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Rule

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

Action

Final Rules.

Summary

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems. Some of the changes implement certain statutory provisions contained in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act) and other legislation. These changes will be applicable to discharges occurring on or after October 1, 2013, unless otherwise specified in this final rule. We also are updating the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits will be effective for cost reporting periods beginning on or after October 1, 2013.

We also are updating the payment policies and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implementing certain statutory changes that were applied to the LTCH PPS by the Affordable Care Act. Generally, these updates and statutory changes will be applicable to discharges occurring on or after October 1, 2013, unless otherwise specified in this final rule.

In addition, we are making a number of changes relating to direct graduate medical education (GME) and indirect medical education (IME) payments. We are establishing new requirements or have 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 updating policies relating to the Hospital Value-Based Purchasing (VBP) Program and the Hospital Readmissions Reduction Program. In addition, we are revising 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.

We are finalizing proposals issued in two separate proposed rules that included payment policies related to patient status: payment of Medicare Part B inpatient services; and admission and medical review criteria for payment of hospital inpatient services under Medicare Part A.

 

Table of Contents Back to Top

Tables Back to Top

DATES: Back to Top

Effective Date: These final rules are effective on October 1, 2013.

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, and Medicare Disproportionate Share Hospital (DSH) 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.

Ann Marshall, (410) 786-3059, Medicare Part B Inpatient Billing: Payable Part B Inpatient and Part B Outpatient Services and Beneficiary Utilization Days; and Physician Order and Certification for Payment of Hospital Inpatient Services under Medicare Part A Issues.

Susanne Seagrave, (410) 786-0044, Physician Order and Certification for Payment of Inpatient Rehabilitation Facility Services under Medicare Part A Issues.

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

David Danek, (617) 565-2682, Medicare Part B Inpatient Billing: Hospital and Beneficiary Appeals Issues.

Fred Grabau, (410) 786-0206, Medicare Part B Inpatient Billing: Time Limits for Filing Claims Issues.

Brian Pabst, (410) 786-2487, Medicare Part B Inpatient Billing: Coordination of Benefits Issues.

Anthony Hodge, (410) 786-6645, Qualification for Coverage of Skilled Nursing Facilities Services Issues.

SUPPLEMENTARY INFORMATION: Back to Top

Electronic Access Back to Top

This Federal Register document is also available from the Federal Register online database through 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 the proposed rule and the final rule were published in the Federal Register as part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables are no longer published in the Federal Register. Instead, these tables will be available only through the Internet. The IPPS tables for this final rule are available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/Medicare/medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen titled, “FY 2014 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2014 final rule are available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation Number CMS-1599-F. For complete details on the availability of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact 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

CCR Cost-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

EMTALAEmergency Medical Treatment and Labor Act of 1986, 99

FAHFederation of American Hospitals

FDAFood and Drug Administration

FFYFederal fiscal year

FPLFederal poverty line

FQHCFederally qualified health center

FRFederal Register

FTEFull-time equivalent

FUHFollow-up after hospitalization for mental illness

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

SCIPSurgical 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

SUDSubstance use disorder

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. Issuance of a Notice of Proposed Rulemaking

E. Public Comments Received in Response to the FY 2014 IPPS/LTCH PPS Proposed Rule

F. Finalization of the Proposed Rule on Medicare Part B Inpatient Billing in Hospitals

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

A. Background

B. MS-DRG Reclassifications

C. Adoption of the MS-DRGs in FY 2008

D. FY 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. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Discussion and Policies 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. 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. 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. 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. 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. 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 FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights

2. Methodology for Calculation of the Relative Weights

3. Development of National Average CCRs

4. Bundled Payments for Care Improvement (BPCI) Initiative

I. Add-On Payments for New Services and Technologies

1. Background

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

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

a. AutoLaser Interstitial Therapy (Auto LITT®) System

b. Glucarpidase (Trade Brand Voraxaze®)

c. DIFICID® (Fidaxomicin) Tablets

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

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

a. Kcentra®

b. Argus® II Retinal Prosthesis System

c. Responsive Neurostimulator (RNS) System

d. Zilver® PTX® Drug Eluting Stent

e. MitraClip® System

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

A. Background

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

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

F. Occupational Mix Adjustment to the FY 2014 Wage Index

1. Development of Data for the 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 Occupational Mix Adjustment for FY 2014

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

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

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

a. Rural Floor

b. Imputed Floor

c. Frontier Floor

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

J. Process for Requests for Wage Index Data Corrections

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

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

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

1. FY 2014 Inpatient Hospital Update

2. 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. 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. Conforming Regulatory Changes

3. 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 Policy Changes Affecting GME

E. 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. Conforming Regulatory Changes

c. Expiration of the MDH Program

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

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Overview

3. FY 2014 Policies for the Hospital Readmissions Reduction Program

a. Overview

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

c. Expansion of the Applicable Conditions for FY 2015

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

f. Applicable Period for FY 2014

g. 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 Removal of AMI-8a, PN-3b, and HF-1 Measures

b. New Measures for the FY 2016 Hospital VBP Program

c. Future Measures for the Efficiency Domain

7. Performance Periods and Baseline Periods

a. Background

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

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

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

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

8. 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. FY 2016 Hospital VBP Program Scoring Methodology

a. General Hospital VBP Program Scoring Methodology

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

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

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

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

10. Applicability of the Hospital VBP Program to Hospitals

a. Background

b. 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. Implementation of the HAC Reduction Program

a. Definitions

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

c. Measure Selection and Conditions, Including a Proposed Risk-Adjustment 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. Inclusion of Labor and Delivery Days in the Calculation of Medicare Utilization for Direct GME Payment Purposes and for Other Medicare Purposes

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. FY 2014 Budget Neutrality Offset Amount

L. Hospital Emergency Services under EMTALA: Technical Change (§ 489.24(f))

M. Hospital Services Furnished under Arrangements

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

D. Annual Update for FY 2014

VII. Changes for Hospitals Excluded from the IPPS

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

B. Report of Adjustment (Exceptions) Payments

C. Critical Access Hospitals (CAHs): Changes to Conditions of Participation (CoPs)

1. Background

2. Policy Changes

VIII. 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. 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. Changes to the MS-LTC-DRGs for FY 2014

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

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

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

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

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

f. Low-Volume MS-LTC-DRGs

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

C. LTCH PPS Payment Rates for FY 2014

1. Overview of Development of the LTCH Payment Rates

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

d. Market Basket Under the LTCH PPS for FY 2014

e. Annual Market Basket Update for LTCHs for FY 2014

3. 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. Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background

a. History of Measures Adopted for the Hospital IQR Program

b. Maintenance of Technical Specifications for Quality Measures

c. Public Display of Quality Measures

2. Removal and Suspension of Hospital IQR Program Measures

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

b. Hospital IQR Program Measures Removed in Previous Rulemaking

c. 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. 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. Refinements to Existing Measures in the Hospital IQR Program

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

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

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

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

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

e. 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. Data Submission Requirements for Chart-Abstracted Measures

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

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

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

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

a. Timing and Number of Quarters Included in Validation

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

c. Procedures for Scoring Records for Validation

d. Procedures to Select Hospitals for Validation

e. Procedures for Submitting Records for Validation

11. 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. 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 for the FY 2014 Program Year and Subsequent Years

4. Considerations in the Selection of the Quality Measures

5. New Quality Measures

a. New Measure Beginning for the FY 2015 Program Year and Subsequent Years—NHSN Healthcare-Associated Infection (HAI) Measure: Surgical Site Infection (SSI) (NQF #0753)

b. New Measures Beginning for the FY 2016 PQHQR Program Year and Subsequent Years

