. We refer readers to section VI.C. of Appendix A of this proposed rule for the overall IPPS operating impact, which includes the impact for the proposed refinement of the MS-DRG relative weight calculation. This proposed impact models payments to various hospital types using relative weights developed from 19 CCRs as compared to 15 CCRs. As with other proposed changes to the MS-DRGs, these proposed changes are to be implemented in a budget neutral manner.
  • Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals. The proposed FY 2010-based IPPS market basket update (as measured by percentage increase) for FY 2014 is currently forecasted to be the same as the market basket update based on the FY 2006-based IPPS market basket at 2.5 percent (currently used under the IPPS). Therefore, we are projecting that there would be no fiscal impact on the IPPS operating payment rates in FY 2014 as a result of the proposed rebasing and revision of the IPPS market basket.

The proposed FY 2010-based IPPS capital input price index update (as measured by percentage increase) for FY 2014 is currently forecasted to be 1.2 percent, 0.2 percentage points lower than the update based on the FY 2006-based capital input price index. Therefore, we are projecting that there would be a fiscal impact of −$16 million to the IPPS capital payments in FY 2014 as a result of this proposal (0.2 percentage points * annual capital IPPS payments of approximately $8 billion).

In addition, we are proposing to update the labor-related share under the IPPS for FY 2014 based on the proposed FY 2010-based IPPS market basket, which would result in a labor-related share of 69.6 percent (compared to the FY 2013 labor-related share of 68.8) or 62 percent, depending on which results in higher payments to the hospital. For FY 2014, the proposed labor-related share for the Puerto Rico-specific standardized amount would be either 63.2 percent or 62 percent, depending on which results in higher payments to the hospital. We are projecting that there would be no impact on aggregate IPPS payments as a result of this proposal due to the statutory requirement that any changes to the IPPS area wage adjustment (including the labor-related share) are adopted in a budget neutral manner.

  • Reduction to Hospital Payments for Excess Readmissions. The provisions of section 1886(q) of the Act which establishes the Hospital Readmissions Reduction Program are not budget neutral. For FY 2014, a hospital's readmissions payment adjustment factor is the higher of a ratio of a hospital's aggregate payments for excess readmissions to its aggregate payments for all discharges, or 0.98 (that is, or a 2-percent reduction). In this proposed rule, we estimate that the reduction to a hospital's base operating DRG payment amount to account for excess readmissions of selected applicable conditions under the Hospital Readmissions Reduction Program will result in a 0.2 percent decrease, or approximately −$175 million, in payments to hospitals for FY 2014.
  • Value-Based Incentive Payments Under the Hospital Value-Based Purchasing (VBP) Program. We estimate that there will be no net financial impact to the Hospital VBP Program for FY 2014 in the aggregate because, by law, the amount available for value-based incentive payments under the program in a given fiscal year must be equal to the total amount of base operating DRG payment amount reductions for that year, as estimated by the Secretary. The estimated amount of base operating DRG payment amount reductions for FY 2014, and therefore the estimated amount available for value-based incentive payments for FY 2014 discharges, is approximately $1.1 billion. We believe that the program's benefits will be seen in improved patient outcomes, safety, and in the patient's experience of care. We intend to provide an updated analysis of the program's estimated dollar impact for the FY 2014 program year in the FY 2014 IPPS/LTCH PPS final rule. However, we cannot estimate these benefits in actual dollar and patient terms.
  • Implementation of the HAC Reduction Program for FY 2014. We note that there is no payment impact for FY 2014 for implementing the HAC Reduction Program. For FY 2015, we are presenting the overall impact of the HAC Reduction Program provision along with other IPPS payment provision impacts in section I.G. of Appendix A of this proposed rule.
  • Counting of Inpatient Days in the Medicare Utilization Calculation. We believe our proposal to include labor and delivery days as inpatient days in the Medicare utilization calculation would result in a savings of approximately $15 million for FY 2014.
  • Changes to the Medicare DSH Payment Adjustment and Provision of Additional Payment for Uncompensated Care. Under section 1886(r) of the Act (as added by section 3313 of the Affordable Care Act), disproportionate share payments to hospitals under section 1886(d)(5)(F) of the Act are reduced and an additional payment to eligible hospitals will be made beginning in FY 2014. Hospitals that receive Medicare DSH payments will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments. The remainder, equal to 75 percent of what otherwise would have been paid as Medicare DSH payments, will be the basis for additional payments after the amount is reduced for changes in the percentage of individuals that are uninsured and additional statutory adjustments. Each hospital that receives Medicare DSH payments will receive an additonal payment based on its share of the total uncompensated care amount reported by Medicare DSHs. The reduction to Medicare DSH payments is not budget neutral.

We are proposing that 75 percent of what otherwise would have been paid for Medicare DSH payments is adjusted to 88.8 percent of that amount for changes in the percentage of individuals that are uninsured and additional statutory adjustments. In other words, Medicare DSH payments prior to the application of section 3133 are adjusted to 66.6 percent (the product of 75 percent and 88.8 percent) and that resulting payment amount is used to create an additional payment for a hospital's relative uncompensated care. As a result, we project that the reduction of Medicare DSH payments and the inclusion of the additional payments will reduce payments overall by 0.9 percent as compared to Medicare DSH payments prior to the implementation of section 3133. The proposed additional payment costs have redistributive effects based on a hospital's uncompensated care amount relative to the uncompensated care amount for all hospitals that are estimated to receive Medicare DSH payments, and the payment amount is not tied to a hospital's discharges.

  • Proposal Relating to Admission and Medical Review Criteria for Hospital Inpatient Services Under Medicare Part A. In this proposed rule, we are making a proposal relating to admission and medical review criteria for hospital inpatient admissions under Medicare Part A. One aspect of this proposal is that hospital inpatient admissions spanning 2 midnights in the hospital would generally qualify as appropriate for payment under Medicare Part A. Our actuaries estimate that the proposal would increase IPPS expenditures by approximately $220 million due to an expected net increase in inpatient encounters. We are proposing to use our exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to make a reduction of 0.2 percent to the standardized amount, the Puerto Rico standardized amount, and the hospital-specific payment rate to offset this estimated $220 million in additional IPPS expenditures. We also are proposing to apply that 0.2 percent reduction to the capital Federal rates using our authority under section 1886(g) of the Act.
  • Hospital Inpatient Quality Reporting (IQR) Program. We are proposing that hospitals participating in the Hospital IQR Program will have the option to report a subset of measures electronically in CY 2014 for the FY 2016 payment determination. Under this proposal, hospitals may choose to report the measures in four measure sets electronically or as chart-abstracted measures in CY 2014. For the FY 2016 payment determination, we also are proposing to remove seven chart-abstracted measures and one structural measure. We also are proposing to adopt five new claims-based measures for the FY 2016 payment determination and subsequent years. We are proposing, for the FY 2016 payment determination and subsequent years, to validate two additional chart-abstracted HAI measures: MRSA bacteremia, and C. difficile. We also are proposing to reduce the number of records used for HAI validation from 48 records per year to 36 records per year beginning with the FY 2015 payment determination. Finally, we are proposing to allow hospitals to submit patient charts for purposes of validation either in paper form or by means of electronic transmission. We believe the proposed changes to the measure set, processes, and validation methodologies, the proposal for electronic submission of records for validation, as well as the proposal to allow hospitals to report certain measures electronically for the FY 2016 payment determination will result in improved program efficiency and begin the process of incorporating electronic reporting into the program. We estimate that the combination of these proposed changes and the reduction in measures mentioned above will reduce burden hours by 700,000 hours annually.
  • Proposed Update to the LTCH PPS Standard Federal Rate and Other Payment Factors. Based on the best available data for the 423 LTCHs in our database, we estimate that the proposed changes we are presenting in the preamble and Addendum of this proposed rule, including the proposed update to the standard Federal rate for FY 2014, the proposed changes to the area wage adjustment for FY 2014, and the proposed changes to short-stay outliers and high-cost outliers, would result in an increase in estimated payments from FY 2013 of approximately $62 million (or 1.1 percent). Although we generally project an increase in proposed payments for all LTCHs in FY 2014 as compared to FY 2013, we expect rural LTCHs to experience slightly lower increases than the national average due to decreases in their wage index for FY 2014 compared to FY 2013. In addition, under current law, our moratoria on the full implementation of the “25-percent threshold” payment adjustment policy will expire for certain LTCHs for cost reporting periods beginning on or after October 1, 2013. These regulatory moratoria extended, for an additional year, the 5-year statutory 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, which expired for cost reporting periods beginning on or after October 1, 2012 (“October LTCHs”), and for other LTCHs and LTCH satellite facilities for cost reporting periods beginning on or after July 1, 2012 (“July LTCHs”) (77 FR 53483 through 53484, as amended by the FY 2013 IPPS/LTCH PPS correcting amendment (77 FR 63751 through 63753)), as explained in section VIII.D. of the preamble of this proposed rule. We estimate that the expiration of the regulatory moratoria will result in a reduction in payments of $190 million to LTCHs. Overall, we estimate that the effect of the changes we are proposing for FY 2014 in conjunction with the expiration of the regulatory moratoria would result in a decrease in aggregate LTCH PPS payments in FY 2014 relative to FY 2013 of approximately −$128 million (that is, the estimated increase of $62 million plus the estimated reduction of $190 million, as described above).

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, 2013, 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 2013, that is, on September 30, 2013.) 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 of the BBRA and section 307(b) of the BIPA (as codified under section 1886(m)(1) of the Act). During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. 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 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), the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)

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).

The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), enacted on January 2, 2013, also made a number of changes that affect the IPPS. We announced changes related to certain IPPS provisions for FY 2013 pursuant to sections 605 and 606 of Public Law 112-240 in a notice issued in the Federal Register on March 7, 2013 (78 FR 14689).

1. 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)

In this proposed rule, we are proposing to implement, or continue in FY 2014 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(a) of Public Law 111-148, which requires the establishment of a hospital inpatient value-based purchasing program under which value-based incentive payments are 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 by LTCHs in order for them 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 beginning with FY 2014, and for subsequent program years.
  • Section 3008 of Public Law 111-148, which establishes the Hospital-Acquired Condition (HAC) Reduction Program and requires the Secretary to make an adjustment to hospital payments for applicable hospitals, effective for discharges beginning on October 1, 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 3133 of Public Law 111-148, which modifies the methodologies for determining Medicare DSH payments and creates a new additional payment for uncompensated care.
  • 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 2014.
  • 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.

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

In this proposed rule, we are proposing to implement or to make conforming changes to regulation text in accordance with the following provisions (or portions of the following provisions) of the American Taxpayer Relief Act of 2012 that are applicable to the IPPS:

  • Section 605, which amended sections 1886(d)(12)(B), (C)(i), and (D) of the Act to extend changes to the payment methodology for the Medicare inpatient hospital payment adjustment for low-volume hospitals through September 30, 2013 (FY 2013). Beginning with FY 2014, the preexisting low-volume hospital qualifying criteria and payment adjustment, as implemented in FY 2005, will resume.
  • Section 606(a), which amended sections 1886(d)(5)(G)(i) and (ii)(II) of the Act to extend the MDH program through September 30, 2013 (FY 2013), and section 606(b), which made conforming amendments to sections 1886(b)(3)(D)(i) and (iv) of the Act and amended section 13501(e)(2) of the Omnibus Budget Reconciliation Act of 1993 to permit hospitals to decline reclassification through FY 2013.
  • Section 631, which amended section 7(b)(1)(B) of Public Law 110-90 and requires a recoupment adjustment to the standardized amounts under section 1886(d) of the Act based upon the Secretary's estimates for discharges occurring in FY 2014 through FY 2017 to fully offset $11 billion (which represents the amount of the increase in aggregate payments from FYs 2008 through 2013 for which an adjustment was not previously applied).

D. Summary of the Provisions of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2014. We also are setting 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 this proposed rule, we are setting forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2014.

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

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

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

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2014 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle Institute, International (RTI) reports and recommendations relating to charge compression, including the proposal to calculate the MS-DRG relative weights using 19 CCRs.
  • 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 2014.
  • A discussion of the FY 2014 status of new technologies approved for add-on payments for FY 2013 and a presentation of our evaluation and analysis of the FY 2014 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

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

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

  • The proposed FY 2014 wage index update using wage data from cost reporting periods beginning in FY 2010.
  • Analysis and implementation of the proposed FY 2014 occupational mix adjustment to the wage index for acute care hospitals, including the proposed application of the rural floor, the imputed rural floor calculated under the original and alternative methodologies, and the frontier State floor.
  • 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 2014 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 2014 hospital wage index.
  • Determination of the labor-related share for the proposed FY 2014 wage index.

3. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

In section IV. of the preamble of this proposed rule, we are proposing to rebase and revise the acute care hospital operating and capital market baskets to be used in developing the FY 2014 update factor for the operating and capital prospective payment rates and the FY 2014 update factor for the excluded hospital rate-of-increase limits. We also are setting forth the data sources used to determine the proposed revised market basket relative weights.

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

In section V. of the preamble of this proposed rule, we discuss proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412 and 413, including the following:

  • Proposed changes to the inpatient hospital update for FY 2014, including incorporation of a productivity adjustment.
  • 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 2014.
  • The statutorily required IME adjustment factor for FY 2014.
  • Proposed changes to the methodologies for determining Medicare DSH payments and proposals to implement the new additional payments for uncompensated care.
  • Discussion of the extension of the MDH program through FY 2013.
  • Proposed changes to the 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 changes to the requirements and provision of value-based incentive payments under the Hospital Value-Based Purchasing Program.
  • Proposed requirements for payment adjustments to hospitals under the HAC Reduction Program.
  • Proposal for counting labor and delivery inpatient days in the calculation of Medicare utilization for direct GME purposes and for other inpatient days policy for payments and eligibility.
  • Announcement of an additional closed hospital and redistribution of resident cap slots relating to direct GME and IME payments.
  • Proposed clarifications of policies on payments for residents training in approved residency programs at CAHs.
  • Announcement of the expiration of the inflation update freeze for high per resident amounts (PRAs).
  • Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
  • Extending the effective date of policies relating to hospital services furnished under arrangements.
  • Proposed policy that medical review of inpatient admissions will include a presumption that hospital inpatient admissions are reasonable and necessary for beneficiaries who require more than 1 Medicare utilization day (defined by encounters crossing 2 midnights) in the hospital receiving medically necessary services.

5. Proposed FY 2014 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble to this proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2014 and other related proposed policy changes.

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

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

  • Proposed changes to payments to certain excluded hospitals for FY 2014.
  • Proposed changes to the conditions of participation (CoPs) relating to administration of pneumococcal vaccine and CAH payment for acute care inpatient services.

7. Proposed Changes to the LTCH PPS

In section VIII. of the preamble of this proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2014. We also note that the moratorium on the full implementation of the “25-percent threshold” payment adjustment will expire for certain cost reporting periods beginning on or after October 1, 2013. In addition, in this section, we describe the results of research being done by Kennell and Associates (Kennell) and its subcontractor, Research Triangle Institute, International (RTI), under a contract with CMS on the development of a payment adjustment under the LTCH PPS based on the establishment of LTCH patient criteria.

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

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

  • Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full applicable percentage increase.
  • Proposed changes to the requirements for the quality reporting program for PPS-exempt cancer hospitals (PCHQR Program).
  • Proposed changes to the requirements under the LTCH Quality Reporting (LTCHQR) Program.
  • Proposed changes to the requirements under the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program.

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

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2014 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We are proposing to establish the threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2014 for certain hospitals excluded from the IPPS.

10. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2014 prospective standard Federal rate. We are proposing to establish the adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

11. Impact Analysis

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

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

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2014 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.

13. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 15 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2013 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 address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2013 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.

II. Proposed 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 diagnosis-related groups (DRGs)) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

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

B. MS-DRG Reclassifications

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 through 50055), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 through 51487), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53273).

C. Adoption of the MS-DRGs in FY 2008

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

D. Proposed FY 2014 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by 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. Adjustment to the Average Standardized Amounts Required by Public Law 110-90

a. Prospective Adjustment 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.

b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Section 7(b)(1)(B) 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.

3. 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.

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.

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777), we opted to delay the implementation of any documentation and coding adjustment until a full analysis of case-mix changes based on FY 2009 claims data could be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule for a detailed description of our proposal, responses to comments, and finalized policy. After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50073), we found a total prospective documentation and coding effect of 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 the law provided some discretion as to the manner in which we applied the prospective adjustment of −3.9 percent. As we discussed extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. Therefore, we stated that we believed it was appropriate to not implement the −3.9 percent prospective adjustment in FY 2011 because we finalized a −2.9 percent recoupment adjustment for that 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 implemented the requisite adjustment) would be higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we indicated that because further delay of this prospective adjustment 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 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 final rule (77 FR 53274 through 53276), we completed the prospective portion of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 by finalizing a −1.9 percent adjustment to the standardized amount for FY 2013. We stated that this adjustment would remove the remaining effect of the documentation and coding changes that do not reflect real changes in case-mix that occurred in FY 2008 and FY 2009. We believe it was imperative to implement the full remaining adjustment, as any further delay would result in an overstated standardized amount in FY 2013 and any future years until a full adjustment is made.

We note again that delaying full implementation of the prospective portion of the adjustment required under section 7(b)(1)(A) of Public Law 110-90 until FY 2013 resulted in payments in FY 2010 through FY 2012 being overstated. These overpayments could not be recovered by CMS as section 7(b)(1)(B) of Public Law 110-90 limited recoupments to overpayments made in FY 2008 and FY 2009.

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of 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). 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. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53276), we made a final +2.9 percent adjustment to the standardized amount, completing the recoupment portion of section 7(b)(1)(B) of 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.

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American Taxpayer Relief Act of 2012 (ATRA)

Section 631 of the ATRA amended section 7(b)(1)(B) of Public Law 110-90 to require the Secretary to make a recoupment adjustment or adjustments totaling $11 billion by FY 2017. This adjustment represents the amount of the increase in aggregate payments as a result of not completing the prospective adjustment authorized under section 7(b)(1)(A) of Public Law 110-90 until FY 2013. As discussed earlier, this delay in implementation resulted in overstated payment rates in FYs 2010, 2011, and 2012. The resulting overpayments could not have been recovered under Public Law 110-90.

Similar to the adjustments authorized under section 7(b)(1)(B) of Public Law 110-90, the adjustment required under section 631 of the ATRA is a one-time recoupment of a prior overpayment, not a permanent reduction to payment rates. Therefore, any adjustment made to reduce rates in one year would eventually be offset by a positive adjustment, once the necessary amount of overpayment is recovered.

Our actuaries estimate that a −9.3 percent adjustment to the standardized amount would be necessary if CMS were to fully recover the $11 billion recoupment required by section 631 of the ATRA in FY 2014. In its March 2013 “Report to Congress: Medicare Payment Policy,” MedPAC estimates that a −2.4 percent adjustment made in FY 2014, and not removed until FY 2018, also would recover the required recoupment amount. It is often our practice to delay or 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, we are proposing a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. We estimate that this level of adjustment will recover up to $0.96 billion in FY 2014, with at least $10.04 billion remaining to be recovered by FY 2017. If adjustments of approximately −0.8 percent are implemented in FYs 2014, 2015, 2016, and 2017, using standard inflation factors, we estimate that the entire $11 billion will be accounted for by the end of the statutory 4-year timeline. As estimates of any future adjustments are subject to slight variations in total savings, we are not proposing specific adjustments for FYs 2015, 2016, or 2017 at this time. We believe that this level of adjustment for FY 2014 is a reasonable and fair approach that satisfies the requirements of the statute while mitigating extreme annual fluctuations in payment rates. We again note that this −0.8 percent recoupment adjustment, and future adjustments under this authority, will be eventually offset by an equivalent positive adjustment once the full $11 billion recoupment requirement has been realized.

7. Additional Prospective Adjustments for the MS-DRG Documentation and Coding Effect Through FY 2010 Authorized 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 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 public 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 appropriate to ensure that the introduction of MS-DRGs was implemented in a budget neutral manner. 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 additional prospective documentation and coding effect of 0.8 percent through FY 2010 and found that this effect was present for both IPPS hospitals paid with the standardized amount and IPPS hospitals paid using their hospital-specific payment rates.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we proposed an additional −0.8 percent prospective adjustment to the standardized amount to account for this effect. We indicated that this additional prospective adjustment of −0.8 percent, when combined with the other prospective MS-DRG documentation and coding adjustments already made or proposed would eliminate the future effect of MS-DRG documentation and coding that did not reflect real changes in case-mix for discharges occurring through FY 2010. As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53278 through 53280), numerous commenters objected to the CMS proposal to make an adjustment to account for payment increases due to MS-DRG documentation and coding that did not reflect real changes in case-mix for discharges occurring through FY 2010. Many commenters continued to assert that our estimates of documentation and coding were overstated, and could be explained by other factors. These commenters also focused on part of the analysis provided by MedPAC in its FY 2012 public comment letter indicating that a slightly smaller additional prospective adjusment of −0.55 percent rather than −0.8 percent might be required to offset the cumulative MS-DRG documentation and coding effect through FY 2010. Specifically, while MedPAC supported the overall methodology, it suggested that it was possible that changes in documentation and coding to optimize payments under the MS-DRG GROUPERs and weights may have resulted in slightly less than optimal payments under the FY 2007 GROUPER and weights (the denominator of the documentation and coding change estimate). Many commenters requested that, given the MedPAC analysis, if CMS were to apply an additional prospective adjustment to the MS-DRG documentation and coding effect through FY 2010, it should subtract 0.25 percentage points from its estimate, for an adjustment of −0.55 percent.

After considering the public comments, we recognized that the issue of the estimate to use for the cumulative MS-DRG documentation and coding effect through FY 2010 may merit further consideration. Therefore, as discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53278 through 53280), we decided not to finalize the proposed −0.8 percent adjustment to the standardized amount and the hospital-specific rate until more analysis could be completed.

CMS is continuing to consider whether MedPAC's recommendation that an adjustment to offset the cumulative documentation and coding effects through FY 2010 under section 1886(d)(3)(A)(vi) of the Act is appropriate and supported by a review of the claims data. After further consideration of the MedPAC analysis and the request by many public commenters, if we were to apply an additional prospective adjustment for the cumulative MS-DRG documentation and coding effect through FY 2010, we believe the most appropriate additional adjustment is −0.55 percent.

It is often our practice to delay or phase-in adjustments to mitigate negative financial impacts. Because we are proposing a −0.8 percent recoupment adjustment, as discussed in section II.D.6. of the preamble of this proposed rule, we are not proposing a prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effect through FY 2010. However, we are soliciting public comments as to whether any portion of the proposed −0.8 percent recoupment adjustment should be reduced and instead applied to a prospective adjustment for the cumulative MS-DRG documentation and coding effect through FY 2010. For example, we could apply a −0.25 percent recoupment adjustment, and a −0.55 prospective adjustment, for a total FY 2014 adjustment of −0.8 percent. Reducing the recoupment adjustment in FY 2014 would require relatively larger adjustments for FYs 2015, 2016, and/or 2017, but making a prospective adjustment of −0.55 percent would eliminate future payment increases due to MS-DRG documentation and coding that did not reflect real changes in case-mix for discharges occurring through FY 2010. As we discuss above, because the documentation and coding effect through FY 2010 was found for both IPPS hospitals paid with the standardized amount and IPPS hospitals paid under their hospital-specific payment rate, if we were to apply a prospective adjustment to remove this effect, we also would apply such an adjustment to the hospital-specific payment rate, using the Secretary's broad authority under section 1886(d)(5)(I)(i) of the Act (77 FR 53276 through 53277). Therefore, if we attribute a portion of the −0.8 percent adjustment for FY 2014 to the prospective adjustment, we also would make appropriate adjustments to the hospital-specific payment rates. Puerto Rico-specific rates would not be affected, as we previously found no significant additional MS-DRG documentation and coding effect for FY 2010 that would warrant any additional adjustment to the Puerto Rico-specific rate (77 FR 53279).

E. Proposed 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 addition, we refer readers to RTI's July 2008 final report titled “Refining Cost to Charge Ratios for Calculating APC and MS-DRG Relative Payment Weights” (http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf).

In the FY 2009 IPPS/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 for “Implantable Devices Charged to Patients” was created in July 2009. 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, MRIs, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the costs from charges on claims data. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create standard cost centers for CT scans, MRIs, and cardiac catheterization, and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS-2552-10. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed discussion of the reasons for the creation of standard cost centers for CT scans, MRIs, and cardiac catheterization.) The new standard cost centers for CT scans, MRIs, and cardiac catheterization are effective for cost report periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10.

In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due to what is typically a 3-year lag between the reporting of cost report data and the availability for use in ratesetting, we anticipated that we might be able to use data from the new “Implantable Devices Charged to Patients” cost center to develop a CCR for “Implantable Devices Charged to Patients” in the FY 2012 or FY 2013 IPPS rulemaking cycle. However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782), due to delays in the issuance of the revised cost report Form CMS 2552-10, we determined that a new CCR for “Implantable Devices Charged to Patients” might not be available before FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for CT scans, MRIs, and cardiac catheterization, we explained that data from any new cost centers that may be created will not be available until at least 3 years after they are first used (75 FR 50077). In preparation for the FY 2012 IPPS rulemaking, we checked the availability of data in the “Implantable Devices Charged to Patients” cost center on the FY 2009 cost reports, but we did not believe that there was a sufficient amount of data from which to generate a meaningful analysis in this particular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for “Implantable Devices Charged to Patients” for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would reassess the availability of data for the “Implantable Devices Charged to Patients” cost center for the FY 2013 IPPS/LTCH PPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

During the development of the FY 2013 IPPS/LTCH PPS proposed and final rules, hospitals were still in the process of transitioning from the previous cost report Form CMS-2552-96 to the new cost report Form CMS-2552-10. Therefore, we were able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates on or after October 1, 2009, and before May 1, 2010; that is, those cost reports on Form CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not available because cost reports filed on the Form CMS-2552-10 were not accessible in the HCRIS. Further complicating matters was that, due to additional unforeseen technical difficulties, the corresponding information regarding charges for implantable devices on hospital claims was not yet available to us in the MedPAR file. Without the breakout in the MedPAR file of charges associated with implantable devices to correspond to the costs of implantable devices on the cost report, we believed that we had no choice but to continue computing the relative weights with the current CCR that combines the costs and charges for supplies and implantable devices. We stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281 through 53283) that when we do have the necessary data for supplies and implantable devices on the claims in the MedPAR file to create distinct CCRs for the respective cost centers for supplies and implantable devices, we hoped that we would also have data for an analysis of creating distinct CCRs for CT scans, MRIs, and cardiac catheterization, which could then be finalized through rulemaking.

2. Discussion and Proposal for FY 2014

To calculate the proposed FY 2014 MS-DRG relative weights, we are proposing to continue our current methodology of using the two most recent data sources: the December 2012 update of the FY 2012 MedPAR file as the claims data source and the December 2012 update of FY 2011 HCRIS as the cost data source. We currently have a substantial number of hospitals completing all, or some, of these new cost centers on the FY 2011 Medicare cost reports, compared to prior years. Specifically, using the December 2012 update of FY 2011 HCRIS, we were able to calculate a valid implantable device CCR for 2,285 IPPS hospitals, a valid MRI CCR for 1,402 IPPS hospitals, a valid CT scan CCR for 1,470 IPPS hospitals, and a valid cardiac catheterization CCR for 1,022 IPPS hospitals. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we stated that prior to proposing to create these CCRs, we would first thoroughly analyze and determine the impacts of the data, and that distinct CCRs for these new cost centers would be used in the calculation of the relative weights only if they were first finalized through rulemaking.

We believe that there is a sufficient amount of data in the FY 2011 cost reports from which to generate a meaningful analysis of using distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. In addition, the corresponding charge data on hospital claims for implantable devices, MRIs, CT scans, and cardiac catheterization are available in the FY 2012 MedPAR file. Therefore, we are providing various data analyses below based on comparison of the FY 2014 relative weights computed using 15 CCRs, as we have done in the past, and the FY 2014 relative weights computed using 19 CCRs, with distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. Specifically, rather than having a single CCR for “Supplies and Equipment” which includes low-cost supplies and high-cost implantable devices, a distinct CCR would be carved out of the “Supplies and Equipment” CCR, leaving one CCR for “Supplies” and one CCR for “Implantable Devices.” Regarding the Radiology CCR, which currently is comprised of general radiology ancillary services and MRIs and CT scans, the costs for MRIs and CT scans would be separated from general radiology, creating two distinct CCRs, one for MRIs and one for CT scans, respectively. Finally, by separating the costs of cardiac catheterization out of the CCR for general cardiology, a distinct CCR would be created for cardiac catheterization. Thus, by breaking out these 4 additional CCRs, the number of CCRs used to calculate the relative weights would increase from 15 to 19.

For comparison purposes, the following table shows the final FY 2013 CCRs, the potential FY 2014 CCRs computed with the existing 15 cost centers, and the potential FY 2014 CCRs computed with 19 cost centers, with 4 new CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization.

Group Final FY 2013 15 CCRs Potential FY 2014 15 CCRs Potential FY 2014 19 CCRs
Routine days 0.514 0.502 0.502
Intensive days 0.442 0.423 0.423
Drugs 0.199 0.193 0.193
Supplies & Equipment 0.335 0.327 0.293
Implantable Devices n/a n/a 0.361
Therapy Services 0.370 0.355 0.355
Laboratory 0.143 0.133 0.133
Operating Room 0.238 0.225 0.225
Cardiology 0.145 0.134 0.132
Cardiac Catheterization n/a n/a 0.135
Radiology 0.136 0.128 0.170
MRI n/a n/a 0.091
CT Scans n/a n/a 0.045
Emergency Room 0.226 0.207 0.207
Blood 0.389 0.371 0.371
Other Services 0.397 0.399 0.399
Labor & Delivery 0.450 0.445 0.445
Inhalation Therapy 0.189 0.187 0.187
Anesthesia 0.109 0.120 0.120

In order to model the effects on the relative weights in medical MS-DRGs versus surgical MS-DRGs, we compared a set of relative weights calculated with 15 CCRs and 19 CCRs. Overall, if 19 CCRs are used to calculate the relative weights for FY 2014, relative weights for medical MS-DRGs would be expected to decrease by approximately 1.1 percent, and those for surgical MS-DRGs would be expected to increase by approximately 1.2 percent. In addition, as shown in the table below, at the MDC level, payments would increase by approximately 0.64 percent (0.39 + 0.25) within orthopedic and cardiac MDCs, with most of the reductions in payment resulting to the medical MS-DRGs in the nervous system, digestive system, and respiratory system MDCs.

MDC Description Estimated percentage change within MDC (percent)
08 Musculoskeletal System and Connective Tissue 0.39
05 Circulatory System 0.25
01 Nervous System −0.16
06 Digestive System −0.10
04 Respiratory System −0.08

The largest estimated increase in MS-DRG relative weights would likely occur for MS-DRGs associated with cardiac catheterization and implantable cardiac devices. The largest estimated reductions in MS-DRG relative weights would likely occur for MS-DRGs associated with traumatic head injury and concussion, which are high users of CT scanning and MRI services. We are including in the table below the top 10 (nonlabor and delivery) MS-DRGs that we predict would experience the largest increases and decreases in relative weights if 19 CCRs would be used as compared to 15 CCRs.

MS-DRG Type Title Potential relative weight with 15 CCRs Potential relative weights with 19 CCRs Percentage change
MS-DRGs that would experience the largest decrease in relative weight          
090 MED Concussion without CC/MCC 0.7614 0.7013 −7.9
084 MED Traumatic Stupor & Coma, Coma >1 Hour without CC/MCC 0.9137 0.8516 −6.8
087 MED Traumatic Stupor & Coma, Coma <1 Hour without CC/MCC 0.7899 0.7369 −6.7
965 MED Other Multiple Significant Trauma without CC/MCC 1.0450 0.980 −6.1
185 MED Major Chest Trauma without CC/MCC 0.7281 0.6845 −6.0
089 MED Concussion with CC 0.9959 0.9366 −6.0
123 MED Neurological Eye Disorder 0.7355 0.6920 −5.9
343 SURG Appendectomy without Complicated Principal Diagnosis without CC/MCC 0.9880 0.9517 −5.7
053 MED Spinal Disorders & Injuries without CC/MCC 0.9355 0.8825 −5.7
066 MED Intracranial Hemorrhage or Cerebral Infarction without CC/MCC 0.8034 0.7579 −5.7
MS-DRGs that would experience the largest increase in relative weight          
454 SURG Combined Anterior/Posterior Spinal Fusion with CC 7.6399 8.0563 5.5
455 SURG Combined Anterior/Posterior Spinal Fusion Without CC/MCC 5.9862 6.3133 5.5
484 SURG Major Joint & Limb Reattachment Procedure of Upper Extremity without CC/MCC 2.1211 2.2380 5.5
225 SURG Cardiac Defibrillator Implant with Cardiac Catheterization without AMI/HF/Shock without MCC 5.6298 5.9530 5.7
223 SURG Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock without MCC 6.0956 6.4482 5.8
458 SURG Spinal Fusion Except Cervical with Spinal Curve/Malignant/Infection OR 9+ Fusion without CC/MCC 4.8794 5.1630 5.8
245 SURG AICD Generator Procedures 4.4627 4.7320 6.0
849 MED Radiotherapy 1.3423 1.4258 6.2
946 MED Rehabilitation without CC/MCC 1.1295 1.2024 6.5
227 SURG Cardiac Defibrillator Implant without Cardiac Catheterization without MCC 5.2193 5.5714 6.7

After computing the analyses described above by comparing both sets of MS-DRG relative weights computed with FY 2011 cost report data, we revisited RTI's July 2008 final report. We note that the impacts on relative weight and at the MDC level are generally consistent with those estimated by RTI in its modeling. RTI found that disaggregating the CCRs for medical supplies and devices would have the most impact on reducing charge compression, and that the largest impact was for MS-DRG 227. Similarly, as shown in the chart above, we estimate that the potential relative weight for MS-DRG 227 would experience the largest increase, 6.7 percent. Cardiac implants and spinal fusion procedures accounted for most of the 10 MS-DRGs with the largest incremental increases. In addition, RTI's July 2008 final report (pages 103 through 107) indicates that among the largest expected reductions are the MS-DRG relative weights for MS-DRGs associated with traumatic head injury and concussion, which are high users of CT scanning and MRI services. RTI's analyses were highly predictive for many of the MS-DRGs most sensitive to the effects of charge compression.

As we have stated in prior rulemaking (77 FR 53281 through 53283), once we determined that cost report data were available for analysis, we would propose, if appropriate, to use the distinct CCRs described above in the calculation of the MS-DRG relative weights. We believe that the analytic findings described above using the FY 2011 cost report data and FY 2012 claims data support our original decision to break out and create new cost centers for implantable devices, MRIs, CT scans, and cardiac catheterization, and we see no reason to further delay proposing to implement the CCRs of each of these cost centers. Therefore, beginning in FY 2014, we are proposing to calculate the MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost report data for implantable devices, MRIs, CT scans, and cardiac catheterization. We welcome public comments on this proposal and the impacts that it may have. We refer readers to section VI.C. of Appendix A of this proposed rule for the overall IPPS operating impact of this proposal, which models payments to various hospital types using relative weights developed from 19 CCRs as compared to 15 CCRs. In addition, each year, as part of the IPPS proposed rule and final rule, we issue Table 5, which lists all of the MS-DRGs and their relative weights. As part of this FY 2014 IPPS/LTCH PPS proposed rule, in addition to providing Table 5, which lists the proposed MS-DRGs and their relative weights using 19 CCRs (available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp; click on the link on the left side of the screen titled “FY 2014 IPPS Proposed Rule Home Page” or “Acute Inpatient—Files for Download”), we are providing a separate table that lists all MS-DRGs and their relative weights if computed using 15 CCRs (available at the same CMS Web site cited above). These two formats will allow readers to compare our proposal to calculate the MS-DRG relative weights using 19 CCRs with the relative weights of MS-DRGs if computed using 15 CCRs.

F. Adjustment to MS-DRGs for 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 affected 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); the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) and final rule (76 FR 51504 through 51522); and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and final rule (77 FR 53283 through 53303). A complete list of the 11 current categories of HACs is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

3. Present on Admission (POA) Indicator Reporting

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

Currently, as we discussed in the prior rulemaking cited above, the POA indicator reporting requirement only applies to IPPS hospitals because they are subject to this HAC provision. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in Maryland operating under waivers, RNHCIs, and the Department of Veterans Affairs/Department of Defense hospitals, are exempt from POA reporting. We note that hospitals in Maryland operating under their waiver are not paid under the IPPS but rather are paid under the provisions of section 1814(b)(3) of the Act. This waiver applies to the amount paid to providers of services, and does not extend to billing requirements and other reporting requirements. In fact, hospitals in Maryland are required to submit Medicare claims for Medicare payment and also to submit the same information on their Medicare claims as hospitals in other parts of the country paid under the IPPS. Therefore, we believe it is inappropriate to continue to exempt hospitals in Maryland from the POA indicator reporting requirement. Under current policy, hospitals in Maryland will continue to be exempt from the application of this HAC provision so long as they are not paid under the IPPS. However, we believe it is appropriate to require them to use POA indicator reporting on their claims so that we can include their data and have as complete a dataset as possible when we analyze trends and make further payment policy determinations, such as those authorized under section 1886(p) of the Act. (We refer readers to section V.I. of the preamble to this proposed rule for a discussion of our proposals to implement section 1886(p) of the Act.) Therefore, we are proposing that hospitals in Maryland operating under their waiver under section 1814(b)(3) of the Act will no longer be exempted from the POA indicator reporting requirement beginning with claims submitted on or after October 1, 2013, including all claims for discharges on or after October 1, 2013. We are inviting public comment regarding this proposal.

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); the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) and final rule (76 FR 51506 through 51507); and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27893 through 27894) and final rule (77 FR 53284 through 53285).

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/manuals/downloads/Pub100_20.pdf.

In addition, as discussed elsewhere in section III.G.10. of the preamble of this proposed 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), 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 and the September 19, 2012 meetings of the ICD-9-CM Coordination and Maintenance Committee, an announcement was made with regard to the availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-10-PCS code sets. Participants were informed that the list of the 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 available on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. The translations can be found under the link titled “ICD-10-CM/PCS MS-DRG v30 Definitions Manual Table of Contents—Full Titles—HTML Version in Appendix I—Hospital Acquired Conditions (HACs).” The above CMS Web site regarding the ICD-10-MS-DRG Conversion Project is also available on the CMS Web site 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/ICD10/. 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.htm.

5. Proposals Regarding Current HACs and Previously Considered Candidate HACs

We are not proposing to add or remove categories of HACs at this time. However, we continue to encourage public dialogue about refinements to the HAC list by written stakeholder comments about both previously selected and potential candidate 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 48774 through 48491) for detailed discussion supporting our determination regarding each of these conditions. We also refer readers to section III.F.5. of the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53285 through 53292) for the HAC policy for FY 2013. In addition, readers may find updated information on evidence-based guidelines on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

6. RTI Program Evaluation

On September 30, 2009, a contract was awarded to RTI to evaluate the impact of the Hospital-Acquired Condition-Present on Admission (HAC-POA) provisions on the changes in the incidence of selected conditions, effects on Medicare payments, impacts on coding accuracy, unintended consequences, and infection and event rates. This was an intra-agency project with funding and technical support from CMS, OPHS, AHRQ, and CDC. The evaluation also examined the implementation of the program and evaluated additional conditions for future selection. The contract with RTI ended on November 30, 2012. Summary reports of RTI's analysis of the FYs 2009, 2010, and 2011 MedPAR data files for the HAC-POA program evaluation were included in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50085 through 50101), the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 51522), and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53292 through 53302). Summary and detailed data also were made publicly available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web site at: http://www.rti.org/reports/cms/.