6. Possible New Quality Measure Topics for Future Years

7. Maintenance of Technical Specifications for Quality Measures

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

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

a. Background

b. Waivers from Program Requirements

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

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

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

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

g. HCAHPS Requirements

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

1. Statutory History

2. General Considerations 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 Years

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

7. Revisions to Previously Adopted Quality Measures

a. Revisions for Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431)

b. Revisions for Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) for the FY 2016 Payment Determination and Subsequent Years

c. Revisions for Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short-Stay) (NQF #0678) for the FY 2015 Payment Determination and Subsequent Years

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

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

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

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

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 Years

a. Background

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

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

d. 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 Years

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

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

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

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

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

a. LTCHQR Program Reconsideration and Appeals for the FY 2014 Payment Determination

b. LTCHQR Program Reconsideration and Appeals for the FY 2015 Payment Determination

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

a. Background

b. New Quality Measures for the FY 2016 Payment Determination and Subsequent Years

c. Maintenance of Technical Specifications for Quality Measures

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

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

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

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

e. 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. Expanded Electronic Submission Period for CQMs

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

4. Case Number Threshold Exemption—Requirements Regarding Data Submission

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

XI. Payment Policies Related to Patient Status

A. Background

B. Payment of Medicare Part B Hospital Inpatient Services

1. Payable Medicare Part B Inpatient Services

a. Payment Methodology

b. Other Revisions Resulting from Our Review of the Regulations

2. Billing for Part B Outpatient Services in the 3-Day Payment Window

3. Applicability: Hospital Self-Audit

4. Applicability: Types of Hospitals

5. Beneficiary Liability under Section 1879 of the Act

6. Applicable Beneficiary Liability: Hospital Services

7. Applicable Beneficiary Liability: Skilled Nursing Facility Services

8. Time Limits for Filing Claims

9. Appeal Procedures

10. Coordination of Benefits with Supplemental Insurers

11. Public Comments on Other Issues

a. Application to Disproportionate Share Hospital (DSH) Payments, Indirect Medical Education (IME) and Graduate Medical Education (GME) Payments, and Other IPPS Adjustments

b. Application to Beneficiary Utilization Days under Medicare Part A

c. Applicability to the Medicare Advantage (MA) Program

12. Regulatory Impact Analysis: Final Part B Inpatient Payment Policy

a. Statement of Need

b. Overall Impact

c. Estimated Impacts of the Final Part B Inpatient Payment Policy

d. Alternatives Considered

e. Accounting Statement and Table

f. Conclusion

13. Collection of Information Requirements

C. Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A

1. Background

2. Requirements for Physician Orders and Physician Certification

a. Applicability for All Hospitals

b. Applicability to Inpatient Rehabilitation Facilities (IRFs)

3. Inpatient Admission Guidelines

a. Correct Coding Reviews

b. Complete and Accurate Documentation

c. Medical Necessity Reviews

4. Impacts of Changes in Admission and Medical Review Criteria

XII. MedPAC Recommendations

XIII. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

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

3. ICRs for the Occupational Mix Adjustment to the FY 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

Regulation Text

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

I. Summary and Background

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

A. Calculation of the Adjusted Standardized Amount

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

C. Calculation of the Prospective Payment Rates

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

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

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

C. Capital Input Price Index

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

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

A. LTCH PPS Standard Federal Rate for FY 2014

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

1. Background

2. Geographic Classifications/Labor Market Area Definitions

3. LTCH PPS Labor-Related Share

4. LTCH PPS Wage Index for FY 2014

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

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

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

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

VI. Tables Referenced in this Final Rulemaking and Available through the Internet on the CMS Web site

Appendix A—Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

B. Need

C. Objectives of the IPPS

D. Limitations of Our Analysis

E. Hospitals Included in and Excluded from the IPPS

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

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

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Policy Changes

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

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

3. Effects of 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 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 Policy Relating to the Furnishing of Acute Care Inpatient Services by CAHs

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

K. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

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

1. Introduction and General Considerations

2. Impact on Rural Hospitals

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

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

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

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

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

P. Effects of 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

C. Part B Inpatient Hospital Services

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. FY 2014 Inpatient Hospital Update

B. Update for SCHs for FY 2014

C. FY 2014 Puerto Rico Hospital Update

D. Update for Hospitals Excluded from the IPPS

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

Under various statutory authorities, we are making changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 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 Law110-90 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 making a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. Although we are not making an additional prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effects through FY 2010, we solicited 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. The public comments that we received are addressed in section II.C. of the preamble of this final rule.

b. 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. Therefore, beginning in FY 2014, we are calculating 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. Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

In section IV. of the preamble of this final rule, we are rebasing and revising the acute care hospital operating and capital market baskets used to update IPPS payment rates. For both market baskets, we are updating the base year cost weights from a FY 2006 base year to a FY 2010 base year. We also are recalculating the labor-related share using the FY 2010-based hospital market basket, for discharges occurring on or after October 1, 2013. We used the FY 2010-based market baskets 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 revised market basket costs weights.

d. Reduction of Hospital Payments for Excess Readmissions

We are making 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. For FYs 2013 and 2014, these conditions are acute myocardial infarction, heart failure, and pneumonia. For FY 2014, we are establishing additional exclusions to the three existing readmission measures (that is, the excess readmission ratio) to account for additional planned readmissions. We also are establishing additional readmissions measures to be used in the Hospital Readmissions Reduction Program for FY 2015. In addition, we are specifying 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), in accordance with the statute. We are making 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 readmissions 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 final rule, we are outlining payment details for the FY 2014 Hospital VBP Program. In addition, we are establishing numerous policies for the FY 2016 Hospital VBP Program, including measures, performance standards, and performance and baseline periods. We also are establishing a disaster/extraordinary circumstances exceptions 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 final rule, we are establishing 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 providing 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 will 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, will 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 including 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. 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 hospital 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 final rule, we are implementing these statutory changes.

i. Medicare Part B Inpatient Billing in Hospitals

We are finalizing our proposal that when a Medicare Part A claim for hospital inpatient services is denied because the inpatient admission was determined not reasonable and necessary, or if a hospital determines under 42 CFR 482.30(d) or § 485.641 after a beneficiary is discharged that his or her inpatient admission was not reasonable and necessary, the hospital may be paid for the Part B services that would have been reasonable and necessary if the beneficiary had been treated as a hospital outpatient rather than admitted as an inpatient, provided the beneficiary is enrolled in Medicare Part B. We are finalizing our proposal to continue applying the timely filing restriction to the billing of all Part B inpatient services, under which claims for Part B services must be filed within 1 year from the date of service. However, we are modifying what we stated in the preamble of the proposed rule regarding the applicability of the CMS Ruling 1455-R to certain claims. We will permit hospitals to follow the Part B billing timeframes established in the Ruling after the effective date of this rule, provided (1) the Part A claim denial was one to which the Ruling originally applied; or (2) the Part A inpatient claims has a date of admission before October 1, 2013, and is denied after September 30, 2013 on the grounds that although the medical care was reasonable and necessary, the inpatient admission was not. In this final rule, we also describe the beneficiary liability and other impacts of our final policies.

j. 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 final rule, we are clarifying the rules governing physician orders of hospital inpatient admissions for payment under Medicare Part A. We are clarifying and specifying in the regulations that an individual becomes an inpatient of a hospital, including a CAH, when formally admitted as such pursuant to an order for inpatient admission by a physician or other qualified practitioner described in the final regulations. The order is required for payment of hospital inpatient services under Medicare Part A. We are specifying that for those hospital stays in which the physician expects the beneficiary to require care that crosses 2 midnights and admits the beneficiary based upon that expectation, Medicare Part A payment is generally appropriate. Conversely, we are specifying that hospital stays in which the physician expects the patient to require care less than 2 midnights, payment under Medicare Part A is generally inappropriate. This will 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 using our exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to offset the additional IPPS expenditures under this policy change by reducing the standardized amount, the hospital-specific amount, and the Puerto Rico-specific standardized amount by 0.2 percent.

LTCH PPS Standard Federal Rate

In section VIII.A. of the preamble of this final rule, we present the LTCH PPS standard Federal rate for FY 2014, which includes an 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 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.

l. 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 final 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 final rule, we discuss the ongoing 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 that was described in the proposed rule.

m. Hospital Inpatient Quality Reporting (IQR) Program

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

In this final rule, we are making several changes to: (1) The measure set, including the removal of some measures, the suspension of one measure, the refinement of some measures, and the adoption of several new measures; (2) the administrative processes; and (3) the validation methodologies. We also are allowing hospitals the option of reporting up to four measure sets electronically for the FY 2016 payment determination. These changes will improve the timeliness and efficiency of the Hospital IQR Program and begin the process of incorporating electronic reporting into the Hospital IQR Program.

n. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program

Section 1886(s)(4) of the Act authorizes the Secretary to implement a quality reporting program for inpatient psychiatric hospitals and psychiatric units. Section 1886(s)(4) of the Act, as added and amended by sections 3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary to implement a quality reporting program for inpatient psychiatric hospitals and psychiatric units. Section 1886(s)(4)(A)(i) of the Act requires that, for rate year 2014 and each subsequent rate year, the Secretary shall reduce any annual update to a standard Federal rate for discharges occurring during such rate 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 rate year.

In this final rule, we are establishing new measures and related policies for the IPFQR Program beginning with FY 2016.

3. Summary of Costs and Benefits

  • Adjustment for MS-DRG Documentation and Coding Changes. We are making 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 Law 110-90.

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 making 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 $10.04 billion remaining to be addressed. We are not making 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.

  • Refinement of the MS-DRG Relative Weight Calculation. We refer readers to section VI.C. of Appendix A of this final rule for the overall IPPS operating impact, which includes the impact for the refinement of the MS-DRG relative weight calculation. This impact models payments to various hospital types using relative weights developed from 19 CCRs as compared to 15 CCRs. As with other changes to the MS-DRGs, these changes are to be implemented in a budget neutral manner.
  • Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals.

The finalized 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 will be no fiscal impact on the IPPS operating payment rates in FY 2014 as a result of the rebasing and revision of the IPPS market basket.

The 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 point lower than the update based on the FY 2006-based capital input price index. Therefore, we are projecting that there will be a fiscal impact of −$16 million to the IPPS capital payments in FY 2014 as a result of this policy (0.2 percentage point * annual capital IPPS payments of approximately $8 billion).

In addition, we are updating the labor-related share under the IPPS for FY 2014 based on the final FY 2010-based IPPS market basket, which will result in a labor-related share of 69.6 percent (compared to the FY 2013 labor-related share of 68.8 percent) or 62 percent, depending on which results in higher payments to the hospital. For FY 2014, the labor-related share for the Puerto Rico-specific standardized amount will be either 63.2 percent or 62 percent, depending on which results in higher payments to the hospital. We are projecting that there will be no impact on aggregate IPPS payments as a result of this policy 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 final 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 −$227 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. 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 final rule.
  • Counting of Inpatient Days in the Medicare Utilization Calculation. We believe our policy change to include labor and delivery days as inpatient days in the Medicare utilization calculation will result in a savings of approximately $19 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 additional 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 specifying that 75 percent of what otherwise would have been paid for Medicare DSH payments is adjusted to 94.3 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 of the Affordable Care Act are adjusted to 70.7 percent (the product of 75 percent and 94.3 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 0.4 percent as compared to Medicare DSH payments prior to the implementation of section 3133 of the Affordable Care Act. The additional payments have redistributive effects based on a hospital's uncompensated care amount relative to the uncompensated care amount for all hospitals that are estimated to receive Medicare DSH payments. These additional payments will be made through the claims processing system for each hospital discharge.

  • Part B Hospital Inpatient Payment Policy. In this final rule, we are revising Medicare's policy for payment of Part B hospital inpatient services following the denial of a Part A hospital inpatient claim on the basis that the inpatient admission was not reasonable and necessary, but hospital outpatient services would have been reasonable and necessary in treating the beneficiary. We estimate that the final policy will result in an approximately $4.6 billion decrease in Medicare program expenditures over 5 years. In section XI. of the preamble of this final rule, we set forth a detailed analysis of the regulatory and Federalism impacts that the policy changes are expected to have on affected entities and beneficiaries.
  • Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A. In this final rule, we are making changes relating to admission and medical review criteria for hospital inpatient admissions under Medicare Part A. One aspect of these changes is that hospital inpatient admissions spanning 2 midnights in the hospital will generally qualify as appropriate for payment under Medicare Part A. Our actuaries estimate that the change will increase IPPS expenditures by approximately $220 million due to an expected net increase in inpatient encounters. We are using 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 $200 million in additional IPPS expenditures. We also are applying 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 providing 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 policy, 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 removing seven measures (six chart-abstracted measures and one structural measure) and suspending one measure. We also are adopting five new claims-based measures for the FY 2016 payment determination and subsequent years. For the FY 2016 payment determination and subsequent years, we will validate two additional chart-abstracted HAI measures: MRSA bacteremia, and C. difficile. We also are reducing 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 allowing hospitals to submit patient charts for purposes of validation either in paper form or by means of electronic transmission. We believe the changes to the measure set, processes, and validation methodologies, the electronic submission of records for validation, as well as allowing 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 changes and the reduction in measures mentioned above will reduce burden hours by 700,000 hours annually.
  • Update to the LTCH PPS Standard Federal Rate and Other Payment Factors. Based on the best available data for the 425 LTCHs in our database, we estimate that the changes we are presenting in the preamble and Addendum of this final rule, including the update to the standard Federal rate for FY 2014, the changes to the area wage adjustment for FY 2014, and the changes to short-stay outliers and high-cost outliers, will result in an increase in estimated payments from FY 2013 of approximately $72 million (or 1.3 percent). Although we generally project an increase in 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 $90 million to LTCHs. Overall, we estimate that the effect of the changes we are making 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 -$18 million (that is, the estimated increase of $72 million plus the estimated reduction of $90 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. The Affordable Care Act revised the Medicare DSH payment methodology and provides for a new additional Medicare payment that considers the amount of uncompensated care beginning on October 1, 2013.

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

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

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 final rule, we are implementing, or continuing 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, as amended by section 10316 of Public Law 111-148 and section 1104 of Pub. L. 111-152, 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 final rule, we are implementing or making 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. Issuance of a Notice of Proposed Rulemaking

On May 10, 2013, we published in the Federal Register (78 FR 27486) a proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals for FY 2014. We also set forth proposed changes relating to payments for IME and GME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, in the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2014.

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

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

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

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2014 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle Institute, International (RTI) reports and analyses relating to charge compression, including a 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 the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed 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 the proposed rule, we proposed 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 set forth the data sources used to determine the proposed revised market basket costs weights.

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

In section V. of the preamble of the proposed rule, we discussed proposed changes or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412 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 payment and eligibility purposes.
  • 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 medical review policy that hospital stays in which the physician expects the patient to require a stay that crosses 2 midnights are generally appropriate for payment under Medicare Part A, while hospital stays in which the physician expects the patient to require a stay that does not cross 2 midnights are generally inappropriate for payment under Medicare Part A.

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

In section VI. of the preamble to the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 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 the proposed rule, we discussed—

  • 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 the 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 noted 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 discussed the research being done by Kennell and Associates (Kennell) and its subcontractor, Research Triangle Institute, International (RTI), under a contract with CMS that is intended to inform the development of a payment adjustment under the LTCH PPS based on the establishment of LTCH patient criteria which were described in the proposed rule at 78 FR 27668 through 27676.