In addition to the evaluation of HAC and POA MedPAR claims data, RTI also conducted analyses on readmissions due to HACs, the incremental costs of HACs to the healthcare system, a study of spillover effects and unintended consequences, as well as an updated analysis of the evidence-based guidelines for selected and previously considered HACs. Reports on these analyses have been made publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.

7. 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 selected conditions. In addition, evidence-based guidelines also were found for the previously considered candidate conditions. RTI prepared a final report to summarize its findings regarding evidence-based guidelines. This report can be found on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html. Subsequent to this final report, RTI has been awarded an FY 2014 Evidence-Based Guidelines Monitoring contract. Under the contract, RTI will provide a summary report of 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. Updates to the guidelines will be made available to the public.

G. Proposed Changes to Specific MS-DRG Classifications

In this FY 2014 IPPS/LTCH PPS proposed rule, we are inviting public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which also are discussed below. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we are proposing to maintain the existing MS-DRG classification based on our analysis of claims data.

CMS encourages input from our stakeholders concerning the annual IPPS updates when that input is made available to us by early December of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2014, comments and suggestions should have been submitted by early December 2012. The comments that were submitted in a timely manner are discussed below in this section.

1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and Liver Transplants

We received a request from an organization that represents transplant surgeons to eliminate the severity levels for the heart and liver transplants MS-DRGs. The MS-DRGs for heart transplants are: 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). The MS-DRGs for liver transplants are: MS-DRG 005 (Liver Transplant with MCC or Intestinal Transplant) and MS-DRG 006 (Liver Transplant without MCC). We received this comment during the comment period for the FY 2013 IPPS/LTCH PPS proposed rule. We referred to this comment briefly in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53325), but we did not address the issue because we considered this comment outside of the scope of the proposed rule. However, we are addressing this issue in this FY 2014 proposed rule.

The commenter stated that there are no “uncomplicated” heart transplants or liver transplants, and indicated that all of these transplant procedures are highly complex, involving numerous complicating conditions, only some of which may be recognized by the MS-DRGs. The commenter expressed concern that the continued bifurcation of the MS-DRGs for heart and liver transplants will result in unsustainable payment for these cases that are assigned to the “without MCC” MS-DRGs 002 and 006. According to the commenter, in light of the relatively small number of Medicare patients involved and the significant cost variation involved, it would be preferable to eliminate the bifurcation of these procedures, thereby increasing the stability of the DRG weights for these procedures.

We examined claims data from the FY 2012 MedPAR file for heart and liver transplant cases assigned to MS-DRGs 001, 002, 005, and 006. The following table illustrates our findings:

MS-DRGs Number of cases Average length of stay Average costs
MS-DRG 001 1,247 33.27 $158,556
MS-DRG 002 284 18 97,932
MS-DRGs 001 and 002—All cases 1,531 30.4 147,310
MS-DRG 005 828 19 66,746
MS-DRG 006 282 8.75 30,873
MS-DRGs 005 and 006—All cases 1,110 16.3 57,632

The data showed that the majority of the heart transplant cases, a total of 1,247, are assigned to MS-DRG 001, with average costs of approximately $158,556 and an average length of stay of approximately 33.27 days. There were 284 cases assigned to MS-DRG 002, with average costs of approximately $97,932 and an average length of stay of approximately 18 days.

This table shows that there are significant differences in average lengths of stay and average costs for the severity level for the heart transplant MS-DRGs that justify the existing split in MS-DRGs 001 and 002. If we were to combine the heart transplant cases in MS-DRGs 001 and 002 as suggested by the commenter, the payment for the majority of cases with an MCC would be lower.

The majority of the liver transplant cases, 828 cases, were assigned to MS-DRG 005, with average costs of approximately $66,746 and an average length of stay of approximately 19 days. There were 282 cases assigned to MS-DRG 006, with average costs of approximately $30,873 and an average length of stay of approximately 8.75 days. The data showed that there are significant differences in average costs and average lengths of stay in the severity levels for the liver transplant MS-DRGs. Again, if we were to combine all the liver transplant cases into one MS-DRG as requested by the commenter, the majority of the cases would receive lower payment.

Based on these findings, we believe that it would not be prudent to eliminate the severity levels for the heart and liver transplant MS-DRGs. Our clinical advisors concur with this analysis that two severity levels are justified for the heart and liver transplant MS-DRGs. Therefore, for FY 2014, we are not proposing to make any changes to the severity levels for heart and liver transplant MS-DRGs 001, 002, 005, and 006.

We are inviting public comments on this issue.

2. MDC 1 (Diseases and Disorders of the Nervous System): Tissue Plasminogen Activator (tPA) (rtPA) Administration Within 24 Hours Prior to Admission

During the comment period for the FY 2013 IPPS/LTCH PPS proposed rule, we received a public comment that we considered to be outside the scope of that proposed rule. We stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53325) that we would consider this issue in future rulemaking as part of our annual review process. The commenter requested that CMS conduct an analysis of diagnosis code V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility). Diagnosis code V45.88 was created for use beginning October 1, 2008, to identify patients who are given tissue plasminogen activator (tPA) at one institution and then transferred and admitted to a comprehensive stroke center for further care. This situation has been referred to as the “drip-and-ship” issue and was discussed at length in the FY 2009 IPPS proposed rule (73 FR 23563 through 23564) and final rule (73 FR 48493 through 48495), as well as the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23899 through 23900) and final rule (75 FR 50102 through 50106). We refer readers to these previous discussions for detailed background information regarding this topic.

Similar to previous requests, according to the commenter, the concern at the receiving facilities is that the costs associated with [caring for] more complex stroke patients that receive tPA are much higher than the cost of the drug, presumably because stroke patients initially needing tPA have more complicated strokes and outcomes. However, because these patients do not receive the tPA at the second or transfer hospital, the receiving hospital will not be able to assign the case to one of the higher-weighted tPA stroke MS-DRGs when it admits these patients whose care requires the use of intensive resources. The MS-DRGs that currently include the diagnosis code for the use of tPA are: MS-DRG 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC); MS-DRG 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC); and MS-DRG 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC). These MS-DRGs have higher relative weights than the other MS-DRGs relating to stroke or cerebral infarction. The commenter requested an analysis of diagnosis code V45.88 to determine whether new claims data warrant any change in the MS-DRG structure.

For this proposed rule, we analyzed MedPAR claims data from FY 2012. We included claims for patient cases assigned to the following MS-DRGs:

  • 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC)
  • 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC)
  • 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC)
  • 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC)
  • 065 (Intracranial Hemorrhage or Cerebral Infarction with CC)
  • 066 (Intracranial Hemorrhage or Cerebral Infarction without CC/MCC).

Our data analysis included MS-DRGs 064, 065, and 066 because claims involving diagnosis code V45.88 also would be properly reported in the data for these MS-DRGs. The following table reflects the results of our analysis of the MedPAR data in which diagnosis code V45.88 was reported as a secondary diagnosis for FY 2012.

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 061—All cases 3,369 7.48 $18,556
MS-DRG 061—Cases with secondary diagnosis code V45.88 140 7.51 19,008
MS-DRG 062—All cases 5,277 4.92 12,935
MS-DRG 062—Cases with secondary diagnosis code V45.88 179 5.03 13,317
MS-DRG 063—All cases 1,709 3.45 10,363
MS-DRG 063—Cases with secondary diagnosis code V45.88 48 3.15 9,372
MS-DRG 064—All cases 64,095 6.30 11,654
MS-DRG 064—Cases with secondary diagnosis code V45.88 955 7.06 14,432
MS-DRG 065—All cases 101,011 4.29 7,414
MS-DRG 065—Cases with secondary diagnosis code V45.88 1,259 4.91 9,471
MS-DRG 066—All cases 56,620 2.92 5,414
MS-DRG 066—Cases with secondary diagnosis code V45.88 493 3.28 6,682

Based on our review of the data for all of the cases in MS-DRGs 064, 065, and 066, compared to the subset of cases containing diagnosis code V45.88 as the secondary diagnosis, we again concluded that the movement of cases with diagnosis code V45.88 as a secondary diagnosis from MS-DRGs 064, 065, and 066 to MS-DRGs 061, 062, and 063 is not warranted. We determined that the differences in the average lengths of stay and the average costs are too small to warrant an assignment to the higher-weighted MS-DRGs.

However, the data does reflect that the average costs for cases reporting diagnosis code V45.88 as a secondary diagnosis in MS-DRG 066 are more similar to the average costs of higher severity level cases in MS-DRG 065. Therefore, for FY 2014, we are proposing to move cases with diagnosis code V45.88 from MS-DRG 066 to MS-DRG 065, and to revise the title of MS-DRG 065 to reflect the patients status post tPA administration within 24 hours. The proposed revised MS-DRG title would be: MS-DRG 065 (Intracranial Hemorrhage or Cerebral Infarction with CC or tPA in 24 Hours).

We are inviting public comments on our proposal.

3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat)

a. Endoscopic Placement of a Bronchial Value

In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received a request to modify the MS-DRG assignment for bronchial valve(s) insertion, which we considered to be outside of the scope of that proposed rule (77 FR 53325 through 53326). The requestor asked that cases in MS-DRGs 190, 191, and 192 (Chronic Obstructive Pulmonary Disease with MCC, with CC, and without MCC/CC, respectively) that involve insertion of a bronchial valve be assigned instead to MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without MCC/CC, respectively). The procedures are captured by 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), which are considered nonoperating procedures and do not affect the MS-DRG assignment. When reported without any other operating room (OR) procedure code, the admission would be assigned to a medical MS-DRG.

The Spiration® IBV Valve System device, a bronchial valve, was approved for new technology add-on payments in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43819 through 43823) with a maximum payment rate of $3,437.50. In the FY 2012 IPPS/LTCH PPS final rule, the new technology add-on payments were discontinued for FY 2012 (76 FR 51575 through 51576). The bronchial valve device is used to place, via bronchoscopy, small, one-way valves into selected small airways in the lung in order to limit airflow into selected portions of lung tissue that have prolonged air leaks following surgery while still allowing mucus, fluids, and air to exit, and thereby reducing the amount of air that enters the pleural space. The device is intended to control prolonged air leaks following three specific surgical procedures: lobectomy, segmentectomy, or lung volume reduction surgery (LVRS). According to Spiration®, an air leak that is present on postoperative day 7 is considered “prolonged” unless present only during forced exhalation or cough. In order to help prevent valve migration, there are five anchors with tips that secure the valve to the airway. The implanted valves are intended to be removed no later than 6 weeks after implantation.

New technology add-on payments were limited to cases involving prolonged air leaks following lobectomy, segmentectomy, and LVRS in MS-DRGs 163, 164, and 165 in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823). This limitation was based on the indications for use approved by the FDA in the FDA Humanitarian Device Exemption (HDE) approval process set forth in section 520(m) of the Federal Food, Drug Cosmetic Act. A humanitarian use device (HUD) is a device that is intended to benefit patients by treating or diagnosing a disease or condition that affects or is manifested in fewer than 4,000 individuals in the United States per year. Devices that receive HUD designation may be eligible for marketing approval, subject to certain restrictions, under an HDE application. To obtain marketing approval for an HUD, an HDE application must be submitted to the FDA. An HDE application is a premarket approval (PMA) application submitted to the FDA under 21 CFR 814.104 that seeks exemption from the PMA requirement under 21 CFR 814.20 demonstrating a reasonable assurance of effectiveness. A device that has received HUD designation may receive HDE approval if, among other things, the FDA determines that the device will not expose patients to an unreasonable or significant risk of illness or injury and the probable benefit to health from use of the device 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. In addition, the applicant must demonstrate that no comparable devices are available to treat or diagnose the disease or condition (other than another device approved under an HDE application or a device under an approved Investigational Device Exemption), and that the device would not otherwise be available unless an HDE is granted. An approved HDE authorizes marketing of the HUD. However, an HUD generally may be used in facilities only after prior approval by an Institutional Review Board (IRB).

FDA's approval of the HDE application limited the use of the Spiration® IBV Valve System device to cases involving prolonged air leaks following lobectomy, segmentectomy, or LVRS.

The requested MS-DRG change would initiate the same payment for chronic obstructive pulmonary disease (COPD) cases with a bronchial valve inserted without a major chest procedure as for cases where both a major chest procedure and a bronchial valve insertion were performed. The following table shows the COPD cases that involved the insertion of a bronchial valve as well as data on cases assigned to MS-DRGs 163, 164, and 165.

MS-DRGs Number of cases Average length of stay Average costs
COPD Cases      
MS-DRG 190—All cases 133,566 5.07 $7,815
MS-DRG 190—Cases with procedure code 33.71 0 0 0
MS-DRG 190—Cases with procedure code 33.73 2 14.0 47,034
MS-DRG 191—All cases 129,231 4.18 6,245
MS-DRG 191—Cases with procedure code 33.71 0 0 0
MS-DRG 191—Cases with procedure code 33.73 0 0 0
MS-DRG 192—All cases 93,507 3.32 4,776
MS-DRG 192—Cases with procedure code 33.71 0 0 0
MS-DRG 192—Cases with procedure code 33.73 0 0 0
Major Chest Procedures      
MS-DRG 163—All cases 11,287 13.33 32,728
MS-DRG 164—All cases 16,113 6.69 17,494
MS-DRG 165—All cases 9,280 3.94 12,209

There were only two COPD cases that had bronchial valves inserted in MS-DRGs 190, 191, and 192. While the charges were high, these cases were assigned to the highest severity level MS-DRG (MS-DRG 190 with MCC). Given the small number of cases, it is not possible to determine if the high average costs were due to the bronchial valve insertion or to other factors such as other secondary diagnoses. The average length of stay for these two cases was approximately 14 days compared to approximately 5.07 days for all other cases within MS-DRG 190. Because the additional 10 days cannot be clinically attributed to the bronchial valve insertion, our clinical advisors have determined that other factors must have impacted these two cases.

Cases in MS-DRGs 163, 164, and 165 include those cases with a major chest procedure and those cases with both a major chest procedure as well as a bronchial valve insertion as discussed above. Our clinical advisors do not support moving COPD cases that have only a bronchial valve insertion and no other major chest procedure from MS-DRGs 190, 191, and 192 to MS-DRGs 163, 164, and 165. They do not believe the bronchial valve procedures are clinically similar to other major chest procedures that require significantly more resources to perform. Our clinical advisors point out that the limited circumstances where this procedure would be used led the sponsor to seek HDE approval from the FDA rather than a standard PMA. The indications for use approved by the FDA are still limited to post-surgery. Our clinical advisors recommended that we not modify the MS-DRG logic so that COPD cases with bronchial valve insertions would be assigned to MS-DRGs 163, 164, and 165.

Given the limited number of cases for this procedure and the advice from our clinical advisors, we are not proposing any MS-DRG changes for bronchial valve(s) insertion for FY 2014. We also are not proposing to change the MS-DRG assignment for procedures involving bronchial valve(s) insertion (procedure codes 33.71 and 33.73) within MS-DRGs 190, 191, and 192.

We are inviting public comment on this issue.

b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory Arrest

We received a request from a university medical center to create a new MS-DRG or to reassign cases reporting a unique approach to pulmonary thromboendarterectomy (PTE) surgery performed with full cardiac arrest and hypothermia. The requestor asked that we move cases from MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with MCC, with CC, and without CC/MCC, respectively). Currently, MS-DRGs 163, 164, and 165 are grouped within MDC 4 (Diseases and Disorders of the Respiratory System) while MS-DRGs 228, 229, and 230 are grouped within MDC 5 (Diseases and Disorders of the Circulatory System).

The requestor identified two conditions for which a pulmonary endarterectomy procedure is typically performed. These conditions are identified by ICD-9-CM diagnosis codes 415.19 (Other pulmonary embolism and infarction) and 416.2 (Chronic pulmonary embolism). However, the requestor noted that diagnosis code 415.19 is usually associated with traditional PTE for acute pulmonary embolism while diagnosis code 416.2 is associated with the medical center's unique approach to PTE performed with full cardiac arrest and hypothermia.

Currently, there is not a specific ICD-9-CM procedure code to accurately describe PTE surgery performed with full cardiac arrest and hypothermia. Rather, a subset of existing ICD-9-CM procedure codes may be used to identify the various components involved in this unique approach to PTE surgery; for example, ICD-9-CM procedure codes 38.15 (Endarterectomy, other thoracic vessels); 39.61 (Extracorporeal circulation auxiliary to open heart surgery); 39.62 (Hypothermia (systemic) incidental to open heart surgery); and 39.63 (Cardioplegia). However, it is not clear if the requestor reports any of these codes or a combination of these codes to identify its unique approach to the procedure.

According to the requestor, its approach to PTE surgery is significantly different from traditional pulmonary endarterectomy procedures in terms of complexity, resource use, and the population for which the procedure is performed. The requestor noted that the surgery is “conducted under profound hypothermia and circulatory arrest which involves placing the patient on cardiopulmonary bypass and cooling the body to 20 degrees centigrade or lower.” In addition, the requestor explained that “during this period of cooling and cardiac arrest, the heart is arrested and all of the patient's blood is removed from the body.” Following this, circulation is stopped completely allowing for “optimal and extensive dissection of the pulmonary arteries and identification of an endarterectomy plane which can be delicately incised into the deepest pulmonary vasculature.” The requestor further noted that “due to the complexity of the surgical technique, a very high degree of skill is required and the procedure is currently only performed by a handful of surgeons world-wide.” Lastly, the requestor stated the average operating time for a traditional PTE is approximately 3 to 4 hours compared to the university medical center's approach to PTE, which averages approximately 10 to 12 hours.

We analyzed claims data from the FY 2012 MedPAR file for cases reporting a principal diagnosis code of 415.19 or a principal diagnosis code of 416.2 along with procedure codes 38.15, 39.61, 39.62, and 39.63. As displayed in the table below, there were a total of 11,287 cases in MS-DRG 163 with an average length of stay of approximately 13.33 days and average costs of approximately $32,728. Using the combination of diagnosis and procedure codes as described above, the total number of cases found in MS-DRG 163 was 12, with average costs ranging from approximately $46, 959 to $53,048 and an average length of stay ranging from approximately 13.50 days to 16.20 days. We acknowledge that the average length of stay and average costs for these cases are somewhat higher in comparison to the average lengths of stay and average costs of all the other cases in MS-DRG 163. However, the volume of cases was very low. The data reflect similar results for MS-DRG 164. Only 4 cases were identified in the analysis, with average costs ranging from approximately $21,669 to $37,447 and average lengths of stay ranging from approximately 7 days to 10 days.

In total, there were only 16 cases reflected in the data using the combination of diagnosis codes and proxy procedure codes. We believe there may be other factors contributing to the increased lengths of stay and costs. (We note that, there were no cases found for a principal diagnosis code of 415.19 with procedure code 38.15 only. There also were no cases found in MS-DRG 165 using the combination of diagnosis and procedure codes.)

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 163—All cases 11,287 13.33 $32,728
MS-DRG 163—Cases with principal diagnosis code 415.19 with procedure code 38.15 and 39.61 or 39.62 or 39.63 4 13.50 46,959
MS-DRG 163—Cases with principal diagnosis code 416.2 with procedure code 38.15 only 3 14.33 53,048
MS-DRG 163—Cases with principal diagnosis code 416.2 with procedure code 38.15 and 39.61 or 39.62 or 39.63 5 16.20 50,393
MS-DRG 164—All cases 16,113 6.69 17,494
MS-DRG 164—Cases with principal diagnosis code 415.19 with procedure code 38.15 with 39.61 or 39.62 or 39.63 2 10.00 37,447
MS-DRG 164—Cases with principal diagnosis code 416.2 with procedure code 38.15 only 0 0 0
MS-DRG 164—Cases with principal diagnosis code 416.2 with procedure code 38.15 and 39.61 or 39.62 or 39.63 2 7.00 21,669

As stated in previous rulemaking discussion, 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, our clinical advisors agree that the current MS-DRG assignment for this unique procedure is appropriate.

We also analyzed claims data from the FY 2012 MedPAR file for MS-DRGs 228, 229, and 230 as illustrated below.

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 228—Other cardiothoracic procedures with MCC 1,643 13.26 $46,758
MS-DRG 229—Other cardiothoracic procedures with CC 1,841 7.77 30,432
MS-DRG 230—Other cardiothoracic procedures without CC/MCC 506 5.08 25,068

ICD-9-CM procedure code 38.15 is designated as an operating room (OR) procedure code and currently groups to MS-DRGs 163, 164, and 165 in MDC 4 when either diagnosis code 415.19 or 416.2 are reported as the principal diagnosis. As diagnosis codes can only be assigned to one MDC within the GROUPER logic, it is not possible for a patient to have diagnosis code 415.19 or diagnosis code 416.2 reported along with procedure code 38.15 and grouped to MDC 5, which is where MS-DRGs 228, 229, and 230 are assigned.

Therefore, another aspect of this MS-DRG request involved the evaluation of moving ICD-9-CM diagnosis code 416.2 from MDC 4 to MDC 5. Our clinical advisors do not support moving diagnosis code 416.2 from MDC 4 to MDC 5 in order to accommodate this rare procedure performed by only a small number of physicians worldwide. They pointed out that a basic change such as moving diagnosis code 416.2 from MDC 4 to MDC 5 would impact a large number of patients who do not undergo this procedure. It also would disrupt trend data from over 30 years of DRG and MS-DRG reporting. Given the very small number of potential cases, and the advice of our clinical advisors, we do not believe a MS-DRG modification is warranted at this time.

Therefore, we are not proposing to create a new MS-DRG or to reassign cases reporting this university medical center's approach to pulmonary thromboendarterectomy. We are inviting public comments on this issue.

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

a. Discharge/Transfer to Designated Disaster Alternative Care Site

We are proposing to add new patient discharge status code 69 (Discharged/transferred to a designated disaster alternative care site) to the MS-DRG GROUPER logic for MS-DRGs 280 (Acute Myocardial Infarction Discharged Alive with MCC), 281 (Acute Myocardial Infarction Discharged Alive with CC), and 282 (Acute Myocardial Infarction Discharged Alive without CC/MCC) to identify patients who are discharged or transferred to an alternative site that will provide basic patient care during a disaster response. As discussed in section II.G.7. of the preamble of this proposed rule, this new discharge status code is also being added to the Medicare Code Editor (MCE) software. We are inviting public comments on this proposal.

b. Discharges/Transfers With a Planned Acute Care Hospital Inpatient Readmission

We also are proposing to add 15 new discharge status codes to the MS-DRG GROUPER logic for MS-DRGs 280, 281, and 282 that will identify patients who are discharged with a planned acute care hospital inpatient readmission. As discussed in section II.G.7. of the preamble of this proposed rule, these new discharge status codes are being proposed for addition to the MCE as well.

Shown in the table below are the current discharge status codes that are assigned to the GROUPER logic for MS-DRGs 280, 281, and 282, along with the proposed new discharge status codes and their titles.

Current code New code Title
01 81 Discharged to home or self care with a planned acute care hospital inpatient readmission.
02 82 Discharged/transferred to a short term general hospital for inpatient care with a planned acute care hospital inpatient readmission.
03 83 Discharged/transferred to a skilled nursing facility (SNF) with Medicare certification with a planned acute care hospital inpatient readmission.
04 84 Discharged/transferred to a facility that provides custodial or supportive care with a planned acute care hospital inpatient readmission.
05 85 Discharged/transferred to a designated cancer center or children's hospital with a planned acute care hospital inpatient readmission.
06 86 Discharged/transferred to home under care of organized home health service organization with a planned acute care hospital inpatient readmission.
21 87 Discharged/transferred to court/law enforcement with a planned acute care hospital inpatient readmission.
43 88 Discharged/transferred to a federal health care facility with a planned acute care hospital inpatient readmission.
61 89 Discharged/transferred to a hospital-based Medicare approved swing bed with a planned acute care hospital inpatient readmission.
62 90 Discharged/transferred to an inpatient rehabilitation facility (IRF) including rehabilitation distinct part units of a hospital with a planned acute care hospital inpatient readmission.
63 91 Discharged/transferred to a Medicare certified long term care hospital (LTCH) with a planned acute care hospital inpatient readmission.
64 92 Discharged/transferred to a nursing facility certified under Medicaid but not certified under Medicare with a planned acute care hospital inpatient readmission.
65 93 Discharged/transferred to a psychiatric distinct part unit of a hospital with a planned acute care hospital inpatient readmission.
66 94 Discharged/transferred to a critical access hospital (CAH) with a planned acute care hospital inpatient readmission.
70 95 Discharged/transferred to another type of health care institution not defined elsewhere in this code list with a planned acute care hospital inpatient readmission.

We are inviting public comments on our proposal to add the above listed new discharge status codes to the GROUPER logic for MS-DRGs 280, 281, and 282.

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. Reverse Shoulder Procedures

We received a request to change the MS-DRG assignment for reverse shoulder replacement procedures which is captured with procedure code 81.88 (Reverse total shoulder replacement). The requestor did not suggest a specific new MS-DRG assignment, but requested that reverse shoulder replacement procedures be reassigned from MS-DRGs 483 and 484 (Major Joint/Limb Reattachment Procedure of, Upper Extremities with CC/MCC and without CC/MCC, respectively) or that we create a new MS-DRG for reverse shoulder replacement procedures.

Biomechanically, the reverse shoulder devices move the center of rotation of the arm laterally and change the direction of the pull of the deltoid muscle, allowing the deltoid muscle to elevate the arm without functioning rotator cuff tendons. The requestor stated that the use of traditional total shoulder devices in patients with a nonfunctioning rotator cuff frequently leads to long-term complications and unsatisfactory functional results. Patients with damaged rotator cuffs or rotator cuff syndrome have poor outcomes with traditional shoulder replacement devices. The reverse shoulder replacement procedure was created to address the clinical needs for patients who would have poor outcomes with a traditional shoulder replacement. The requestor stated that reverse shoulder replacement devices were designed to provide a superior functionality and outcomes for patients with damaged rotator cuffs.

The requestor stated that the reverse shoulder replacement procedure is technically more complex and requires a higher level of expertise than traditional shoulder procedures and involves several issues that make the surgery more complex. Patients who have had prior rotator cuff surgery have anchors and scar tissue that must be surgically addressed. Often, there also are severe deformities that must be addressed in order to establish stability.

The requestor acknowledged that the reverse shoulder replacement procedure is an upper extremity procedure like other procedures assigned to MS-DRGs 483 and 484. These MS-DRGs include the longstanding total shoulder replacement procedures as well as partial shoulder replacements. While the procedure is similar to other procedures in MS-DRGs 483 and 484, the requestor stated there are significant differences between the technical complexity and indications for usage from the other procedures. The requestor stated there are significant differences in resource usage and clinical coherence between longstanding approaches to shoulder replacement and other procedures assigned to MS-DRGs 483 and 484 and the reverse shoulder replacement procedure. The requestor stated not only was the resource consumption significantly higher, the individual supply costs for reserve shoulder replacement procedures were higher than the costs of other procedures assigned to MS-DRGs 483 and 484.

MS-DRGs 483 and 484 contain the following procedures:

  • 81.73 (Total wrist replacement)
  • 81.80 (Other total shoulder replacement)
  • 81.81 (Partial shoulder replacement)
  • 81.84 (Total elbow replacement)
  • 81.88 (Reverse total shoulder replacement)
  • 84.23 (Forearm, wrist, or hand reattachment)
  • 84.24 (Upper arm reattachment).

As can be seen from this list, MS-DRGs 483 and 484 contain total and partial shoulder replacements, as well as replacement and attachment procedures on the wrist and upper arm. Both the newer shoulder replacement techniques as well as the longstanding shoulder replacement techniques are included in these MS-DRGs.

MS-DRG Number of cases Average length of stay Average costs
MS-DRG 483—All cases 13,113 3.33 $17,039
MS-DRG 483—Cases with procedure code 81.88 5,690 3.30 19,023
MS-DRG 484—All cases 21,073 2.01 14,448
MS-DRG 484—Cases with procedure code 81.88 7,505 2.08 16,890

As the above table illustrates, the average costs for reverse total shoulder replacement are approximately $2,000 higher than the average costs for all other procedures within MS-DRGs 483 and 484 and have similar average lengths of stays. While the average costs were higher, each MS-DRG has some cases that are higher and some cases that are lower than the average costs for the entire MS-DRG. We believe the average costs for the reverse shoulder replacement procedures are not inappropriately high compared to other procedures grouped within MS-DRGs 483 and 484. Therefore, the claims data do not support reassigning these cases or creating a new MS-DRG.

Our clinical advisors reviewed this issue and determined that the cases are appropriately assigned to MS-DRGs 483 and 484. As stated earlier, MS-DRGs 483 and 484 contain other types of shoulder replacements. Our clinical advisors believe it is appropriate to have all total shoulder replacement procedures within the same set of MS-DRGs. They do not believe it is appropriate to reassign those that use a different technique to accomplish the same goal, a total shoulder replacement. Therefore, our clinical advisors determined that this is an appropriate assignment for reverse shoulder replacement procedures from a clinical perspective. They also do not believe it is appropriate to move these cases to any other surgical, orthopedic MS-DRGs because of differences in the clinical makeup of the other surgical orthopedic MS-DRGs. Our clinical advisors recommended not creating a new MS-DRG for reverse shoulder replacement procedures because they believe the procedures are appropriately assigned to MS-DRGs 483 and 484. Therefore, based on claims data and clinical analysis, we are not proposing to reassign these cases to any other MS-DRGs or to create a new MS-DRG.

Based on the claims data and our clinical analysis, we are not proposing to reassign cases reporting procedure code 81.88 from their current assignment to MS-DRGs 483 and 484 or to create a new MS-DRG. We are inviting public comments on this issue.

b. Total Ankle Replacement Procedures

In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received a request to develop a new MS-DRG for total ankle replacements, which we considered to be outside the scope of that proposed rule (77 FR 53325). We are addressing this request as part of this FY 2014 IPPS/LTCH PPS proposed rule. The cases are captured by procedure code 81.56 (Total ankle replacement) and are assigned to MS-DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity with MCC and without MCC, respectively).

The commenter stated that total ankle procedures are much more clinically complex than total hip or total knee replacement procedures, which have their own distinct MS-DRGs. The commenter also stated that total ankle replacement is surgery that involves the replacement of the damaged parts of the three bones that make up the ankle joint, as compared to two bones in most other total joint procedures such as hip or knee replacement. The commenter stated that average costs of total ankle replacements are higher than those for total knee and hip replacements. Therefore, a new MS-DRG should be created for total ankle replacements. As an alternative, the commenter suggested that these cases be reassigned to MS-DRG 469 even if the cases do not have an MCC as a secondary diagnosis.

MS-DRGs 469 and 470 include a variety of procedures of the lower extremities including the procedures listed below. This group of lower extremity joint replacement and reattachment procedures was developed because they were considered to be clinically cohesive and to have similar resource consumptions.

  • 00.85 (Resurfacing hip, total, acetabulum and femoral head)
  • 00.86 (Resurfacing hip, partial, femoral head)
  • 00.87 (Resurfacing hip, partial, acetabulum)
  • 81.51 (Total hip replacement)
  • 81.52 (Partial hip replacement)
  • 81.54 (Total knee replacement)
  • 81.56 (Total ankle replacement)
  • 84.26 (Foot reattachment)
  • 84.27 (Lower leg or ankle reattachment)
  • 84.28 (Thigh reattachment)

As the table below shows, there were 1,275 cases reporting total ankle replacements with 21 cases in MS-DRG 469 and 1,254 cases in MS-DRG 470. The 1,254 cases in MS-DRG 470 have higher costs than other cases in MS-DRG 470 (approximately $17,242 compared to approximately $13,984). The 21 cases in MS-DRG 469 had average costs of approximately $23,360 compared to approximately $21,186 in average costs for all cases within MS-DRG 469. While these procedures are higher in average costs than other procedures within the MS-DRGs, we point out that cases are grouped together based on similar clinical and resource criteria. Some cases will have average costs higher than the overall average costs for the MS-DRG, while other cases will have lower average costs. Total ankle replacements represent 0.3 percent of the total number of cases within MS-DRGs 469 and 470.

MS-DRGs Number of cases Average length of stay Average costs
MS-DRG 469—All cases 25,618 7.33 $21,186
MS-DRG 469—Cases with procedure code 81.56 21 6.81 23,360
MS-DRG 470—All cases 390,518 3.37 13,984
MS-DRG 470—Cases with procedure code 81.56 1,254 2.19 17,242
Total—All cases 416,136
Total—Cases with procedure code 81.56 1,275

Our clinical advisors reviewed this issue and determined that the total ankle replacements are appropriately classified within MS-DRGs 469 and 470. They do not support the commenter's contention that these cases are significantly more complex than knee and hip replacements. They believe that total ankle replacements are clinically consistent with other types of lower extremity joint replacements within MS-DRGs 469 and 470. Our clinical advisors do not support creating a new MS-DRG for total ankle replacements. After considering the results of examination of the claims data, the recommendations from our clinical advisors, and the small number of total ankle replacements, we are not proposing to create a new MS-DRG at this time.

We also examined the request to move all total ankle replacements to the highest severity level, MS-DRG 469, even when no secondary diagnosis on the MCC list was reported. Moving all total ankle replacements to MS-DRG 469 would lead to overpayments of approximately $3,944 per case because the average costs of total ankle replacements in MS-DRG 470 was approximately $17,242, while the average costs of all cases in MS-DRG 469 was approximately $21,186. After considering the claims data as well as the input from our clinical advisors, we are not proposing that all total ankle procedures be assigned to MS-DRG 469 even when the case does not have an MCC reported as a secondary diagnosis. We believe the current MS-DRGs are appropriate for total ankle replacements.

We are not proposing to create a new total ankle replacement MS-DRG or to reassign all total ankle replacements to MS-DRG 469. We are proposing to maintain the current MS-DRG assignments for total ankle replacements. We are inviting public comment on our proposal.

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

a. Persons Encountering Health Services for Specific Procedures, Not Carried Out

We received a request to evaluate the MS-DRG assignment of ICD-9-CM diagnosis codes V64.00 through V64.04, and V64.06 through V64.43 in MS-DRG 794 (Neonate with Other Significant Problems) under MDC 15. The requestor noted that the assignment of diagnosis code V64.05 (Vaccination not carried out because of caregiver refusal) was addressed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50111 through 50112). We removed diagnosis code V64.05 from MS-DRG 794 and added it to the “only secondary diagnosis” list for MS-DRG 795 (Normal Newborn). The requestor asked that we consider the reassignment of these diagnosis codes from MS-DRG 794 to MS-DRG 795. The codes under existing MS-DRG 794 include:

  • V64.00 (Vaccination not carried out, unspecified reason)
  • V64.01 (Vaccination not carried out because of acute illness)
  • V64.02 (Vaccination not carried out because of chronic illness or condition)
  • V64.03 (Vaccination not carried out because of immune compromised state)
  • V64.04 (Vaccination not carried out because of allergy to vaccine or component)
  • V64.06 (Vaccination not carried out because of patient refusal)
  • V64.07 (Vaccination not carried out for religious reasons)
  • V64.08 (Vaccination not carried out because patient had disease being vaccinated against)
  • V64.09 (Vaccination not carried out for other reason)
  • V64.1 (Surgical or other procedure not carried out because of contraindication)
  • V64.2 (Surgical or other procedure not carried out because of patient's decision)
  • V64.3 (Procedure not carried out for other reasons)
  • V64.41 (Laparoscopic surgical procedure converted to open procedure)
  • V64.42 (Thoracoscopic surgical procedure converted to open procedure)
  • V64.43 (Arthroscopic surgical procedure converted to open procedure).

In a newborn case with one of these diagnosis codes reported as a secondary diagnosis, the case would be assigned to MS-DRG 794. The commenter believed that these diagnosis codes, when reported as a secondary diagnosis for a newborn case, should be assigned to MS-DRG 795 instead of MS-DRG 794.

Our clinical advisors reviewed this request and concur with the commenter that diagnosis codes V64.00 through V64.04, and V64.06 through V64.3 should not continue to be assigned to MS-DRG 794, as there is no clinically usable information reported in those codes identifying significant problems. However, our clinical advisors recommend that diagnosis codes V64.41, V64.42, and V64.43, which identify that a surgical procedure converted to an open procedure, continue to be assigned to MS-DRG 794. These diagnosis codes may indicate a more significant encounter that required a surgical intervention.

Therefore, for FY 2014, we are proposing to reassign diagnosis codes V64.00 through V64.04, and V64.06 through V64.3 from MS-DRG 794 to MS-DRG 795. Diagnosis codes V64.00 through V64.04, and V64.06 through V64.3 would be added to the “only secondary diagnosis” list for MS-DRG 795. Diagnosis codes V64.41, V64.42, and V64.43 would continue to be assigned to MS-DRG 794. We are inviting public comments on this proposal.

b. Discharges/Transfers of Neonates With a Planned Acute Care Hospital Inpatient Readmission

We are proposing to add the patient discharge status codes shown in the table below to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or Transferred to Another Acute Care Facility) to identify neonates that are transferred to a designated facility with a planned acute care hospital inpatient readmission.

New code Title
82 Discharged/transferred to a short term general hospital for inpatient care with a planned acute care hospital inpatient readmission.
85 Discharged/transferred to a designated cancer center or children's hospital with a planned acute care hospital inpatient readmission.
94 Discharged/transferred to a critical access hospital (CAH) with a planned acute care hospital inpatient readmission.

Currently, the GROUPER logic for MS-DRG 789 contains discharge status codes 02 (Discharged/transferred to a short term general hospital for inpatient care), 05 (Discharged/transferred to a designated cancer center or children's hospital), and 66 (Discharged/transferred to a critical access hospital (CAH)).

As discussed in section II.G.7. of the preamble of this proposed rule, these new discharge status codes are also being proposed for addition to the Medicare Code Editor (MCE). We are inviting public comments on our proposal.

7. Proposed Medicare Code Editor (MCE) Changes

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

a. Age Conflict Edit

We received a request to review three ICD-9-CM diagnosis codes currently listed under the age conflict edit within the MCE. The age conflict edit detects inconsistencies between a patient's age and any diagnosis on the patient's record. Specifically, the requestor recommended that CMS consider the removal of diagnosis codes 751.1 (Atresia and stenosis of small intestine), 751.2 (Atresia and stenosis of large intestine, rectum, and anal canal), and 751.61 (Biliary atresia) from the pediatric age conflict edit. Generally, diagnoses included in the list for the pediatric age conflict edit are applicable for ages 0 through 17.

The requestor noted that diagnosis code 751.1 was removed from the Integrated Outpatient Code Editor (IOCE) effective January 1, 2006. Our clinical advisors agree that patients described with any one of the above listed codes, although congenital anomalies, may require a revision procedure in adulthood. Therefore, we believe that the removal of these codes appears appropriate and also would be consistent with the IOCE.

We are inviting public comments on our proposal to remove diagnosis codes 751.1, 751.2, and 751.61 from the pediatric age conflict edit effective October 1, 2013.

b. Discharge Status Code Updates

To reflect changes in the UB-04 code set maintained by the National Uniform Billing Committee (NUBC), we are proposing to add the following new discharge status codes to the CMS GROUPER and the MCE logic effective October 1, 2013.

One of the new discharge status codes corresponds to an alternative care site. This alternative care site discharge status code is intended to identify patients being discharged or transferred to an alternative site that will provide basic patient care during a disaster response. The new discharge status code is 69 (Discharged/transferred to a designated disaster alternative care site).

In addition, 15 new discharge status codes correspond with identifying planned acute care hospital inpatient readmissions. Shown below are the existing “base” discharge status codes and the new codes that will better identify patients who are discharged with a planned readmission.

Base code New code Title
01 81 Discharged to home or self care with a planned acute care hospital inpatient readmission.
02 82 Discharged/transferred to a short term general hospital for inpatient care.
03 83 Discharged/transferred to a skilled nursing facility (SNF) with Medicare certification with a planned acute care hospital inpatient readmission.
04 84 Discharged/transferred to a facility that provides custodial or supportive care with a planned acute care hospital inpatient readmission.
05 85 Discharged/transferred to a designated cancer center or children's hospital with a planned acute care hospital inpatient readmission.
06 86 Discharged/transferred to home under care of organized home health service organization with planned acute care hospital inpatient readmission.
21 87 Discharged/transferred to court/law enforcement with a planned acute care hospital inpatient readmission.
43 88 Discharged/transferred to federal health care facility with a planned acute care hospital inpatient readmission.
61 89 Discharged/transferred to a hospital-based Medicare approved swing bed with a planned acute care hospital inpatient readmission.
62 90 Discharged/transferred to an inpatient rehabilitation facility (IRF) including rehabilitation distinct part units of a hospital with a planned acute care hospital inpatient readmission.
63 91 Discharged/transferred to a Medicare certified long term care hospital (LTCH) with a planned acute care hospital inpatient readmission.
64 92 Discharged/transferred to a nursing facility certified under Medicaid but not certified under Medicare with a planned acute care hospital inpatient readmission.
65 93 Discharged/transferred to a psychiatric distinct part unit of a hospital with a planned acute care hospital inpatient readmission.
66 94 Discharged/transferred to a critical access hospital (CAH) with a planned acute care hospital inpatient readmission.
70 95 Discharged/transferred to another type of health care institution not defined elsewhere in this code list with a planned acute care hospital inpatient readmission.

We are inviting public comments on our proposal to add the above listed new discharge status codes to the GROUPER and the MCE logic effective October 1, 2013 (FY 2014).

8. Surgical Hierarchies

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

Because the relative resource intensity of surgical classes can shift as a function of MS-DRG reclassification and recalibrations, for FY 2014, 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 with cases assigned to the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

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

In this proposed rule, we are proposing limited changes to the MS-DRG classifications for FY 2014, as discussed in sections II.G.2. and 5. of this preamble. In our review of these proposed changes, we did not identify any needed changes to the surgical hierarchy. Therefore, in this proposed rule, we are not proposing any changes to the surgical hierarchy for Pre-MDCs and MDCs for FY 2014.

9. Complications or Comorbidity (CC) Exclusions List

a. Background of the CC List and the CC Exclusions List

Under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. However, depending on the principal diagnosis of the patient, some diagnoses on the basic list of complications and comorbidities may be excluded if they are closely related to the principal diagnosis. In FY 2008, we evaluated each diagnosis code to determine its impact on resource use and to determine the most appropriate CC subclassification (non-CC, CC, or MCC) assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47152 through 47171).

b. Proposed CC Exclusions List for FY 2014

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; and
  • Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. [1]

(1) No Proposed Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for FY 2014

For FY 2014, there were no changes made to the ICD-9-CM coding system effective October 1, 2013, due to the partial code freeze. (We refer readers to section II.G.10. of the preamble of this proposed rule for a discussion of the ICD-9-CM coding system.)

(2) Suggested Changes to the MS-DRG Diagnosis Codes for FY 2014

(A) Coronary Atherosclerosis Due to Calcified Coronary Lesion

We received a request that we consider changing the severity levels for the following ICD-9-CM diagnosis code: 414.4 (Coronary atherosclerosis due to calcified coronary lesion). The requestor suggested that we change the severity level for diagnosis code 414.4 from a non-CC to an MCC.

The following chart shows the analysis of the MedPAR claims data for FY 2012 for ICD-9-CM diagnosis code 414.4.

Code Diagnosis description CC level Cnt 1 Cnt 1 impact Cnt 2 Cnt 2 impact Cnt 3 Cnt 3 impact
414.4 Coronary atherosclerosis due to calcified lesion Non-CC 1,390 1.58 2,174 2.31 2,001 3.11

We ran the above 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 an 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 finding is 1.58. A value close to 1.0 in the C1 field suggests that the diagnosis produces the same expected value as a non-CC. A value close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or a non-CC.

The C2 finding was 2.31. A C2 value close to 2.0 suggests the condition is more like a CC than a non-CC, but not as significant in resource usage as an MCC when there is at least one other secondary diagnosis that is a CC but none that is an MCC.

While the C1 value of 1.58 is above the 1.0 value for a non-CC, it does not support reclassification to an MCC. As stated earlier, a value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or a non-CC. The C2 finding of 2.31 also does not support reclassifying this diagnosis code to an MCC. We also considered reclassifying the severity level of diagnosis code 414.4 to a CC; however, the C1 finding of 1.58 also does not support reclassifying the severity level to a CC. Our clinical advisors reviewed the data and evaluated this condition. They recommended that we not change the severity level of diagnosis code 414.4 from a non-CC to an MCC or a CC. They do not believe that this diagnosis would increase the severity level of patients. They pointed out that a similar code, diagnosis code 414.2 (Chronic total occlusion of coronary artery), is a non-CC. Our clinical advisors believe that diagnosis code 414.4 represents patients who are less severe than diagnosis code 414.2. Considering the C1 and C2 ratings and the input from our clinical advisors, we are not proposing to reclassify diagnosis code 414.4 to an MCC; the diagnosis code would continue to be considered a non-CC.

Therefore, based on the data and clinical analysis, we are proposing to maintain diagnosis code 414.4 as a non-CC. We are inviting public comment on our proposal.

(B) Acute Cholecystitis Diagnosis Code

We received a comment recommending that we add diagnosis code 575.0 (Acute cholecystitis) to the CC Exclusion List when reported as a secondary diagnosis code with a principal diagnosis code 574.00 (Calculus of gallbladder with acute cholecystitis without mention of obstruction). We note that, there is an “excludes note” under diagnosis code 575.0 which excludes “that with cholelithiasis (574.00)”. Therefore, diagnosis codes 575.0 and 574.00 should not be reported on the same claim. However, the commenter stated that there may be double reporting.

Our clinical advisors agree with the commenter that diagnosis codes 575.0 and 574.00 capture the same clinical context. Therefore, we are proposing to add diagnosis code 575.0 to the CC Exclusion List when reported as a secondary diagnosis code with a principal diagnosis code 574.00. We are inviting public comments on our proposal.

(C) Chronic Total Occlusion (CTO) of Artery of the Extremities Diagnosis Code

We received a request to consider removing atherosclerosis and aneurysm codes from the CC Exclusion List for diagnosis code 440.4 (Chronic total occlusion of artery of the extremities). For FY 2013, we changed the designation of diagnosis code 440.4 from a non-CC level to a CC level. The CC Exclusion List for diagnosis code 440.4 includes the following diagnosis codes:

Diagnosis code Code description
440.20 Atherosclerosis of native arteries of the extremities, unspecified.
440.21 Atherosclerosis of native arteries of the extremities with intermittent claudication.
440.22 Atherosclerosis of native arteries of the extremities with rest pain.
440.23 Atherosclerosis of native arteries of the extremities with ulceration.
440.24 Atherosclerosis of native arteries of the extremities with gangrene.
440.29 Other atherosclerosis of native arteries of the extremities.
440.30 Atherosclerosis of unspecified bypass graft of the extremities.
440.31 Atherosclerosis of autologous vein bypass graft of the extremities.
440.32 Atherosclerosis of nonautologous biological bypass graft of the extremities.
440.4 Chronic total occlusion of artery of the extremities.
441.00 Dissection of aorta, unspecified site.
441.01 Dissection of aorta, thoracic.
441.02 Dissection of aorta, abdominal.
441.03 Dissection of aorta, thoracoabdominal.
441.1 Thoracic aneurysm, ruptured.
441.2 Thoracic aneurysm without mention of rupture.
441.3 Abdominal aneurysm, ruptured.
441.4 Abdominal aneurysm without mention of rupture.
441.5 Aortic aneurysm of unspecified site, ruptured.
441.6 Thoracoabdominal aneurysm, ruptured.
441.7 Thoracoabdominal aneurysm, without mention of rupture.
441.9 Aortic aneurysm of unspecified site without mention of rupture.
442.0 Aneurysm of artery of upper extremity.
442.2 Aneurysm of iliac artery.
442.3 Aneurysm of artery of lower extremity.
442.9 Aneurysm of unspecified site.
443.22 Dissection of iliac artery.
443.29 Dissection of other artery.
443.81 Peripheral angiopathy in diseases classified elsewhere.
443.82 Erythromelalgia.
443.89 Other specified peripheral vascular diseases.
443.9 Peripheral vascular disease, unspecified.
444.01 Saddle embolus of abdominal aorta.
444.09 Other arterial embolism and thrombosis of abdominal aorta.
444.1 Embolism and thrombosis of thoracic aorta.
444.21 Arterial embolism and thrombosis of upper extremity.
444.22 Arterial embolism and thrombosis of lower extremity.
444.81 Embolism and thrombosis of iliac artery.
444.89 Embolism and thrombosis of other specified artery.
444.9 Embolism and thrombosis of unspecified artery.
445.01 Atheroembolism of upper extremity.
445.02 Atheroembolism of lower extremity.
445.81 Atheroembolism of kidney.
445.89 Atheroembolism of other site.
447.0 Arteriovenous fistula, acquired.
447.1 Stricture of artery.
447.2 Rupture of artery.
447.5 Necrosis of artery.
447.6 Arteritis, unspecified.
447.70 Aortic ectasia, unspecified site.
447.71 Thoracic aortic ectasia.
447.72 Abdominal aortic ectasia.
447.73 Thoracoabdominal aortic ectasia.
449 Septic arterial embolism.

Diagnosis code 440.4 is a CC except if one of the diagnosis codes listed above is reported as a principal diagnosis. If one of the diagnosis codes listed above is reported on a claim as a principal diagnosis and code 440.4 is reported as a secondary diagnosis, code 440.4 would not be counted as a CC. The commenter requested that we remove atherosclerosis codes 440.20 through 440.32, 443.22, 443.29, 443.81 through 443.9, and aneurysm codes 441.00 through 441.03, 441.1 through 441.7, 441.9, 442.0, 442.2, 442.3, and 442.9 from the CC Exclusion List for diagnosis code 440.4.

According to the commenter, aneurysm diagnoses are not closely related clinically to peripheral CTOs. Aneurysm physiology, clinical symptomology, and patient risk profile are fundamentally different than CTOs. Aneurysms result from the weakening of an artery wall and manifest in an out-pouched pocket of the lumen. Conversely, patients with CTOs present with extended segments of diseased and narrowed vessels and in most cases, complex lesions containing fibro-calcified plaques. The commenter stated that CTOs represent a high severity complication, which is not closely related to basic atherosclerosis.

Our clinical advisors agree with the commenter that the aneurysm and most of the atherosclerosis codes should be removed from the CC Exclusion List for diagnosis code 440.4. A case with a principal diagnosis of aneurysm with CTO adds substantial complexity and does not necessarily have the same immediate cause. A case with a principal diagnosis of atherosclerosis with CTO reported represents a more severe form of the disease and, therefore, is more complex. Our clinical advisors do not agree with the commenter that diagnosis codes 443.81 through 443.9 (Other and unspecified peripheral vascular diseases) should be removed from the CC Exclusion List. These cases are more likely related to CTO and meet one of the principles for exclusion that we previously outlined above.

Therefore, for FY 2014, we are proposing to remove the following diagnosis codes from the CC Exclusion List for diagnosis code 440.4: atherosclerosis codes 440.20 through 440.32, 443.22, and 443.29, and aneurysm codes 441.00 through 441.03, 441.1 through 441.7, 441.9, 442.0, 442.2, 442.3, and 442.9. Diagnosis codes 443.81 through 443.9 would remain on the CC Exclusion List for diagnosis code 440.4. We are inviting public comments on this proposal.

For FY 2014, we are proposing changes to Table 6G (Additions to the CC Exclusion List) and Table 6H (Deletions from the CC Exclusion List). As we discussed earlier, we are not proposing changes to the severity level for diagnosis code 414.4. These tables, which contain codes that are effective for discharges occurring on or after October 1, 2013, are not being published in the Addendum to this proposed 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 diagnosis codes 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 of each fiscal year, the indented diagnoses are not recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

There are no new, revised, or deleted diagnosis codes for FY 2014. Therefore, there are no Tables 6A, 6C, and 6E published for FY 2014.

There are no proposed additions or deletions to the MS-DRG MCC List for FY 2014. There also are no proposed additions or deletions to the MS-DRG CC List for FY 2014. Therefore, there are no Tables 6I.1 through 6I.2 and 6J.1 through 6J.2 published for FY 2014.

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 30.0, is available on a CD for $225.00. Version 31.0 of this manual, which will include the final FY 2014 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.

10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 986; and 987 Through 989

Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively).

MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These MS-DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:

  • 60.0 (Incision of prostate)
  • 60.12 (Open biopsy of prostate)
  • 60.15 (Biopsy of periprostatic tissue)
  • 60.18 (Other diagnostic procedures on prostate and periprostatic tissue)
  • 60.21 (Transurethral prostatectomy)
  • 60.29 (Other transurethral prostatectomy)
  • 60.61 (Local excision of lesion of prostate)
  • 60.69 (Prostatectomy, not elsewhere classified)
  • 60.81 (Incision of periprostatic tissue)
  • 60.82 (Excision of periprostatic tissue)
  • 60.93 (Repair of prostate)
  • 60.94 (Control of (postoperative) hemorrhage of prostate)
  • 60.95 (Transurethral balloon dilation of the prostatic urethra)
  • 60.96 (Transurethral destruction of prostate tissue by microwave thermotherapy)
  • 60.97 (Other transurethral destruction of prostate tissue by other thermotherapy)
  • 60.99 (Other operations on prostate)

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. [2]

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 2014, we are not proposing to change the procedures assigned among these MS-DRGs.

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 2014, we are not proposing to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis is assigned.

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 2014, we are not proposing to move any procedure codes among these MS-DRGs.

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 6. of this preamble, we are not proposing to add any diagnosis or procedure codes to MDCs for FY 2014.

11. Proposed 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, cochaired 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 list of valid ICD-9-CM diagnosis and procedure codes can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. 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 2014 at a public meeting held on September 19, 2012, and finalized the coding changes after consideration of comments received at the meetings and in writing by November 16, 2012. There were no changes to the ICD-9-CM coding system for FY 2014. There were no new, revised or deleted diagnosis or procedure codes for FY 2014.

The Committee held its 2013 meeting on March 5, 2013. Any new codes for which there was consensus of public support and for which complete tabular and indexing changes will be made by May 2013 will be included in the October 1, 2013 update to ICD-9-CM. Any code revisions that were discussed at the March 5, 2013 Committee meeting but that could not be finalized in time to include them in the tables listed in section VI. of the Addendum to this proposed rule will be included in Table 6B, which is listed in section VI. of the Addendum to the final rule and available via the Internet on the CMS Web site, and will be marked with an asterisk (*).

For FY 2014, there were no changes to the ICD-9-CM coding system due to the partial code freeze or for new technology. Therefore, there are no new, revised, or deleted diagnosis codes and no new, revised, or deleted procedure codes that are usually announced in Tables 6A (New Diagnosis Codes), 6B (New Procedure Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F (Revised Procedure Codes). Therefore, there are no Tables 6A through 6F published as part of this proposed rule for FY 2014. We note that, there may be ICD-9-CM coding changes finalized after this proposed rule based on public comments that we receive after the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting. If there are changes, we will include these changes in the final rule.

Copies of the minutes of the procedure codes discussions at the Committee's September 19, 2012 meeting and March 5, 2013 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 19, 2012 meeting and March 5, 2013 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 Meeting minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April l, 2013 implementation of an ICD-9-CM code at the September 19, 2012 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2013.

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. Therefore, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. 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 was 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 final rule that delays, 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 final rule, CMS-0040-F, was published in the Federal Register on September 5, 2012 (77 FR 54664) and is available for viewing on the Internet at: http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf.

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. The Committee also considered the delay in implementation of ICD-10 until October 1, 2014. There was an announcement at the September 19, 2012 ICD-9-CM Coordination and Maintenance Committee meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be implemented as follows:

  • The last regular annual update to both ICD-9-CM and ICD-10 code sets was made on October 1, 2011.
  • On October 1, 2012 and October 1, 2013, there 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, 2014, there were to be only limited code updates to ICD-10 code sets to capture new technology and diagnoses as required by section 503(a) of Public Law 108-173. There were to 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.
  • On October 1, 2015, one year after the implementation of ICD-10, regular updates to ICD-10 will begin.

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, 2015, 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.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html. A summary of the September 19, 2012 Committee meeting, along with both written and audio transcripts of this meeting, are posted on the Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html.

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 delayed the compliance date of ICD-10 from October 1, 2013 to October 1, 2014 (77 FR 54664). 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://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We have continued to keep the public updated on our maintenance efforts for ICD-10-CM and ICD 10-PCS coding systems, as well as the General Equivalence Mappings that assist in conversion through the ICD-9-CM Coordination and Maintenance Committee. Information on these committee meetings can be found on the CMS Web site at: http://www.cms.hhs.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.hhs.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://cms.hhs.gov/Medicare/Coding/ICD10/ICD10-MS-DRG-Conversion-Project.html. 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-DRG Conversion Project 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.

CMS prepared the ICD-10 MS-DRGs Version 30.0 based on the FY 2013 MS-DRGs (Version 30.0) that we finalized in the FY 2013 IPPS/LTCH PPS final rule. We posted a Definitions Manual of the ICD-10 MS-DRGs Version 30.0 on our ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We also prepared a document that describes changes made from Version 29.0 to Version 30.0 to facilitate a review. We produced mainframe and computer software for Version 30.0, which was made available to the public in February 2013. Information on ordering the mainframe and computer software through NTIS can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the “Related Links” section. This ICD-10 MS-DRGs Version 30.0 computer software should facilitate additional review of the ICD-10 MS-DRGs conversion.

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 was posted on the CMS ICD-10 MS-DRGs Conversion Project Web site and was distributed and discussed at the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee meeting. The paper described CMS' approach to the conversion of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was undertaken using the ICD-9-CM MS-DRGs Version 27.0 (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 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.

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.hhs.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 of the impact study was presented at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting. The updated paper is posted on CMS' Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under the “Downloads” section. Information on the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting can be found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. This update of the impact paper and the ICD-10 MS-DRG Version 30.0 software will provide additional information to the public who are evaluating the conversion of the MS-DRGs to ICD-10 MS-DRG.

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.

H. Recalibration of the Proposed FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights

In developing the proposed FY 2014 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 2012 MedPAR data used in this proposed rule include discharges occurring on October 1, 2011, through September 30, 2012, based on bills received by CMS through December 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 2012 MedPAR file used in calculating the proposed relative weights includes data for approximately 10,364,125 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the December 31, 2012 update of the FY 2012 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 proposed relative weights for FY 2014 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. Specifically, we used cost report data from the December 31, 2012 update of the FY 2011 HCRIS for calculating the proposed FY 2014 cost-based relative weights.

2. Methodology for Calculation of the Proposed Relative Weights

As we explain in section II.E.2. of the preamble of this proposed rule, we are proposing to calculate the relative weights based on 19 CCRs, instead of the 15 CCRs previously used. The methodology we used to calculate the proposed FY 2014 MS-DRG cost-based relative weights based on claims data in the FY 2012 MedPAR file and data from the FY 2011 Medicare cost reports is as follows:

  • To the extent possible, all the claims were regrouped using the proposed FY 2014 MS-DRG classifications discussed in sections II.B. and II.G. of the preamble of this proposed rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2011 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 92.7 percent of the providers in the MedPAR file had charges for 14 of the 19 cost centers. All claims of providers that did not have charges greater than zero for at least 14 of the 19 cost centers were deleted. In other words, a provider must have no more than five blank cost centers. If a provider did not have charges greater than zero in more than five cost centers, the claims for the provider were deleted. For FY 2014, as explained in section II.E.2. of the preamble of this proposed rule, we are proposing to calculate the relative weights using 19 cost centers instead of the 15 cost centers previously used in calculating the FY 2013 relative weights. In calculating the FY 2014 relative weights, we also are proposing to continue to remove claims of providers with more than five blank cost centers from the dataset used to calculate the relative weights. (We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53326) for the edit threshold related to FY 2013 and prior fiscal years). In recent years, this trim kept approximately 96 percent of IPPS providers in the MedPAR file upon which we base our relative weight calculations. (For examples of our FYs 2012 and 2013 relative weight calculations, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51558) and the FY 2013 IPPS/LTCH PPS final rule 77 FR 53326).) However, under the proposal presented in this proposed rule to add 4 cost centers to the relative weight calculations, this trim kept approximately 92.7 percent of the IPPS providers in the MedPAR file upon which we base our proposed FY 2014 relative weight calculations.

Although this trim is now removing a greater percentage of providers' claims from the relative weight calculations than were previously removed, we believe that it is appropriate to propose to continue to remove providers' claims that do not have charges greater than zero in more than five cost centers. We believe that this proposal is appropriate because we are not introducing new costs into the relative weight calculation; we are only proposing to make use of more refined, granular costs by breaking out implantable devices from the Supplies and Equipment CCR, MRIs and CT scans from the Radiology CCR, and cardiac catheterization from the Cardiology CCR. Furthermore, because we are proposing to make use of more refined cost report data for these cost centers, we believe that it is also appropriate to edit the claims with a more refined threshold. We are inviting public comments on the proposal to trim the data used in our relative weight calculations.

  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the geometric mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
  • Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting 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 19 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2011 cost report data.

The 19 cost centers that we used in the proposed relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 19 national cost center CCRs. (We note that we have made several changes to the table, most importantly, to remove the columns listing the cost centers from the CMS Form 2552-96 cost reports. Because we are proposing to use data from FY 2011 cost reports, which were filed on the CMS Form 2552-10, the columns referencing the CMS Form 2552-96 cost report are no longer relevant. We also have updated and refined the table to reflect the proposed 19 CCRs, instead of the current 15, and we have made some minor corrections to revenue codes and cost report cost centers that are grouped with each CCR.)

Cost center group name (19 total) MedPAR charge field Revenue codes contained in MedPAR charge field Cost report line description Cost from HCRIS (worksheet C, part 1, column 5 and line number) form CMS-2552-10 Charges from HCRIS (worksheet C, part 1, column 6 & 7 and line number) form CMS-2552-10 Medicare charges from HCRIS (worksheet D-3, column and line number) form CMS-2552-10
Routine Days Private Room Charges 011X and 014X Adults & Pediatrics (General Routine Care) C_1_C5_30 C_1_C6_30 D3_HOS_C2_30
Semi-Private Room Charges 012X, 013X and 016X-019X        
Ward Charges 015X        
Intensive Days Intensive Care Charges 020X Intensive Care Unit C_1_C5_31 C_1_C6_31 D3_HOS_C2_31
Coronary Care Charges 021X Coronary Care Unit C_1_C5_32 C_1_C6_32 D3_HOS_C2_32
Burn Intensive Care Unit C_1_C5_33 C_1_C6_33 D3_HOS_C2_33
Surgical Intensive Care Unit C_1_C5_34 C_1_C6_34 D3_HOS_C2_34
Other Special Care Unit C_1_C5_35 C_1_C6_35 D3_HOS_C2_35
Drugs Pharmacy Charges 025X, 026X and 063X Intravenous Therapy C_1_C5_64 C_1_C6_64 D3_HOS_C2_64
C_1_C7_64  
Drugs Charged To Patient C_1_C5_73 C_1_C6_73 D3_HOS_C2_73
C_1_C7_73  
Supplies and Equipment Medical/Surgical Supply Charges 0270, 0271, 0272, 0273, 0274, 0277, and 0621, 0622, 0623 Medical Supplies Charged to Patients C_1_C5_71 C_1_C6_71 D3_HOS_C2_71
C_1_C7_71  
Durable Medical Equipment Charges 0290, 0291, 0292 and 0294-0299 DME-Rented C_1_C5_96 C_1_C6_96 D3_HOS_C2_96
C_1_C7_96  
Used Durable Medical Charges 0293 DME-Sold C_1_C5_67 C_1_C6_97 D3_HOS_C2_97
C_1_C7_97  
Implantable Devices 0275, 0276, 0278, 0624 Implantable Devices Charged to Patients C_1_C5_72 C_1_C6_72 D3_HOS_C2_72
C_1_C7_72  
Therapy Services Physical Therapy Charges 042X Physical Therapy C_1_C5_66 C_1_C6_66 D3_HOS_C2_66
C_1_C7_66  
Occupational Therapy Charges 043X Occupational Therapy C_1_C5_67 C_1_C6_67 D3_HOS_C2_67
C_1_C7_67  
Speech Pathology Charges 044X and 047X Speech Pathology C_1_C5_68 C_1_C6_68 D3_HOS_C2_68
C_1_C7_68  
Inhalation Therapy Inhalation Therapy Charges 041X and 046X Respiratory Therapy C_1_C5_65 C_1_C6_65 D3_HOS_C2_65
C_1_C7_65  
Operating Room Operating Room Charges 036X Operating Room C_1_C5_50 C_1_C6_50 D3_HOS_C2_50
C_1_C7_50  
071X Recovery Room C_1_C5_51 C_1_C6_51 D3_HOS_C2_51
C_1_C7_51  
Labor & Delivery Operating Room Charges 072X Delivery Room and Labor Room C_1_C5_52 C_1_C6_52 D3_HOS_C2_52
C_1_C7_52  
Anesthesia Anesthesia Charges 037X Anesthesiology C_1_C5_53 C_1_C6_53 D3_HOS_C2_53
C_1_C7_53  
Cardiology Cardiology Charges 048X and 073X Electrocardiology C_1_C5_69 C_1_C6_69 D3_HOS_C2_69
C_1_C7_69  
Cardiac Catheterization 0481 Cardiac Catheterization C_1_C5_59 C_1_C6_59 D3_HOS_C2_59
C_1_C7_59  
Laboratory Laboratory Charges 030X, 031X, and 075X Laboratory C_1_C5_60 C_1_C6_60 D3_HOS_C2_60
C_1_C7_60  
PBP Clinic Laboratory Services C_1_C5_61 C_1_C6_61 D3_HOS_C2_61
C_1_C7_61  
074X, 086X Electro-encephalography C_1_C5_70 C_1_C6_70 D3_HOS_C2_70
C_1_C7_70  
Radiology Radiology Charges 032X, 040X Radiology—Diagnostic C_1_C5_54 C_1_C6_54 D3_HOS_C2_54
C_1_C7_54  
028x, 0331, 0332, 0333, 0335, 0339, 0342 Radiology—Therapeutic C_1_C5_55 C_1_C6_55 D3_HOS_C2_55
0343 and 344 Radioisotope C_1_C5_56 C_1_C6_56 D3_HOS_C2_56
C_1_C7_56  
Computed Tomography (CT) Scan CT Scan Charges 035X Computed Tomography (CT) Scan C_1_C5_57 C_1_C6_57 D3_HOS_C2_57
C_1_C7_57  
Magnetic Resonance Imaging (MRI) MRI Charges 061X Magnetic Resonance Imaging (MRI) C_1_C5_58 C_1_C6_58 D3_HOS_C2_58
C_1_C7_58  
Emergency Room Emergency Room Charges 045x Emergency C_1_C5_91 C_1_C6_91 D3_HOS_C2_91
C_1_C7_91  
Blood and Blood Products Blood Charges 038x Whole Blood & Packed Red Blood Cells C_1_C5_62 C_1_C6_62 D3_HOS_C2_62
C_1_C7_62    
Blood Storage/Processing 039x Blood Storing, Processing, & Transfusing C_1_C5_63 C_1_C6_63 C_1_C7_63 D3_HOS_C2_63
Other Services Other Service Charge 0002-0099, 022X, 023X, 024X, 052X, 053X        
055X-060X, 064X-070X, 076X-078X, 090X-095X and 099X        
Renal Dialysis 0800X Renal Dialysis C_1_C5_74 C_1_C6_74 D3_HOS_C2_74
ESRD Revenue Setting Charges 080X and 082X-088X C_1_C7_74  
Home Program Dialysis C_1_C5_94 C_1_C6_94 C_1_C7_94 D3_HOS_C2_94
Outpatient Service Charges 049X ASC (Non Distinct Part) C_1_C5_75 C_1_C6_75 C_1_C7_75 D3_HOS_C2_75
Lithotripsy Charge 079X.  
Other Ancillary C_1_C5_76 C_1_C6_76 D3_HOS_C2_76
C_1_C7_76  
Clinic Visit Charges 051X Clinic C_1_C5_90 C_1_C6_90 C_1_C7_90 D3_HOS_C2_90
Observation beds C_1_C5_92.01 C_1_C6_92.01 D3_HOS_C2_92.01
C_1_C7_92.01  
Professional Fees Charges 096X, 097X, and 098X Other Outpatient Services C_1_C5_93 C_1_C6_93 C_1_C7_93 D3_HOS_C2_93
Ambulance Charges 054X Ambulance C_1_C5_95 C_1_C6_95 C_1_C7_95 D3_HOS_C2_95
Rural Health Clinic C_1_C5_88 C_1_C6_88 D3_HOS_C2_88
C_1_C7_88  
FQHC C_1_C5_89 C_1_C6_89 D3_HOS_C2_89
C_1_C7_89  

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 2011 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-3. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 19 cost centers by the corresponding national average CCR, we summed the 19 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The proposed FY 2014 cost-based relative weights were then normalized by an adjustment factor of 1.6122128377 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The proposed 19 national average CCRs for FY 2014 are as follows:

Group CCR
Routine Days 0.502
Intensive Days 0.423
Drugs 0.193
Supplies & Equipment 0.293
Implantable Devices 0.361
Therapy Services 0.355
Laboratory 0.133
Operating Room 0.225
Cardiology 0.132
Cardiac Catheterization 0.135
Radiology 0.170
MRIs 0.091
CT Scans 0.045
Emergency Room 0.207
Blood and Blood Products 0.371
Other Services 0.399
Labor & Delivery 0.445
Inhalation Therapy 0.187
Anesthesia 0.120

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 this FY 2014 proposed rule, we are proposing to use that same case threshold in recalibrating the proposed MS-DRG weights for FY 2014. Using data from the FY 2012 MedPAR file, there were 7 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 2014, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, we are proposing to compute weights for the low-volume MS-DRGs by adjusting their FY 2013 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
789 Neonates, Died or Transferred to Another Acute Care Facility FY 2013 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 2013 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791 Prematurity with Major Problems FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792 Prematurity without Major Problems FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793 Full-Term Neonate with Major Problems FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794 Neonate with Other Significant Problems FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795 Normal Newborn FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).

4. Bundled Payments for Care Improvement (BPCI) Initiative

The Bundled Payments for Care Improvement (BPCI) initiative, developed under the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the Act), is comprised of four broadly defined models of care, which link payments for multiple services beneficiaries receive during an episode of care. Under the BPCI initiative, organizations enter into payment arrangements that include financial and performance accountability for episodes of care. On January 31, 2013, CMS announced the health care organizations selected to participate in the BPCI initiative. For additional information on the BPCI initiative, we refer readers to the CMS' Center for Medicare and Medicaid Innovation's Web site at http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 53343) for a discussion on the BPCI initiative.

In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal years, we finalized a policy to treat hospitals that participate in the BPCI initiative the same as prior fiscal years for the IPPS payment modeling and ratesetting process without regard to a hospital's participation within these bundled payment models (that is, as if a hospital were not participating in those models under the BPCI initiative). Therefore, for FY 2014, we are proposing to continue to include all applicable data from subsection (d) hospitals participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on our final policy for the treatment of hospitals participating in the BPCI initiative in our ratesetting process.

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

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” We note that beginning with discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations at 42 CFR 412.87 implement these provisions and specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. Below we highlight some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria as well as other information. For a complete discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574).

Under the first criterion, as reflected in § 412.87(b)(2), a specific medical service or technology will be considered “new” for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to a technology that was approved by FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final rule (70 FR 47351) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our policy regarding substantial similarity in detail.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. Table 10 that was released with the FY 2013 IPPS/LTCH PPS final rule contains the final thresholds that will be used to evaluate applications for new technology add-on payments for FY 2014. We refer readers to the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY-2013-IPPS-Final-Rule-Home-Page.html for a complete viewing of Table 10 from the FY 2013 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 more detailed 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 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 criteria, 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 for Clinical Standards and Quality (CCSQ) and the Director of the Center for Medicare (CM), who is also designated as the CTI's Executive Coordinator.

The specific processes for coverage, coding, and payment are implemented by CM, CCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements, rather than replaces, these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care. At the same time, the CTI also works to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a 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 product developers or manufacturers of new medical technologies to contact the agency early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov.

We note that applicants for add-on payments for new medical services or technologies for FY 2015 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 2015, 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 2014 prior to publication of this FY 2014 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on November 23, 2012 (77 FR 70163 through 70165), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 5, 2013. 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 2014 new medical service and technology add-on payment applications before the publication of this FY 2014 proposed rule.

Approximately 60 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. We also live-streamed the town hall meeting over the Internet and received very positive feedback from the public on use of this option. We are considering no longer holding an in-person town hall meeting in Baltimore, MD, and instead holding a virtual town hall meeting that would be live-streamed on the Internet. We are inviting public comments on the possibility of holding a virtual town hall meeting instead of an in-person town hall meeting in Baltimore, MD. Four of the five FY 2014 applicants presented information on their technologies, 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 February 26, 2013, in our evaluation of the new technology add-on payment applications for FY 2014 in this proposed rule.

In response to the published notice and the new technology town hall meeting, we received written comments regarding applications for FY 2014 new technology add-on payments. We summarize these comments below or, if applicable, indicate that there were no comments received, at the end of each discussion of the individual applications in this proposed rule.

A number of attendees at the new technology town hall meeting provided comments that were unrelated to “substantial clinical improvement.” As explained above and in the Federal Register notice announcing the new technology town hall meeting (77 FR 70163 through 70165), the purpose of the new technology town hall meeting was specifically to discuss the substantial clinical improvement criterion in regard to pending new technology applications for FY 2014. Therefore, we are not summarizing those comments in this proposed rule. Commenters are welcome to resubmit these comments in response to proposals presented in this proposed rule.

3. FY 2014 Status of Technologies Approved for FY 2013 Add-On Payments

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

Monteris Medical submitted an application for new technology add-on payments for FY 2011 for the AutoLITT TM. 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 510(k) 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. After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the AutoLITT TM and consideration of the public comments we received in response to the FY 2011 IPPS/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. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27935 through 27936), based on the original information provided by the applicant, we believed that the newness date for the AutoLITT TM began in December 2009. However, as summarized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53345 through 53346), the applicant submitted a public comment (in response to the FY 2013 proposed rule) demonstrating that the AutoLITT TM was first available on May 11, 2010. 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. As a result of this information, we continued to make new technology add-on payments for the AutoLITT TM in FY 2013. (We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on this issue).

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 Major Complications or Comorbidities (MCC)), 026 (Craniotomy and Endovascular Intracranial Procedures with Complications or Comorbidities (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” (§ 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). With regard to the newness criterion for the AutoLITT TM, as stated above, we consider the beginning of the newness period for the device to commence when the AutoLITT TM was first available on May 11, 2010. Because the 3-year anniversary date of the AutoLITT TM entry onto the market will expire May 11, 2013, which is prior to the beginning of FY 2014, we are proposing to discontinue new technology add-on payments for the AutoLITT TM for FY 2014. We are inviting public comments on this proposal.

b. Glucarpidase (Trade Brand Voraxaze®)

BTG International, Inc. submitted an application for new technology add-on payments for Glucarpidase (trade brand Voraxaze®) for FY 2013. Glucarpidase is used in the treatment of patients who have been diagnosed with toxic methotrexate (MTX) concentrations as of result of renal impairment. The administration of Glucarpidase causes a rapid and sustained reduction of toxic MTX concentrations.

Voraxaze® was approved by the FDA on January 17, 2012. Beginning in 1993, certain patients could obtain expanded access for treatment use to Voraxaze® as an investigational drug. Since 2007, the applicant has been authorized to recover the costs of making Voraxaze® available through its expanded access program. We describe expanded access for treatment use of investigational drugs and authorization to recover certain costs of investigational drugs in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53346 through 53350). Voraxaze® was available on the market in the United States as a commercial product to the larger population as of April 30, 2012. In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), we expressed concerns about whether Voraxaze® could be considered new for FY 2013. After consideration of all of the public comments received, in the FY 2013 IPPS/LTCH PPS final rule, we stated that we considered Voraxaze® to be “new” as of April 30, 2012, which is the date of market availability.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for Voraxaze® and consideration of the public comments we received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we approved Voraxaze® for new technology add-on payments for FY 2013. Cases of Voraxaze® are identified with ICD-9-CM procedure code 00.95 (Injection or infusion of glucarpidase). 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.

As stated above, the new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for Voraxaze®, as stated above, we consider the beginning of the newness period to commence when Voraxaze® was first available on the market on April 30, 2012. Because Voraxaze® is still within the 3-year newness period, we are proposing to continue new technology add-on payments for this technology for FY 2014. We are inviting public comments on this proposal.

c. 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 tablets. 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 asserted 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 asserted 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 asserted that Fidaxomicin does not alter this native intestinal microflora.

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 27941), we expressed concern that DIFICID TM may not be eligible for new technology add-on payments because eligibility is limited to new technologies associated with procedures described by ICD-9-CM codes. We further stated that drugs that are only taken orally (such as DIFICID TM) may not 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). In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 through 53358), after consideration of the public comments received, we 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. The revised policy is effective for payments for discharges occurring on or after October 1, 2012. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on this issue.

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. In the FY 2013 IPPS/LTCH PPS final rule, we established that the beginning of the newness period for this technology is its FDA approval date of May 27, 2011.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for DIFICID TM and consideration of the public comments we received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we approved DIFICID TM for new technology add-on payments for FY 2013. Cases of DIFICID TM are identified with ICD-9-CM diagnosis code 008.45 (Intestinal infection due to Clostridium difficile) in combination with NDC code 52015-0080-01. Providers must report 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. According to the applicant, the cost of DIFICID TM is $2,800 for a 10-day dosage. The average cost per day for DIFICID TM is $280 ($2,800/10). Cases of DIFICID TM 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). 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 is $868.

As stated above, the new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology” (§ 412.87(b)(2)). Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362). With regard to the newness criterion for DIFICID TM, as stated above, we consider the beginning of the newness period to commence when DIFICID TM was first approved by the FDA on May 27, 2011. Because the 3-year anniversary date of DIFICID TM will occur in the second half of the fiscal year (after April 1, 2014), we are proposing to continue new technology add-on payments for DIFICID TM for FY 2014. We are inviting public comments on this proposal.

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. 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.