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

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

  • 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 Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

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

10. Determining Prospective Payment Rates for LTCHs

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

11. Impact Analysis

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

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

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 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 for hospitals under the IPPS. We addressed these recommendations in Appendix B of the 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.

E. Public Comments Received in Response to the FY 2014 IPPS/LTCH PPS Proposed Rule

We received approximately 721 timely pieces of correspondence containing multiple comments on the FY 2014 IPPS/LTCH PPS proposed rule. We note that some of these public comments were outside of the scope of the proposed rule. These out-of-scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those public comments are set forth in the various sections of this final rule under the appropriate heading.

F. Finalization of the Proposed Rule on Medicare Part B Inpatient Billing in Hospitals

On March 18, 2013, we issued in the Federal Register (78 FR 16632) a proposed rule that proposed to revise Medicare's payment policies under Part B when a Part A hospital inpatient claim is denied because the inpatient admission was not reasonable and necessary, but hospital outpatient services would have been reasonable and necessary in treating the beneficiary. We received 392 timely pieces of correspondence in response to this proposed rule. In section XI. of this document, we summarize and respond to these public comments and discuss our final policies after taking into consideration the public comments we received.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as 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. 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 the preamble of this final rule, 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.

As we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27504 through 27505), 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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27504 through 27505), we proposed a −0.8 percent recoupment adjustment to the standardized amount in FY 2014. As we stated in the proposed rule, we estimate that this level of adjustment would 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 would be accounted for by the end of the statutory 4-year timeline. As estimates of any future adjustments are subject to slight variations in total savings, we did not propose specific adjustments for FYs 2015, 2016, or 2017 at that time. We stated that 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. In addition, we again noted 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.

We discuss the comments we received on this proposal and our final policy for FY 2014 in the section below.

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 adjustment 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 relative weights may have resulted in slightly less than optimal payments under the FY 2007 GROUPER and relative 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.

As discussed in section II.D.6. of the preamble of the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27505), because we proposed a −0.8 percent recoupment adjustment, we did not propose a prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effect through FY 2010. However, we solicited 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).

Comment: The majority of commenters were satisfied with CMS' proposal to phase in the $11 billion adjustment required under section 631 of the ATRA. Commenters encouraged CMS to continue to implement the required adjustment gradually through FY 2017.

Response: We concur with commenters that a gradual implementation of this adjustment is the most prudent course of action. We believe that the proposed 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. Therefore, we are finalizing a −0.8 percent documentation and coding adjustment to the standardized amount for FY 2014.

Comment: Many commenters, including a national hospital association, were appreciative that CMS has reduced its original estimate of FY 2010 documentation and coding effects from 0.8 percent to 0.55 percent and believed that the 0.8 estimate was overstated. However, some commenters contended that this overstatement was not limited to FY 2010 alone. These commenters, while continuing to fundamentally disagree with the validity of underlying methodology employed by CMS, as previously described in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274-53275), requested that a prospective adjustment for any documentation and coding effect determined to have occurred in FY 2010 be partially or wholly offset by any similar overstatement that occurred in the adjustments made for documentation and coding effects that occurred during FY 2008 and FY 2009.

Response: In the proposed rule (78 FR 27505), we acknowledged that, after further consideration of the MedPAC analysis of claims data, 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, rather than the adjustment proposed in prior rulemaking of −0.8 percent. With respect to our previously finalized recoupment adjustments for documentation and coding effects in FY 2008 and FY 2009, however, we note, as discussed earlier, that section 7(b)(1)(B) of Public Law 110-90 required the Secretary to make the FY 2008 and FY 2009 recoupment adjustments based on estimates and also required that the Secretary make these adjustments for discharges occurring only in FYs 2010, 2011, and/or 2012. The Secretary made the FY 2008 and FY 2009 recoupment adjustments to the standardized amounts for discharges occurring in FY 2011 and FY 2012 based on the best estimates available at the time. We also note that section 631 of the ATRA states that the $11 billion recoupment figure “represents the amount of the increase in aggregate payments from fiscal years 2008 through 2013 for which an adjustment was not previously applied.” Any adjustment to the FY 2008 and FY 2009 recoupment, therefore, is subsumed in the $11 billion recoupment figure.

Comment: Many commenters requested that CMS not apply any of the proposed −0.8 percent recoupment adjustment as a prospective adjustment to account for any MS-DRG documentation and coding effect that occurred in FY 2010. In addition to overall concerns with CMS' methodology, commenters indicated that any prospective adjustment in addition to the recoupment required by section 631 of the ATRA would be too financially burdensome, and would be contrary to the agency's stated goal of mitigating extreme fluctuations in payment rates.

MedPAC recommended that CMS implement the full −0.55 percent prospective adjustment for FY 2010 documentation and coding in FY 2014, reducing the FY 2014 recoupment adjustment to −0.25 percent. While MedPAC acknowledged that such an action would require relatively larger adjustments in FYs 2015 through 2017 to satisfy the $11 billion recoupment requirement, it pointed out that further delay of FY 2010 documentation and coding adjustments would lead to overpayments in future fiscal years, and that, in general, prospective adjustments should be prioritized over retroactive adjustments.

Response: We have considered all of the comments received. While we are firmly committed to ensuring that changes in documentation and coding do not lead to increases in payments, we have decided not to apply a prospective adjustment to account for any documentation and coding effect that occurred in FY 2010 at this time. We note that the $11 billion recoupment required by section 631 of the ATRA will require additional documentation and coding adjustments between FY 2014 and FY 2017. If we were to apply a −0.55 percent prospective documentation and coding adjustment for FY 2014, we would be concerned that additional larger adjustments will be needed in future years to recoup the $11 billion required by ATRA. We will continue to take into account public input and any future legislation on this issue.

Comment: Several commenters opposed the implementation of any prospective adjustment to the hospital-specific rate. Similar to comments submitted in response to the FY 2013 IPPS/LTCH PPS proposed rule, as summarized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53277), commenters stated that the broad authority granted to the Secretary in section 1886(d)(5)(I)(i) of the Act is not so broad as to extend the scope of a legislative directive that was specifically limited to hospitals paid under a prospective payment system. Commenters also contended that the plain language of section 7(b)(1) of Public Law 110-90, as amended by the ATRA, provides clear instructions that the documentation and coding adjustment is only intended to apply to the standardized amounts.

Response: We continue to disagree that we do not have the authority to make prospective documentation and coding adjustments to the hospital-specific rates. We do not believe that the language in section 7(b)(1) of Public Law 110-90, as amended by the ATRA, or in section 1886(d)(3)(A)(iv) of the Act creates a limit on the broad authority granted under section 1886(d)(5)(I) of the Act. We have discussed the basis for applying any such prospective adjustment to the hospital-specific rate in our prior rules, beginning with the FY 2009 IPPS/LTCH PPS final rule (73 FR 48448). We also note that the proposed −0.8 percent recoupment adjustment for FY 2014 pursuant to section 631 of ATRA, which we are finalizing in this final rule, applies only to the standardized amount and not to the hospital-specific rates. Section 631 of the ATRA does not provide authority for a recoupment adjustment to the hospital-specific rate. However, as discussed in the FY 2010 IPPS/LTCH final rule (74 FR 24098), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50067 through 50071), the FY 2012 IPPS/LTCH PPS (76 FR 51498 through 51499), and the FY 2013 IPPS/LTCH PPS final rule (75 FR 53277 through 53278), we continue to believe that any prospective documentation and coding adjustments applied to the standardized amount should also be similarly applied to the hospital-specific rate. As discussed in the previous response, we are not making any prospective adjustment in FY 2014 to account for FY 2010 documentation and coding effects. Therefore, no documentation and coding adjustment will be applied to the hospital-specific rate in FY 2014.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

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

As we implemented cost-based relative weights, some public commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to the Research Triangle Institute, International (RTI) to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the cost-to-charge ratios (CCRs) across services within cost centers. For a detailed summary of RTI's findings, recommendations, and public comments that we received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 through 48453). In 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 reporting 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 of Proposed and Final Policy for FY 2014

As we stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27506-27507), to calculate the proposed FY 2014 MS-DRG relative weights, we proposed 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. At the time of the development of the proposed rule, we had a substantial number of hospitals completing all, or some, of these new cost centers on the FY 2011 Medicare cost reports, compared to prior years. 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.

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507), we stated that 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, in the proposed rule, we provided various data analyses 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, we proposed that 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, we proposed that 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, we proposed that 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.

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507), for comparison purposes, we included the following table to show 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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507-8), we compared a set of relative weights calculated with 15 CCRs and 19 CCRs. Based on the data available at the time of the development of the proposed rule, overall, if the 19 CCRs would be used to calculate the proposed 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 included in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27508), at the MDC level, we expected payments to 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
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

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27508), we stated that the largest estimated increase in MS-DRG relative weights would likely occur for MS-DRGs associated with cardiac catheterization and implantable cardiac devices. We also stated that 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 included in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27508) the table below, which showed, based on data available at the time of the development of the proposed rule, the top 10 (nonlabor and delivery) MS-DRGs that we predicted would experience the largest increases and decreases in relative weights through use of the expanded 19 CCRs, as compared to previous 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

During development of the FY 2014 proposed rule, 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 noted 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 estimated 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.

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27508), we indicated that as we 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 believed that the analytic findings described above using the FY 2011 cost report data and FY 2012 claims data supported our original decision to break out and create new cost centers for implantable devices, MRIs, CT scans, and cardiac catheterization, and we saw no reason to further delay proposing to implement the CCRs of each of these cost centers. Therefore, beginning in FY 2014, we proposed 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 welcomed public comments on the proposal and the impacts that it may have. We referred readers to section VI.C. of Appendix A of the proposed rule for the overall IPPS operating impact of our proposal, which modeled payments to various hospital types using relative weights developed from 19 CCRs (as compared to the previous 15 CCRs). In addition, as part of the FY 2014 IPPS/LTCH PPS proposed rule, in addition to providing Table 5, which listed 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 provided a separate table that listed all MS-DRGs and their relative weights if computed using 15 CCRs (available at the same CMS Web site cited above). We believed that these two formats would 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.

Comment: Several commenters noted that CMS concluded that there is sufficient data in the FY 2011 cost reports to support a meaningful analysis of using distinct CCRs, but did not share how it arrived at that conclusion. In particular, the commenters were unclear if 1,022 hospitals reporting cardiac catheterization are a representative sample, because they make up less than a third of the total hospitals. The commenters urged CMS to clarify how it determined the level of reporting on these new cost centers is sufficient.

Response: In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27507), we stated that, as compared to previous years, we have a substantial number of hospitals completing all, or some, of the MRI, CT scan, and cardiac catheterization cost centers on the FY 2011 Medicare cost reports. For the FY 2014 IPPS/LTCH PPS proposed rule, we used cost report data from the December 2012 update of the FY 2011 HCRIS, and found that “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 (78 FR 27507).” As part of our methodology for calculating the proposed relative weights, we first apply various trims to the cost report data of all IPPS hospitals (we refer readers to the description of the calculation of the relative weights in the FY 2014 IPPS LTCH PPS proposed rule (78 FR 27529 through 27530)). After applying these data trims, the CCRs in the proposed rule were based on data from 2,697 remaining IPPS hospitals. Therefore, our use of the term “valid” CCRs in the FY 2014 proposed rule meant that these CCRs were the ones associated with the 2,697 IPPS hospitals remaining after the usual trims were applied. Although the number of hospitals with valid cardiac catheterization CCRs is less than the number of hospitals with “valid” implantable device, MRI, or CT scan CCRs, it still represented about 38 percent of the available IPPS hospitals after application of our usual data trims (that is, 1,022/2,697 = .38). We note that many smaller hospitals do not separately report cardiac catheterization costs and charges. (This issue was raised in the FY 2011 IPPS/LTCH PPS final rule, (75 FR 50078), where, in recognition of the fact that not all hospitals separately account for cardiac catheterization costs and charges, we stated that hospitals that do not currently maintain distinct departments or accounts in their internal accounting systems for CT scanning, MRI, or cardiac catheterization are not required to create distinct departments or accounts.) Given that not all hospitals would even have a cardiac catheterization CCR, we considered 38 percent to be a substantial number, albeit, not a majority, of IPPS hospitals, from which to base our FY 2014 proposal to calculate the relative weights with a distinct cardiac catheterization CCR.

We reviewed our data analyses from previous years and note that typically, because the proposed CCRs for a given year are based on cost report data from the December update of the applicable HCRIS year, the proposed CCRs are based on data from less than 3,000 IPPS hospitals. Then, once the data for each final rule are available, which are derived from the subsequent March update of the applicable HCRIS year, the final CCRs are typically based on cost report data of more than 3,000 IPPS hospitals. This is the case for FY 2014 as well. Although the proposed CCRs were based on data of 2,697 IPPS hospitals, the March 2013 update of FY 2011 HCRIS yields: 3,207 IPPS hospitals (after various trims are applied—we refer readers to the description of the relative weight calculation in section II.H. of the preamble of this final rule); 2,707 IPPS hospitals with an implantable device CCR; 1,717 IPPS hospitals with an MRI CCR; 1,785 IPPS hospitals with a CT scan CCR; and 1,263 IPPS hospitals with a cardiac catheterization CCR. For this FY 2014 final rule, although the number of hospitals with cardiac catheterization CCRs is less than the number of hospitals with “valid” implantable device, MRI, or CT scan CCRs, it still represents approximately 39 percent of the available IPPS hospitals after application of our usual data trims (that is, 1,263/3,207 = .39). Accordingly, we believe it is appropriate to use the cardiac catheterization CCR in the calculation of the FY 2014 relative weights.

Comment: Commenters were generally supportive of the proposals to implement additional CCRs for implantable devices and cardiac catheterization. However, many commenters requested that CMS “reconsider the impact of” distinct CCRs for MRIs and CT scans “before adopting them.” Various commenters representing the medical imaging industry opposed implementation of distinct MRI and CT scan CCRs at this point, expressing concern that doing so would result in very low CCRs for these services because of hospital cost reporting practices that allocate capital costs for MRIs and CT scan across the entire hospital, rather than to the appropriate individual radiology cost centers. Specifically, the commenters reported that some hospitals currently use an imprecise “square footage” allocation methodology for the costs of large moveable equipment like CT scan and MRI machines. They indicated that while CMS recommends using two alternative allocation methods, “direct assignment” or “dollar value,” as a more accurate methodology for directly assigning equipment costs, industry analysis suggests that approximately only half of the reported cost centers for CT scan and MRI rely on these preferred methodologies. The commenters expressed concern that “square footage” allocation results in CCRs that “lack face validity,” because the proposed CCRs for CT scans and MRIs are less than the proposed CCR for general radiology, inaccurately reflecting the higher resources used for MRIs and CT scans relative to the less expensive plain film x-rays. Commenters asserted that more time is needed by hospitals to modify their cost reporting practices, and urged CMS to explore how to develop more accurate data without unduly increasing the complexity of the cost report. Some other commenters suggested that if CMS were to finalize the new CCRs, CMS should only use cost report data that meet minimum data quality standards. For example, these commenters recommended that CMS adopt the following standards for assuring validity of CT and MRI cost data:

  • Check that the hospital uses direct assignment or dollar value allocation of capital costs.
  • Check that the hospital's CT scan and MRI cost centers each have total costs of at least $250,000.
  • Check that there is evidence that the hospital reclassified overhead costs from the diagnostic radiology cost center to the CT scan and/or MRI cost centers.