With respect to newness, the applicant stated that FDA approval for the use of the Zenith® F. Graft was granted on April 4, 2012. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53360 through 53365), we stated that because the Zenith® F. Graft was approved by the FDA on April 4, 2012, we believed that the Zenith® F. Graft met the newness criterion as of that date.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the Zenith® F. Graft and consideration of the public comments we received in response to the FY 2013 IPPS/LTCH PPS proposed rule, we approved the Zenith® F. Graft for new technology add-on payments for FY 2013. Cases involving the Zenith® F. Graft that are eligible for new technology add-on payments are identified by ICD-9-CM procedure code 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta). In the application, the applicant provided a breakdown of the costs of the Zenith® F. Graft. The total cost of the Zenith® F. Graft utilizing bare metal (renal) alignment stents was $17,264. Of the $17,264 in costs for the Zenith® F. Graft, $921 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”), in the FY 2013 IPPS/LTCH PPS final rule, we stated that we do not believe it is appropriate to include these costs in our calculation of the maximum cost to determine the maximum add-on payment for the Zenith® F. Graft. Therefore, the total maximum cost for the Zenith® F. Graft is $16,343 ($17,264 − $921). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the Zenith® F. Graft is $8,171.50.

As stated above, the new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the Zenith® F. Graft, as stated above, we consider the beginning of the newness period to commence when the Zenith® F. Graft was approved by the FDA on April 4, 2012. Because the Zenith® F. Graft is still within the 3-year newness period, we are proposing to continue new technology add-on payments for this technology for FY 2014. We are inviting public comments on this proposal.

4. FY 2014 Applications for New Technology Add-On Payments

We received five applications for new technology add-on payments for FY 2014.

a. Kcentra TM

CSL Behring submitted an application for new technology add-on payments for Kcentra TM for FY 2014. Kcentra TM is a replacement therapy for fresh frozen plasma (FFP) for patients with an acquired coagulation factor deficiency due to warfarin and who are experiencing a severe bleed. Kcentra TM contains the Vitamin K dependent coagulation factors II, VII, IX and X, together known as the prothrombin complex, and antithrombotic proteins C and S. Factor IX is the lead factor for the potency of the preparation. The product is a heat-treated, non-activated, virus filtered and lyophilized plasma protein concentrate made from pooled human plasma. Kcentra TM is available as a lyophilized powder that needs to be reconstituted with sterile water prior to administration via intravenous infusion. The product is dosed based on Factor IX units. Concurrent Vitamin K treatment is recommended to maintain blood clotting factor levels once the effects of Kcentra TM have diminished.

The applicant expects to receive FDA approval for Kcentra TM in the second quarter of 2013. The technology is not described by any current ICD-9-CM procedure codes. The applicant applied for a new ICD-9-CM procedure code for consideration at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee Meeting. More information on this request can be found on the CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note that any final decisions on new codes approved at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting will be included in the ICD-9-CM code addendum posted on the CMS Web site in June 2013 at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html. In addition, code revisions that were discussed at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting but that could not be finalized in time to include them in the tables for this proposed rule will be included in the appropriate table for the final rule (the tables for both the proposed rule and the final rule are available via the Internet on the CMS Web site).

We note that we are concerned that Kcentra TM may be substantially similar to FFP and/or Vitamin K therapy. If so, Kcentra TM would not meet the newness criterion because costs associated with FFP and/or Vitamin K therapy are already reflected within the MS-DRGs. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 through 43814), we established criteria for evaluating whether a new technology is substantial similar to an existing technology, specifically: (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; (2) whether a product is assigned to the same or a different MS-DRG; and (3) whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of the criteria above, it would be considered substantially similar to an existing technology and would not be considered “new” for purposes of new technology add-on payments.

In evaluating the first criterion, we believe that both FFP and Kcentra TM use the same mechanism of action of Vitamin K dependent coagulation to reverse the anti-coagulation effects of warfarin. With respect to the second criterion, we believe that cases involving both FFP and Kcentra TM would be assigned to the same MS-DRGs. Finally, with respect to the third criterion, we believe that both technologies treat the same disease and patient population. Specifically, the patient population for both Kcentra TM and FFP are patients with an acquired coagulation factor deficiency due to warfarin and who are experiencing a severe bleed. Delay of treatment of these patients can lead to an increase in complications as well as an increase of the severity of the bleed. Although FFP needs to thaw for a couple of hours before it can be administered (thus delaying treatment) compared to Kcentra TM, which can be used instantly, we believe that both Kcentra TM and FFP treat the same patient population. Based on evaluation of the similarity criteria, it appears that Kcentra TM is substantially similar to FFP. Therefore, Kcentra TM may not be considered “new” for purposes of new technology add-on payments. We are inviting public comments regarding whether Kcentra TM is substantially similar to existing technologies and whether Kcentra TM meets the newness criterion.

According to the applicant, the technology is eligible to be used across all MS-DRGs. To demonstrate that it meets the cost criterion, the applicant searched the FY 2011 MedPAR file (across all MS DRGs) for cases reporting a primary or secondary diagnosis of E934.2 (Adverse events due to anticoagulants), V58.61 (Long term (current) use of anticoagulants), or 964.2 (Poisoning by anticoagulants) in combination with procedure code 99.07 (Transfusion of the serum). The applicant believed that this combination identified cases that suggest the use of a Vitamin K antagonist therapy as well as a major bleed.

The applicant found 66,749 cases across all MS-DRGs and noted that 18 percent of all cases would map to MS-DRGs 377 (Gastrointestinal Hemorrhage with MCC), 378 (Gastrointestinal Hemorrhage with CC), and 379 (Gastrointestinal Hemorrhage without CC/MCC), while the top 20 MS-DRGs would account for 41 percent of all cases. The applicant standardized charges (for all 66,749 cases) and removed charges for FFP therapy, which equated to a case-weighted average standardized charge per case of $49,748. The applicant calculated a case-weighted threshold of $46,068 across all MS-DRGs. The applicant asserted that the average case-weighted standardized charge per case without including charges for Kcentra TM exceeded the case-weighted threshold of $46,068. Therefore, the applicant maintained that it meets the cost criterion. We are inviting public comments regarding whether Kcentra TM meets the cost criterion, particularly with regard to the assumptions and methodology used in the applicant's analysis.

With regard to substantial clinical improvement, according to the applicant, Kcentra TM is the first prothrombin complex concentrate (PCC) that will be FDA-approved for rapid warfarin reversal in patients experiencing an acute major bleed. The manufacturer maintained that Kcentra TM represents a substantial clinical improvement in the treatment of patients with acute severe bleeding who require immediate reversal of their Vitamin K antagonist (VKA) therapy by (1) providing a rapid, beneficial resolution of the patient's blood clotting factor deficiency, (2) decreasing the risk of exposure to blood borne pathogens, and (3) reducing the rate of transfusion-associated complications.

The applicant cited its pivotal study (a noninferior, randomized clinical trial) [3] and noted that Kcentra TM was able to reverse the effects of warfarin to a target International Normalized Ratio (INR) of less than or equal to 1.3 within 30 minutes in 62 percent of patients compared to less than 10 percent success for plasma. Also, serum levels of the key coagulant and anti-thrombotic proteins were normalized in less than an hour with Kcentra TM, but remained depressed with plasma for hours.

The applicant also explained that Kcentra TM undergoes a dedicated pathogen removal process and plasma does not. The applicant asserted that this drastically reduces the risk of transmitting both known and unknown blood borne pathogens. The applicant cited a retrospective analysis of scientific publications [4] on the use of Kcentra TM in the European Union (EU), including the pharmacovigilance database from 1996 through 2008. The applicant noted that an estimated 350,000 patients have been treated with Kcentra TM (known as Beriplex in the EU) with no cases of viral transmission.

The applicant also stated that, in the United States, blood suppliers follow a strict set of regulations for screening and testing the blood supply, but these tests and donor questionnaires do not account for emerging pathogens that could contaminate the blood supply. The applicant explained that parasitic infections and diseases (such as babesiosis and Chaga's disease) have already been documented in U.S. patients as a result of transfusion. However, there is no screening test to date for some of these parasitic infections and diseases. The applicant believed that the multi-step manufacturing process for Kcentra TM, including heat treatment and nanofiltration, reduces the risk of transmitting such infections and diseases.

The applicant also noted that another benefit of Kcentra TM is the ability to rapidly prepare and administer the product in an emergency situation. In addition to the benefit of room temperature storage, Kcentra TM can be rapidly reconstituted. In the clinical study, the applicant found that the average administration time for Kcentra TM was less than 30 minutes. However, the applicant stated, other treatments such as FFP and intravenous Vitamin K therapies act slowly, and FFP can be difficult to use. The applicant explained that FFP therapy requires blood-type matching, usually requires thawing, and is often located away from the point of care. The applicant also cited a study [5] that demonstrated the median time from time of diagnosis to plasma infusion was 90 minutes, which did not include time to infuse the plasma which can take hours.

The applicant further noted that essential blood coagulation factors in one vial of Kcentra TM are approximately 25 times more concentrated than the equivalent plasma dose. According to the applicant, this translated to an infusion volume that was 87 percent greater in the plasma group of patients as seen in the pivotal study. The applicant explained that high transfusion volumes of treatments such as FFP therapy can lead to transfusion-associated circulator overload (TACO). According to the applicant, when TACO occurs, acute left ventricular failure may occur resulting in shortness of breath, tachypnea (rapid breathing), and other harmful effects.

Finally, the applicant noted that Kcentra TM is the standard of care in the new guidelines issued by the American College of Chest Physicians (ACCP). In addition, the applicant noted that the American Association of Blood Banks (AABB) stated that plasma should no longer be used to reverse warfarin in bleeding patients when specific factor concentrates are available.

In conclusion, the applicant maintained that Kcentra TM represents a substantial clinical improvement over existing technologies. We are inviting public comments regarding whether Kcentra TM meets the substantial clinical improvement criterion.

We note, if Kcentra TM were to be approved for new technology add-on payments, we do not believe such payments would be available with respect to discharges for which the hospital receives an add-on payment for blood clotting factor administered to a Medicare beneficiary with hemophilia who is a hospital inpatient. Under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is “the amount of the payment with respect to the operating costs of inpatient hospital services (as defined in subsection (a)(4) of this section)” for discharges on or after April 1, 1988. Section 1886(a)(4) of the Act excludes from the term “operating costs of inpatient hospital services” the costs with respect to administering blood clotting factors to individuals with hemophilia. The costs of administering blood clotting factor to Medicare beneficiaries who have hemophilia and are hospital inpatients are paid separately from the IPPS. (For information on how the clotting factor add-on payment is made, we refer readers to section 20.7.3 of Chapter Three of the Medicare Claims Processing Manual, which can be downloaded from the CMS Web site at: http://cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.) If Kcentra TM is approved by FDA as a blood clotting factor, we believe that it may be eligible for clotting factor add-on payments when administered to Medicare beneficiaries with hemophilia. CMS would make an add-on payment for Kcentra TM for such discharges in accordance with our policy for payment of blood clotting factor, and it would be excluded from the operating costs of inpatient hospital services as set forth in section 1886(a)(4) of the Act.

Section 1886(d)(5)(K)(i) of the Act requires the Secretary to “establish a mechanism to recognize the costs of new medical services and technologies under the payment system established under this subsection” beginning with discharges on or after October 1, 2001. We believe it is reasonable to interpret this requirement to mean that the payment mechanism established by the Secretary recognizes only costs for those items that would otherwise be paid based on the prospective payment system (that is, “the payment system established under this subsection”). As noted above, under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is the amount of payment for the operating costs of inpatient hospital services, as defined in section 1886(a)(4) of the Act, for discharges on or after April 1, 1988. We understand this to mean that a new medical service or technology must be an operating cost of inpatient hospital services paid based on the prospective payment system, and not excluded from such costs, in order to be eligible for the new technology add-on payment. We point out that new technology add-on payments are based on the operating costs per case relative to the prospective payment rate as described in 42 CFR 412.88. Therefore, we believe that new technology add-on payments are appropriate only when the new technology is an operating cost of inpatient hospital services and are not appropriate when the new technology is excluded from such costs.

If Kcentra TM were to be approved for new technology add-on payments, we believe that hospitals may only receive that add-on payment for discharges where Kcentra TM is an operating cost of inpatient hospital services. In other words, we do not believe a hospital could be eligible to receive the new technology add-on payment when it is administering Kcentra TM in treating a Medicare beneficiary who has hemophilia. In those instances, Kcentra TM is specifically excluded from the operating costs of inpatient hospital services in accordance with section 1886(a)(4) of the Act and paid separately from the IPPS. However, when a hospital administers Kcentra TM to a Medicare beneficiary who does not have hemophilia, the hospital could be eligible for a new technology add-on payment because Kcentra TM would not be excluded from the operating costs of inpatient hospital services. Therefore, we do not believe that discharges where the hospital receives a clotting factor add-on payment are eligible for a new technology add-on payment for the blood clotting factor.

To summarize, we believe it would be inappropriate to make an add-on payment for new technology for a blood clotting factor when a blood clotting factor add-on payment has been made. We welcome public comment on our proposal to only make new technology add-on payments for Kcentra TM in cases when it is included in the operating costs of inpatient hospital services (that is, when no add-on payment is made for clotting factor).

b. Argus® II Retinal Prosthesis System

Second Sight Medical Products, Inc. submitted an application for new technology add-on payments for the Argus® II Retinal Prosthesis System (Argus® II System) for FY 2014. The Argus® II System is an active implantable medical device that is intended to provide electrical stimulation of the retina to induce visual perception in patients who are profoundly blind due to retinitis pigmentosa (RP). These patients have bare or no light perception in both eyes. The system employs electrical signals to bypass dead photo-receptor cells and stimulate the overlying neurons according to a real-time video signal that is wirelessly transmitted from an externally worn video camera. The Argus® II implant is intended to be implanted in a single eye, typically the worse-seeing eye. Currently, bilateral implants are not intended for this technology. According to the applicant, the surgical implant procedure takes approximately 4 hours and is performed under general anesthesia.

The Argus® II System consists of three primary components: (1) An implant which is an epiretinal prosthesis that is fully implanted on and in the eye (that is, there are no percutaneous leads); (2) external components worn by the user; and (3) a “fitting” system for the clinician that is periodically used to perform diagnostic tests with the system and to custom-program the external unit for use by the patient. We describe these components more fully below.

  • Implant: The retinal prosthesis implant is responsible for receiving information from the external components of the system and electrically stimulating the retina to induce visual perception. The retinal implant consists of: (a) a receiving coil for receiving information and power from the external components of the Argus® II System; (b) electronics to drive stimulation of the electrodes; and (c) an electrode array. The receiving coil and electronics are secured to the outside of the eye using a standard scleral band and sutures, while the electrode array is secured to the surface of the retina inside the eye by a retinal tack. A cable, which passes through the eye wall, connects the electronics to the electrode array. A pericardial graft is placed over the extra-ocular portion on the outside of the eye.
  • External Components: The implant receives power and data commands wirelessly from an external unit of components, which include the Argus II Glasses and Video Processing Unit (VPU). A small lightweight video camera and transmitting coil are mounted on the glasses. The telemetry coils and radio-frequency system are mounted on the temple arm of the glasses for transmitting data from the VPU to the implant. The glasses are connected to the VPU by a cable. This VPU is worn by the patient, typically on a belt or a strap, and is used to process the images from the video camera and convert the images into electrical stimulation commands, which are transmitted wirelessly to the implant.
  • “Fitting System”: To be able to use the Argus® II System, a patient's VPU needs to be custom-programmed. This process, which the applicant called “fitting”, occurs in the hospital/clinic shortly after the implant surgery and then periodically thereafter as needed. The clinician/physician also uses the “Fitting System” to run diagnostic tests (for example, to obtain electrode and impedance waveform measurements or to check the radio-frequency link between the implant and external unit). This “Fitting System” can also be connected to a “Psychophysical Test System” to evaluate patients' performance with the Argus® II System on an ongoing basis.

These three components work together to stimulate the retina and allow a patient to perceive phosphenes (spots of light), which they then need to learn to interpret. While using the Argus® II System, the video camera on the patient-worn glasses captures a video image. The video camera signal is sent to the VPU, which processes the video camera image and transforms it into electrical stimulation patterns. The electrical stimulation data are then sent to a transmitter coil mounted on the glasses. The transmitter coil sends both data and power via radio-frequency (RF) telemetry to the implanted retinal prosthesis. The implant receives the RF commands and delivers stimulation to the retina via an array of electrodes that is secured to the retina with a retinal tack.

In patients with RP, the photoreceptor cells in the retina, which normally transduce incoming light into an electro-chemical signal, have lost most of their function. The stimulation pulses delivered to the retina via the electrode array of the Argus® II Retinal Prosthesis System are intended to mimic the function of these degenerated photoreceptors cells. These pulses induce cellular responses in the remaining, viable retinal nerve cells that travel through the optic nerve to the visual cortex where they are perceived as phosphenes (spots of light). Patients learn to interpret the visual patterns produced by these phosphenes.

With respect to the newness criterion, according to the applicant, the FDA designated the Argus® II System a Humanitarian Use Device in May 2009 (HUD designation #09-0216). The applicant submitted a Humanitarian Device Exemption (HDE) application (#H110002) to the FDA in May 2011 to obtain market approval for the Argus® II System. The HDE was referred to the Ophthalmic Devices Panel of the FDA's Medical Devices Advisory Committee for review and recommendation. At the Panel's meeting held on September 28, 2012, the Panel voted 19 to 0 that the probable benefits of the Argus® II System outweigh the risks of the system for the proposed indication for use. The applicant received the HDE approval from the FDA on February 14, 2013. Currently there are no other approved treatments for patients with severe to profound RP. The Argus® II System has an IDE number of G050001 and is a Class III device. There are no existing ICD-9-CM or ICD-10-CMS/PCS codes for the implantation of a retina prosthesis. The applicant applied for three new ICD-9-CM procedure codes for consideration at the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting. More information on this request can be found on the CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note that any final decisions on new codes approved at the March 5, 2013 Coordination and Maintenance Committee meeting will be included in the ICD-9-CM code addendum posted on the CMS Web site in June 2013 at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html. In addition, code revisions that were discussed at the March 5, 2013 Committee meeting but that could not be finalized in time to include them in the tables for this proposed rule will be included in the appropriate table in the final rule (the tables for both the proposed rule and the final rule are made available via the Internet on the CMS Web site). We are inviting public comments on whether the Argus® II System meets the newness criterion.

With regard to the cost criterion, the applicant identified all discharges from claims in the FY 2011 MedPAR file for MS-DRGs 116 (Intraocular Procedures with CC/MCC) and 117 (Intraocular Procedures without CC/MCC) with the presence of ICD-9-CM procedure code 14.73 (Anterior vitrectomy), or 14.74 (Posterior vitrectomy). (We note that because no procedure code exists for this technology, these cases would include patients that are not eligible for or would not otherwise receive this technology.) The applicant found 199 cases (47.6 percent of all cases) in MS-DRG 116 and 219 cases (52.3 percent of all cases) in MS-DRG 117. This resulted in an average charge per case of $40,957 for MS-DRG 116 and $20,621 for MS-DRG 117, equating to a case-weighted average charge per case of $24,011.

The applicant then standardized the charges using the FY 2011 final rule impact file and converted the cost of the device to a charge by dividing the operating costs by a CCR of 0.50 (which equates to a 100 percent markup). Although the applicant submitted data related to the estimated cost of the Argus® II System, the applicant noted that the cost of the technology was proprietary information. The applicant then added the charges related to the device to the case-weighted average standardized charge per case and determined a final case-weighted average standardized charge per case of $311,180. Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 116 and 117 was $30,328 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount, the applicant maintained that the Argus® II System would meet the cost criterion.

We note that, although we cannot disclose the cost of the technology, the device is very costly. Because of its high costs, the technology would easily exceed the case-weighted threshold. In addition, because of the high cost of the device it is likely that claims with the device would receive an outlier payment. The applicant anticipates that approximately 65 Argus® II Systems will be sold in FY 2014, of which approximately 50 systems would be provided to Medicare patients. The target disease population is extremely limited as required and supported by the HDE application. Most patients for whom this technology is indicated may be eligible for Medicare based on their age or a disability that is associated with profound blindness.

We also note that these types of procedures are often performed in the outpatient setting. We are concerned that if new technology add-on payments were to be approved, this would serve as a financial incentive to inappropriately shift utilization from an outpatient to an inpatient setting, although medical review may result in very few of these cases being paid as inpatient hospital services if the patient can be appropriately treated as an outpatient. We continue to emphasize that it is critical that physicians use their clinical judgment in determining the medical necessity of an inpatient admission and stress that care should be provided in the appropriate setting. We are inviting public comments on whether the Argus® II System meets the cost criterion, particularly based on the assumptions and methodology used in the applicant's analysis. We also have general concerns relating to the descriptions of the medical necessity of performing this procedure on an inpatient basis. Therefore, we are inviting public comments to further our understanding regarding whether approving new technology add-on payments for the Argus® II System would create a financial incentive that would shift utilization inappropriately from an outpatient to an inpatient setting.

With regard to the substantial clinical improvement criterion, the Argus® II System is intended to provide electrical stimulation of the retina to induce visual perception in blind patients with the indication of severe to profound RP with bare or no light perception in both eyes. According to the applicant, an estimated 1 in 3,037 Americans suffers from RP, and the incidence of people with severe to profound RP is significantly lower. According to the applicant, the need for treatments for RP is high, given the impact of loss of vision.

According to the applicant, numerous experimental research programs are currently underway to slow, stop, or reverse the progress of RP, including gene therapy, tissue and cell transplants, and some pharmacologic neuroprotection therapies. However, these approaches so far have had fairly limited success in treating RP patients, and some approaches are intended for an extremely small segment of the RP population. Currently there are no other approved treatments for patients with severe to profound RP. Therefore, the Argus® II device treats a patient population that has no other treatment options.

The applicant submitted the results of a clinical trial to demonstrate substantial clinical improvement. This clinical trial enrolled 30 patients. The median age of patients was 57.9 years at the time of implantation and the range was 28 to 77 years of age. Thirty percent of the patients were female, and 70 percent were male. All of the patients had bare or no light perception in both eyes. Fourteen of the patients were Medicare eligible. As part of the methods for the study, the applicant stated that while working within the framework of clinical trials for other ophthalmic devices, the manufacturer and its team of scientific advisors selected or designed several tests that would address the main elements of the system that should be assessed for these types of devices—visual function (that is, how the eye as an organ works [for example, visual acuity]), functional vision (that is, how the patient performs in vision-related activities of daily living), and quality of life. The endpoints that were selected provided a mixture of objective and subjective data. The study design was strengthened by the fact that controlled observations could be obtained by performing assessments with the Argus® II System “on” and “off” (that is, control was available at each time point).

According to the applicant, there were no unexpected adverse events. Non-serious adverse events represented the majority of events. The safety review concluded that the Argus® II System has a reasonable safety profile for an ophthalmic device that requires vitreoretinal surgery to implant. In addition, the applicant noted that the device can be extracted and is reversible. The Argus® II System provided all 30 patients with benefit as measured by high-contrast visual function tests. The applicant stated that the degree of benefit varied from patient to patient and provided the following results:

  • All subjects were able to see visual percepts when the Argus® II System was electrically activated.
  • On the Square Localization Test (that is, object localization), patients (on average) performed better with the system “on” rather than “off” at all follow-up time points. At 24 months, on average, patients missed the target by approximately 50 pixels with the system “on” versus approximately 250 pixels with the system “off”.
  • On the Direction of Motion Test, which tested the patients' ability to determine the direction of a moving bar, patients had higher mean accuracy with the system “on” than they did with the system “off” at all follow-up time points, indicating that the Argus® II System improved their performance on a spatial vision task. At 24 months, the mean response error was approximately 60° with the system “on” versus more than 80° with the system “off”. According to the applicant, this is nearly the error expected by chance.
  • On the Grating Visual Acuity Test, which assessed the patients' visual acuity using the principles of acuity charts designed for extremely low vision patients, 27 percent of the patients were able to score on the scale (between 1.6 and 2.9 log MAR) at least once with the system “on”, while none of the Argus® II patients were able to score on the scale with the system “off.”
  • A large number of patients were able to recognize large letters and numbers with the system “on” (but not with the system “off”), and some of the patients were able to read short words. The median percent correct with the system “on” was approximately 50 percent higher than with the system “off.”
  • The trial also measured objectively-scored functional vision tests. The patients performed better with the Argus® II System “on” versus “off” on orientation and mobility tests (finding a door and following a line) and on functional vision tasks (sorting white, black, and grey socks, following an outdoor sidewalk, and determining the direction of a person walking by).
  • Analysis of the Functional Low-vision Observer Rated Assessment (FLORA) results showed that three-quarters of the patients received a positive benefit in terms of well-being and/or functional vision, while none of the patients experienced a negative effect.

We note that we are concerned that the study did not have pre-specified endpoints and changed measurements mid trial. In addition, we are concerned about the reliability of the measures used for the tests and the inconsistency of the results across different patients, which lead us to question the long-term benefits associated with this device. We are inviting public comments on whether the Argus® II System meets the substantial clinical improvement criterion, specifically in regard to the measures used in the study and the lack of pre-specified endpoints.

We received two comments on the Argus®II System during the town hall meeting's public comment period. These comments are summarized below.

Comment: Several commenters supported approving the Argus® II System for new technology add-on payments. One commenter, a society of retina specialists, stated that the Argus® II System is the first and only approved treatment in the United States for patients suffering from severe to profound cases of retinitis pigmentosa with bare or no light perception in both eyes. The commenter explained that while the Argus® II System does not restore vision, it provides visual information that can range, depending on the patient, from light detection to form detection. The commenter asserted that, for patients with bare or no light perception, even limited restoration of vision can make a substantial difference, restoring a patient's ability to visually connect and interact with others and providing greater independence.

Another commenter, a foundation for supporting blindness, stated that it is essential that CMS is progressive in making therapies like the Argus® II System accessible for these patients who have no other treatment alternatives. The commenter recommended approving the Argus® II System for new technology add-on payments. The commenter noted that for patients with rare retinal diseases like retinitis pigmentosa, the Argus® II System represents the first approved breakthrough to help restore sight and improve quality of life.

Response: We appreciate the commenters' support. We considered these comments presented during the town hall meeting's public comment period in the development of this proposed rule. As stated above, we are inviting additional public comments on whether the Argus® II System meets the substantial clinical improvement criterion, specifically in regard to the measures used in the study and the lack of pre-specified endpoints.

c. Responsive Neurostimulator (RNS®) System

NeuroPace, Inc. submitted an application for new technology add-on payments for FY 2014 for the use of the RNS® System. Seizures occur when brain function is disrupted by abnormal electrical activity. Epilepsy is a brain disorder characterized by recurrent, unprovoked seizures. According to the applicant, the RNS® System is the first implantable medical device (developed by NeuroPace, Inc.) for treating persons with epilepsy whose partial onset seizures have not been adequately controlled with antiepileptic medications. The applicant further stated that the RNS® System is the first closed loop, responsive system to treat partial onset seizures. Responsive electrical stimulation is delivered directly to the seizure focus in the brain when abnormal brain activity is detected. A cranially implanted programmable neurostimulator senses and records brain activity through one or two electrode-containing leads that are placed at the patient's seizure focus/foci. The neurostimulator detects electrographic patterns previously identified by the physician as abnormal, and then provides brief pulses of electrical stimulation through the leads to interrupt those patterns. Stimulation is delivered only when abnormal electrocorticographic activity is detected. The typical patient is treated with a total of 5 minutes of stimulation a day. The RNS® incorporates remote monitoring, which allows patients to share information with their physicians remotely.

With respect to the newness criterion, the applicant stated that some patients with partial onset seizures that cannot be controlled with antiepileptic medications may be candidates for the vagus nerve stimulator (VNS) or for surgical removal of the seizure focus. According to the applicant, these treatments are not appropriate or helpful for all patients. Therefore, the applicant believed that there is an unmet clinical need for additional therapies for partial onset seizures. The applicant further stated that the RNS® System addresses this unmet clinical need by providing a novel treatment option for treating persons with medically intractable partial onset seizures. The applicant anticipates FDA premarket approval of the RNS® System in the second quarter of 2013.

The following ICD‐9‐CM procedure codes are used to identify this technology: 01.20 (Cranial implantation or replacement of neurostimulator pulse generator); 01.29 (Removal of cranial neurostimulator pulse generator); and 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)). We are inviting public comments on whether the technology meets the newness criterion.

With regard to the cost criterion, the applicant stated that cases eligible for the RNS® System would map to MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex Central Nervous System Principal Diagnosis without MCC). The applicant further stated that while it was possible for cases to occur in MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex Central Nervous System Principal Diagnosis with MCC or Chemotherapy Implant), it would be extremely rare because the applicant believed that these major complications and/or comorbidities would probably preclude a patient from receiving the technology because the technology is an elective procedure.

The applicant submitted two analyses to demonstrate that it meets the cost criterion. For the first analysis, the applicant used clinical trial claims data collected in the RNS® System Pivotal Clinical Investigation to calculate the anticipated average standardized charge. The applicant maintained that this analysis best represents the anticipated charges for the technology because it is based on actual cases treated with this technology. The applicant analyzed 163 claims from 28 hospitals participating in the clinical trial. Five claims from one site were excluded because no hospital-specific information regarding standardization was available. The resulting 158 claims included dates of service ranging from May 2006 through May 2009. The average charge per case for these 158 claims was $54,961.

The applicant then standardized the charges for each claim. The applicant noted that it was not necessary to remove any charges from these claims because the technology was provided at no charge in the trial. After standardizing the charges, the applicant inflated each claim using the Consumer Price Index for Inpatient Hospital Services (CPI-IP) to inflate the data to the same period. Specifically, because the publicly available FY 2011 MedPAR data do not identify the month of the discharge on inpatient claims but identify the calendar quarter, the applicant used a mid-month convention to determine the relevant monthly CPI-IP for each calendar quarter. The applicant then calculated the percentage change from the relevant quarter to the quarter of the most recently available CPI-IP, which was the August 2012 CPI-IP. Specifically, the applicant used the following assumptions:

FY 2011 Calendar quarter Midpoint of quarter CPI IP Percent change to August 2012
Source as cited by applicant: Bureau of Labor Statistics' Web site, accessed October 15, 2012; Base Period: December 1996 = 100.
Q4 2010 Nov-10 227.186 9.54
Q1 2011 Feb-11 232.933 6.84
Q2 2011 May-11 235.567 5.64
Q3 2011 Aug-11 237.219 4.91
Most recent as of application Aug-12 248.856

After inflating the charges, the applicant estimated charges for the RNS® System by multiplying the device cost to the hospital by an anticipated hospital markup of 100 percent, or conversely by dividing the device cost by a CCR of 0.50. The applicant based its estimated CCR on four analyses. First, the applicant reviewed the 2007 and 2008 reports prepared by RTI for CMS on charge compression, which found that the national aggregate CCR for devices and implants was 0.43 and 0.467 in the respective reports. Second, the applicant queried hospitals participating in the RNS® System Pivotal trial, and these queries yielded a mean and median CCR for implantable devices of 0.37 and 0.36, respectively. Third, the applicant reviewed data from the (all payor) Premier database for cases performed in 2000 through 2010 that reported ICD-9 CM procedure codes 02.93 and/or 86.95 on a claim and calculated a mean and median CCR for implanted leads and neurostimulators of 0.50 and 0.44, respectively. The applicant then reviewed other discussions of past new technology add-on payment applications published in the Federal Register and noted that other applicants used lower CCRs (higher markups) for implanted devices than the 0.50 CCR used in the applicant's analyses.

Using this approach, the applicant added the anticipated hospital charge for the implantable RNS® System to the inflated average standardized charge per case and determined a final inflated average standardized charge per case of $121,990. Although the applicant submitted data related to the estimated cost of the RNS® System, the applicant noted that the cost of the technology was proprietary information. Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 024 is $78,039. Because the final inflated average standardized charge per case of $121,990 for MS-DRG 024 exceeds the threshold amount, the applicant maintained that the RNS® System would meet the cost criterion.

In the second analysis, which the applicant characterizes as supplementary, the applicant searched the FY 2011 MedPAR file for cases reporting the combination of ICD-9-CM procedures codes 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)) and 86.95 (Insertion or replacement of multiple array neurostimulator pulse generator, not specified as rechargeable), or the combination of ICD-9-CM procedures codes 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)) and 01.20 (Cranial implantation or replacement of neurostimulator pulse generator) that mapped to MS-DRG 024.

The applicant found 565 claims reporting the combination of ICD-9-CM procedures codes 02.93 and 01.20, and pointed out that these cases were coded with procedure code 01.20 in error because no new RNS® System implantations occurred after May 2009. The applicant analyzed these 565 claims and found that more than 90 percent of these cases had a primary or secondary diagnosis of Parkinson's disease, essential tremor, or dystonia. These diagnoses are FDA-approved indications for deep brain stimulation (DBS). In addition, the applicant noted that the total covered charges for these cases were less than the estimated charges for a full DBS system and hypothesized that these cases did not represent implantation of a full DBS system but implementation of leads only. The applicant contacted two hospitals that reported claims where total covered charges were less than the charges for a full DBS system, and the hospitals confirmed that their claims represented lead implantation alone. Therefore, for this second analysis, the applicant included all of the cases in MS-DRG 024 reported with a combination of ICD-9-CM procedures codes 02.93 and 86.95 and all of the cases in MS-DRG 024 reported with ICD-9-CM procedures codes 02.93 and 01.20 where the covered charges were greater than or equal to the estimated charges of a full DBS system. The applicant maintained that 485 claims from 130 providers met these criteria and that these data represented claims from the fourth calendar quarter of 2010 through the third calendar quarter of 2011, or FY 2011. Based on this assumption, the applicant calculated an average charge per case of $60,955. The applicant then removed DBS charges from the average charge per case. The applicant estimated charges for DBS and maintained that the average cost for a DBS system was $25,979. Similar to its first analysis, the applicant assumed a CCR of 0.50, or 100 percent markup, which resulted in estimated charges for DBS of $51,958. After removing DBS charges, the applicant standardized charges and then inflated the charges to the current period using the same methodology in the first analysis. The applicant then added charges for the RNS® System and determined a final inflated average standardized charge per case of $118,408. As noted above, although the applicant submitted data that related to the estimated cost of the RNS® System, the applicant noted that the cost of the technology was proprietary information. Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 024 is $78,039. Because the final inflated average standardized charge per case of $118,408 for MS-DRG 024 exceeds the threshold amount, the applicant maintained that the RNS® System would meet the cost criterion.

Under either analysis, the applicant maintained that the final inflated average standardized charge per case would exceed the case-weighted threshold. We are inviting public comments on whether the RNS® System meets the cost criterion, particularly based on the assumptions and methodology used in the applicant's analyses.

With regard to substantial clinical improvement, as previously stated, some patients with partial onset seizures may not be able to control their seizures with antiepileptic medications, VNS, or with surgical removal of the seizure focus. The applicant stated that the RNS® System provides treatment for those patients who fail treatment with antiepileptic medications, or fail VNS therapy and are ineligible for respective surgery due to the extent and/or location of the seizure, or patients who do not elect surgery. According to the applicant, the RNS® System clinical trials provide Class I evidence that treatment with the RNS® System substantially reduces disabling seizures in patients with severe epilepsy who have tried and failed treatment with antiepileptic medications, and in many cases VNS or epilepsy surgery. The applicant maintained that the results from their clinical trials demonstrate significant and sustained improvements in health outcomes over the controlled period and over the long term.

The applicant stated that their pivotal trial met its primary effectiveness endpoint by proving that there was a statistically significant greater reduction in seizures in the treatment group compared to the control group (p = 0.012). Significant improvements at 1 and 2 years post‐implant included:

  • A significant reduction in disabling seizures of 44 percent and 53 percent at 1 and 2 years, respectively; and
  • Significant improvements in overall quality of life as well as individual quality of life measures including memory, language, attention, concentration and medication effects.

The applicant asserted that there was no negative effect of treatment with the RNS® System on neuropsychological function (including verbal functioning, visual-spatial processing, and memory) or mood. The applicant concluded that the RNS® System Pivotal trial provides Class I evidence that responsive cortical stimulation is effective in significantly reducing seizure frequency in adults with 1 or 2 seizure foci who have failed 2 or more antiepileptic medication trials. The applicant stated that experience across all of the RNS® System trials demonstrates the reduction in seizure frequency of disabling partial seizures improves over time. In addition, the applicant noted that sustained improvements were also seen in quality of life. Finally, the applicant noted that safety and tolerability compares favorably to alternative treatments such as antiepileptic medications, VNS, and epilepsy surgery.

With regard to the substantial clinical improvement criterion, we are concerned that the average age of patients in the applicant's study was 35 years. Although the applicant maintained that 31 percent of the patients enrolled in the pivotal trial were Medicare beneficiaries, we are unsure of the extent to which this technology would be used by Medicare beneficiaries due to the relatively young age of the majority of patients enrolled in the pivotal trial. We also are concerned that further clarification on how the RNS® System compares to other neurostimulation treatments was not provided by the applicant. The applicant did provide the following comparison of VNS to the RNS® System:

Key Differences Between the RNS® System and DBS and VNS Systems Back to Top
RNS® System Deep brain stimulator (DBS) Vagus nerve stimulator (VNS)
Type of stimulation Closed loop: responsive Open loop: scheduled.
Stimulation time/day About 5 minutes  
Stimulation target Cortical; varies according to seizure focus Deep brain nuclei Ascending vagus nerve.
Neurostimulator Cranially implanted Subcutaneously (pectorally) implanted.
Programming changes According to clinical and electrographic response According to clinical response.
Information from device Device data, detections, stimulations and electrocorticograms Device data.
Physician data review At time of programming as well as online access to stored data At time of programming  

Because the applicant included claims with DBS in one of its cost analyses, we believe that the similarities and differences between DBS and the RNS® System may also be relevant under the substantial clinical improvement criterion. In addition, we are concerned that the time period in the clinical trial may not be sufficient to confirm durability. In the RNS® System Pivotal Clinical Investigation, the primary effectiveness endpoint considered seizure frequency over the last 3 months of the blinded period of the trial. We note that the applicant is currently conducting a 5-year study. We are inviting public comments on whether the RNS® System meets the substantial clinical improvement criterion, particularly in regard to the degree in which the technology would be used by Medicare beneficiaries, the comparison to other neurostimulation treatments, and its durability.

We received two comments on the RNS® System during the town hall meeting's public comment period. These comments are summarized below.

Comment: One commenter stated that it looked forward to the RNS® System's commercial availability and encouraged CMS to approve the RNS® System for new technology add-on payments. The commenter noted that the benefits of the RNS® System therapy include a significant reduction in seizure frequency and severity, and for some patients, extended periods of seizure freedom. The commenter asserted that this reduction in seizure frequency improves over time and is sustained over several years of follow-up, and can result in improved cognition and a better quality of life. The commenter added that, most impressively, these positive results were achieved with no chronic side effects from stimulation. The commenter also noted that a significant number of these individuals are eligible for Medicare due to their disability.

Another commenter stated that the pivotal trial findings, in both the blinded period and the open-label period, have provided compelling support for what had previously been an only theoretical concept for non-ablative intervention. The commenter explained that those patients with seizure foci in eloquent areas or with hi-hippocampal seizure onset, the most difficult patient cohort to address, have been well-suited to RNS and often substantially benefited from this intervention. The commenter noted that in the functional and stereotactic neurosurgical community, the most exciting and compelling advances have arisen from those non-resective strategies by which maladaptive pathophysiology and its symptoms have been ameliorated by targeted electrical stimulation and neural function preserved with the NeuroPace experience—the most compelling in epilepsy.

The commenter concluded with the following: the RNS® System has had a remarkable and reassuring safety track record; the surgery for its implementation is comparable to that of deep brain stimulation system placement; the permanent and serious morbidity have been extremely low and the serious and life-threatening risks associated with medically intractable epilepsy, in comparison, are generally underappreciated and substantially higher.

Response: We appreciate the commenters' support. We considered these comments presented during the town hall meeting's public comment period in the development of this proposed rule. As stated above, we are inviting additional public comments on whether the RNS® System meets the substantial clinical improvement criterion, particularly in regard to the degree in which the technology would be used by Medicare beneficiaries, the comparison to other neurostimulation treatments, and its durability.

d. Zilver® PTX® Drug Eluting Peripheral Stent

Cook® Medical submitted an application for new technology add-on payments for the Zilver® PTX® Drug Eluting Peripheral Stent (Zilver® PTX®) for FY 2014. The Zilver® PTX® is intended for use in the treatment of peripheral artery disease (PAD) of the above-the-knee femoropopliteal arteries (superficial femoral arteries). According to the applicant, the stent is percutaneously inserted into the artery(s), usually by accessing the common femoral artery in the groin. The applicant stated that an introducer catheter is inserted over the wire guide and into the target vessel where the lesion will first be treated with an angioplasty balloon to prepare the vessel for stenting. The applicant indicated that the stent is self-expanding, made of nitinol (nickel titanium), and is coated with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and for use with coronary stents to reduce the risk of renarrowing of the coronary arteries after stenting procedures.

The applicant received FDA approval on November 15, 2012, for the Zilver® PTX®. The applicant maintains that the Zilver® PTX® is the first drug-eluting stent used for superficial femoral arteries. The technology is currently described by ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of the superficial femoral artery). We are inviting public comments regarding how the Zilver® PTX® meets the newness criterion.

With regard to the cost criterion, the applicant believed 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 2010 MedPAR file for cases reporting 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), or 440.24 (Atherosclerosis of the extremities with gangrene). The applicant noted that the Zilver® PTX® is available in an 80 mm size and is approved for lesions in native vascular disease of the above-the-knee femoropopliteal arteries having reference vessel diameter from 4 mm to 9 mm and total lesion lengths up to 140 mm per limb. The applicant further noted that bare metal stents typically are available up to lengths of 200 mm. Therefore, in order to target cases eligible for the Zilver® PTX®, the applicant believed it was only appropriate to target those cases with one or two bare metal stents. The applicant was able to identify the amount of stents used per claim by searching for ICD-9-CM procedure codes 00.45 (Insertion of one vascular stent) and 00.46 (Insertion of two vascular stents). The applicant submitted two methodologies: one with cases that received one bare metal stent and the other with cases that received one or two bare metal stents.

Under the first methodology (one bare metal stent), the applicant found 2,062 cases (or 19.7 percent of all cases) in MS-DRG 252, 3,385 cases (or 32.3 percent of all cases) in MS-DRG 253, and 5,019 cases (or 48 percent of all cases) in MS-DRG 254. The average charge per case was $89,194 for MS-DRG 252, $67,965 for MS-DRG 253, and $46,539 for MS-DRG 254, equating to a case-weighted average charge per case of $60,855.

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 non-drug-eluting peripheral vessel stent and replace them with charges related to the Zilver® PTX®. The applicant multiplied the use of the single stent used per case by the average market price for non-drug-eluting peripheral vessel stents and then converted the cost of the stents used per case to a charge by dividing the results by the hospital-specific CCR (from the FY 2010 IPPS impact file). The applicant removed the appropriate amount of charges per case and then standardized the charges per case.

Because the applicant used FY 2010 MedPAR data, it was necessary to inflate the charges from FY 2010 to FY 2013. 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 7 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 [6] . 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 non-drug-eluting peripheral vessel stent typically ranges from 80mm 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®). 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 2010 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 inflated case-weighted average standardized charge per case of $58,419. Although the applicant submitted data that related to the estimated cost of the Zilver® PTX®, the applicant noted that the cost of the technology was proprietary information. Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $54,547 (all calculations above were performed using unrounded numbers). Because the final inflated case-weighted average standardized charge per case for the applicable MS-DRGs exceeded the case-weighted threshold amount, the applicant maintained that the Zilver® PTX® would meet the cost criterion.

The applicant used the same methodology above to demonstrate that it meets the cost criterion with the only difference being that it included cases that used one or two bare metal stents instead of just one bare metal stent. Using this methodology, the applicant determined a final inflated case-weighted average standardized charge per case of $62,455. Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $54,474 (all calculations above were performed using unrounded numbers). Because the final inflated case-weighted average standardized charge per case for the applicable MS-DRGs exceeded the case-weighted threshold amount, the applicant maintained that the Zilver® PTX® would meet the cost criterion.

We are inviting public comments on whether or not the Zilver® PTX® meets the cost criterion. In addition, we are inviting public comments 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 and the number of stents required for each case.

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 asserted that the Zilver® PTX® meets the substantial clinical improvement criterion 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 479-patient, multicenter, multinational randomized controlled trial that compared the Zilver® PTX® to balloon angioplasty [7] ; an additional component of the study allowed a direct comparison of the Zilver® PTX® to a bare (uncoated) metal Zilver® stent. Patients were randomized to treatment with the Zilver® PTX® stent (treatment group) or with PTA (control group). Recognizing that balloon angioplasty may not be successful acutely, the trial design mandated provisional stent placement immediately after failure of balloon angioplasty in instances of acute PTA failure. Therefore, patients with suboptimal (failed) PTA underwent a secondary randomization to stenting with either Zilver® PTX® or bare Zilver stents. This secondary randomization allows evaluation of the Zilver® PTX® stent compared to a bare metal 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). We note that we are concerned that other endpoints such as walking, walking speed, and climbing were not considered as primary endpoints to demonstrate the effectiveness of the Zilver® PTX®.

According to the applicant, the Zilver® PTX® had an EFS of 90.4 percent compared to balloon angioplasty, which had an EFS of 83.9 percent, at 12 months demonstrating that the Zilver® PTX® is as safe or safer than balloon angioplasty. The applicant further stated that this benefit was maintained at 24 months. 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 82.7 percent, which compared favorably to the balloon angioplasty patency rate of 32.7 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 (87.3 percent versus 72.3 percent at 12 months). 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 submitted 3 years of follow-up data, which the applicant maintained support that the Zilver® PTX® is more effective in maintaining primary patency. [8]

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. According to the applicant, 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 further stated 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. [9]

We also are concerned that on April 24, 2013, the FDA announced that, based on its investigation into a small number of complaints that the delivery system of the device had separated at the tip of the inner catheter, Cook Medical has initiated a nationwide/global voluntary recall of its Zilver® PTX® Drug Eluting Peripheral Stent. We refer readers to http://www.fda.gov/Safety/Recalls/ucm349421.htm?source=govdelivery for more information regarding this announcement.

We are inviting public comments regarding whether the Zilver® PTX® meets the substantial clinical improvement criterion. We note that we did not receive any public comments on the Zilver® PTX® during the new technology town hall meeting's public comment period.

e. MitraClip® System

Abbott Vascular submitted an application for new technology add-on payments for the MitraClip® System for FY 2014. The MitraClip® System is a transcatheter mitral valve system that includes a MitraClip® device implant, a Steerable Guide Catheter, and a Clip Delivery System. It is designed to perform reconstruction of the insufficient mitral valve for high risk patients who are not candidates for conventional open mitral valve surgery.

Mitral regurgitation (MR), also referred to as mitral insufficiency or mitral incompetence, occurs when the mitral valve fails to close completely causing the blood to leak or flow backwards (regurgitate) into the mitral valve as the heart contracts. If the amount of blood that leaks back into the mitral valve is minimal then intervention is usually not necessary. However, if the amount of blood becomes significant this can cause the left ventricle to work harder to meet the body's need for oxygenated blood. Severity levels of MR can range from grade 1+ through grade 4+. If left untreated, severe mitral regurgitation can lead to heart failure and death. The American College of Cardiology (ACC) and the American Heart Association (AHA) issued practice guidelines in 2006 recommending intervention for moderate-severe or severe MR (3+ to 4+). The applicant stated that the MitraClip® System is intended “for patients with symptomatic, significant mitral regurgitation who have been determined by a cardiac surgeon to be too high risk for open mitral valve surgery and in whom existing co-morbidities would not preclude the expected benefit from correction of the mitral regurgitation.”

The MitraClip® System performs percutaneous mitral valve repair. The applicant noted that the MitraClip® mitral valve repair procedure is based on the double-orifice surgical repair technique that has been used as a surgical technique in open chest, arrested-heart surgery for the treatment of MR since the early 1990s. 10 11 12 13 14 According to the applicant, in utilizing the double-orifice technique, a portion of the anterior leaflet is sutured to the corresponding portion of the posterior leaflet using standard techniques and forceps and suture, creating a point of permanent coaptation (“approximation”) of the two leaflets. As a result, when the suture is placed in the middle of the valve, the valve will have a functional double orifice during diastole, thus the alternate name for the procedure “Double Orifice Repair.”

With regard to the newness criterion, the manufacturer submitted a Premarket Approval (PMA) application in support of obtaining FDA approval for the MitraClip® System. Effective October 1, 2010, ICD-9-CM procedure code 35.97 (Percutaneous mitral valve repair with implant) was created to identify and describe the MitraClip® technology. On March 20, 2013, a meeting was held by the Circulatory System Devices Panel of the Medical Devices Advisory Committee of the FDA to discuss, make recommendations, and vote on information related to the PMA application for the MitraClip® System. Specifically, the Committee was charged with determining if the data presented by the applicant demonstrated a reasonable assurance of safety and effectiveness. We refer readers to the following FDA Web site for additional detailed information and meeting materials regarding the MitraClip® System http://www.fda.gov/AdvisoryCommittees/Calendar/ucm339809.htm. In addition, a summary of the March 20, 2013 meeting can be located on the following FDA Web site http://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/MedicalDevices/MedicalDevicesAdvisoryCommittee/CirculatorySystemDevicesPanel/UCM345235.pdf. We are inviting public comments regarding how the MitraClip® System meets the newness criterion.

With regard to the cost criterion, the applicant conducted four separate analyses. The applicant noted that while ICD-9-CM procedure code 35.97 groups to MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug- Eluting Stent with Major Complication or Comorbidity (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), clinical experience with the MitraClip® has demonstrated that it is extremely rare for a patient to receive stents concurrently with the MitraClip® procedure. The applicant further cited the FY 2013 IPPS/LTCH PPS final rule (77 FR 55308) which stated, “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 a result, the applicant stated that it conducted its analyses solely for MS-DRGs 250 and 251 to demonstrate that the cases involving MitraClip® meet the incremental cost thresholds provided in Table 10 for those MS-DRGs.

The applicant included two analyses that utilize the FY 2011 MedPAR file and two analyses of hospital UB-04 claims data from the EVEREST II Continued Access Study that were collected during FY 2012. Below is a summary of the applicant's four data analyses, including the methodology and the findings for each.

  • Analysis 1: The applicant searched the FY 2011 MedPAR file for cases reporting procedure code 35.97 that mapped to MS-DRGs 250 and 251. According to the applicant, this search yielded actual MitraClip® procedures that were performed in an IDE study setting where hospitals obtained the MitraClip® System at a reduced investigational price; the applicant stated that it is likely that hospitals did not bill at all for the investigational device or submitted billed charges that were significantly less than the actual device acquisition costs (we refer readers to the explanation below). The applicant found 39 cases in MS-DRG 250 (29 percent of all cases), and 94 cases in MS-DRG 251 (71 percent of all cases), which resulted in a case-weighted average charge per case of $97,918. The applicant then standardized the charges using the FY 2011 final rule impact file and inflated the standardized charges using two different inflation factors. The first approach used a factor of 4.6 percent, which was based on data from the U.S. Department of Labor's Bureau of Labor Statistics non-seasonally adjusted Consumer Price Index for All Urban Consumers between January 2011 and January 2013. This resulted in an inflated case-weighted average standardized charge per case of $79,346. The second approach used a factor of 18.6 percent based on the growth in charges between 2009 and 2011 in MS-DRGs 250 and 251 and adjusting for case-mix year over year. This resulted in an inflated case-weighted average standardized charge per case of $89,986. The applicant noted that both approaches used to determine the inflated case-weighted average standardized charge per case were calculated without any adjustments to reflect the reduced investigational price or inadequate hospital billing.

In order to determine if hospitals adequately billed for the device, the applicant analyzed the cost of the device on each claim by summing the charges that map to the 15 CMS IPPS cost centers (77 FR 53340). The applicant then calculated the standardized cost for this subset of charges by multiplying the standardized charges in each cost center by the CMS national CCR for each cost center in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53340). The applicant asserted that, whereas all hospitals in the study were charged a uniform investigational price for the MitraClip® System, this analysis confirmed that some hospitals did not bill at all for the device or charged substantially less than the actual hospital acquisition cost, which is likely due to the investigational status of the technology. The applicant explained that the mean total standardized costs in the “Supplies and Equipment” cost center in the FY 2011 MedPAR file for MitraClip® cases were remarkably low for MS-DRGs 250 and 251, respectively. According to the applicant, the mean total standardized costs in the “Supplies and Equipment” cost center reflect only 50 percent of the actual MitraClip® System costs not inclusive of other supply and equipment costs associated with the MitraClip® procedure and hospital stay. Therefore, the applicant believed that Analysis 1 severely underestimated the actual hospital costs.

Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 250 and 251 was $63,097 (all calculations above were performed using unrounded numbers). Because the inflated case-weighted average standardized charge per case for the applicable MS-DRGs for both approaches discussed above exceeds the case-weighted threshold amount, the applicant maintained that the MitraClip® System would meet the cost criterion.

  • Analysis 2: The second analysis is identical to the first analysis (the applicant searched the FY 2011 MedPAR file for cases reporting procedure code 35.97 that mapped to MS-DRGs 250 and 251) except that the applicant excluded hospital claims that either did not include any charge for the device-dependent procedure or included a charge that was significantly less than the actual device acquisition cost. The applicant believed that these exclusions would provide more accurate data on the costs associated with the MitraClip® procedure in the IDE study when hospitals obtained the MitraClip® System at a reduced investigational price. The applicant explained that it included only those cases where the standardized charge for the “Supplies and Equipment” cost center, reduced by each hospital's average hospital-wide CCR (rather than using CMS national CCRs for each cost center), was greater than $10,000, which is lower than the acquisition cost for the MitraClip® System. The applicant stated that this analysis reflects a conservative but more appropriate estimate of the actual costs incurred by the hospitals during the clinical trial than the first analysis.

Using the methodology above, the applicant found 12 cases in MS-DRG 250 (22 percent of all cases) and 43 cases in MS-DRG 251 (78 percent of all cases), which resulted in a case-weighted average charge per case of $112,434. The applicant then standardized the charges using the FY 2011 final rule impact file and inflated the standardized charges using two different inflation factors. The first approach used a factor of 4.6 percent, which was based on data from the U.S. Department of Labor's Bureau of Labor Statistics non-seasonally adjusted Consumer Price Index for All Urban Consumers between January 2011 and January 2013. This resulted in an inflated case-weighted average standardized charge per case of $97,289. The second approach used a factor of 18.6 percent based on the growth in charges between 2009 and 2011 in MS-DRGs 250 and 251 and adjusting for case-mix year over year. This resulted in an inflated case-weighted average standardized charge per case of $110,335.

Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 250 and 251 was $61,896 (all calculations above were performed using unrounded numbers). Because the inflated case-weighted average standardized charge per case for the applicable MS-DRGs for both charge inflation approaches discussed above exceeds the case-weighted threshold amount, the applicant maintained that the MitraClip® System would meet the cost criterion.

  • Analysis 3: Because the first two analyses sought only to estimate standardized charges for the MitraClip® procedure in an investigational setting with a reduced price for the device, the applicant submitted two additional analyses using hospital charges in a commercial setting and a commercial device price. Rather than using MedPAR data, the applicant utilized hospital UB-04 claims collected from the ongoing EVEREST II Continued Access Study in addition to claims from compassionate-use cases. The applicant stated that patient characteristics and charges for both of these cases were not significantly different.

The applicant analyzed 98 claims from 21 sites (for discharges on or after October 1, 2011 through discharges on or before September 30, 2012 (FY 2012 claims data)) and excluded 18 cases because the cases either did not map to MS-DRGs 250 or 251, or the patient was below the age of 65 years. Of these remaining 80 cases, 17 mapped to MS-DRG 250 (21.3 percent of all cases) and 63 mapped to MS-DRG 251 (78.8 percent of all cases), which resulted in a case-weighted average charge per case of $112,509. The case-weighted average charge per case above includes clinical trial charges related to the MitraClip® System, which does not reflect the full commercial charge for the MitraClip® System. Therefore, the applicant removed the amount of clinical trial charges related to the MitraClip® System. The applicant then standardized the charges using the FY 2012 final rule impact file and inflated the standardized charges using the two different approaches described in the first and second analyses (an inflation factor of 4.6 percent and 18.6 percent, respectively).

The applicant then added commercial charges for the device to the inflated standardized charges (for both charge inflation approaches). Although the applicant submitted data that related to the estimated cost of the MitraClip® System, the applicant noted that the cost of the technology was proprietary information. To compute the commercial charges for the MitraClip® System, the applicant took the European commercial price of the MitraClip® System, converted the cost to U.S. dollars by multiplying the amount by an exchange rate of 1.38, and then divided the result by the “Supplies and Equipment” cost center CCR (in the FY 2013 IPPS/LTCH PPS final rule) of 0.335. This resulted in an inflated case-weighted average standardized charge per case of $129,019 and $132,372 under the first and second charge inflation approaches, respectively.

Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 250 and 251 was $61,805 (all calculations above were performed using unrounded numbers). Because the inflated case-weighted average standardized charge per case for the applicable MS-DRGs for both charge inflation approaches exceeds the case-weighted threshold amount, the applicant maintained that the MitraClip® System would meet the cost criterion.

  • Analysis 4: The fourth analysis was similar to the third analysis. However, instead of basing commercial charges on the European commercial price, the applicant used the anticipated U.S. commercial price to determine the commercial charges for the device. Similar to above, the applicant determined a case-weighted average charge per case of $112,509. The applicant then removed the clinical trial charges related to the MitraClip® System (for each claim), standardized the charges using the FY 2012 final rule impact file, and inflated the standardized charges using both charge inflation approaches discussed above.

The applicant then added commercial charges for the device to the inflated standardized charges (for both charge inflation approaches). As mentioned above, although the applicant submitted data that related to the estimated cost of the MitraClip® System, the applicant noted that the cost of the technology was proprietary information. To compute the commercial charges for the MitraClip® System, the applicant used the anticipated U.S. commercial price of the MitraClip® System and divided the amount by the “Supplies and Equipment” cost center CCR (in the FY 2013 IPPS/LTCH PPS final rule) of 0.335. This resulted in an inflated case-weighted average standardized charge per case of $136,183 and $139,535 under the first and second charge inflation approaches, respectively.

Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 250 and 251 was $61,805 (all calculations above were performed using unrounded numbers). Because the inflated case-weighted average standardized charge per case for the applicable MS-DRGs for both charge inflation approaches exceeds the case-weighted threshold amount, the applicant maintained that the MitraClip® System would meet the cost criterion.

We are inviting public comments on whether or not the MitraClip® System meets the cost criterion. In addition, we are inviting public comments on the methodologies used by the applicant in its four analyses.

The applicant asserted that the MitraClip® System meets the substantial clinical improvement criterion. The applicant explained that studies have indicated that a significant proportion of patients are not eligible for mitral valve repair and/or replacement surgery because of risk factors including reduced left ventricular function, significant comorbidities, and advanced age. As a result, the applicant stated that there is a significant unmet clinical need for patients with severe MR who are too high risk for surgery and receiving palliative medical management.

The applicant further stated that although many of the patients who are refused surgery die in the intervening months to years, the economic burden to the healthcare system of mitral regurgitation in elderly patients not deemed suitable for conventional open chest surgery is considerable. The applicant noted that the vast majority of such patients are repeatedly hospitalized, often with prolonged lengths of in-hospital stays, and, even when returned to the community, they consume additional resources from the primary care and social services. The applicant asserted that the quality of life enjoyed by these patients is also poor and their mortality rates are high. The applicant cited the 2012 European Society of Cardiology (ESC) and European Association for Cardio-Thoracic Surgery (EACTS) clinical practice guideline for valvular heart disease, which recommended that the MitraClip® procedure be considered in high surgical risk patients with symptomatic severe secondary MR.

The applicant also stated that it would meet the substantial clinical improvement criterion based on clinical studies that have consistently shown that the MitraClip® procedure leads to a significant reduction of MR, improvements in left ventricular (LV) function including LV volumes and dimensions, improved patient outcomes as measured by improvements in New York Heart Association (NYHA) functional class, health-related quality of life and reductions in heart-failure related hospitalizations, and significantly lower mortality than predicted surgical mortality.

The applicant cited clinical data from the EVEREST II High Risk Study [15] and from the EVEREST II Continued Access Study/Registry (REALISIM) [16] . The applicant also cited clinical data from a high risk cohort of patients (EVEREST II High Risk Cohort), which is an integrated analysis of the following: (1) Patients within the EVEREST II High Risk Study who met eligibility criteria for being too high risk to undergo mitral valve surgery; and (2) patients within the EVEREST II Continued Access Study/Registry who were too high risk for surgery using identical eligibility inclusion criteria.

In addition to the published clinical experience from the EVEREST studies, the applicant cited data on the use of the MitraClip® device in a “real-world” setting published recently by a select number of European centers as part of their individual and/or multi-center commercial experience or enrollment in the MitraClip® device group of the ACCESS-EU post-approval clinical trial in Europe. The European use of the MitraClip® device is focused on patients who are too high risk for surgery and patients are selected for therapy using a multi-disciplinary “heart team” approach.

The applicant stated that published reports of the MitraClip® procedure have consistently demonstrated a significant reduction in MR that is durable out to 1, 2, and 3 years. The applicant cited the EVEREST II High Risk Study, which demonstrated that the MitraClip® procedure successfully reduced MR for high-risk patients with results durable out to 2 years. The applicant also noted that the proportion of patients with significant MR (MR grade ≥3+) was reduced from 99 percent at baseline to 22 percent at 1 year follow-up (p<0.0001). The applicant further noted that reduction of MR was also associated with significant improvements in left ventricular dimensions including LV end diastolic and systolic volumes (p<0.0001) consistent with positive ventricular remodeling.

According to the applicant, the most recent available data from the EVEREST II High Risk Cohort submitted to the FDA for high-risk patients demonstrated a significant reduction in severe MR from 86 percent at baseline to 13 percent at 2 years (p<0.0001), improvements in LV dimensions and volumes sustained at 2 years, and a 48-percent reduction in rates of heart failure-related hospitalizations between the baseline and the 12-month follow-up period after the MitraClip® procedure (p<0.0001).

The applicant noted that patients treated with MitraClip® reported substantial clinical improvements in NYHA functional class from baseline at both 1 and 2 year followup. The applicant explained that the NYHA classification system assigns patients into one of four categories representing the extent of heart failure based on how much they are limited during physical activity. In the EVEREST II High-Risk Cohort, the applicant stated that the proportion of patients with NYHA class III/IV representing marked or severe limitations in activity was significantly reduced from 82 percent at baseline to 17 percent at 1 year (p<0.0001). The applicant noted that these results also have been consistently shown in multiple other published studies.

Based on data from the EVEREST II High Risk Cohort, the applicant cited additional data demonstrating that the MitraClip® treatment is associated with clinically and statistically significant improvements in general health-related quality of life. The applicant explained that the RAND SF-36 health survey, a quality of life instrument, demonstrated similar physical and mental component scores after 30 days and 1 year. In addition, the applicant stated that the MitraClip® is associated with lower than predicted mortality rates at 30 days as measured by the Society for Thoracic Surgery (STS) Mortality Risk Score. Also, mortality at 1 year is favorable when (1) comparing the MitraClip® to published literature 17 18 19 20 21 22 23 and (2) comparing MitraClip® mortality to a high-risk concurrent control group of patients treated with medical management.

In conclusion, the applicant cited data from the ACCESS-EU study as presented at the European Society of Cardiology Congress in August 2012, which demonstrated improvement in disease-specific quality of life measures including the Minnesota Living with Heart Failure Questionnaire and Six Minute Walk Test.

We note that, similar to the FDA, as referenced above, we are concerned that the applicant performed post hoc analyses on a different patient population and revised the initial indication for use for the MitraClip® after learning that the FDA expressed concern regarding the PMA based on insufficient data resulting from the initial indication for use and patient population in the EVEREST II RCT. As we discuss below, data results from 2 years of the EVEREST II RCT also demonstrated that surgery reduced mitral regurgitation more than the percutaneous MitraClip® System. However, both the surgical patients and the MitraClip® patients showed comparable results for improved left ventricular function, NYHA functional class, and quality of life. Subsequent to this trial, the applicant conducted a retrospective review of registry data to support the revised indication for use. This retrospective analysis involved pooling two registry data sets (the EVEREST II High Risk Registry (HRR) and the REALISM HRR Continued Access Protocol (CAP)) in a post hoc manner, which resulted in major design flaws and data interpretation limitations. The pooled registry data sets were referred to as the Integrated High Surgical Risk Cohort.

We note that, the EVEREST II HRR and the REALISM HRR CAP were not intended to be used as pivotal data sets. The applicant was previously informed by the FDA that without positive pivotal trial results, the PMA application could not be approved based on the data results of the EVEREST II RCT by itself. Therefore, the FDA suggested the additional studies (the EVEREST II HRR and the REALISM HRR CAP) to complement the randomized study and, therefore, could be considered adjunctive to the EVEREST II RCT.

In our review of the clinical trials' data, we agree with the FDA regarding the following key points:

  • Post hoc analyses of pooled data sets retain all of the individual shortcomings of the individual data sets;
  • Pooling does not enhance the utility and scientific value of uncontrolled single arm registries with no comparators; and
  • Inappropriate pooling introduces additional confounders.

It is also unclear what the appropriate target population for the MitraClip® System is because clinical trials conducted by the applicant included patients with both functional and degenerative mitral regurgitation, which makes it difficult to determine which group of patients may benefit more or less from the technology. For example, in a subgroup analysis of the EVEREST II RCT, authors concluded that older patients and those patients with functional mitral regurgitation or abnormal left ventricular function had results more comparable to surgical repair. Data results from 2 years of the EVEREST II RCT also demonstrated that surgery reduced mitral regurgitation more than the percutaneous MitraClip® System. However, both the surgical patients and the MitraClip® System's patients showed comparable results for improved left ventricular function, NYHA functional class, and quality of life.

We are inviting public comments on whether this technology meets the substantial clinical improvement criterion, particularly in comparison to other surgical therapies such as mitral valve repair or replacement, and also with regard to the appropriate target population for this technology.

We received nine comments on the MitraClip® System during the town hall meeting's public comment period. These comments are summarized below.

Comment: Several commenters expressed support for new technology add-on payments for the MitraClip® System and recommended that the technology be reassigned from MS-DRGs 250 and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with and without MCC, respectively) to MS-DRGs 216, 217, 218, 219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedure with and without Cardiac Catheterization with MCC, CC, and without CC/MCC, respectively).

Response: We appreciate the commenters' support. However, we note that we did not request public comments nor propose to make any changes to the MS-DRG classification for the MitraClip® System. Because these comments are outside the scope of the new technology add-on payment application included in this proposed rule, we are not providing a complete summary of and response to these comments. We encourage the commenters to review the process for submitting comments regarding MS-DRG classifications as outlined in section II.G. of the preamble of this proposed rule.

Comment: Several commenters stated that they supported the application for new technology add-on payments for the MitraClip® System because it is a novel technology utilizing the transcatheter approach to repair the mitral valve and has demonstrated substantial clinical improvement. According to the commenters, the technology is intended to be used for high-risk patients who do not have other treatment options available due to the severity of their mitral regurgitation and other comorbidities, such as heart failure. The commenters noted that the percutaneous MitraClip® System results in significant improvement in quality of life for this group of patients for whom conventional surgery is contraindicated.

One commenter stated that another benefit of the MitraClip® System is that it offers patients with all forms of mitral regurgitation the opportunity to receive treatment much earlier, thereby resulting in improved cardiac function, reduced heart failure, and increased savings to the healthcare system.

Another commenter expressed support for the MitraClip® System and noted that surgery for this high-risk patient population is not a viable alternative and neither are the currently available medical therapy options, as evidenced by the readmission rates for congestive heart failure exacerbations in this group of patients. This commenter also noted that the MitraClip® device has proven to reduce the degree of mitral regurgitation as shown in a number of high-risk patient registries and clinical trials. The commenter further noted that savings could be realized with the reductions in readmissions for heart failure exacerbations for this group of patients.

One commenter indicated that the MitraClip® System meets the substantial clinical improvement criterion because it offers nonoperative patients a device that could “potentially revolutionize management of nonsurgical patients with severe mitral regurgitation.” Another commenter stated that the MitraClip® System “represents a landmark in our ability to perform mitral valve surgeries with less risk.” This commenter further stated that the “MitraClip® joins TAVR (Transcatheter aortic valve replacement) and TPVI (Transcatheter pulmonary valve implantation) as new percutaneous surgical therapies for patients with valvular heart disease who are not candidates for traditional valve replacement or repair.”

Another commenter noted that the MitraClip® System has shown substantial clinical improvement in patients considered too high risk for surgery as demonstrated by the EVEREST II cohort, including improvement in patients NYHA functional class, reduced hospitalizations, and improved left ventricular function.

Response: We appreciate the commenters' support. We have considered these comments received during the town hall meeting's public comment period in this proposed rule. As stated above, we are inviting additional public comments on whether the MitraClip® System meets the substantial clinical improvement criterion, particularly in comparison to other surgical therapies such as mitral valve repair or replacement, and also with regard to the appropriate target population for this technology.

III. Proposed 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.” We currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the proposed FY 2014 hospital wage index based on the statistical areas appears under section III.B. of the preamble of this proposed rule.

Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index annually and to base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. This provision also requires that any updates or adjustments to the wage index be made in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for FY 2014 is discussed in section II.B. of the Addendum to this proposed 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 proposed budget neutrality adjustment for FY 2014 is discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are proposing to apply beginning October 1, 2013 (the FY 2014 wage index) appears under section III.F. of the preamble of this proposed rule.

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. 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. The current statistical areas are based on OMB standards published on December 27, 2000 (65 FR 82228) and Census 2000 data and Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). 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) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53365) 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. On February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provides guidance on the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. According to OMB, “[t]his bulletin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246-37252) and Census Bureau data.”

In order to implement these changes for the IPPS, it is necessary to identify the new area designation for each county and hospital in the country. While the revisions OMB published on February 28, 2013 are not as sweeping as the changes OMB announced in 2003, the February 28, 2013 bulletin does contain a number of significant changes. For example, there are new CBSAs, urban counties that become rural, rural counties that become urban, and existing CBSAs that have been split apart. In addition, the effect of the new designations on various hospital reclassifications, the outmigration adjustment (established by section 505 of Pub. L. 108-173), and treatment of hospitals located in certain rural counties (that is, “Lugar” hospitals) provided for under section 1886(d)(8)(B) of the Act must be considered. These are just a few of the many issues that need to be considereed regarding the effects of the new designations prior to proposing and establishing policies.

However, because the bulletin was not issued until February 28, 2013, with supporting data not available until later, and because the changes made by the bulletin and their ramifications must be extensively reviewed and verified, we were unable to undertake such a lengthy process before publication of this FY 2014 proposed rule. By the time the bulletin was issued, the FY 2014 IPPS proposed rule was in the advanced stages of development. We had already developed the FY 2014 proposed wage index based on the previous OMB definitions. We note that, in June 2003, OMB announced changes resulting from the 2000 Census, and at that time, CMS proposed and implemented the changes during the following year's rulemaking cycle for FY 2005. Although OMB published the data earlier than June this year, we still are in essentially the same situation as we were in 2003 because the data are not available in time to be incorporated into this year's rulemaking cycle. To allow for sufficient time to assess the new changes and their ramifications, we intend to propose changes to the wage index based on the newest CBSA changes in the FY 2015 proposed rule. We refer readers to the FY 2005 IPPS final rule (69 FR 49026 through 49034) for those interested in learning about the issues we may need to address next year in proposing to implement the latest OMB update for FY 2015, and some of the policy decisions that we may consider making.

C. Worksheet S-3 Wage Data for the Proposed FY 2014 Wage Index

The proposed FY 2014 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2010 (the FY 2013 wage indices were based on data from cost reporting periods beginning during FY 2009).

1. Included Categories of Costs

The proposed FY 2014 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 through 47318)); and
  • Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590)) and other deferred compensation costs.

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2013, the proposed wage index for FY 2014 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 proposed FY 2014 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 through 45398).

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 proposed FY 2014 wage index were obtained from Worksheet S-3 of the Medicare cost report for cost reporting periods beginning on or after October 1, 2009, and before October 1, 2010. For wage index purposes, we refer to cost reports during this period as the “FY 2010 cost report,” the “FY 2010 wage data,” or the “FY 2010 data.” Instructions for completing the wage index sections of Worksheet S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. No. 15-2), Chapter 36, Sections 3605.2 and 3605.3 for Form CMS-2552-96 and Chapter 40, Sections 4005.2 through 4005.4 for Form CMS-2552-10. Hospitals with cost reporting periods beginning on or after October 1, 2009 and before May 1, 2010 reported FY 2010 data on Form CMS-2552-96. Hospitals with cost reporting periods beginning on or after May 1, 2010 and before October 1, 2010 reported FY 2010 data on the new Form CMS-2552-10. The data file used to construct the wage index includes FY 2010 data submitted to us as of March 1, 2013. 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 proposed FY 2014 wage index, we identified and excluded 44 providers with data that were too aberrant to include in the proposed wage index, although if data elements for some of these providers are corrected, we intend to include some of these providers in the final FY 2014 wage index. We instructed fiscal intermediaries/MACs to complete their data verification of questionable data elements and to transmit any changes to the wage data no later than April 10, 2013. We intend that all unresolved data elements will be resolved by the date the FY 2014 final rule is issued. The revised data will be reflected in the FY 2014 IPPS final rule.

In constructing the proposed FY 2014 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2010, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397 through 45398). For this proposed rule, we removed 4 hospitals that converted to CAH status on or after February 14, 2012, the cut-off date for CAH exclusion from the FY 2013 wage index, and through and including February 14, 2013, the cut-off date for CAH exclusion from the FY 2014 wage index. After removing hospitals with aberrant data and hospitals that converted to CAH status, the proposed FY 2014 wage index is calculated based on 3,427 hospitals.

For the proposed FY 2014 wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located in the same manner that we allotted such hospitals' data in the FY 2013 wage index (77 FR 53366). Table 2 containing the proposed FY 2014 wage index associated with this proposed rule (available on the CMS Web site) includes separate wage data for the campuses of six multicampus hospitals (two additional multicampus hospitals have been added to the wage index calculation for FY 2014).

E. Method for Computing the Proposed FY 2014 Unadjusted Wage Index

The method used to compute the proposed FY 2014 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) and which we discussed and used for the FY 2013 final wage index without an occupational mix adjustment (77 FR 53366 through 53367).

As discussed in the FY 2012 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, 2009, through April 15, 2011, for private industry hospital workers from the BLS' Compensation and Working Conditions. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing any changes to the usage for FY 2014. 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
10/14/2009 11/15/2009 1.02682
11/14/2009 12/15/2009 1.02490
12/14/2009 01/15/2010 1.02299
01/14/2010 02/15/2010 1.02116
02/14/2010 03/15/2010 1.01941
03/14/2010 04/15/2010 1.01768
04/14/2010 05/15/2010 1.01591
05/14/2010 06/15/2010 1.01412
06/14/2010 07/15/2010 1.01235
07/14/2010 08/15/2010 1.01064
08/14/2010 09/15/2010 1.00898
09/14/2010 10/15/2010 1.00738
10/14/2010 11/15/2010 1.00584
11/14/2010 12/15/2010 1.00434
12/14/2010 01/15/2011 1.00288
01/14/2011 02/15/2011 1.00143
02/14/2011 03/15/2011 1.00000
03/14/2011 04/15/2011 0.99860

For example, the midpoint of a cost reporting period beginning January 1, 2010, and ending December 31, 2010, is June 30, 2010. An adjustment factor of 1.01235 would be applied to the wages of a hospital with such a cost reporting period.

Using the data as described above and in the FY 2013 IPPS/LTCH PPS final rule, the proposed FY 2014 national average hourly wage (unadjusted for occupational mix) is $38.2384. The proposed FY 2014 Puerto Rico overall average hourly wage (unadjusted for occupational mix) is $16.4873.

F. Proposed Occupational Mix Adjustment to the Proposed FY 2014 Wage Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mix adjustment is to control for the effect of hospitals' employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses, licensed practical nurses, nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying labor costs associated with these choices reflect hospital management decisions rather than geographic differences in the costs of labor.

1. Development of Data for the Proposed FY 2014 Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

As provided for under section 1886(d)(3)(E) of the Act, we collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program.

As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53367 through 53368), the occupational mix adjustment to the FY 2013 wage index was based on data collected on the 2010 Medicare Wage Index Occupational Mix Survey (Form CMS-10079 (2010)). For the FY 2014 wage index, we are proposing to again use occupational mix data collected on the 2010 survey to compute the occupational mix adjustment for FY 2014. We are including data for 3,188 hospitals that also have wage data included in the proposed FY 2014 wage index.

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

As stated earlier, section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. We used occupational mix data collected on the 2010 survey to compute the occupational mix adjustment for FY 2013 and the proposed FY 2014 wage index associated with this proposed rule. We also plan to use the 2010 survey data for the FY 2015 wage index. Therefore, a new measurement of occupational mix will be required for FY 2016.

On December 7, 2012, we published in the Federal Register a notice soliciting comments on the proposed 2013 Medicare Wage Index Occupational Mix Survey (77 FR 73032 through 73033). The new 2013 survey includes the same data elements and definitions as the 2010 survey and provides for the collection of hospital-specific wages and hours data for nursing employees for calendar year 2013 (that is, payroll periods ending between January 1, 2013 and December 31, 2013). The comment period for the notice ended on February 5, 2013. After considering the public comments that we received on the December 2012 notice, we made a few minor editorial changes and published the 2013 survey in the Federal Register on February 28, 2013 (78 FR 13679). This survey is pending OMB review, and is available on the CMS Web site at: http://www.cms.hhs.gov/PaperworkReductionActof1995 by clicking on “PRA Listings.” (The OMB control number for this collection of information is 0938-0907.) Hospitals are required to submit their completed 2013 surveys to their fiscal intermediaries/MACs by July 1, 2014. The preliminary, unaudited 2013 survey data will be released afterward, along with the FY 2012 Worksheet S-3 wage data, for the FY 2016 wage index review and correction process.

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2014

For FY 2014, we are proposing to calculate the occupational mix adjustment factor using the same methodology that we used for the FY 2012 and FY 2013 wage indices (76 FR 51582 through 51586, and 77 FR 53367 through 53368, respectively). As a result of applying this methodology, the proposed FY 2014 occupational mix adjusted national average hourly wage is $38.2094. The proposed FY 2014 occupational mix adjusted Puerto Rico-specific average hourly wage is $16.5300.

Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2014 wage index. For the FY 2010 survey, the response rate was 91.7 percent. In the proposed FY 2014 wage index established in this proposed rule, we applied proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586).

In the FY 2011 IPPS/LTCH PPS proposed rule and final rule (75 FR 23943 and 75 FR 50167, respectively), we stated that, in order to gain a better understanding of why some hospitals are not submitting the occupational mix data, we will require hospitals that do not submit occupational mix data to provide an explanation for not complying. This requirement was effective beginning with the 2010 occupational mix survey. We instructed fiscal intermediaries/MACs to continue gathering this information as part of the FY 2014 wage index desk review process. We will review these data for future analysis and consideration of potential penalties for noncompliant hospitals.

G. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2014 Occupational Mix Adjusted Wage Index

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

As discussed in section III.F. of this preamble, for FY 2014, we are proposing to apply the proposed occupational mix adjustment to 100 percent of the proposed FY 2014 wage index. We calculated the proposed occupational mix adjustment using data from the 2010 occupational mix survey data, using the methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 through 51586).

Using the occupational mix survey data and applying the occupational mix adjustment to 100 percent of the proposed FY 2014 wage index results in a proposed national average hourly wage of $38.2094 and a proposed Puerto-Rico specific average hourly wage of $16.5300. After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2010 Worksheet S-3, Parts II and III, cost report data for use in calculating the proposed FY 2014 wage index, we calculated the proposed FY 2014 wage index using the occupational mix survey data from 3,188 hospitals. Using the Worksheet S-3, Parts II and III, cost report data of 3,427 hospitals and occupational mix survey data from 3,188 hospitals represents a 93.0 percent survey response rate. The proposed FY 2014 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

Occupational mix nursing subcategory Proposed average hourly wage
National RN 37.432120148
National LPN and Surgical Technician 21.773706724
National Nurse Aide, Orderly, and Attendant 15.327583858
National Medical Assistant 17.213605923
National Nurse Category 31.811167234

The proposed national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $31.811167234. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2010 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) that the national percentage of hospital employees in the nurse category is 43.44 percent, and the national percentage of hospital employees in the all other occupations category is 56.56 percent. At the CBSA level, the percentage of hospital employees in the nurse category ranged from a low of 21.9 percent in one CBSA, to a high of 62.0 percent in another CBSA.

We compared the proposed FY 2014 occupational mix adjusted wage indices for each CBSA to the proposed unadjusted wage indices for each CBSA. As a result of applying the proposed occupational mix adjustment to the wage data, the proposed wage index values for 204 (52.2 percent) urban areas and 32 (66.7 percent) rural areas would increase. One hundred and eighteen (30.2 percent) urban areas would increase by 1 percent or more, and 4 (1.02 percent) urban areas would increase by 5 percent or more. Thirteen (27.1 percent) rural areas would increase by 1 percent or more, and no rural areas would increase by 5 percent or more. However, the proposed wage index values for 186 (47.6 percent) urban areas and 16 (33.3 percent) rural areas would decrease. Seventy-nine (20.2 percent) urban areas would decrease by 1 percent or more, and 1 urban area would decrease by 5 percent or more (0.26 percent). Seven (14.6 percent) rural areas would decrease by 1 percent or more, and no rural areas would decrease by 5 percent or more. The largest positive impacts are 6.61 percent for an urban area and 2.66 percent for a rural area. The largest negative impacts are 5.28 percent for an urban area and 3.17 percent for a rural area. One urban area's wage index, but no rural area wage indices, would remain unchanged by application of the proposed occupational mix adjustment. These results indicate that a larger percentage of rural areas (66.7 percent) would benefit from the proposed occupational mix adjustment than would urban areas (52.2 percent). However, approximately one-third (33.3 percent) of rural CBSAs would still experience a decrease in their proposed wage indices as a result of the proposed occupational mix adjustment.

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

a. Proposed Rural Floor

Section 4410(a) of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the “rural floor.” Section 3141 of Public Law 111-148 also requires that a national budget neutrality adjustment be applied in implementing the rural floor. In the proposed FY 2014 wage index associated with this proposed rule and available on the CMS Web site, we estimated that 434 hospitals would receive an increase in their FY 2014 proposed wage index due to the application of the rural floor.

b. Proposed Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the “imputed floor” policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that have argued that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. Since its initial implementation, we have extended the imputed floor policy three times, the last of which was adopted in the FY 2013 IPPS/LTCH PPS final rule and is set to expire on September 30, 2014 (we refer readers to the discussion in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 53369) and to our regulations at 42 CFR 412.64(h)(4)). There are currently two all-urban States, New Jersey and Rhode Island, that have a range of wage indices assigned to hospitals in the State, including through reclassification or redesignation (we refer readers to discussions of geographic reclassifications and redesignations in section III.H. of this preamble). However, as we explain below, the method as of FY 2012 for computing the imputed floor, which we will refer to as the original methodology, benefitted only New Jersey, and not Rhode Island.

In computing the imputed floor for an all-urban State under the original methodology, we calculated the ratio of the lowest-to-highest CBSA wage index for each all-urban State (that is, New Jersey and Rhode Island) as well as the average of the ratios of lowest-to-highest CBSA wage indices of those all-urban States. We compared the State's own ratio to the average ratio for all-urban States and whichever is higher was multiplied by the highest CBSA wage index value in the State—the product of which established the imputed floor for the State. Rhode Island has only one CBSA (Providence-New Bedford-Fall River, RI-MA); therefore, Rhode Island's own ratio equals 1.0, and its imputed floor was equal to its original CBSA wage index value. Conversely, New Jersey has 10 CBSAs. Because the average ratio of New Jersey and Rhode Island was higher than New Jersey's own ratio, the original methodology provided a benefit for New Jersey, but not for Rhode Island.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 53369), for the FY 2013 wage index, the final year of the extension of the imputed floor policy under § 412.64(h)(4), we did not make any changes to the original methodology and we finalized a proposed alternative, temporary methodology for computing the imputed floor wage index to address the concern that the then-current imputed floor methodology guaranteed a benefit for one all-urban State with multiple wage indices but could not benefit the other. The alternative methodology for calculating the imputed floor was established using data from the application of the rural floor policy for FY 2013. We first determined the average percentage difference between the post-reclassified, pre-floor area wage index and the post-reclassified, rural floor wage index (without rural floor budget neutrality applied) for all CBSAs receiving the rural floor. (Table 4D associated with the FY 2013 rule, which is available on the CMS Web site, included the CBSAs receiving a State's rural floor wage index.) The lowest post-reclassified wage index assigned to a hospital in an all-urban State having a range of such values would then be increased by this factor, the result of which established the State's alternative imputed floor. We refer to this methodology as the alternative methodology. We also adopted a policy that, for discharges on or after October 1, 2012, and before October 1, 2013, the minimum wage index value for the State is the higher of the value determined under the original methodology or the value computed using the alternative methodology. We amended § 412.64(h)(4) of the regulations to add new paragraph (vi) to incorporate the finalized alternative methodology policies, and to make conforming references in paragraph (v).

We stated that we intended to further evaluate the need, applicability, and methodology for the imputed floor before the September 30, 2013 expiration of the imputed floor policy and address these issues in the FY 2014 proposed rule. For FY 2014, we are proposing to extend the imputed floor policy (both the original methodology and the alternative methodology) for one additional year, through September 30, 2014, while we continue to explore potential wage index reforms. We are proposing to revise the regulations at § 412.64(h)(4) to reflect the proposed 1-year extension. We are inviting public comments regarding the 1-year extension of the imputed floor.

The wage index and impact tables associated with this FY 2014 proposed rule that are available on the CMS Web site include the application of the proposed imputed floor policy at § 412.64(h)(4) and a proposed national budget neutrality adjustment for the proposed rural floor (which includes the proposed imputed floor). There are 35 hospitals in New Jersey that would receive an increase in their FY 2014 wage index due to the imputed floor policy. The proposed wage index and impact tables for this proposed rule also reflect the application of the alternative methodology for computing the imputed floor, which will benefit four hospitals in Rhode Island.

c. Proposed Frontier Floor

Section 10324 of Public Law 111-148 requires that hospitals in frontier States cannot be assigned a wage index of less than 1.0000 (we refer readers to regulations at 42 CFR 412.64(m) and to a discussion of the implementation of this provision in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161). Forty-six hospitals would receive the frontier floor value of 1.0000 for their proposed FY 2014 wage index in this proposed rule. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. Although Nevada is also defined as a frontier State, its proposed FY 2014 rural floor value of 1.1503 is greater than 1.0000, and therefore no Nevada hospitals would receive a frontier floor value for their proposed FY 2014 wage index.

The areas affected by the proposed rural, imputed, and frontier floor policies for the proposed FY 2014 wage index are identified in Table 4D associated with this proposed rule and available on the CMS Web site.

3. Proposed FY 2014 Wage Index Tables

The proposed wage index values for FY 2014 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act), included in Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the proposed occupational mix adjustment, geographic reclassification or redesignation as discussed in section III.H. of the preamble of this proposed rule, and the application of the rural, imputed, and frontier State floors as discussed in section III.G.2. of the preamble of this proposed rule.

Tables 3A and 3B, available on the CMS Web site, list the 3-year average hourly wage for each labor market area before the redesignation or reclassification of hospitals based on FYs 2008, 2009, and 2010 cost reporting periods. Table 3A lists these data for urban areas, and Table 3B lists these data for rural areas. In addition, Table 2, which is available on the CMS Web site, includes the adjusted average hourly wage for each hospital from the FY 2008 and FY 2009 cost reporting periods, as well as the FY 2010 period used to calculate the proposed FY 2014 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described previously) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period. The proposed average hourly wages in Tables 2, 3A, and 3B, which are available on the CMS Web site, include the proposed occupational mix adjustment. The proposed wage index values in Tables 4A, 4B, 4C, and 4D also include the proposed national rural floor budget neutrality adjustment (which includes the proposed imputed floor). The proposed wage index values in Table 2 also include the proposed out-migration adjustment for eligible hospitals.

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

1. General Policies and Effects of Reclassification and Redesignation

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 and 39875) regarding how the MGCRB defines mileage for purposes of the proximity requirements.) The general policies for reclassifications and redesignations that we are proposing for FY 2014, and the policies for the effects of hospitals' reclassifications and redesignations on the wage index, are the same as those discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). Also, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under 42 CFR 412.103. Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification pursuant to 42 CFR 412.103.

2. FY 2014 MGCRB Reclassifications

a. FY 2014 Reclassification Requirements and Approvals

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in regulations under 42 CFR 412.230 through 412.280.

At the time this proposed rule was developed, the MGCRB had completed its review of FY 2014 reclassification requests. Based on such reviews, there were 332 hospitals approved for wage index reclassifications by the MGCRB for FY 2014. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2014, hospitals reclassified during FY 2012 or FY 2013 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications. There were 249 hospitals approved for wage index reclassifications in FY 2012, and 192 hospitals approved for wage index reclassifications in FY 2013. Of all the hospitals approved for reclassification for FY 2012, FY 2013, and FY 2014, based upon the review at the time of this proposed rule, 773 hospitals are in a reclassification status for FY 2014.

Under the regulations at 42 CFR 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of a proposed rule. For information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional discussion on withdrawals and terminations, and clarifications regarding reinstating reclassifications and “fallback” reclassifications, were included in the FY 2008 IPPS final rule (72 FR 47333).

Changes to the wage index that result from withdrawals of requests for reclassification, terminations, wage index corrections, appeals, and the Administrator's review process for FY 2014 will be incorporated into the wage index values published in the FY 2014 IPPS/LTCH PPS final rule. These changes affect not only the wage index value for specific geographic areas, but also the wage index value redesignated/reclassified hospitals receive; that is, whether they receive the wage index that includes the data for both the hospitals already in the area and the redesignated/reclassified hospitals. Further, the wage index value for the area from which the hospitals are redesignated/reclassified may be affected.

b. Applications for Reclassifications for FY 2015

Applications for FY 2015 reclassifications are due to the MGCRB by September 3, 2013 (the first working day of September 2013). We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under 42 CFR 412.273(d). As mentioned in section III.B. of the preamble of this proposed rule, although OMB has issued revisions on February 28, 2013 to its area delineations, we are not proposing to adopt those revisions for the FY 2014 wage index, and we will not be adopting the revisions before the September 3, 2013 deadline for applications for the FY 2015 wage index. Therefore, hospitals must apply for reclassifications based on the delineations we are using for FY 2014. Applications and other information about MGCRB reclassifications may be obtained, beginning in mid-July 2013, via the Internet on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html?redirect=/MGCRB/02_instructions_and_applications.asp, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

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

Section 1886(d)(8)(B) of the Act requires us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA if certain criteria are met. Effective beginning FY 2005, we use OMB's 2000 CBSA standards and the Census 2000 data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area. (We note that, as mentioned in section III.B. of the preamble of this proposed rule, although OMB has issued revisions on February 28, 2013, to its area delineations based on 2010 census data, we are not proposing to adopt these revisions for the FY 2014 wage index.) Hospitals located in these counties have been known as “Lugar” hospitals and the counties themselves are often referred to as “Lugar” counties. The FY 2014 chart with the listing of the rural counties containing the hospitals designated as urban under section 1886(d)(8)(B) of the Act is available via the Internet on the CMS Web site.

4. Hospitals Redesignated Under Section 1886(d)(8)(B) of the Act Seeking Reclassification by the MGCRB

As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are also eligible to be reclassified to a different area by the MGCRB. Using Table 4C associated with this proposed rule (which is available via the Internet on the CMS Web site), affected hospitals may compare the reclassified wage index for the labor market area into which they would be reclassified by the MGCRB to the reclassified wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB reclassification within 45 days of the publication of this FY 2014 proposed rule. (We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51598 through 51599) for the procedural rules and requirements for a hospital that is redesignated under section 1886(d)(8)(B) of the Act and seeking reclassification under the MGCRB, as well as our policy of measuring the urban area, exclusive of the Lugar County, for purposes of meeting proximity requirements.) We treat New England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47337 through 47338) for a discussion of this policy.)

5. Waiving Lugar Redesignation for the Out-Migration Adjustment

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS, including being considered rural for the DSH payment adjustment, effective for the fiscal year in which the hospital receives the out-migration adjustment. (We refer readers to a discussion of DSH payment adjustment under section V.E. of the preamble of this proposed rule.)

In addition, we adopted a minor procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within the requisite number of days from the publication of the proposed rule [24] ) to automatically waive its urban status for the 3-year period for which its out-migration adjustment is effective. That is, such a Lugar hospital would no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the adjustment. Thus, under the procedural change, a Lugar hospital that requests to waive its urban status in order to receive the rural wage index in addition to the out-migration adjustment would be deemed to have accepted the out-migration adjustment and agrees to be treated as rural for the duration of its 3-year eligibility period, unless, prior to its second or third year of eligibility, the hospital explicitly notifies CMS in writing, within the required period (generally 45 days from the publication of the proposed rule), that it instead elects to return to its deemed urban status and no longer wishes to accept the out-migration adjustment.

We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600) for a detailed discussion of the policy and process for waiving Lugar status for the out-migration adjustment.

I. Proposed FY 2014 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with the broad discretion granted to the Secretary under section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. The proposed FY 2014 out-migration adjustment is based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment. (We refer readers to a full discussion of the adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602).) Table 4J, which is available via the Internet on the CMS Web site, lists the proposed out-migration adjustments for the proposed FY 2014 wage index.

J. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the proposed FY 2014 wage index were made available on October 3, 2012, through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html.

In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional public use file on our Web site that reflects the actual data that are used in computing the proposed wage index. The release of this new file does not alter the current wage index process or schedule. We notify the hospital community of the availability of these data as we do with the current public use wage data files through our Hospital Open Door forum. We encourage hospitals to sign up for automatic notifications of information about hospital issues and the scheduling of the Hospital Open Door forums at the CMS Web site at: http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.

In a memorandum dated October 19, 2012, we instructed all fiscal intermediaries/MACs to inform the IPPS hospitals they service of the availability of the wage index data files and the process and timeframe for requesting revisions (including the specific deadlines listed below). We also instructed the fiscal intermediaries/MACs to advise hospitals that these data were also made available directly through their representative hospital organizations.

If a hospital wished to request a change to its data as shown in the October 3, 2012 wage and occupational mix data files, the hospital was to submit corrections along with complete, detailed supporting documentation to its fiscal intermediary/MAC by December 10, 2012. (We note that this date was originally December 3, 2012. However, in a memorandum dated October 25, 2012, we instructed all fiscal intermediaries/MACs to inform the IPPS hospitals they service that we extended the deadline to December 10, 2012.) Hospitals were notified of this deadline and of all other deadlines and requirements, including the requirement to review and verify their data as posted in the preliminary wage index data files on the Internet, through the October 19, 2012 memorandum referenced above.

In the October 19, 2012 memorandum, we also specified that a hospital requesting revisions to its occupational mix survey data was to copy its record(s) from the CY 2010 occupational mix preliminary files posted to the CMS Web site in October, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete documentation to its fiscal intermediary/MAC no later than December 10, 2012.

The fiscal intermediaries/MACs notified the hospitals by mid-February 2013 of any changes to the wage index data as a result of the desk reviews and the resolution of the hospitals' early-December revision requests. The fiscal intermediaries/MACs also submitted the revised data to CMS by mid-February 2013. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 21, 2013. Hospitals had until March 4, 2013, to submit requests to the fiscal intermediaries/MACs for reconsideration of adjustments made by the fiscal intermediaries/MACs as a result of the desk review, and to correct errors due to CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the wage index data. Hospitals also were required to submit sufficient documentation to support their requests.

After reviewing requested changes submitted by hospitals, fiscal intermediaries/MACs were required to transmit any additional revisions resulting from the hospitals' reconsideration requests by April 10, 2013. The deadline for a hospital to request CMS intervention in cases where the hospital disagreed with the fiscal intermediary's (or, if applicable, the MAC's) policy interpretations was April 17, 2013.

Hospitals should examine Table 2, which is listed in section VI. of the Addendum to this proposed rule and available via the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. Table 2 contains each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2010 data used to construct the proposed FY 2014 wage index. We note that the hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data that were transmitted to CMS by March 4, 2013.

We will release the final wage index data public use files in early May 2013 on the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. The May 2013 public use files are made available solely for the limited purpose of identifying any potential errors made by CMS or the fiscal intermediary/MAC in the entry of the final wage index data that resulted from the correction process described above (revisions submitted to CMS by the fiscal intermediaries/MACs by April 10, 2013). If, after reviewing the May 2013 final public use files, a hospital believes that its wage or occupational mix data are incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital should send a letter to both its fiscal intermediary/MAC and CMS that outlines why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). CMS and the fiscal intermediaries (or, if applicable, the MACs) must receive these requests no later than June 3, 2013.

Each request also must be sent to the fiscal intermediary/MAC. The fiscal intermediary/MAC will review requests upon receipt and contact CMS immediately to discuss any findings.

After the release of the May 2013 wage index data files, changes to the wage and occupational mix data will only be made in those very limited situations involving an error by the fiscal intermediary/MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the fiscal intermediary/MAC nor CMS will approve the following types of requests:

  • Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by fiscal intermediaries or the MACs on or before April 10, 2013.
  • Requests for correction of errors that were not, but could have been, identified during the hospital's review of the February 21, 2013 wage index public use files.
  • Requests to revisit factual determinations or policy interpretations made by the fiscal intermediary or the MAC or CMS during the wage index data correction process.

Verified corrections to the wage index data received timely by CMS and the fiscal intermediaries or the MACs (that is, by June 3, 2013) will be incorporated into the final wage index in the FY 2014 IPPS/LTCH PPS final rule, which will be effective October 1, 2013.

We created the processes described above to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2014 payment rates. Accordingly, hospitals that do not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the fiscal intermediary's (or, if applicable, the MAC's) decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the Provider Reimbursement Review Board, the failure of CMS to make a requested data revision. We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections.

Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the fiscal intermediary's (or, if applicable, the MAC's) attention. Moreover, because hospitals have access to the final wage index data by early May 2013, they have the opportunity to detect any data entry or tabulation errors made by the fiscal intermediary or the MAC or CMS before the development and publication of the final FY 2014 wage index by August 2013, and the implementation of the FY 2014 wage index on October 1, 2013. If hospitals avail themselves of the opportunities afforded to provide and make corrections to the wage and occupational mix data, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after June 3, 2013, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with 42 CFR 412.64(k)(1) of our existing regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) The fiscal intermediary or the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, “before the beginning of the fiscal year” means by the June 3 deadline for making corrections to the wage data for the following fiscal year's wage index. This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the fiscal intermediaries or the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when CMS determines all of the following: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the fiscal intermediary (or, if applicable, the MAC) and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 3, 2013 deadline for the FY 2014 wage index); and (3) CMS agreed before October 1 that the fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.

In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the June 3, 2013 deadline), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; and it can only be used for the current Federal fiscal year. In situations where our policies would allow midyear corrections other than those specified in 42 CFR 412.64(k)(2)(ii), we continue to believe that it is appropriate to make prospective-only corrections to the wage index.

We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a judicial decision reverses a CMS denial of a hospital's wage index data revision request.

K. Labor-Related Share for the Proposed FY 2014 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related: “The Secretary shall adjust the proportion, (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates….” We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this “would result in lower payments to a hospital than would otherwise be made.” However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate “from time to time” the proportion of hospitals' costs that are “attributable to wages and wage-related costs.” Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share results in a higher payment.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 43857), we rebased and revised the IPPS market basket and the labor-related share, using FY 2006 as the base year. The labor-related share for FY 2010 through FY 2013 is 68.8 percent.

For FY 2014, as described in section IV. of the preamble of this proposed rule, we are proposing to rebase and revise the IPPS market basket using FY 2010 as the base year. Using the proposed FY 2010-based IPPS market basket, we also are proposing to recalculate the labor-related share for discharges occurring on or after October 1, 2013. As discussed in Appendix A of this proposed rule, we are proposing this revised and rebased labor-related share in a budget neutral manner. However, consistent with section 1886(d)(3)(E) of the Act, we are not taking into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. As described in section IV. of the preamble of this proposed rule, we are proposing to include in the labor-related share the national average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administrative and facilities support services, and all other labor-related services as measured in the proposed IPPS market basket, as based on FY 2010. Therefore, for FY 2014, we are proposing to use a labor-related share of 69.6 percent for discharges occurring on or after October 1, 2013. Tables 1A and 1B, which are published in section VI. of the Addendum to this proposed rule and are available via the Internet, reflect this proposed labor-related share. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this employment “would result in lower payments to a hospital than would otherwise be made.” Therefore, for FY 2014, for all IPPS hospitals whose wage indices are less than 1.0000, we are proposing to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals whose wage indices are greater than 1.0000, for FY 2014, we are proposing to apply the wage index to a labor-related share of 69.6 percent of the national standardized amount. We note that, for Puerto Rico hospitals, the national labor-related share is 62 percent because the national wage index for all Puerto Rico hospitals is less than 1.0.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 43856), we also rebased and revised the labor-related share for the Puerto Rico-specific standardized amounts using FY 2006 as a base year. We finalized a labor-related share for the Puerto Rico-specific standardized amounts for FY 2010 through FY 2013 of 62.1 percent. As described in section IV. of the preamble of this proposed rule, for FY 2014, we also are proposing to rebase and revise the labor-related share for the Puerto Rico-specific standardized amounts using FY 2010 as a base year. For FY 2014, we are proposing a labor-related share for the Puerto Rico-specific standardized amounts of 63.2 percent for discharges occurring on or after October 1, 2013. Consistent with our methodology for determining the national labor-related share, we added the Puerto Rico-specific relative weights for wages and salaries, employee benefits, contract labor, with the national proportion of costs for the labor-related portion of professional fees, administrative and facilities support services, and all other labor-related services to determine the labor-related share. Puerto Rico hospitals are paid based on 75 percent of the national standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. For FY 2014, we are proposing that the labor-related share of a hospital's Puerto Rico-specific rate will be either the Puerto Rico-specific labor-related share of 63.2 percent or 62 percent, depending on which results in higher payments to the hospital. If the hospital has a Puerto Rico-specific wage index of greater than 1.0 for FY 2014, we will set the hospital's rates using a labor-related share of 63.2 percent for the 25 percent portion of the hospital's payment determined by the Puerto Rico standardized amounts because this amount will result in higher payments. Conversely, a hospital with a Puerto Rico-specific wage index of less than 1.0 for FY 2014 will be paid using the Puerto Rico-specific labor-related share of 62 percent of the Puerto Rico-specific rates because the lower labor-related share will result in higher payments. The proposed Puerto Rico labor-related share of 63.2 percent for FY 2014 is reflected in Table 1C, which is published in section VI. of the Addendum to this proposed rule and available via the Internet.

IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals Back to Top

A. Background

Effective for cost reporting periods beginning on or after July 1, 1979, we developed and adopted a hospital input price index (that is, the hospital market basket for operating costs). Although “market basket” technically describes the mix of goods and services used in providing hospital care, this term is also commonly used to denote the input price index (that is, cost category weights and price proxies combined) derived from that market basket. Accordingly, the term “market basket” as used in this document refers to the hospital input price index.

The percentage change in the market basket reflects the average change in the price of goods and services hospitals purchase in order to provide inpatient care. We first used the market basket to adjust hospital cost limits by an amount that reflected the average increase in the prices of the goods and services used to provide hospital inpatient care. This approach linked the increase in the cost limits to the efficient utilization of resources.

Since the inception of the IPPS, the projected change in the hospital market basket has been the integral component of the update factor by which the prospective payment rates are updated every year. An explanation of the hospital market basket used to develop the prospective payment rates was published in the Federal Register on September 1, 1983 (48 FR 39764). We also refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43843) in which we discussed the most recent previous rebasing of the hospital input price index.

The hospital market basket is a fixed-weight, Laspeyres-type price index. A Laspeyres-type price index measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (that is, intensity) purchased over time are not measured.

The index itself is constructed in three steps. First, a base period is selected (in this proposed rule, we are proposing to use FY 2010 as the base period) and total base period expenditures are estimated for a set of mutually exclusive and exhaustive spending categories, with the proportion of total costs that each category represents being calculated. These proportions are called “cost weights” or “expenditure weights.” Second, each expenditure category is matched to an appropriate price or wage variable, referred to as a “price proxy.” In almost every instance, these price proxies are derived from publicly available statistical series that are published on a consistent schedule (preferably at least on a quarterly basis). Finally, the expenditure weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the expenditure weights multiplied by their price index levels) for all cost categories yields the composite index level of the market basket in a given period. Repeating this step for other periods produces a series of market basket levels over time. Dividing an index level for a given period by an index level for an earlier period produces a rate of growth in the input price index over that timeframe.

As noted above, the market basket is described as a fixed-weight index because it represents the change in price over time of a constant mix (quantity and intensity) of goods and services needed to provide hospital services. The effects on total expenditures resulting from changes in the mix of goods and services purchased subsequent to the base period are not measured. For example, a hospital hiring more nurses to accommodate the needs of patients would increase the volume of goods and services purchased by the hospital, but would not be factored into the price change measured by a fixed-weight hospital market basket. Only when the index is rebased would changes in the quantity and intensity be captured, with those changes being reflected in the cost weights. Therefore, we rebase the market basket periodically so that the cost weights reflect recent changes in the mix of goods and services that hospitals purchase (hospital inputs) to furnish inpatient care between base periods. We last rebased the hospital market basket cost weights effective for FY 2010 (74 FR 43843), with FY 2006 data used as the base period for the construction of the market basket cost weights.

B. Rebasing and Revising the IPPS Market Basket

The terms “rebasing” and “revising,” while often used interchangeably, actually denote different activities. “Rebasing” means moving the base year for the structure of costs of an input price index (for example, in this proposed rule, we are proposing to shift the base year cost structure for the IPPS hospital index from FY 2006 to FY 2010). “Revising” means changing data sources, or price proxies, used in the input price index. As published in the FY 2006 IPPS final rule (70 FR 47387), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket. We established a rebasing frequency of every 4 years and, therefore, for the FY 2014 IPPS update, we are proposing to rebase and revise the IPPS market basket. We are inviting public comments on our proposed methodology discussed below.

1. Development of Cost Categories and Weights

a. Medicare Cost Reports

The major source of expenditure data for developing the rebased and revised hospital market basket cost weights is the FY 2010 Medicare cost reports. These FY 2010 Medicare cost reports are for cost reporting periods beginning on and after October 1, 2009 and before October 1, 2010. We are proposing to use FY 2010 as the base year because we believe that the FY 2010 Medicare cost reports represent the most recent, complete set of Medicare cost report data available for IPPS hospitals. As was done in previous rebasings, these cost reports are from IPPS hospitals only (hospitals excluded from the IPPS and CAHs are not included) and are based on IPPS Medicare-allowable operating costs. IPPS Medicare-allowable operating costs are costs that are eligible to be paid for under the IPPS. For example, the IPPS market basket excludes home health agency (HHA) costs as these costs would be paid under the HHA PPS and, therefore, these costs are not IPPS Medicare-allowable costs.

We are proposing to obtain seven major expenditures or cost categories for the FY 2010 IPPS market basket from the Medicare cost reports—the same as in the FY 2006-based hospital market basket: wages and salaries, employee benefits, contract labor, pharmaceuticals, professional liability insurance (malpractice), blood and blood products, and a residual “all other.” The proposed cost weights that were obtained directly from the Medicare cost reports are reported in Table IV01. We are proposing to then supplement these Medicare cost report cost weights with information obtained from other data sources to derive the proposed IPPS market basket cost weights.

Table IV01—Major Cost Categories and Their Respective Cost Weights as Calculated Directly From the Medicare Cost Reports Back to Top
Major cost categories FY 2006-based market basket Proposed FY 2010-based market basket
Wages and salaries 45.156 45.819
Employee benefits 11.873 12.713
Contract labor 2.598 1.806
Professional Liability Insurance (Malpractice) 1.661 1.330
Pharmaceuticals 5.380 5.402
Blood and blood products 1.078 1.069
All other 32.254 31.861

From FY 2006 to FY 2010, the wages and salaries and employee benefits cost weights as calculated directly from the Medicare cost reports increased by approximately 0.7 and 0.8 percentage point, respectively, while the contract labor cost weight decreased by 0.8 percentage point. As we did for the FY 2006-based IPPS market basket (74 FR 43847), we are proposing to allocate contract labor costs to the wages and salaries and employee benefits cost weights based on their relative proportions for employed labor under the assumption that contract labor costs are comprised of both wages and salaries and employee benefits. The contract labor allocation proportion for wages and salaries is equal to the wages and salaries cost weight as a percent of the sum of the wages and salaries cost weight and the employee benefits cost weight. Using the FY 2010 Medicare cost report data, this percentage is 78.3 percent; therefore, we are proposing to allocate approximately 78.3 percent of the contract labor cost weight to the wages and salaries cost weight. Table IV02 shows the wages and salaries and employee benefit cost weights after contract labor allocation for both the FY 2006-based IPPS market basket and the proposed FY 2010-based IPPS market basket.

Table IV02—Wages and Salaries and Employee Benefits Cost Weights After Contract Labor Allocation Back to Top
Major cost categories FY 2006-based market basket Proposed FY 2010-based market basket
Wages and salaries 47.213 47.233
Employee benefits 12.414 13.105

After the allocation of contract labor, the proposed FY 2010-based wages and salaries cost weight is relatively similar to the FY 2006-based wages and salaries cost weight while the proposed FY 2010-based employee benefits cost weight increased 0.7 percentage point. This is primarily a result of an increase in benefits costs relative to wages and salaries costs from the Medicare cost report data for employed workers; in 2006, the ratio of the employee benefits cost weight to the wages and salaries cost weight was 26.3 percent while in 2010, this ratio increased to 27.8 percent.

b. Other Data Sources

In addition to the data from the Medicare cost reports, the other data source we are proposing to use to develop the FY 2010-based IPPS market basket cost weights is the 2002 Benchmark Input-Output (I-O) Tables created by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. We are proposing to use the 2002 BEA Benchmark I-O data to disaggregate the “all other” (residual) cost category (31.861 percent) into more detailed hospital expenditure category shares. The BEA Benchmark I-O accounts provide the most detailed information on the goods and services purchased by an industry, which allows for a more detailed disaggregation of expenses in the market basket for which we can then proxy the appropriate price inflation.

The BEA Benchmark I-O data are generally scheduled for publication every 5 years. The most recent data available are for 2002. BEA also produces Annual I-O estimates; however, the 2002 Benchmark I-O data represent a much more comprehensive and detailed set of data that are derived from the 2002 Economic Census. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845), we used the 2002 Benchmark I-O data (aged to FY 2006) for the FY 2006-based IPPS market basket, to be effective for FY 2010. Because BEA has not yet released new Benchmark I-O data, and we believe the data to be comprehensive and complete as indicated above, we are currently proposing to use the 2002 Benchmark I-O data in the FY 2010-based IPPS market basket.

Therefore, instead of using the less detailed, less accurate Annual I-O data, we are proposing to age the 2002 Benchmark I-O data forward to FY 2010. The methodology we are proposing to use to age the data forward involves applying the annual price changes from the respective price proxies to the appropriate cost categories. We repeat this practice for each year. We also are proposing that, if more recent BEA benchmark I-O data for 2007 is released between the proposed and final rule with sufficient time to incorporate such data into the final rule, we would incorporate these data into the FY 2010-based IPPS market basket for the final rule. The 2007 BEA I-O data is expected to be released in the summer of 2013.

The “all other” cost category expenditure shares are determined as being equal to each category's proportion to total “all other” expenditures based on the aged 2002 Benchmark I-O data. For instance, if the cost for telephone services represented 10 percent of the sum of the “all other” Benchmark I-O hospital expenditures, telephone services would represent 10 percent of the “all other” cost category of the proposed IPPS market basket.

Following publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, and in an effort to provide greater transparency, we posted on the CMS market basket Web page at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html an illustrative spreadsheet that shows how the detailed cost weights in the proposed rule (that is, those not calculated using Medicare cost reports) were determined using the 2002 Benchmark I-O data. As stated above, we are proposing to use the 2007 Benchmark BEA I-O data if available before the final rule with sufficient time to incorporate such data into the final rule. We would use the same methodology as described above in determining the detailed weights in the “all other” cost weight.

2. Cost Category Computation

As stated previously, for the proposed FY 2010-based market basket we are proposing to use data from the Medicare cost reports to derive seven major cost categories. We are proposing the same detailed cost categories as the FY 2006-based IPPS market basket. Also, we are not proposing to change our definition of the labor-related share. As discussed in more detail below and similar to the previous rebasing, we classify a cost category as labor-related and include it in the labor-related share if the cost category is defined as being labor-intensive and its cost varies with the local labor market.

3. Selection of Price Proxies

After computing the FY 2010 cost weights for the proposed IPPS market basket, it was necessary to select appropriate wage and price proxies to reflect the rate of price change for each expenditure category. We are proposing to use the same price proxies that were used in the FY 2006-based IPPS market basket. A discussion of our rationale for selecting these price proxies can be found in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845).

With the exception of the proxy for professional liability insurance (PLI), all the proxies we are proposing are based on Bureau of Labor Statistics (BLS) data and are grouped into one of the following BLS categories:

  • Producer Price Indexes—Producer Price Indexes (PPIs) measure price changes for goods sold in markets other than the retail market. PPIs are preferable price proxies for goods and services that hospitals purchase as inputs because PPIs better reflect the actual price changes encountered by hospitals. For example, we are proposing to use a PPI for prescription drugs, rather than the Consumer Price Index (CPI) for prescription drugs, because hospitals generally purchase drugs directly from a wholesaler. The PPIs that we are proposing to use measure price changes at the final stage of production.
  • Consumer Price Indexes—Consumer Price Indexes (CPIs) measure change in the prices of final goods and services bought by the typical consumer. Because they may not represent the price faced by a producer, we are proposing to use CPIs only if an appropriate PPI is not available, or if the expenditures are more like those faced by retail consumers in general rather than by purchasers of goods at the wholesale level. For example, the CPI for food purchased away from home is proposed to be used as a proxy for contracted food services.
  • Employment Cost Indexes—Employment Cost Indexes (ECIs) measure the rate of change in employee wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and strictly measure the change in wage rates and employee benefits per hour. Appropriately, they are not affected by shifts in employment mix.

We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Timeliness implies that the proxy is published regularly, preferably at least once a quarter. Availability means that the proxy is publicly available. Finally, relevance means that the proxy is applicable and representative of the cost category weight to which it is applied. We believe the proposed PPIs, CPIs, and ECIs selected meet these criteria.

Table IV03 below sets forth the proposed FY 2010-based IPPS market basket, including the cost categories and their respective weights and price proxies. For comparison purposes, the corresponding FY 2006-based IPPS market basket cost weights also are listed. A summary outlining the choice of the various proxies follows the table.