A different commenter's analysis used cost report data from hospitals that employ “procedural accounting,” also known as “activity-based costing,” which the commenter stated is a more accurate way to determine costs. The commenter's analysis showed results that were in “close agreement” with CMS' proposed CCRs, giving “some comfort that the new cost centers are capturing costs as intended.” Nevertheless, the commenter urged caution before proceeding, noting large swings in certain DRG relative weights, and that many of the negatively affected DRGs are trauma related, and many of the positively affected DRGs are cardiac and orthopedic related. The commenter was concerned that specific types of hospitals have more to gain or lose under the policy based on their mix of services, and CMS should consider whether finalizing 19 CCRs “would unduly incent volume growth” in certain procedures. The commenter requested that CMS implement a “dampening policy” or a 70/30 transition blend for FY 2014 to give hospitals an opportunity to budget for such shifts and avoid unintended consequences.

Although many commenters expressed concern about the impact of implementing distinct CCRs for MRIs and CT scans under the IPPS, they noted that since MS-DRGs are bundled services, only a fraction of the negative impact would be manifested in the IPPS MS-DRGs, and that payment rates for the Ambulatory Patient Classifications (APCs) under the Hospital Outpatient Prospective Payment System (OPPS) would be affected more dramatically by the use of inaccurate CCRs. The commenters mentioned that the Deficit Reduction Act (DRA) of 2005 sets the technical component (TC) of advanced imaging services to the lesser of: (1) The Medicare Physician Fee Schedule (MPFS); or (2) the OPPS. The commenters stated that, as proposed, the separate cost centers for MRIs and CT scans would result in significant cuts to the MPFS technical component payments. Another commenter noted that as CMS proceeds with cost center refinement, services become unbundled, and may cause payment swings from year to year. The commenters urged CMS not to use the proposed CCRs for MRIs and CT scans in the IPPS, the OPPS, or the MPFS until the effects on all three systems have been thoroughly analyzed.

Response: We thank the commenters for their analyses and suggestions regarding use of distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. We appreciate the support for our proposal to use distinct CCRs for implantable devices and cardiac catheterization, and we have carefully reviewed the comments objecting to implementation of distinct CCRs for MRIs and CT scans. The new standard cost centers for CT scans, MRIs, and cardiac catheterization have been in effect since cost reporting periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10. Thus, FY 2011, which is the cost reporting year that CMS is using to calculate the CCRs for the FY 2014 MS-DRG relative weights, was either the first or the second opportunity for hospitals to submit cost reports with the new CT scan and MRI cost centers (lines 57 and 58 of Worksheets A and C, Part I of the Form CMS-2552-10), depending on the hospital's fiscal year end (FYE). (For example, a hospital with a June 30 FYE would have completed these lines on its FY 2010 July 1, 2010-June 30, 2011 cost report, and again on its FY 2011 July 1, 2011-June 30, 2012 cost report, whereas a hospital with a December 31 FYE would have first completed these cost centers on its FY 2011 January 1, 2011-December 31, 2011 cost report). However, simultaneous with first implementing the new CT scan and MRI cost centers in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50077), we also notified hospitals of the need and importance of properly reporting the capital costs of moveable equipment on the Medicare cost report. Specifically, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50078), we explained that, in accordance with Section 104 of CMS Pub. 15-1, Chapter 1, CT scans and MRIs are major moveable equipment, and the costs should be reported together with the rest of the hospital's major moveable equipment cost in the Capital-Related Costs—Moveable Equipment cost centers on Worksheet A (lines 2 and 4 on the Form CMS-2552-96 and line 2 on the Form CMS-2552-10). The costs in these cost centers are allocated to all the hospital's cost centers that use major moveable equipment (including CT and MRI), using “dollar value” (which is the “recommended” or default statistical basis, per the cost reporting instructions at CMS Pub. 15-2, Section 4095 for the Form CMS 2552-10). Alternatively, the hospital may have obtained the contractor's approval under Section 2313 of CMS Pub. 15-1 to use the simplified cost allocation methodology, “square feet.” However, a hospital that historically has been using “square feet” and is concerned that this method of allocation may result in inaccurate CCRs (on Worksheet C, Part I) for the CT scan, MRI, and other ancillary cost centers may request contractor approval in accordance with Section 2307 of the CMS Pub. 15-1 to use the “direct assignment” allocation method, and directly assign the cost of moveable equipment to all of the hospital's cost centers that use moveable equipment, including CT and MRIs, using the provider's routine accounting process. This would ensure that the high cost of the CT scanning and MRI equipment would be reflected in the CCR that would be calculated for those departments and that would be used to estimate the cost of CT scanning and MRI services. In any case, hospitals should correct their cost reporting practices to come into compliance with CMS' longstanding policy regarding the “Capital-Related Costs—Moveable Equipment” cost center, by either using the recommended statistical allocation method of “dollar value” for costs in Worksheet A, Column 2 for Capital-Related Costs—Moveable Equipment, or by requesting contractor approval in accordance with Section 2307 of CMS Pub. 15-1 to use the “direct assignment” allocation method. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53283), we reiterated this policy, and added that “Hospitals that still need to correct their cost reporting practices in this regard should do so soon, so that when we propose distinct CCRs for MRI and CT scans, hopefully for FY 2014, these CCRs will represent fairly accurately the cost of these radiology services.” Therefore, while the CCRs for CT scan and MRIs may appear to “lack face validity,” as the commenters asserted, these CCRs nevertheless reflect the cost reporting practices of many IPPS hospitals as of FY 2011, the cost reports used to calculate the CCRs for the FY 2014 MS-DRG relative weights. Furthermore, we are unsure of how the cost reporting practices of hospitals that employ the square feet allocation method result in CCRs that “lack face validity” when CCRs are calculated separately for CT scan, MRI, and radiology, but would result in CCRs that are more “valid” when aggregated into a single CCR for all radiology services.

We have considered the public comments recommending that if CMS does finalize distinct CCRs for CT scans and MRIs for the IPPS MS-DRG relative weights, CMS should adopt certain minimum quality standards, such as using only cost report data of hospitals that use either direct assignment or the dollar value statistical allocation method, have at least $250,000 of cost in the CT scan or MRI cost center, and have reclassified overhead costs from the diagnostic radiology cost center to the CT scan and/or MRI cost centers. We do not agree with adoption of these minimum data standards because doing so would ignore the fact that many hospitals have chosen (at least up to this point) to employ the square feet statistical allocation methodology, perhaps for reasons unrelated to the costs of MRIs and CT scans, and, therefore, these data reflect, in large part, the best available data that we have. It also is not administratively feasible for CMS to determine, using HCRIS data, whether hospitals have reclassified overhead costs from the diagnostic radiology cost center to the CT scan and/or MRI cost centers. However, we appreciate the one commenter's analysis of cost reports using procedural accounting (another more precise method) that yielded CCRs that were close to the CCRs that CMS proposed.

We took note of the many comments regarding the ramifications of CT scan and MRI CCRs under the OPPS and the MPFS. Specifically, commenters seemed even more concerned about an impending proposal to implement distinct MRI and CT scan CCRs under the OPPS, which, they asserted, when coupled with recent payment reductions to MRI and CT scan services under the Deficit Reduction Act of 2005, are detrimental to hospitals. (We note that at the time of the comment period for the FY 2014 IPPS/LTCH PPS proposed rule, the CY 2014 OPPS/ASC proposed rule had not yet been issued.) We understand that any such change could have significant payment impacts under the MPFS where the technical component payment for many imaging services is capped at the OPPS payment. While we appreciate the concern regarding other Medicare payment systems, we wish to point out that our decision to implement additional CCRs in this FY 2014 IPPS/LTCH PPS final rule does not predict what CMS may finalize for the CY 2014 OPPS/ASC relative payment weights. We will separately evaluate the impacts of implementing any additional CCRs under the OPPS as part of the OPPS rulemaking process. We note that the public comment periods for both the CY 2014 MPFS proposed rule and the CY 2014 OPPS/ASC proposed rule end on September 6, 2013.

We appreciate the concerns expressed by the commenters related to the swings in the relative weights of certain MS-DRGs, and the importance of not providing an incentive for hospitals to furnish, or not furnish, certain services. However, we are not convinced that further delay or further trimming of CCR values is necessary in order to implement all of the proposed CCRs. This is consistent with our historical approach to use cost report data from HCRIS that is 3 years prior to the IPPS fiscal year that is under development (that is, for the FY 2014 IPPS relative weights, the CCRs are calculated from FY 2011 HCRIS). Although hospitals have been permitted to use the alternative basis cost allocation (that is, “square feet”) under Section 2313 of CMS Pub. 15-1, this methodology does not ensure precise CCRs for CT scans and MRIs. Therefore, we encouraged hospitals over the past several years to use the most precise cost reporting methods in response to the new cost report lines. Specifically, the longstanding cost report instructions at CMS Pub. 15-2, Section 4020 (previously at Section 3617), state that “The statistical basis shown at the top of each column on Worksheet B-1 is the recommended basis of allocation of the cost center indicated which must be used by all providers completing this form (Form CMS-2552-10), even if a basis of allocation other than the recommended basis of allocation was used in the previous iteration of the cost report (Form CMS-2552-96).” Under Table 1 of the Medicare cost report, which lists the Record Specifications for the cost centers on Worksheet B-1, “dollar value” is specified as the recommended statistical allocation method for Column 2, Capital-Related Costs—Moveable Equipment. While the “dollar value” statistical allocation method is more precise than “square feet,” to ensure even more precise CCRs for CT scans and MRIs, 90 days prior to the beginning of their next cost reporting period, hospitals may request permission from their Medicare contractors in accordance with Section 2307 of CMS Pub. 15-1 to use the “direct assignment” allocation method on Worksheet B, Part II, Column 0. Although “direct assignment” is the preferred and most precise allocation method, hospitals that do not have the resources to directly assign the costs of every cost center are strongly encouraged to instead use the “dollar value” statistical allocation method. (We note that, under Section 2313 of CMS Pub. 15-1, hospitals not currently using “dollar value” should notify their contractor of their intention to switch their statistical allocation basis to “dollar value” at least 90 days prior to the end of a cost reporting period.) We also intend to communicate with the Medicare contractors to facilitate approval of hospitals' requests to switch from the square feet statistical allocation method to the “direct assignment” or “dollar value” allocation method for the costs of major moveable equipment. We believe that by adopting more refined CCRs, we are fostering more careful cost reporting. Therefore, we do not believe that the concerns expressed by the commenters warrant further delay in implementing the proposed CCRs for CT scans and MRIs for the FY 2014 IPPS/LTCH PPS final rule, nor do we believe that any type of phase-in methodology is warranted.

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, and finalize, if appropriate, the use of the distinct CCRs described above in the calculation of the MS-DRG relative weights. We believe that the analytic findings described in the proposed rule, and the volume of hospitals that have “valid” CCRs described above, computed using the March 2013 update of FY 2011 HCRIS and the March 2013 update of the FY 2012 MedPAR 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 implementation of the CCRs of each of these cost centers. Therefore, beginning in FY 2014, as we proposed, we are calculating the MS-DRG relative weights using 19 CCRs, creating distinct CCRs for implantable devices, MRIs, CT scans, and cardiac catheterization. We refer readers to section I.G. of Appendix A of this final rule for the overall IPPS operating impact of our policy, which models payments to various hospital types using relative weights developed from 19 CCRs (as compared to the previous 15 CCRs). The description of the calculation of the CCRs and the MS-DRG relative weights, including the final 19 CCRs used to calculate the relative weights for FY 2014, is included in section II.H. of the preamble of this final rule.

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, under the authority of section 1886(d)(4)(D) of the Act, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not present on admission (POA). Thus, if a selected condition that was not POA manifests during the hospital stay, it is considered a HAC and the case is paid as though the secondary diagnosis was not present. However, even if a HAC manifests during the hospital stay, if any nonselected CC/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.

BILLING CODE 4120-01-C

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 of this final rule for a discussion of our FY 2014 proposals and final policies to implement section 1886(p) of the Act.) Therefore, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27510), we proposed that hospitals in Maryland operating under their waiver under section 1814(b)(3) of the Act would 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 invited public comment regarding this proposal.

Comment: Commenters supported the CMS proposal. One commenter noted that Maryland hospitals have been required to report accurate and complete POA information on secondary diagnoses in the quarterly discharge abstract data they submit to the state for discharges beginning on July 1, 2007.

Response: We appreciate the commenters' support. Accordingly, we are finalizing our proposal to require hospitals in Maryland currently paid under section 1814(b)(3) to report the POA indicator on their claims beginning with discharges on October 1, 2013. We note that while this requirement will not be effective until that date, hospitals in Maryland may submit data with present on admission indicators before that time with the expectation that these data will be accepted by Medicare's claims processing systems.

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 final rule, the 5010 format allows the reporting and effective January 1, 2011, the processing of up to 25 diagnoses and 25 procedure codes. As such, it is necessary to report a valid POA indicator for each diagnosis code, including the principal and all secondary diagnoses up to 25.

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

As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 and 51507), 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. Current HACs and Previously Considered Candidate HACs

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27511), we did not propose to add or remove categories of HACs. However, we indicated that 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, which will continue for FY 2014. 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.

Comment: Some commenters stated they were pleased that CMS did not propose to expand the list of categories or conditions subject to the Deficit Reduction Act of 2005 provisions that would reduce payment for hospital acquired conditions not present on admission. However, commenters made the following suggestions and recommendations:

  • One commenter recommended CMS expand the HAC list in future IPPS rulemaking to include iatrogenic pneumothorax with paracentesis and thoracentesis.
  • One commenter requested that CMS reconsider its decision to include “Surgical Site Infections (SSIs) Following Cardiac Implantable Electronic Device (CIED)” under this program. The commenter also urged CMS to explore how information learned from POA coding and other data sources, such as EHRs and clinical data registries, could be used to better understand and prevent HACs.
  • One commenter suggested that CMS include “diaper rash” as a DRA HAC.
  • One commenter suggested that CMS include “Surgical Site Infections (SSIs) Following Hip and Knee Replacement” as a DRA HAC.
  • One commenter suggested that CMS include “Surgical Site Infections (SSIs) Following Cesarean Section Births” as a DRA HAC.
  • Although existing colon and hysterectomy surgical site infections are not current DRA HACs, one commenter requested that additional consideration be given to include the following exclusions for existing colon and hysterectomy surgical site infections: Chemotherapy for cancer diagnosis, penetrating trauma, obesity, and transplant. The commenter also requested that additional consideration be given to excluding trauma (de-gloving/avulsion wounds, burns, penetrating trauma), chemotherapy, and transplants from the following HAC categories: post CABG mediastinitis, orthopedic surgery of the spine/neck/shoulder/elbow and the three existing gastric bypass surgeries. The commenter indicated that these additional exclusions will better meet the intent of identifying appropriate HACs, without unnecessary penalization.
  • One commenter recommended that “. . . Where medical technology can play a role in supporting the goals of improving patient care in a cost effective manner, such consideration should be made when reflecting on whether to expand upon the list of preventable HACs, particularly in relation to infection control prevention and management.”