Table IV03—Proposed FY 2010-Based IPPS Hospital Market Basket Cost Categories, Cost Weights, and Price Proxies Compared to FY 2006-Based IPPS Market Basket Cost Weights Back to Top
Cost categories FY 2006-based hospital market basket cost weights Proposed FY 2010-based hospital market basket cost weights Proposed FY 2010-based hospital market basket price proxies
Note: Detail may not add to total due to rounding.
1Contract labor is distributed to wages and salaries and employee benefits based on the share of total compensation that each category represents.
2To proxy the “chemicals” cost category, we used a blended PPI composed of the PPI for industrial gas manufacturing, the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail about this proxy, see the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845).
3We note that this cost category in the FY 2006-based IPPS market basket was “Administrative and Business Support Services.” We changed the name slightly to be more clear what type of costs are included in this cost category, but we did not change the classification of which costs are included in the category.
1. Compensation 59.627 60.338
A. Wages and Salaries1 47.213 47.233 ECI for Wages and Salaries, Civilian Hospital Workers.
B. Employee Benefits1 12.414 13.105 ECI for Benefits, Civilian Hospital Workers.
2. Utilities 2.180 2.246
A. Fuel, Oil, and Gasoline 0.418 0.447 PPI for Petroleum Refineries.
B. Electricity 1.645 1.666 PPI for Commercial Electric Power.
C. Water and Sewage 0.117 0.133 CPI-U for Water & Sewerage Maintenance.
3. Professional Liability Insurance 1.661 1.330 CMS Professional Liability Insurance Premium Index.
4. All Other 36.533 36.086
A. All Other Products 19.473 19.458
(1.) Pharmaceuticals 5.380 5.402 PPI for Pharmaceuticals for Human Use, Prescription.
(2.) Food: Direct Purchases 3.982 4.206 PPI for Processed Foods & Feeds.
(3.) Food: Contract Services 0.575 0.578 CPI-U for Food Away From Home.
(4.) Chemicals2 1.538 1.529 Blend of Chemical PPIs.
(5.) Blood and Blood Products 1.078 1.069 PPI for Blood and Organ Banks.
(6.) Medical Instruments 2.762 2.577 PPI for Medical, Surgical, and Personal Aid Devices.
(7.) Rubber and Plastics 1.659 1.637 PPI for Rubber & Plastic Products.
(8.) Paper and Printing Products 1.492 1.507 PPI for Converted Paper & Paperboard Products.
(9.) Apparel 0.325 0.299 PPI for Apparel.
(10.) Machinery and Equipment 0.163 0.151 PPI for Machinery & Equipment.
(11.) Miscellaneous Products 0.519 0.503 PPI for Finished Goods less Food and Energy.
B. Labor-related Services 9.175 9.249
(1.) Professional Fees: Labor-related 5.356 5.500 ECI for Compensation for Professional and Related Occupations.
(2.) Administrative and Facilities Support Services3 0.626 0.619 ECI for Compensation for Office and Administrative Services.
(3.) All Other: Labor-Related Services 3.193 3.130 ECI for Compensation for Private Service Occupations.
C. Nonlabor-Related Services 7.885 7.379
(1.) Professional Fees: Nonlabor-Related 4.074 3.687 ECI for Compensation for Professional and Related Occupations.
(2.) Financial Services 1.281 1.239 ECI for Compensation for Financial Activities.
(3.) Telephone Services 0.627 0.597 CPI-U for Telephone Services.
(4.) Postage 0.963 0.956 CPI-U for Postage.
(5.) All Other: Nonlabor-Related Services 0.940 0.900 CPI-U for All Items less Food and Energy.
Total 100.000 100.000  

As stated above, we are proposing to use the same price proxies used in the FY 2006-based IPPS market basket. A rationale for selecting these price proxies can be found in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845). The price proxies we are proposing were selected to most closely match the costs included in each of the cost categories of the proposed FY 2010-based IPPS market basket. As discussed above, we are proposing that, if the 2007 Benchmark I-O data become available between the proposed and final rule with sufficient time to incorporate such data into the final rule, we would incorporate this data into the FY 2010-based IPPS market basket for the final rule. As a result, to the extent the incorporation of the 2007 Benchmark I-O data results in a different composition of costs included in a particular cost category, we are proposing that we may choose to revise that specific price proxy to ensure that the costs included in each detailed cost category are best aligned with the associated price proxy. Below is a list of the price proxies we are proposing for the FY 2010-based IPPS market basket.

a. Wages and Salaries

We are proposing to use the ECI for Wages and Salaries for Hospital Workers (All Civilian) (BLS series code CIU1026220000000I) to measure the price growth of this cost category.

b. Employee Benefits

We are proposing to use the ECI for Employee Benefits for Hospital Workers (All Civilian) to measure the price growth of this cost category.

c. Fuel, Oil, and Gasoline

We are proposing to use the PPI for Petroleum Refineries (BLS series code PCU324110324110) to measure the price growth of this cost category.

d. Electricity

We are proposing to use the PPI for Commercial Electric Power (BLS series code WPU0542) to measure the price growth of this cost category.

e. Water and Sewage

We are proposing to use the CPI for Water and Sewerage Maintenance (All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the price growth of this cost category.

f. Professional Liability Insurance

We are proposing to proxy price changes in hospital professional liability insurance premiums (PLI) using percentage changes as estimated by the CMS Hospital Professional Liability Insurance Premium Index. To generate these estimates, we collect commercial insurance premiums for a fixed level of coverage while holding nonprice factors constant (such as a change in the level of coverage). This method is also used to proxy PLI price changes in the Medicare Economic Index (75 FR 73268).

g. Pharmaceuticals

We are proposing to use the PPI for Pharmaceuticals for Human Use, Prescription (BLS series code WPUSI07003) to measure the price growth of this cost category. This is the same proxy that was used in the FY 2006-based IPPS market basket, although BLS since changed the naming convention for this series.

h. Food: Direct Purchases

We are proposing to use the PPI for Processed Foods and Feeds (BLS series code WPU02) to measure the price growth of this cost category.

i. Food: Contract Services

We are proposing to use the CPI for Food Away From Home (All Urban Consumers) (BLS series code CUUR0000SEFV) to measure the price growth of this cost category.

j. Chemicals

We are proposing to use a blended PPI composed of the PPI for Industrial Gas Manufacturing (NAICS 325120) (BLS series code PCU325120325120P), the PPI for Other Basic Inorganic Chemical Manufacturing (NAICS 325180) (BLS series code PCU32518-32518-), the PPI for Other Basic Organic Chemical Manufacturing (NAICS 325190) (BLS series code PCU32519-32519), and the PPI for Soap and Cleaning Compound Manufacturing (NAICS 325610) (BLS series code PCU32561-32561-).

k. Blood and Blood Products

We are proposing to use the PPI for Blood and Organ Banks (BLS series code PCU621991621991) to measure the price growth of this cost category.

l. Medical Instruments

We are proposing to use the PPI for Medical, Surgical, and Personal Aid Devices (BLS series code WPU156) to measure the price growth of this cost category.

m. Rubber and Plastics

We are proposing to use the PPI for Rubber and Plastic Products (BLS series code WPU07) to measure price growth of this cost category.

n. Paper and Printing Products

We are proposing to use the PPI for Converted Paper and Paperboard Products (BLS series code WPU0915) to measure the price growth of this cost category.

o. Apparel

We are proposing to use the PPI for Apparel (BLS series code WPU0381) to measure the price growth of this cost category.

p. Machinery and Equipment

We are proposing to use the PPI for Machinery and Equipment (BLS series code WPU11) to measure the price growth of this cost category.

q. Miscellaneous Products

We are proposing to use the PPI for Finished Goods Less Food and Energy (BLS series code WPUSOP3500) to measure the price growth of this cost category.

r. Professional Fees: Labor-Related and Professional Fees: Nonlabor-Related

We are proposing to use the ECI for Compensation for Professional and Related Occupations (Private Industry) (BLS series code CIU2010000120000I) to measure the price growth of these cost categories.

s. Administrative and Facilities Support Services

We are proposing to use the ECI for Compensation for Office and Administrative Support Services (Private Industry) (BLS series code CIU2010000220000I) to measure the price growth of this category.

t. All Other: Labor-Related Services

We are proposing to use the ECI for Compensation for Service Occupations (Private Industry) (BLS series code CIU2010000300000I) to measure the price growth of this cost category.

u. Financial Services

We are proposing to use the ECI for Compensation for Financial Activities (Private Industry) (BLS series code CIU201520A000000I) to measure the price growth of this cost category.

v. Telephone Services

We are proposing to use the CPI for Telephone Services (BLS series code CUUR0000SEED) to measure the price growth of this cost category.

w. Postage

We are proposing to use the CPI for Postage (BLS series code CUUR0000SEEC01) to measure the price growth of this cost category.

x. All Other: Nonlabor-Related Services

We are proposing to use the CPI for All Items Less Food and Energy (BLS series code CUUR0000SA0L1E) to measure the price growth of this cost category.

Table IV04 compares both the historical and forecasted percent changes in the FY 2006-based IPPS market basket and the proposed FY 2010-based IPPS market basket.

Table IV04—FY 2006-Based and Proposed FY 2010-Based Prospective Payment Hospital Operating Index Percent Change, FY 2008 through FY 2016 Back to Top
Fiscal year (FY) FY 2006-based IPPS market basket operating index percent change Proposed FY 2010-based IPPS market basket operating index percent change
Source: IHS Global Insight, Inc., 1st Quarter 2013.
Historical data:
FY 2008 4.0 4.0
FY 2009 2.6 2.6
FY 2010 2.1 2.1
FY 2011 2.7 2.7
FY 2012 2.2 2.2
Average FYs 2008-2012 2.7 2.7
Forecast:
FY 2013 2.2 2.2
FY 2014 2.5 2.5
FY 2015 2.7 2.7
FY 2016 3.0 3.0
Average FYs 2013-2016 2.6 2.6

The differences between the FY 2006-based and the proposed FY 2010-based IPPS market basket increases are minimal. While the percent changes differ slightly, when rounded to the nearest tenth, the updates based on the FY 2006-based and the proposed FY 2010-based IPPS market baskets are the same.

4. Labor-Related Share

Under section 1886(d)(3)(E) of the Act, the Secretary estimates from time to time the proportion of payments that are labor-related. “The Secretary shall adjust the proportion, (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs, of the DRG prospective payment rates . . . .” We refer to the proportion of hospitals' costs that are attributable to wages and wage-related costs as the “labor-related share.”

The labor-related share is used to determine the proportion of the national PPS base payment rate to which the area wage index is applied. We include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. Because of this approach, we are proposing to include in the labor-related share the national average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administrative and facilities support services, and all other: labor-related services, as we did in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850). Consistent with previous rebasings, the “all other: labor-related services” cost category is mostly comprised of building maintenance and security services (including, but not limited to, commercial and industrial machinery and equipment repair, nonresidential maintenance and repair, and investigation and security services). Because these services tend to be labor-intensive and are mostly performed at the hospital facility (and, therefore, unlikely to be purchased in the national market), we believe that they meet our definition of labor-related services.

Similar to the FY 2006-based IPPS market basket, we are proposing that the professional fees: labor-related cost category includes expenses associated with advertising and a proportion of legal services, accounting and auditing, engineering, management consulting, and management of companies and enterprises expenses. As was done in the FY 2006-based IPPS market basket rebasing, we are proposing to determine the proportion of legal, accounting and auditing, engineering, and management consulting services that meet our definition of labor-related services based on a survey of hospitals conducted by CMS in 2008. We notified the public of our intent to conduct this survey on December 9, 2005 (70 FR 73250) and received no comments (71 FR 8588).

With approval from the OMB, we contacted the industry and received responses to our survey from 108 hospitals. Using data on FTEs to allocate responding hospitals across strata (region of the country and urban/rural status), we calculated poststratification weights. A more thorough discussion of the composition of the survey and poststratification can be found in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 43856). Based on the weighted results of the survey, we determined that hospitals purchase, on average, the following portions of contracted professional services outside of their local labor market:

  • 34 percent of accounting and auditing services;
  • 30 percent of engineering services;
  • 33 percent of legal services; and
  • 42 percent of management consulting services.

We are proposing to apply each of these percentages to its respective Benchmark I-O cost category underlying the professional fees cost category. This is the methodology that we used to separate the FY 2006-based IPPS market basket professional fees category into professional fees: labor-related and professional fees: nonlabor-related cost categories. We are proposing to use the same methodology and survey results to separate the FY 2010-based IPPS market basket professional fees category into professional fees: labor-related and professional fees: nonlabor-related cost categories. We believe these survey results are appropriate to use for the FY 2010-based IPPS market basket rebasing as they empirically determine the proportion of contracted professional services purchased by the industry that is attributable to local firms and the proportion that is purchased from national firms.

In the proposed FY 2010-based IPPS market basket, nonmedical professional fees that were subject to allocation based on the survey results represent 2.059 percent of total costs (and are limited to those fees related to Accounting & Auditing, Legal, Engineering, and Management Consulting services). Based on our survey results, we are apportioning 1.301 percentage points of the 2.059 percentage point figure into the labor-related share and designating the remaining 0.758 percentage point as nonlabor-related.

In addition to the professional services listed above, we also classify a proportion of the expenses under NAICS 55, Management of Companies and Enterprises, into the professional fees: labor-related cost category as was done in the previous rebasing. The NAICS 55 data are mostly comprised of corporate, subsidiary, and regional managing offices, or otherwise referred to as home offices. As was done for the FY 2006-based IPPS market basket we are proposing to include only a portion of the home office costs in the labor related share as not all hospitals are located in the same geographic area as their home office.

Our proposed methodology is based on data from the Medicare cost reports, as well as a CMS database of Home Office Medicare Records (HOMER) (a database that provides city and State information (addresses) for home offices). The Medicare cost report requires hospitals to report their home office provider numbers and locations. Using the data reported on the Medicare Cost Report as well as the HOMER database to determine the home office location for each home office provider number, we compared the location of the hospital with the location of the hospital's home office. We determined the proportion of costs that should be allocated to the labor-related share based on the percent of total hospital home office compensation costs for those hospitals that had home offices located in their respective local labor markets—defined as being in the same Metropolitan Statistical Area (MSA). We primarily determined a hospital's and home office's MSAs using their zip code information from the Medicare cost report. For any home offices for which we could not identify a MSA from the Medicare cost report, we used the Medicare HOMER database to identify the home office's city and State.

We are proposing to determine the proportion of costs that should be allocated to the labor-related share based on the percent of hospital home office compensation as reported in Worksheet S-3, part II. Using this proposed methodology, we determined that 62 percent of hospitals' home office compensation costs were for home offices located in their respective local labor markets, and therefore, we are proposing to allocate 62 percent of NAICS 55 expenses to the labor-related share.

In the proposed FY 2010-based IPPS market basket, NAICS 55 expenses that were subject to allocation based on the home office allocation methodology represent 5.650 percent of the total operating costs. Based on the home office results, we are apportioning 3.503 percentage points of the 5.650 percentage points figure into the labor-related share and designating the remaining 2.147 percentage points as nonlabor-related. In sum, based on the two proposed allocations mentioned above, we are proposing to apportion 4.804 percentage points into the labor-related share. This amount is added to the 0.696 percentage point of professional fees that we already identified as labor-related, resulting in a proposed professional fees: labor-related cost weight of 5.500 percent.

Below is a table comparing the proposed FY 2010-based labor-related share and the FY 2006-based labor-related share. As discussed in section IV.B.3. of the preamble of this proposed rule, the wages and salaries and employee benefits cost weight reflect contract labor costs.

Table IV05—Comparison of the Proposed FY 2010-Based Labor-Related Share and the FY 2006-Based Labor-Related Share Back to Top
FY 2006-based market basket cost weights Proposed FY 2010-based market basket cost weights
Wages and Salaries 47.213 47.233
Employee Benefits 12.414 13.105
Professional Fees: Labor-Related 5.356 5.500
Administrative and Facilities Support Services 0.626 0.619
All Other: Labor-Related Services 3.193 3.130
Total Labor-Related Share 68.802 69.587

Using the cost category weights from the proposed FY 2010-based IPPS market basket, we calculated a labor-related share of 69.587 percent, approximately 0.8 percentage point higher than the current labor-related share of 68.802.

We continue to believe, as we have stated in the past, that these operating cost categories are related to, influenced by, or vary with the local markets. Therefore, our definition of the labor-related share continues to be consistent with section 1886(d)(3) of the Act.

Using the proposed cost category weights that we determined in section IV.B.1. of the preamble of this proposed rule, we calculated a proposed labor-related share of 69.587 percent, using the proposed FY 2010-based IPPS market basket. Accordingly, we are proposing to implement a labor-related share of 69.6 percent for discharges occurring on or after October 1, 2013. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless 62 percent “would result in lower payments to a hospital than would otherwise be made.”

We also are proposing to update the labor-related share for Puerto Rico. Consistent with our methodology for determining the national labor-related share, we calculate the Puerto Rico-specific relative weights for wages and salaries, employee benefits, and contract labor using FY 2010 Medicare cost report data for IPPS hospitals located in Puerto-Rico. Because there are no Puerto Rico-specific relative weights for professional fees and labor intensive services, we use the national weights as shown in Table IV05. This is the same methodology we used to determine the FY 2006-based Puerto Rico-specific labor-related share derived during the FY 2006-based IPPS market basket rebasing (74 FR 43856).

Below is a table comparing the proposed FY 2010-based Puerto Rico-specific labor-related share and the FY 2006-based Puerto Rico-specific labor-related share.

Table IV06—Comparison of the Proposed FY 2010-Based Puerto Rico-Specific Labor-Related Share and FY 2006-Based Puerto Rico-Specific Labor-Related Share Back to Top
FY 2006-based market basket cost weights Proposed FY 2010-based market basket cost weights
Wages and Salaries 44.221 44.918
Benefits 8.691 8.990
Professional Fees: Labor-Related 5.356 5.500
Administrative and Facilities Support Services 0.626 0.619
All Other: Labor-Related Services 3.193 3.130
Total Labor-Related Share 62.087 63.157

Using the proposed FY 2010-based Puerto Rico cost category weights, we calculated a labor-related share of 63.157 percent, approximately 1.1 percentage points higher than the current Puerto-Rico specific labor-related share of 62.087. Accordingly, we are proposing to adopt an updated Puerto Rico labor-related share of 63.2 percent.

C. Market Basket for Certain Hospitals Presently Excluded From the IPPS

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857), we adopted the use of the FY 2006-based IPPS operating market basket percentage increase to update the target amounts for children's hospitals, PPS-excluded cancer hospitals and religious nonmedical health care institutions (RNHCIs). Children's hospitals and PPS-excluded cancer hospitals and RNHCIs are still reimbursed solely under the reasonable cost-based system, subject to the rate-of-increase limits. Under these limits, an annual target amount (expressed in terms of the inpatient operating cost per discharge) is set for each hospital based on the hospital's own historical cost experience trended forward by the applicable rate-of-increase percentages.

Under the broad authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 1871 of the Act and section 4454 of the BBA, consistent with our use of the IPPS operating market basket percentage increase to update target amounts, we are proposing to use the FY 2010-based IPPS operating market basket percentage increase to update the target amounts for children's hospitals, 11 PPS-excluded cancer hospitals, and RNHCIs that are paid on the basis of reasonable cost subject to the rate-of-increase limits under § 413.40.

Due to the small number of children's and cancer hospitals and RNHCIs that receive, in total, less than 1 percent of all Medicare payments to hospitals and because these hospitals provide limited Medicare cost report data, we are unable to create a separate market basket specifically for these hospitals. Due to the limited cost report data available, we believe that the proposed FY 2010-based IPPS operating market basket most closely represents the cost structure of children's hospitals, PPS-excluded cancer hospitals, and RNHCIs. We believe this is appropriate as the IPPS operating market basket would reflect the input price growth for providing inpatient hospital services (similar to the services provided by the above excluded hospitals) based on the specific mix of goods and services required. Therefore, we believe that the percentage change in the proposed FY 2010-based IPPS operating market basket is the best available measure of the average increase in the prices of the goods and services purchased by the 11 cancer hospitals, children's hospitals, and RNHCIs in order to provide care.

D. Rebasing and Revising the Capital Input Price Index (CIPI)

The CIPI was originally described in the FY 1993 IPPS final rule (57 FR 40016). There have been subsequent discussions of the CIPI presented in the IPPS proposed and final payment rules. The FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857) discussed the most recent rebasing and revision of the CIPI to a FY 2006 base year, which reflected the capital cost structure of the hospital industry in that year.

For the FY 2014 IPPS update, we are proposing to rebase and revise the CIPI to a FY 2010 base year to reflect the more current structure of capital costs in hospitals. As with the FY 2006-based index, we developed two sets of weights in order to calculate the proposed FY 2010-based CIPI. The first set of weights identifies the proportion of hospital capital expenditures attributable to each expenditure category, while the second set of weights is a set of relative vintage weights for depreciation and interest. The set of vintage weights is used to identify the proportion of capital expenditures within a cost category that is attributable to each year over the useful life of the capital assets in that category. A more thorough discussion of vintage weights is provided later in this section.

Both sets of weights are developed using the best data sources available. In reviewing source data, we determined that the Medicare cost reports provided accurate data for all capital expenditure cost categories. We used the FY 2010 Medicare cost reports for IPPS hospitals to determine weights for all three cost categories: depreciation, interest, and other capital expenses.

Lease expenses are unique in that they are not broken out as a separate cost category in the CIPI, but rather are proportionally distributed among the cost categories of Depreciation, Interest, and Other, reflecting the assumption that the underlying cost structure and price movement of leases is similar to that of capital costs in general. As was done in previous rebasings of the CIPI, we first assumed 10 percent of lease expenses represents overhead and assigned those costs to the Other category accordingly. The remaining lease expenses were distributed across the three cost categories based on the respective weights of Depreciation, Interest, and Other not including lease expenses.

Depreciation contains two subcategories: (1) Building and Fixed equipment; and (2) Movable Equipment. The proposed apportionment between building and fixed equipment and movable equipment was determined using the Medicare cost reports. This methodology was also used to compute the apportionment used in the FY 2006-based index.

The total Interest cost category is split between government/nonprofit interest and for-profit interest. The FY 2006-based CIPI allocated 85 percent of the total interest cost weight to government/nonprofit interest and proxied that category by the average yield on domestic municipal bonds. The remaining 15 percent of the interest cost weight was allocated to for-profit interest and was proxied by the average yield on Moody's Aaa bonds (74 FR 43857).

For the FY 2010-based CIPI, we are proposing to derive the split using the relative FY 2010 Medicare cost report data on interest expenses for government/nonprofit and for-profit hospitals. Based on these data, we calculated an 89/11 split between government/nonprofit and for-profit interest. We believe it is important that this split reflects the latest relative cost structure of interest expenses.

Table IV07 presents a comparison of the proposed FY 2010-based CIPI cost weights and the FY 2006-based CIPI cost weights.

Table IV07—Proposed FY 2010-Based CIPI Cost Categories, Weights, and Price Proxies with FY 2006-Based CIPI Included for Comparison Back to Top
Cost categories FY 2006 weights Proposed FY 2010 weights Price proxy
Total 100.00 100.00
Total depreciation 75.154 74.011
Building and fixed equipment depreciation 35.789 36.153 BEA chained price index for nonresidential construction for hospitals and special care facilities—vintage-weighted (26 years).
Movable equipment depreciation 39.365 37.858 PPI for machinery and equipment—vintage-weighted (12 years).
Total interest 17.651 19.157
Government/nonprofit interest 15.076 17.051 Average yield on domestic municipal bonds (Bond Buyer 20 bonds)—vintage-weighted (26 years).
For-profit interest 2.575 2.106 Average yield on Moody's Aaa bonds—vintage-weighted (26 years).
Other 7.195 6.832 CPI-U for residential rent.

Because capital is acquired and paid for over time, capital expenses in any given year are determined by both past and present purchases of physical and financial capital. The vintage-weighted CIPI is intended to capture the long-term consumption of capital, using vintage weights for depreciation (physical capital) and interest (financial capital). These vintage weights reflect the proportion of capital purchases attributable to each year of the expected life of building and fixed equipment, movable equipment, and interest. We used the vintage weights to compute vintage-weighted price changes associated with depreciation and interest expense. Following publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, and in order to provide greater transparency, we posted on the CMS market basket Web page at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html an illustrative spreadsheet that contains an example of how the vintage-weighted price indexes are calculated.

Vintage weights are an integral part of the CIPI. Capital costs are inherently complicated and are determined by complex capital purchasing decisions, over time, based on such factors as interest rates and debt financing. In addition, capital is depreciated over time instead of being consumed in the same period it is purchased. The CIPI accurately reflects the annual price changes associated with capital costs, and is a useful simplification of the actual capital investment process. By accounting for the vintage nature of capital, we are able to provide an accurate, stable annual measure of price changes. Annual nonvintage price changes for capital are unstable due to the volatility of interest rate changes and, therefore, do not reflect the actual annual price changes for Medicare capital-related costs. The CIPI reflects the underlying stability of the capital acquisition process and provides hospitals with the ability to plan for changes in capital payments.

To calculate the vintage weights for depreciation and interest expenses, we needed a time series of capital purchases for building and fixed equipment and movable equipment. We found no single source that provides a uniquely best time series of capital purchases by hospitals for all of the above components of capital purchases. The early Medicare cost reports did not have sufficient capital data to meet this need. Data we obtained from the American Hospital Association (AHA) do not include annual capital purchases. However, AHA does provide a consistent database back to 1963. We used data from the AHA Panel Survey and the AHA Annual Survey to obtain a time series of total expenses for hospitals. We then used data from the AHA Panel Survey supplemented with the ratio of depreciation to total hospital expenses obtained from the Medicare cost reports to derive a trend of annual depreciation expenses for 1963 through 2010.

In order to estimate capital purchases using data on depreciation expenses, the expected life for each cost category (building and fixed equipment, movable equipment, and interest) is needed to calculate vintage weights. We used FY 2010 Medicare cost reports to determine the expected life of building and fixed equipment and of movable equipment. The expected life of any piece of equipment can be determined by dividing the value of the asset (excluding fully depreciated assets) by its current year depreciation amount. This calculation yields the estimated useful life of an asset if depreciation were to continue at current year levels, assuming straight-line depreciation. From the FY 2010 Medicare cost reports, the proposed expected life of building and fixed equipment was determined to be 26 years, and the proposed expected life of movable equipment was determined to be 12 years. The FY 2006-based CIPI was based on an expected life of building and fixed equipment of 25 years and 12 years as the expected life for movable equipment.

We are proposing to use the building and fixed equipment and movable equipment weights derived from FY 2010 Medicare cost reports to separate the depreciation expenses into annual amounts of building and fixed equipment depreciation and movable equipment depreciation. Year-end asset costs for building and fixed equipment and movable equipment were determined by multiplying the annual depreciation amounts by the expected life calculations from the FY 2010 Medicare cost reports. We then calculated a time series back to 1963 of annual capital purchases by subtracting the previous year asset costs from the current year asset costs. From this capital purchase time series, we were able to calculate the vintage weights for building and fixed equipment and for movable equipment. Each of these sets of vintage weights is explained in more detail below.

For building and fixed equipment vintage weights, we used the real annual capital purchase amounts for building and fixed equipment to capture the actual amount of the physical acquisition, net of the effect of price inflation. This real annual purchase amount for building and fixed equipment was produced by deflating the nominal annual purchase amount by the building and fixed equipment price proxy, BEA's chained price index for nonresidential construction for hospitals and special care facilities. Because building and fixed equipment have an expected life of 26 years, the vintage weights for building and fixed equipment are deemed to represent the average purchase pattern of building and fixed equipment over 26-year periods. With real building and fixed equipment purchase estimates available back to 1963, we averaged twenty-two 26-year periods to determine the average vintage weights for building and fixed equipment that are representative of average building and fixed equipment purchase patterns over time. Vintage weights for each 26-year period are calculated by dividing the real building and fixed capital purchase amount in any given year by the total amount of purchases in the 26-year period. This calculation is done for each year in the 26-year period, and for each of the twenty-two 26-year periods. We used the average of each year across the twenty-two 26-year periods to determine the average building and fixed equipment vintage weights for the proposed FY 2010-based CIPI.

For movable equipment vintage weights, the real annual capital purchase amounts for movable equipment were used to capture the actual amount of the physical acquisition, net of price inflation. This real annual purchase amount for movable equipment was calculated by deflating the nominal annual purchase amounts by the movable equipment price proxy, the PPI for machinery and equipment. Based on our determination that movable equipment has an expected life of 12 years, the vintage weights for movable equipment represent the average expenditure for movable equipment over a 12-year period. With real movable equipment purchase estimates available back to 1963, thirty-six 12-year periods were averaged to determine the average vintage weights for movable equipment that are representative of average movable equipment purchase patterns over time. Vintage weights for each 12-year period are calculated by dividing the real movable capital purchase amount for any given year by the total amount of purchases in the 12-year period. This calculation was done for each year in the 12-year period and for each of the thirty-six 12-year periods. We used the average of each year across the thirty-six 12-year periods to determine the average movable equipment vintage weights for the proposed FY 2010-based CIPI.

For interest vintage weights, the nominal annual capital purchase amounts for total equipment (building and fixed, and movable) were used to capture the value of the debt instrument. Because we have determined that hospital debt instruments have an expected life of 26 years, the vintage weights for interest are deemed to represent the average purchase pattern of total equipment over 26-year periods. With nominal total equipment purchase estimates available back to 1963, twenty-two 26-year periods were averaged to determine the average vintage weights for interest that are representative of average capital purchase patterns over time. Vintage weights for each 26-year period are calculated by dividing the nominal total capital purchase amount for any given year by the total amount of purchases in the 26-year period. This calculation is done for each year in the 26-year period and for each of the twenty-two 26-year periods. We used the average of each year across the twenty-two 26-year periods to determine the average interest vintage weights for the proposed FY 2010-based CIPI.

The vintage weights for the FY 2006-based CIPI and the proposed FY 2010-based CIPI are presented in Table IV08.

Table IV08—FY 2006 Vintage Weights and Proposed FY 2010 Vintage Weights for Capital-Related Price Proxies Back to Top
Year1 Building and fixed equipment Movable equipment Interest
FY 2006 25 years FY 2010 26 years FY 2006 12 years FY 2010 12 years FY 2006 25 years FY 2010 26 years
Note: Detail may not add to total due to rounding.
1Year 1 represents the vintage weight applied to the farthest year while the vintage weight for year 26, for example, would apply to the most recent year.
1 0.021 0.023 0.063 0.064 0.010 0.012
2 0.023 0.024 0.067 0.068 0.012 0.013
3 0.025 0.026 0.071 0.071 0.014 0.015
4 0.027 0.028 0.075 0.073 0.016 0.017
5 0.029 0.029 0.079 0.076 0.018 0.018
6 0.031 0.031 0.082 0.078 0.020 0.021
7 0.032 0.032 0.085 0.084 0.023 0.023
8 0.033 0.034 0.086 0.088 0.025 0.025
9 0.036 0.036 0.090 0.092 0.028 0.028
10 0.038 0.038 0.093 0.098 0.031 0.030
11 0.040 0.040 0.102 0.103 0.034 0.033
12 0.042 0.041 0.106 0.106 0.038 0.036
13 0.044 0.042 0.041 0.038
14 0.045 0.042 0.044 0.040
15 0.046 0.043 0.047 0.043
16 0.047 0.044 0.050 0.045
17 0.048 0.044 0.053 0.047
18 0.050 0.044 0.057 0.048
19 0.050 0.044 0.059 0.051
20 0.050 0.044 0.060 0.052
21 0.048 0.045 0.060 0.056
22 0.048 0.045 0.062 0.057
23 0.047 0.045 0.063 0.060
24 0.049 0.046 0.068 0.062
25 0.048 0.045 0.069 0.064
26 0.045 0.066
Total 1.000 1.000 1.000 1.000 1.000 1.000

After the capital cost category weights were computed, it was necessary to select appropriate price proxies to reflect the rate-of-increase for each expenditure category. We are proposing to use the same price proxies for the FY 2010-based CIPI that were used in the FY 2006-based CIPI. The rationale for selecting the price proxies was explained more fully in the FY 1997 IPPS final rule (61 FR 46196) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857). These proposed price proxies are presented in Table IV07.

Table IV09 below compares both the historical and forecasted percent changes in the FY 2006-based CIPI and the proposed FY 2010-based CIPI.

Table IV09—Comparison of FY 2006-Based and Proposed FY 2010-Based Capital Input Price Index, Percent Change, FY 2008 Through FY 2016 Back to Top
Fiscal year CIPI, FY 2006-based Proposed CIPI, FY 2010-based
Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast.
FY 2008 1.5 1.1
FY 2009 1.5 1.2
FY 2010 1.0 0.7
FY 2011 1.2 0.9
FY 2012 1.2 1.0
Forecast:    
FY 2013 1.2 1.0
FY 2014 1.4 1.2
FY 2015 1.5 1.3
FY 2016 1.7 1.5
Average:    
FYs 2008-2012 1.3 1.0
FYs 2013-2016 1.5 1.3

IHS Global Insight, Inc. forecasts a 1.2 percent increase in the FY 2010-based CIPI for FY 2014, as shown in Table IV09. The underlying vintage-weighted price increases for depreciation (including building and fixed equipment and movable equipment) and interest (including government/nonprofit and for-profit) are included in Table IV10.

Table IV10—CMS Capital Input Price Index Percent Changes, Total and Depreciation and Interest Components—FYs 2008 Through 2016 Back to Top
Fiscal year Total Depreciation Interest
Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast
FY 2008 1.1 2.0 −3.1
FY 2009 1.2 2.0 −2.0
FY 2010 0.7 1.7 −2.8
FY 2011 0.9 1.7 −2.3
FY 2012 1.0 1.7 −2.7
Forecast:
FY 2013 1.0 1.7 −2.8
FY 2014 1.2 1.8 −2.3
FY 2015 1.3 1.9 −1.7
FY 2016 1.5 1.9 −0.7

Rebasing the CIPI from FY 2006 to FY 2010 decreased the percent change in the forecasted update for FY 2014 by 0.2 percentage point, from 1.4 percent to 1.2 percent, as shown in Table IV09. The difference in the forecasted market basket update for FY 2014 is primarily due to the rebasing of the index to FY 2010 and revising the base year cost weights to incorporate the FY 2010 Medicare cost report data.

V. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs Back to Top

A. Proposed Changes in the Inpatient Hospital Update for FY 2014 (§§ 412.64(d) and 412.211(c))

1. Proposed FY 2014 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient operating costs by a factor called the “applicable percentage increase.” Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act, sets the applicable percentage increase under the IPPS for FY 2014 as equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to a reduction of 2.0 percentage points if the hospital fails to submit quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based on changes in economy-wide productivity (the multifactor productivity (MFP) adjustment), and an additional reduction of 0.3 percentage point. Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 3401(a) of the Affordable Care Act, state that application of the MFP adjustment and the additional FY 2014 adjustment of 0.3 percentage point may result in the applicable percentage increase being less than zero.

We note, in compliance with section 404 of the MMA, in this proposed rule, we are proposing to replace the FY 2006-based IPPS operating and capital market baskets with the revised and rebased FY 2010-based IPPS operating and capital market baskets for FY 2014.

We also are proposing to rebase the labor-related share to reflect the more recent base year. The current labor-related share, which is based on the FY 2006-based IPPS market basket, is 68.8 percent. We are proposing a labor-related share of 69.6 percent, which is based on the proposed rebased and revised FY 2010-based IPPS market basket. For a complete discussion on the rebasing of the market basket and labor-related share, we refer readers to section IV. of the preamble of this proposed rule.

Based on the most recent data available for this proposed rule, in accordance with section 1886(b)(3)(B) of the Act, we are proposing to base the proposed FY 2014 market basket update used to determine the applicable percentage increase for the IPPS on the IHS Global Insight, Inc. (IGI's) first quarter 2013 forecast of the FY 2010-based IPPS market basket rate-of-increase, which is estimated to be 2.5 percent. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology for calculating and applying the MFP adjustment. For FY 2014, we are not proposing any change in our methodology for calculating and applying the MFP adjustment. However, for this proposed rule, we are using the most recent data available to compute the MFP adjustment. Using the methodology that we finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51690), the proposed FY 2014 market basket update, subject to the hospital submitting quality data under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act, is then reduced by the most recent estimate of the MFP adjustment (the 10-year moving average of MFP for the period ending FY 2014) of 0.4 percent. Following application of the MFP adjustment, the applicable percentage increase is then reduced by 0.3 percentage point, as required by section 1886(b)(3)(B)(xii) of the Act (as discussed in section I. of the Addendum to this proposed rule).

Consistent with current law, and based on IGI's first quarter 2013 forecast of the FY 2014 market basket increase, we are proposing an applicable percentage increase to the FY 2014 operating standardized amount of 1.8 percent (that is, the FY 2014 estimate of the market basket rate-of-increase of 2.5 percent less an adjustment of 0.4 percentage point for economy-wide productivity (that is, the MFP adjustment) and less 0.3 percentage point) for hospitals in all areas, provided the hospital submits quality data under rules established in accordance with section 1886(b)(3)(B)(viii) of the Act. For hospitals that do not submit these quality data, we are proposing an applicable percentage increase to the operating standardized amount of −0.2 percent (that is, the FY 2014 estimate of the market basket rate-of-increase of 2.5 percent, less 2.0 percentage points for failure to submit quality data, less an adjustment of 0.4 percentage point for the MFP adjustment, and less an additional adjustment of 0.3 percentage point). Lastly, we also are proposing that if more recent data become subsequently available (for example, a more recent estimate of the market basket and MFP adjustment), we would use such data, if appropriate, to determine the FY 2014 market basket update and MFP adjustment in the final rule.

We are proposing to revise the existing regulations at 42 CFR 412.64(d) to reflect the current law for the FY 2014 update. Specifically, in accordance with section 1886(b)(3)(B) of the Act, we are proposing to add a new paragraph (v) to § 412.64(d)(1) to reflect the applicable percentage increase to the FY 2014 operating standardized amount as the percentage increase in the market basket index less an MFP adjustment and less an additional reduction of 0.3 percentage point.

Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage increase to the hospital-specific rates for SCHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates for SCHs is also subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. Accordingly, we are proposing an update to the hospital-specific rates applicable to SCHs of 1.8 percent for hospitals that submit quality data or −0.2 percent for hospitals that fail to submit quality data. For FY 2014, the existing regulations in §§ 412.73(c)(16), 412.75(d), 412.77(e) and 412.78(e) contain provisions that set the update factor for SCHs equal to the update factor applied to the national standardized amount for all IPPS hospitals. Therefore, we are not proposing to make any further changes to these four regulatory provisions to reflect the FY 2014 update factor for the hospital-specific rates of SCHs.

We note that, as discussed in section V.F. of this preamble, section 606 of the American Taxpayer Relief Act of 2012 extended the MDH program from the end of FY 2012 (that is, for discharges occurring before October 1, 2012) to the end of FY 2013 (that is, for discharges occurring before October 1, 2013). Under prior law, the MDH program was to be in effect through the end of FY 2012 only. Absent additional legislation further extending the MDH program, the MDH program will expire for discharges beginning in FY 2014. Accordingly, we are not including MDHs in our proposal to update the hospital-specific rates for FY 2014.

2. Proposed FY 2014 Puerto Rico Hospital Update

Puerto Rico hospitals are paid a blended rate for their inpatient operating costs based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act is the basis for determining the applicable percentage increase applied to the Puerto Rico-specific standardized amount. Section 401(c) of Public Law 108-173 amended section 1886(d)(9)(C)(i) of the Act, which states that, for discharges occurring in a fiscal year (beginning with FY 2004), the Secretary shall compute an average standardized amount for hospitals located in any area of Puerto Rico that is equal to the average standardized amount computed under subclause (I) for fiscal year 2003 for hospitals in a large urban area (or, beginning with FY 2005, for all hospitals in the previous fiscal year) increased by the applicable percentage increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to the Puerto Rico-specific operating standardized amount equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor as for all other hospitals subject to the IPPS). Accordingly, we are proposing an applicable percentage increase to the Puerto Rico-specific operating standardized amount of 1.8 percent for FY 2014. The regulations at § 412.211(c) currently set the update factor for the Puerto Rico-specific operating standardized amount equal to the update factor applied to the national standardized amount for all IPPS hospitals. Therefore, it is not necessary to propose any changes to the existing regulatory text.

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

Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at § 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as a rural referral center (RRC). RRCs receive some special treatment under both the DSH payment adjustment and the criteria for geographic reclassification.

Section 402 of Public Law 108-173 raised the DSH payment adjustment for RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs are also not subject to the proximity criteria when applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area where the hospital is located.

Section 4202(b) of Public Law 105-33 states, in part, “[a]ny hospital classified as an RRC by the Secretary . . . for fiscal year 1991 shall be classified as such an RRC for fiscal year 1998 and each subsequent year.” In the August 29, 1997 IPPS final rule with comment period (62 FR 45999), CMS reinstated RRC status for all hospitals that lost the status due to triennial review or MGCRB reclassification. However, CMS did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the OMB designation of their geographic area as urban. Subsequently, in the August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were revisiting that decision. Specifically, we stated that we would permit hospitals that previously qualified as an RRC and lost their status due to OMB redesignation of the county in which they are located from rural to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy all of the other applicable criteria. We use the definitions of “urban” and “rural” specified in Subpart D of 42 CFR Part 412. One of the criteria under which a hospital may qualify as an RRC is to have 275 or more beds available for use (§ 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum CMI and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume). (We refer readers to § 412.96(c)(1) through (c)(5) and the September 30, 1988 Federal Register (53 FR 38513).) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if—

  • The hospital's CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and
  • The hospital's number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. (The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.)

1. Case-Mix Index (CMI)

Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The proposed national median CMI value for FY 2014 includes data from all urban hospitals nationwide, and the proposed regional values for FY 2014 are the median CMI values of urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in § 413.75). These proposed values are based on discharges occurring during FY 2012 (October 1, 2011 through September 30, 2012), and include bills posted to CMS' records through December 2012.

We are proposing that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2013, they must have a CMI value for FY 2012 that is at least—

  • 1.5526; or
  • The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.

The proposed CMI values by region are set forth in the following table:

Region Case-mix index value
1. New England (CT, ME, MA, NH, RI, VT) 1.3319
2. Middle Atlantic (PA, NJ, NY) 1.4025
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 1.4799
4. East North Central (IL, IN, MI, OH, WI) 1.4542
5. East South Central (AL, KY, MS, TN) 1.4266
6. West North Central (IA, KS, MN, MO, NE, ND, SD) 1.5311
7. West South Central (AR, LA, OK, TX) 1.5811
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 1.6393
9. Pacific (AK, CA, HI, OR, WA) 1.5568

We intend to update the preceding numbers in the FY 2014 final rule to reflect the updated FY 2012 MedPAR file, which would contain data from additional bills received through March 2013.

A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI value (not transfer-adjusted) from its fiscal intermediary or MAC. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG-based payment.

2. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. We would normally propose to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2011 (that is, October 1, 2010 through September 30, 2011), which would normally be the latest cost report data available at the time of the development of this proposed rule. However, due to a transition in our data system, in lieu of a full year of FY 2011 cost report data, we are proposing to use a combination of FY 2010 and FY 2011 cost report data in order to create a full fiscal year of cost report data for this analysis. Due to CMS' transition to a new cost reporting form effective for cost reporting periods beginning on or after May 1, 2010, some FY 2011 cost reports were not yet in our system for analysis at the time of the development of this proposed rule. Therefore, in order to have a complete fiscal year of cost report data, we utilized FY 2011 cost report data if available, and for those providers whose FY 2011 cost report data was not yet in our system, we utilized their FY 2010 cost report data. This is similar to the process we used to establish the median number of discharges for urban hospitals in the census region for FY 2013, where we utilized FY 2009 and 2010 cost report data (77 FR 53406).

We are proposing that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2013, must have, as the number of discharges for its cost reporting period that began during FY 2011 (based on a combination of FY 2010 and FY 2011 cost report data as explained in the preceding paragraph), at least—

  • 5,000 (3,000 for an osteopathic hospital); or
  • The median number of discharges for urban hospitals in the census region in which the hospital is located, as indicated in the following table:
Region Number of discharges
1. New England (CT, ME, MA, NH, RI, VT) 7,825
2. Middle Atlantic (PA, NJ, NY) 10,891
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 11,566
4. East North Central (IL, IN, MI, OH, WI) 8,360
5. East South Central (AL, KY, MS, TN) 7,378
6. West North Central (IA, KS, MN, MO, NE, ND, SD) 7,747
7. West South Central (AR, LA, OK, TX) 5,147
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 9,125
9. Pacific (AK, CA, HI, OR, WA) 8,525

We intend to update these numbers in the FY 2014 final rule based on the latest available cost report data.

We note that the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges. Therefore, 5,000 discharges would be the minimum criterion for all hospitals under this proposed rule.

We reiterate that, if an osteopathic hospital is to qualify for RRC status for cost reporting periods beginning on or after October 1, 2013, the hospital would be required to have at least 3,000 discharges for its cost reporting period that began during FY 2011 (based on a combination of FY 2010 and FY 2011 cost report data as explained earlier in this section).

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

1. Background

Section 1886(d)(12) of the Act provides for an additional payment to each qualifying low-volume hospital under the IPPS beginning in FY 2005. Section 1886(d)(12) of the Act sets forth the qualifying criteria for a qualifying low-volume hospital and the methodology for determining the low-volume hospital payment adjustment.

Sections 3125 and 10314 of the Affordable Care Act provided for a temporary change in the low-volume hospital payment policy for FYs 2011 and 2012 by expanding the definition of a low-volume hospital and modifying the methodology for determining the payment adjustment for hospitals meeting the definition. Therefore, prior to the enactment of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) on January 2, 2013, beginning with FY 2013, the low-volume hospital qualifying criteria and payment adjustment requirements would have reverted to the statutory requirements under section 1886(d)(12) of the Act that were in effect prior to FY 2011. Section 605 of the ATRA extended for an additional year, through FY 2013, the temporary changes in the low-volume hospital definition and methodology for determining the payment adjustment made by the Affordable Care Act for FYs 2011 and 2012. Beginning with FY 2014, the low-volume hospital qualifying criteria and payment adjustment will revert to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and the ATRA. In section V.D.3. of this preamble, we discuss the proposed low-volume hospital payment adjustment policies for FY 2014.

a. Original Implementation of the Low-Volume Hospital Payment Adjustment

Section 1886(d)(12) of the Act, as added by section 406(a) of Public Law 108-173, provides for a payment adjustment to account for the higher costs per discharge for low-volume hospitals under the IPPS, effective beginning FY 2005. The additional payment adjustment to a low-volume hospital provided for under section 1886(d)(12) of the Act is “[i]n addition to any payment calculated under this section.” Therefore, the additional payment adjustment is based on the per discharge amount paid to the qualifying hospital under section 1886 of the Act. In other words, the low-volume hospital payment adjustment is based on total per discharge payments made under section 1886 of the Act, including capital, DSH, IME, and outlier payments. For SCHs and MDHs, the low-volume hospital payment adjustment is based in part on either the Federal rate or the hospital-specific rate, whichever results in a greater operating IPPS payment.

Section 1886(d)(12)(C)(i) of the Act defined a low-volume hospital as “a subsection (d) hospital (as defined in paragraph (1)(B)) that the Secretary determines is located more than 25 road miles from another subsection (d) hospital and has less than 800 discharges during the fiscal year.” Section 1886(d)(12)(C)(ii) of the Act further stipulates that the term “discharge” means “an inpatient acute care discharge of an individual regardless of whether the individual is entitled to benefits under Part A.” Therefore, the term “discharge” refers to total discharges, regardless of payer (that is, not only Medicare discharges). Furthermore, under section 406(a) of Public Law 108-173, which initially added subparagraph (12) to section 1886(d) of the Act, the provision requires the Secretary to determine an applicable percentage increase for these low-volume hospitals based on the “empirical relationship” between “the standardized cost-per-case for such hospitals and the total number of discharges of such hospitals and the amount of the additional incremental costs (if any) that are associated with such number of discharges.” The statute thus mandates that the Secretary develop an empirically justifiable adjustment based on the relationship between costs and discharges for these low-volume hospitals. Section 1886(d)(12)(B)(iii) of the Act limits the applicable percentage increase adjustment to no more than 25 percent.

Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent low-volume hospital payment adjustment to all qualifying hospitals with less than 200 discharges was found to be most consistent with the statutory requirement to provide relief to low-volume hospitals where there is empirical evidence that higher incremental costs are associated with low numbers of total discharges. In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated that multivariate analyses supported the existing low-volume hospital payment adjustment implemented in FY 2005. Therefore, the low-volume hospital payment adjustment of an additional 25 percent continued to be provided for qualifying hospitals with less than 200 discharges.

b. Affordable Care Act Provisions for FYs 2011 and 2012

For FYs 2011 and 2012, sections 3125 and 10314 of the Affordable Care Act expanded the definition of low-volume hospital and modified the methodology for determining the payment adjustment for hospitals meeting that definition. Specifically, those provisions of the Affordable Care Act amended the qualifying criteria for low-volume hospitals under section 1886(d)(12)(C)(i) of the Act to specify that, for FYs 2011 and 2012, a subsection (d) hospital qualifies as a low-volume hospital if it is more than 15 road miles from another subsection (d) hospital and has less than 1,600 discharges of individuals entitled to, or enrolled for, benefits under Part A during the fiscal year. In addition, section 1886(d)(12)(D) of the Act, as added by the Affordable Care Act, provides that the low-volume hospital payment adjustment (that is, the percentage increase) is to be determined “using a continuous linear sliding scale ranging from 25 percent for low-volume hospitals with 200 or fewer discharges of individuals entitled to, or enrolled for, benefits under Part A in the fiscal year to zero percent for low-volume hospitals with greater than 1,600 discharges of such individuals in the fiscal year.”

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414), we revised the regulations at 42 CFR 412.101 to reflect the changes to the qualifying criteria and the payment adjustment for low-volume hospitals made by sections 3125 and 10314 of the Affordable Care Act. In addition, we defined, at § 412.101(a), the term “road miles” to mean “miles” as defined at § 412.92(c)(1), and clarified the existing regulations to indicate that a hospital must continue to qualify as a low-volume hospital in order to receive the payment adjustment in that year (that is, it is not based on a one-time qualification). Furthermore, in that same final rule, we discussed the process for requesting and obtaining the low-volume hospital payment adjustment for FY 2011 (75 FR 50240). For the second year of the changes to the low-volume hospital payment adjustment provided for by section 3125 and 10314 of the Affordable Care Act (that is, FY 2012), consistent with the regulations at § 412.101(b)(2)(ii), in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51677 through 51680), we updated the discharge data source used to identify qualifying low-volume hospitals and calculate the payment adjustment (percentage increase). Under § 412.101(b)(2)(ii), for FYs 2011 and 2012, a hospital's Medicare discharges from the most recently available MedPAR data, as determined by CMS, are used to determine if the hospital meets the discharge criteria to receive the low-volume hospital payment adjustment in the current year. In that same final rule, we established that, for FY 2012, qualifying low-volume hospitals and their payment adjustment are determined using Medicare discharge data from the March 2011 update of the FY 2010 MedPAR file, as these data were the most recent data available at that time. In addition, we noted that eligibility for the low-volume hospital payment adjustment for FY 2012 was also dependent upon meeting (if the hospital was qualifying for the low-volume hospital payment adjustment for the first time in FY 2012), or continuing to meet (if the hospital qualified in FY 2011), the mileage criterion specified at § 412.101(b)(2)(ii). Furthermore, we established a procedure for a hospital to request low-volume hospital status for FY 2012 (which was consistent with the process we employed for the low-volume hospital payment adjustment for FY 2011).

2. Provisions of the ATRA for FY 2013

a. Background

Section 605 of the ATRA amended sections 1886(d)(12)(B), (C)(i), and (D) of the Act to extend, for FY 2013, the temporary changes in the low-volume hospital payment adjustment policy provided for in FYs 2011 and 2012 by the Affordable Care Act. As we have noted previously, prior to the enactment of section 605 of the ATRA, beginning with FY 2013, the low-volume hospital definition and payment adjustment methodology would have reverted to the policy established under statutory requirements that were in effect prior to the amendments made by the Affordable Care Act.

Prior to the enactment of the ATRA, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53406 through 53409), we discussed the low-volume hospital payment adjustment for FY 2013 and subsequent fiscal years. Specifically, we discussed that in accordance with section 1886(d)(12) of the Act, beginning with FY 2013, the low-volume hospital definition and payment adjustment methodology would revert back to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act. Therefore, we explained, as specified under the existing regulations at § 412.101, effective for FY 2013 and subsequent years, that in order to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 total discharges, including both Medicare and non-Medicare discharges) during the fiscal year. We also established a procedure for hospitals to request low-volume hospital status for FY 2013 (which was consistent with our previously established procedures for FYs 2011 and 2012).

In a Federal Register notice published on March 7, 2013 (78 FR 14689) (hereinafter referred to as the FY 2013 IPPS notice), we announced the extension of the Affordable Care Act amendments to the low-volume hospital payment adjustment requirements under section 1886(d)(12) of the Act for FY 2013 pursuant to section 605 of the ATRA. The applicable low-volume hospital percentage increase provided for by the provisions of the Affordable Care Act and the ATRA is determined using a continuous linear sliding scale equation that results in a low-volume hospital payment adjustment ranging from an additional 25 percent for hospitals with 200 or fewer Medicare discharges to a zero percent additional payment adjustment for hospitals with 1,600 or more Medicare discharges.

In the FY 2013 IPPS notice (78 FR 14689 through 14694), to implement the extension of the temporary change in the low-volume hospital payment adjustment policy for FY 2013 provided for by the ATRA, we updated the discharge data source used to identify qualifying low-volume hospitals and calculate the payment adjustment (percentage increase). Consistent with our implementation of the low-volume hospital payment adjustment policy for FYs 2011 and 2012 as set forth at existing § 412.101(b)(2)(ii), we established that, for FY 2013, qualifying low-volume hospitals and their payment adjustments are determined using Medicare discharge data from the March 2012 update of the FY 2011 MedPAR file, as these data were the most recent data available at the time of the development of the FY 2013 payment rates and factors established in the FY 2013 IPPS/LTCH PPS final rule. In addition, we noted that eligibility for the low-volume hospital payment adjustment for FY 2013 is also dependent upon meeting (in the case of a hospital that did not qualify for the low-volume hospital payment adjustment in FY 2012), or continuing to meet (in the case of a hospital that did qualify for the low-volume hospital payment adjustment in FY 2012), the mileage criterion specified at existing § 412.101(b)(2)(ii). We also established a procedure for a hospital to request low-volume hospital status for FY 2013 (which is consistent with the process for the low-volume hospital payment adjustment for FYs 2011 and 2012). Furthermore, we noted our intent to make conforming changes to the regulations text at § 412.101 to reflect the changes to the qualifying criteria and the payment adjustment for low-volume hospitals in accordance with the amendments made by section 605 of the ATRA in future rulemaking. (We refer readers to the FY 2013 IPPS notice (78 FR 14689 through 14694) for additional information on the extension of the Affordable Care Act amendments to the low-volume hospital payment adjustment requirements under section 1886(d)(12) of the Act through FY 2013 in accordance with section 605 of the ATRA.)

b. Proposed Conforming Regulatory Changes

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 50414), we amended the regulations at § 412.101 to specify that, beginning with FY 2013, the low-volume hospital definition and payment adjustment methodology reverted to the policy established under statutory requirements that were in effect prior to the amendments made by the Affordable Care Act. In this proposed rule, we are proposing to make conforming changes to the existing regulations text at § 412.101 to reflect the extension of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals through FY 2013 in accordance with section 605 of the ATRA, as announced in the FY 2013 IPPS notice (as discussed above). Specifically, we are proposing to revise paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and (d). Under these proposed changes to § 412.101, beginning with FY 2014, consistent with section 1886(d)(12) of the Act, as amended, the low-volume hospital qualifying criteria and payment adjustment methodology would revert to that which was in effect prior to the amendments made by the Affordable Care Act and the ATRA (that is, the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010).

3. Proposed Low-Volume Hospital Definition and Payment Adjustment for FY 2014 and Subsequent Fiscal Years

In accordance with section 1886(d)(12) of the Act, as amended, beginning with FY 2014, the low-volume hospital definition and payment adjustment methodology will revert back to the statutory requirements that were in effect prior to the amendments made by the Affordable Care Act and the ATRA. Therefore, consistent with section 1886(d)(12) of the Act, as amended, under the proposed conforming changes to § 412.101(b)(2), effective for FY 2014 and subsequent years, in order to qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road miles from another subsection (d) hospital and have less than 200 discharges (that is, less than 200 discharges total, including both Medicare and non-Medicare discharges) during the fiscal year. Under our existing policy, effective for FY 2014 and subsequent years, qualifying hospitals would receive the low-volume hospital payment adjustment of an additional 25 percent for discharges occurring during the fiscal year.

As described above, for FYs 2005 through 2010 and FY 2014 and subsequent fiscal years, the discharge determination would be made based on the hospital's number of total discharges, that is, Medicare and non-Medicare discharges. The hospital's most recently submitted cost report is used to determine if the hospital meets the discharge criterion to receive the low-volume hospital payment adjustment in the current year (proposed § 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets the discharge criterion because this is the best available data source that includes information on both Medicare and non-Medicare discharges. We note that, for FYs 2011, 2012, and 2013, we used the most recently available MedPAR data to determine the hospital's Medicare discharges because only Medicare discharges were used to determine if a hospital met the discharge criterion for those years. In addition to a discharge criterion, the eligibility for the low-volume hospital payment adjustment also would be dependent upon the hospital meeting the mileage criterion specified at proposed § 412.101(b)(2)(i). Specifically, to meet the mileage criterion to qualify for the low-volume hospital payment adjustment for FY 2014 and subsequent fiscal years, a hospital must be located more than 25 road miles from the nearest subsection (d) hospital.

For FY 2014, we would continue to use the established process for requesting and obtaining the low-volume hospital payment adjustment. That is, in order to receive a low-volume hospital payment adjustment under § 412.101, a hospital must notify and provide documentation to its fiscal intermediary or MAC that it meets the discharge and distance requirements. The fiscal intermediary or MAC will determine, based on the most recent data available, if the hospital qualifies as a low-volume hospital, so that the hospital will know in advance whether or not it will receive a payment adjustment. The fiscal intermediary or MAC and CMS may review available data, in addition to the data the hospital submits with its request for low-volume hospital status, in order to determine whether or not the hospital meets the qualifying criteria. (For additional details on our established process for the low-volume hospital payment adjustment, we refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53408).)

Consistent with our previously established procedure, for FY 2014, a hospital must make its request for low-volume hospital status in writing to its fiscal intermediary or MAC by September 1, 2013, in order for the 25-percent low-volume hospital payment adjustment to be applied to payments for its discharges beginning on or after October 1, 2013 (through September 30, 2014). If a hospital's request for low-volume hospital status for FY 2014 is received after September 1, 2013, and if the fiscal intermediary or MAC determines the hospital meets the criteria to qualify as a low-volume hospital, the fiscal intermediary or MAC will apply the 25-percent low-volume hospital payment adjustment to determine the payment for the hospital's FY 2014 discharges, effective prospectively within 30 days of the date of the fiscal intermediary's or MAC's low-volume hospital status determination.

As we discussed in section V.C.2.b. of the preamble of this proposed rule, we are proposing to make conforming changes to the regulatory text at § 412.101 to reflect the extension of the changes to the qualifying criteria and the payment adjustment methodology for low-volume hospitals through FY 2013 made by section 605 of the ATRA. We are proposing changes to § 412.101 to conform the regulations to the statutory requirements that, beginning with FY 2014, the low-volume hospital qualifying criteria and payment adjustment methodology revert to that which was in effect prior to the amendments made by the Affordable Care Act and the ATRA (that is, the low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010). Therefore, the low-volume hospital payment adjustment policy in effect prior for FYs 2005 through 2010 would apply for FY 2014 and subsequent years.

D. Indirect Medical Education (IME) Payment Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2014

Under the IPPS, an additional payment amount is made to hospitals that have residents in an approved graduate medical education (GME) program in order to reflect the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The payment amount is determined by use of a statutorily specified adjustment factor. The regulations regarding the calculation of this additional payment, known as the IME adjustment, are located at § 412.105. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for a full discussion of the IME adjustment and IME adjustment factor. Section 1886(d)(5)(B) of the Act states that, for discharges occurring during FY 2008 and fiscal years thereafter, the IME formula multiplier is 1.35. Accordingly, for discharges occurring during FY 2014, the formula multiplier is 1.35. We estimate that application of this formula multiplier for the FY 2014 IME adjustment will result in an increase in IPPS payment of 5.5 percent for every approximately 10 percent increase in the hospital's resident to bed ratio.

2. Other Proposed Policy Changes Affecting GME

In sections IV.J. of the preamble of this proposed rule, we present other proposed policy changes relating to GME payment. We refer readers to that section of the preamble of this proposed rule where we present the proposed policies.

E. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) (§ 412.106)

1. Background

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to needy patients with low incomes. This method is commonly referred to as the “Pickle method.” The second method for qualifying for the DSH payment adjustment, which is the most common, is based on a complex statutory formula under which the DSH payment adjustment is based on the hospital's geographic designation, the number of beds in the hospital, and the level of the hospital's disproportionate patient percentage (DPP). A hospital's DPP is the sum of two fractions: The “Medicare fraction” and the “Medicaid fraction.” The Medicare fraction (also known as the “SSI fraction” or “SSI ratio”) is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period.

Because the DSH payment adjustment is part of the IPPS, the DSH statutory references (under section 1886(d)(5)(F) of the Act) to “days” apply only to hospital acute care inpatient days. Regulations located at § 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under § 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the IME adjustment under § 412.105(b).

2. Counting of Patient Days Associated With Patients Enrolled in Medicare Advantage Plans in the Medicare and Medicaid Fractions of the Disproportionate Patient Percentage (DPP) Calculation

The regulation at 42 CFR 422.2 defines Medicare Advantage (MA) plan to mean “health benefits coverage offered under a policy or contract by an MA organization that includes a specific set of health benefits offered at a uniform premium and uniform level of cost-sharing to all Medicare beneficiaries residing in the service area of the MA plan . . . .” Generally, each MA plan must at least provide coverage of all services that are covered by Medicare Part A and Part B, but also may provide for Medicare Part D benefits and/or additional supplemental benefits. However, certain items and services, such as hospice benefits, continue to be covered under Medicare fee-for-service (FFS). We note that, under § 422.50 of the regulations, an individual is eligible to elect an MA plan if he or she is entitled to Medicare Part A and enrolled in Medicare Part B. Dual eligible beneficiaries (individuals entitled to Medicare and eligible for Medicaid) also may choose to enroll in a MA plan, and, as an additional supplemental benefit, the MA plan may pay for Medicare cost-sharing not covered by Medicaid.

In the FY 2004 IPPS proposed rule (68 FR 27208) in response to questions about whether the patient days associated with patients enrolled in a Medicare + Choice (M+C) plan [now Medicare Advantage (MA) plan under Medicare Part C] should be counted in the Medicare fraction or the Medicaid fraction of the disproportionate patient percentage (DPP) calculation, we proposed that once a beneficiary enrolls in an M+C plan, those patient days attributable to the beneficiary would not be included in the Medicare fraction of the DPP. Instead, those patient days would be included in the numerator of the Medicaid fraction, if the patient also were eligible for Medicaid. In the FY 2004 IPPS final rule (68 FR 45422), we did not respond to public comments on this proposal, due to the volume and nature of the public comments we received, and we indicated that we would address those comments later in a separate document. In the FY 2005 IPPS proposed rule (69 FR 28286), we stated that we planned to address the FY 2004 comments regarding M+C days in the IPPS final rule for FY 2005. In the FY 2005 IPPS final rule (69 FR 49099), we determined that, under § 412.106(b)(2)(i) of the regulations, MA patient days should be counted in the Medicare fraction of the DPP calculation. We explained that, even where Medicare beneficiaries elect Medicare Part C coverage, they are still entitled to benefits under Medicare Part A. Therefore, we noted that if a Medicare M+C beneficiary is also an SSI recipient, the patient days for that beneficiary will be included in the numerator of the Medicare fraction (as well as in the denominator) and not in the numerator of the Medicaid fraction. We note that, despite our explicit statement in the final rule that the regulations also would be revised, due to a clerical error, the corresponding regulation at § 412.106(b)(2)(i) was not amended to explicitly reflect this policy until 2007 (72 FR 47384).

On November 15, 2012, in a ruling in the case of Allina Health Services, et al., v. Sebelius (Allina), the Federal District Court for the District of Columbia (the court) held that the final policy of putting MA patient days in the Medicare fraction adopted in the FY 2005 IPPS final rule was not a logical outgrowth of the FY 2004 IPPS proposed rule. The court held that interested parties had not been put on notice that the Secretary might adopt a final policy of counting the days in the Medicare fraction and were not provided an adequate further opportunity for public comment.

We continue to believe that individuals enrolled in MA plans are “entitled to benefits under part A” as the phrase is used in the DSH provisions at section 1886(d)(5)(F)(vi)(I) of the Act. Section 226(a) of the Act provides that an individual is automatically “entitled” to Medicare Part A when the person reaches age 65 or becomes disabled, provided that the individual is entitled to Social Security benefits under section 202 of the Act. Beneficiaries who are enrolled in MA plans provided under Medicare Part C continue to meet all of the statutory criteria for entitlement to Medicare Part A benefits under section 226 of the Act. First, in order to enroll in Medicare Part C, a beneficiary must be “entitled to benefits under Part A and enrolled under Part B” (section 1852(a)(1)(B)(i) of the Act). There is nothing in the Act that suggests that beneficiaries who enroll in a Medicare Part C plan forfeit their entitlement to Medicare Part A benefits. Second, once a beneficiary enrolls in Medicare Part C, the MA plan must provide the beneficiary with the benefits to which he or she is entitled under Medicare Part A, even though it may also provide for additional supplemental benefits (section 1852(a)(1)(A) of the Act). Third, under certain circumstances, Medicare Part A pays for care furnished to patients enrolled in Medicare Part C plans. For example, if, during the course of the year, the scope of benefits provided under Medicare Part A expands beyond a certain cost threshold due to Congressional action or a national coverage determination, Medicare Part A will pay the provider for the cost of those services directly (section 1852(a)(5) of the Act). Similarly, Medicare Part A also pays for federally qualified health center services and hospice care furnished to MA patients (section 1853(a)(4) and (h)(2) of the Act, respectively). Thus, we continue to believe that a patient enrolled in an MA plan remains entitled to benefits under Medicare Part A, and should be counted in the Medicare fraction of the DPP, and not the Medicaid fraction.

We also believe that our policy of counting patients enrolled in MA plans in the Medicare fraction was a logical outgrowth of the FY 2004 IPPS proposed rule, and, accordingly, have filed an appeal in the Allina case. However, in an abundance of caution and for the reasons discussed above, in this proposed rule, we are proposing to readopt the policy of counting the days of patients enrolled in MA plans in the Medicare fraction of the DPP. We are seeking public comments from interested parties that may support or oppose the proposal to include the MA patient days in the Medicare fraction of the DPP calculation for FY 2014 and subsequent years. We will evaluate these public comments and consider whether a further change in policy is warranted, and will include our final determination in the FY 2014 IPPS final rule. We are not proposing any change to the regulation text at this time, because the current text reflects the policy being proposed.

3. New Payment Adjustment Methodology for Medicare Disproportionate Share Hospitals (DSHs) Under Section 3133 of the Affordable Care Act (§ 412.106)

a. General Discussion and Legislative Change

Section 3133 of the Patient Protection and Affordable Care Act (PPACA), as amended by section 10316 of PPACA and section 1104 of the Health Care and Education Reconciliation Act (Pub. L. 111-152), added a new section 1886(r) to the Act that modifies the methodology for computing the Medicare DSH payment adjustment beginning in FY 2014. For purposes of this proposed rule, we will refer to these provisions collectively as Section 3133 of the Affordable Care Act.

Currently, Medicare DSH adjustment payments are calculated under a statutory formula that considers the hospital's Medicare utilization attributable to beneficiaries who also receive Supplemental Security Income (SSI) benefits and the hospital's Medicaid utilization. Beginning for discharges in FY 2014, hospitals that qualify for Medicare DSH payments under section 1886(d)(5)(F) will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments. This provision applies equally to hospitals that qualify for DSH payments under section 1886(d)(5)(F)(i)(II) of the Act, the so-called Pickle hospitals. Pursuant to new section 1886(r), Pickle hospitals would receive 25 percent of the 35 percent add-on adjustment for which they would otherwise qualify under section 1886(d)(5)(F)(i)(II). The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced to reflect changes in the percentage of individuals under age 65 who are uninsured, will become available to make additional payments to each hospital that qualifies for Medicare DSH payments and that has uncompensated care. The payments to each hospital for a fiscal year will be based on the hospital's amount of uncompensated care for a given time period relative to the total amount of uncompensated care for that same time period reported by all hospitals that receive Medicare DSH payments for that fiscal year.

Specifically, as provided by section 3133 of the Affordable Care Act, section 1886(r) of the Act requires that, for “fiscal year 2014 and each subsequent fiscal year,” a “subsection (d) hospital” that would otherwise receive a “disproportionate share hospital payment . . . made under subsection (d)(5)(F)” will receive two separately calculated payments. Specifically, section 1886(r)(1) of the Act provides that the Secretary shall pay to such a subsection (d) hospital (including a Pickle hospital) 25 percent of the amount the hospital would have received under section 1886(d)(5)(F) of the Act for disproportionate share payments, which represents “the empirically justified amount for such payment, as determined by the Medicare Payment Advisory Commission in its March 2007 Report to the Congress.” We refer to this payment as the “empirically justified Medicare DSH payment.”

In addition to this payment, section 1886(r)(2) of the Act provides that, for fiscal year 2014 and each subsequent fiscal year, the Secretary shall pay to “such subsection (d) hospital an additional amount equal to the product of” three factors. The first factor is the difference between “the aggregate amount of payments that would be made to subsection (d) hospitals under subsection (d)(5)(F) if this subsection did not apply” and “the aggregate amount of payments that are made to subsection (d) hospitals under paragraph (1)” for each fiscal year. Therefore, this factor amounts to 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F) of the Act.

The second factor is, for FYs 2014 through 2017, 1 minus the percent change in the percent of individuals under the age of 65 who are uninsured, determined by comparing the percent of such individuals who are uninsured in 2013, the last year before coverage expansion under the Affordable Care Act (as calculated by the Secretary based on the most recent estimates available from the Director of the Congressional Budget Office before a vote in either House on the Health Care and Education Reconciliation Act of 2010 that, if determined in the affirmative, would clear such Act for enrollment), minus 0.1 percentage point for FY 2014, and minus 0.2 percentage point for FYs 2015 through 2017. For FYs 2014 through 2017, the baseline for the estimate of the change in uninsurance is fixed by the most recent estimate of the Congressional Budget Office before the final vote on the Health Care and Education Reconciliation Act of 2010, which is contained in a March 20, 2010 letter from the then Director of the Congressional Budget Office to the Speaker of the House. A link to this letter is included in section V.E.3.d.2. of the preamble of this proposed rule.

For FY 2018 and subsequent years, the second factor is 1 minus the percent change in the percent of individuals who are uninsured, as determined by comparing the percent of individuals “who are uninsured in 2013 (as estimated by the Secretary, based on data from the Census Bureau or other sources the Secretary determines appropriate, and certified by the Chief Actuary” of CMS, and “who are uninsured in the most recent period for which data is available (as so estimated and certified) minus 0.2 percentage points for FYs 2018 and 2019.” Thus, for FY 2018 and subsequent years, the statute provides some greater flexibility in the choice of the data sources to be used in the estimate of the change in the percent of the uninsured.

The third factor is a percent that, for each subsection (d) hospital, “represents the quotient of . . . the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data . . .),” including the use of alternative data “where the Secretary determines that alternative data is available which is a better proxy for the costs of subsection (d) hospitals for . . . treating the uninsured,” and “the aggregate amount of uncompensated care for all subsection (d) hospitals that receive a payment under this subsection.” Therefore, this third factor represents a hospital's uncompensated care amount for a given time period relative to the uncompensated care amount for that same time period for all hospitals that receive Medicare DSH payments in that fiscal year, expressed as a percent. For each hospital, the product of these three factors represents its additional payment for uncompensated care for the applicable fiscal year. We refer to the additional payment determined by these factors as the “uncompensated care payment.”

Section 1886(r) of the Act states that this provision is effective for “fiscal year 2014 and each subsequent fiscal year.” In this proposed rule, we set forth our proposals for implementing the required changes to the DSH payment methodology. We note that, because section 1886 (r) modifies the payment required under section 1886(d)(5)(F) of the Act, it affects only the DSH payment under the operating IPPS. It does not revise or replace the capital IPPS DSH payment provided under the regulations at 42 CFR Part 412, Subpart M, which were established through the exercise of the Secretary's discretion in implementing the capital IPPS under section 1886(g)(1)(A) of the Act.

Finally, section 1886(r)(3) of the Act provides that there shall be “no administrative or judicial review under section 1869, section 1878, or otherwise” of “any estimate of the Secretary for purposes of determining the factors described in paragraph (2),” or of “any period selected by the Secretary” for the purpose of determining those factors. Therefore, there can be no administrative or judicial review of the estimates developed for purposes of applying the three factors used to determine uncompensated care payments, or the periods selected in order to develop such estimates.

b. Eligibility

As indicated above, the new payment methodology applies to “subsection (d) hospitals” that would otherwise receive a “disproportionate share payment . . . made under subsection (d)(5)(F).” Therefore, eligibility for empirically justified Medicare DSH payments is unchanged under this new provision. Consistent with the law, hospitals must receive empirically justified Medicare DSH payments in FY 2014 or a subsequent year to receive an additional Medicare uncompensated care payment for that year. Specifically, section 1886(r)(2) of the Act states that, “[i]n addition to the payment made to a subsection (d) hospital under paragraph (1), . . . the Secretary shall pay to such subsection (d) hospital an additional amount . . .” (Emphasis supplied.) Because paragraph (1) refers to empirically justified Medicare DSH payments, the additional payment under section 1886(r)(2) is, therefore, limited to hospitals that receive empirically justified Medicare DSH payments pursuant to section 1886(r)(1) of the Act for FY 2014 and subsequent years.

In this proposed rule, we are proposing that hospitals that are not eligible to receive empirically justified Medicare DSH payments in FY 2014 and subsequent years would not receive uncompensated care payments for those respective years. We also are proposing to make a determination concerning eligibility for interim uncompensated care payments based on each hospital's estimated DSH status for FY 2014 or the applicable year (using the most recent data that are available). Our final determination on the hospital's eligibility for uncompensated care payments would be based on the hospital's actual DSH status on the cost report for that payment year. (We discuss these proposals in more detail below.)

In the course of developing these proposed policies for implementing the provision of section 1886(r) of the Act, we considered whether several specific classes of hospitals are included within the scope of the statutory provision. In particular, we considered whether the provision applies to (1) hospitals in the Commonwealth of Puerto Rico, (2) hospitals in the State of Maryland paid under a waiver as provided in section 1814(b) of the Act, (3) sole community hospitals (SCHs), (4) hospitals participating in the Bundled Payments for Care Improvement Initiative developed by the Center for Medicare and Medicaid Innovation (Innovation Center), and (5) hospitals participating in the Rural Community Hospital demonstration. We discuss each of these specific classes of hospitals below.

(1) Puerto Rico Hospitals

Under section 1886(d)(9)(A) of the Act, Puerto Rico hospitals subject to the IPPS are not “subsection (d) hospitals,” but rather constitute a distinct class of “subsection (d) Puerto Rico hospitals.” However, section 1886(d)(9)(D)(iii) of the Act specifies that subparagraph (d)(5)(F) (the provision governing the current DSH payment methodology) “shall apply to subsection (d) Puerto Rico hospitals . . . in the same manner and to the extent as [it applies] to subsection (d) hospitals.” While the new section 1886(r) of the Act does not specifically address whether the methodology established there applies to “subsection (d) Puerto Rico hospitals,” section 3133 of the Affordable Care Act does make a revision to section 1886(d)(5)(F)(i) of the Act that is crucial for determining the eligibility of Puerto Rico hospitals for empirically justified Medicare DSH payments and uncompensated care payments under the new provision. Specifically, section 3133 of the Affordable Care Act amended section 1886(d)(5)(F)(i) of the Act to provide that this section is “[s]ubject to subsection (r).” One effect of this amendment is to provide that all hospitals subject to section 1886(d)(5)(F)(i) of the Act, including “subsection (d) Puerto Rico hospitals,” also are subject to the new payment methodology established in section 1886(r) of the Act.

In this proposed rule, we are proposing that subsection (d) Puerto Rico hospitals that are eligible for DSH payments also would be eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the new payment methodology.

We are inviting public comments on this proposal.

(2) Hospitals Paid Under a Waiver Under Section 1814(b) of the Act

Under section 1814(b) of the Act, hospitals in the State of Maryland are subject to a waiver from the Medicare payment methodologies under which they would otherwise be paid. We have taken the position in other contexts, for example, for purposes of EHR incentive payments (75 FR 44448), that Maryland acute care hospitals remain subsection (d) hospitals. This is because these hospitals are “located in one of the fifty States or the District of Columbia” (as provided in the definition of subsection (d) hospitals) and do not meet the definitions of the hospitals that are specifically excluded from that category, such as cancer hospitals and psychiatric hospitals. However, section 1886(r) of the Act applies to hospitals that are both subsection (d) hospitals and hospitals that would otherwise receive a disproportionate share payment made under the previous DSH payment methodology. Because Maryland waiver hospitals are paid under section 1814(b)(3) of the Act and not under section 1886(d)(5)(F) of the Act, they are not eligible to receive empirically justified Medicare DSH payments and uncompensated care payments under the new payment methodology of section 1886(r) of the Act.

(3) Sole Community Hospitals (SCHs)

SCHs are paid based on their hospital-specific rate from certain specified base years or the IPPS Federal rate, whichever yields the greatest aggregate payment for the hospital's cost reporting period. Payments based on the Federal rate are based on the IPPS standardized amount and include all applicable IPPS add-on payments, such as outliers, DSH, and IME, while payments based on the hospital-specific rate have no add-on payments. For each cost reporting period, the fiscal intermediary/MAC determines which of the payment options will yield the highest aggregate payment. Interim payments are automatically made on a claim-by-claim basis at the highest rate using the best data available at the time the fiscal intermediary/MAC makes the payment determination for each discharge. However, it may not be possible for the fiscal intermediary/MAC to determine in advance precisely which of the rates will yield the highest aggregate payment by year's end. In many instances, it is not possible to forecast outlier payments or the final amount of the DSH payment adjustment or the IME adjustment until cost report settlement. As noted above, these adjustment amounts are applicable only to payments based on the Federal rate and not to payments based on the hospital-specific rate. The fiscal intermediary/MAC makes a final adjustment at cost report settlement after it determines precisely which of the payment rates would yield the highest aggregate payment to the hospital for its cost reporting period. This payment methodology makes SCHs unique as they can change on a yearly basis from receiving hospital-specific rate payments to receiving Federal rate payments, or vice versa.

In order to implement the provisions of section 1886(r) of the Act, we are proposing to continue to determine interim payments for SCHs based on what we estimate and project their DSH status to be prior to the beginning of the Federal fiscal year (based on the best available data at that time), subject to settlement through the cost report. We also are proposing that SCHs that receive interim empirically justified DSH payments in a fiscal year would receive interim uncompensated care payments that fiscal year, subject as well to settlement through the cost report. Final eligibility determinations would be made at the end of the cost reporting period at settlement, and both interim empirically justified Medicare DSH payments and uncompensated care payments would be adjusted accordingly. We are thus proposing to follow the same processes of interim and final payments for SCHs that we are proposing to follow for eligible IPPS DSH hospitals generally. (We discuss these processes in more detail below.)

As previously noted, under the SCH payment methodology, SCHs are paid the higher of the Federal rate or a hospital-specific payment rate. This payment methodology is defined under sections 1886(d)(5)(D)(i) and 1886(d)(1)(A)(iii) of the Act. Section 1886(d)(3) specifically provides that SCH payments are to be made on a per-discharge basis. Accordingly, as we also note below, we are proposing that the uncompensated care payments would not be accounted for in determining whether an SCH is paid the higher of the Federal rate or the hospital-specific rate. This is because the uncompensated care payments are not discharge-driven payments, but rather are payments made on the basis of a hospital's overall share of uncompensated care during a payment year. The amount of a hospital's uncompensated care payments for a year is not directly affected by the number of the hospital's discharges for the year. Therefore, we do not believe that uncompensated care payments should be taken into account in a comparison based on discharge driven hospital-specific and Federal rate payments. Furthermore, as we propose later in this rule, we intend to make interim uncompensated care payments on a periodic basis rather than a per discharge basis in order to create more predictability for hospitals and to increase administrative efficiency. To the extent the payments are intended to reflect the relative amount of uncompensated care furnished by the hospital, it is both reasonable and appropriate to view this payment as an amount for the year, which in the interests of predictability and consistency is made periodically through interim payments.

We are inviting public comments on all of these proposals affecting SCHs.

(4) Hospitals Participating in the Bundled Payments for Care Improvement Initiative

IPPS hospitals that have elected to participate in the Bundled Payments for Care Improvement initiative receive a payment that links multiple services furnished to a patient during an episode of care. We have stated in previous rulemaking that those hospitals continue to be paid under the IPPS (77 FR 53342). Hospitals that elect to participate in the initiative can still receive DSH payments while participating in the initiative, if they otherwise meet the requirements for receiving such payments.

In this proposed rule, we are proposing to apply the new DSH payment methodology to the hospitals in this initiative, so that eligible hospitals would receive empirically justified DSH payments and uncompensated care payments.

We are inviting public comments on this proposal.

(5) Hospitals Participating in the Rural Community Hospital Demonstration

Section 410A of the Medicare Mod