Response: We value and appreciate these public comments regarding the DRA HACs, and we will take all of the public comments and suggestions we received into consideration in future rulemaking.

Comment: One commenter recommended that two titles of the current DRA HACs be revised: that “Catheter-Associated Urinary Tract Infection (UTI)” be revised to “Symptomatic Urinary Tract Infection due to an Indwelling Urinary Catheter” and “Vascular Catheter-Associated Infection” be revised to “Infections due to Central Venous Catheter”, with the ICD-9-CM codes shown in the following table.

DRA HACs CC/MCC (ICD-9-CM Codes)
Catheter-Associated Urinary Tract Infection (UTI) 996.64 (CC).
Also excludes the following from acting as a CC/MCC: 112.2 (CC), 590.10 (CC), 590.11 (MCC), 590.2 (MCC), 590.3 (CC),590.80 (CC), 590.81 (CC), 595.0 (CC), 597.0 (CC), 599.0 (CC).
Vascular Catheter-Associated Infection 999.31 (CC), 999.32 (CC), 999.33 (CC).

Response: We appreciate the commenter's recommendations. However, we believe the titles correctly identify the selected HACs, as reflected in the chart above, particularly because we have included the specified codes within the HAC logic.

Comment: One commenter recommended that CMS remove the DRA HAC category “Falls and Trauma.” The commenter stated that “Falls, particularly for the vulnerable older population, can be reduced through interventions; however, they cannot be completely avoided.” Another commenter noted that some patients, particularly high-risk, comorbid individuals, may still develop the conditions on the HAC list.

Response: We refer readers to section 1886(d)(4)(D) of the Act which states that a DRA HAC is one that “(c) could reasonably have been prevented through the application of evidence-based guidelines.” We believe in the appropriate use of guidelines that we have adopted to support our DRA HAC policy. These evidence-based guidelines are posted on the DRA HAC Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Downloads/Evidence-Based-Guidelines.pdf and are reviewed regularly to ensure that if there are any changes in the status of these guidelines, they are reflected in the DRA HAC policy.

Comment: One commenter noted that, “In previous rulemaking cycles, CMS has proposed adding delirium to the list of HACs [FY 2009 IPPS proposed rule]. While we support reasonable steps to provide hospitals with incentives to recognize and treat delirium, we continue to have significant concerns about adding delirium to the list of `preventable' HACs to be excluded from the calculation of a hospital's MS-DRG reimbursement rate.”

Response: We note that this comment regarding delirium is outside of the scope of the proposals included in the FY 2014 IPPS/LTCH PPS proposed rule. In the FY 2009 IPPS final rule (73 FR 48482), regarding delirium, we stated that “After consideration of the public comments received, we have decided not to select delirium as an HAC in this final rule. We will continue to monitor the evidence-based guidelines surrounding prevention of delirium. If evidence warrants, we may consider proposing delirium as an HAC in the future.”

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. Changes to Specific MS-DRG Classifications

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27512 through 27529), we invited public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which also are discussed below. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we proposed to maintain the existing MS-DRG classification based on our analysis of claims data. The public comments that we received on each of the proposals and our response, with statements of final policies, are included below.

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 addressed this issue in the FY 2014 IPPS/LTCH PPS 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.

For the FY 2014 IPPS/LTCH PPS proposed rule, 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 stated in the proposed rule that we believe that it would not be prudent to eliminate the severity levels for the heart and liver transplant MS-DRGs. Our clinical advisors concurred with this analysis that two severity levels are justified for the heart and liver transplant MS-DRGs. Therefore, for FY 2014, we did not propose to make any changes to the severity levels for heart and liver transplant MS-DRGs 001, 002, 005, and 006. We invited public comments on this issue.

Comment: Several commenters agreed with CMS' proposal to maintain the current structure for heart and liver transplant MS-DRGs. The commenters stated that the proposal seems reasonable based on the data and information provided. One commenter agreed with CMS that creating only one MS-DRG for heart transplants or implants of heart assist systems, regardless of whether or not there is a major complication or comorbidity (MCC) present, would greatly underpay the complex cases which currently represent the majority of the volume and overpay for those less severe cases.

Response: We appreciate the commenters' support for maintaining the severity levels for the heart and liver transplant MS-DRGs based on data and our analysis.

After consideration of the public comments we received, we are not making any changes to MS-DRGs 001, 002, 005, and 006 for FY 2014.

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 the FY 2014 IPPS/LTCH PPS 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 do 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 proposed 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 (78 FR 27513 through 27514). The proposed revised MS-DRG title was: MS-DRG 065 (Intracranial Hemorrhage or Cerebral Infarction with CC or tPA in 24 Hours). We invited public comments on our proposal.

Comment: Several commenters supported CMS' proposal to reassign cases reporting ICD-9-CM diagnosis code V45.88 from MS-DRG 66 to MS-DRG 65. The commenters stated this proposal would allow for more appropriate payment and recognition of the resources required to care for stroke patients who are transferred. Several other commenters stated that the proposal was reasonable considering the data and clinical information provided.

Response: We appreciate the commenters' support. We agree that this modification to the MS-DRGs involving stroke patients will better reflect the increased costs of caring for these transfer cases.

Comment: One commenter who supported the proposal to reassign cases reporting ICD-9-CM diagnosis code V45.88 from MS-DRG 66 to MS-DRG 65 also urged CMS to move cases reporting ICD-9-CM diagnosis code V45.88 from MS-DRG 64 (Intracranial Hemorrhage or Cerebral Infarction with MCC) to MS-DRG 62 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC). The commenter noted that “It is essential that hospitals are fairly reimbursed for the additional resources associated with caring for patients treated with IV tPA even when the tPA is administered at another hospital before transfer. Without adequate reimbursement through the MS-DRG system, receiving hospitals are financially penalized for accepting patients and giving them advanced stroke care which is detrimental to stroke systems and patients suffering strokes.”

Response: We also acknowledge the commenter's concern regarding appropriate payment for the additional resources required in caring for patients treated with tPA and subsequently transferred to another facility. As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27513), we 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 based on our review of the data. In addition, our clinical advisors did not support movement of these non-tPA cases into the MS-DRGs where tPA is administered as it violates the clinical cohesiveness of these two sets of DRGs.

After consideration of the public comments we received, we are adopting as final policy for FY 2014, our proposal to move cases with diagnosis code V45.88 from MS-DRG 066 to MS-DRG 065 and to revise the title to MS-DRG 065 (Intracranial Hemorrhage or Cerebral Infarction with CC or tPA in 24 Hours).

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

Based on our analysis of FY 2012 Medicare claims data, 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 pointed 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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27514 through 27515), we did not propose any MS-DRG changes for bronchial valve(s) insertion for FY 2014. We also did not propose 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 invited public comment on this issue.

Comment: A number of commenters supported CMS' proposal not to change the MS-DRG assignment for procedures involving bronchial valve(s) insertion (procedure codes 33.71 and 33.73) which are currently assigned to MS DRGs 190, 191, and 192 and to move them to MS-DRGs 163, 164, and 165. Several of these commenters stated that the proposal not to propose any MS-DRG changes for bronchial valve(s) insertion was reasonable given the data and information provided. Other commenters agreed with the proposal not to change the MS-DRG assignment for bronchial valve insertions.

Response: We appreciate the commenters' support.

Comment: One commenter disagreed with the proposal not to change the MS-DRG assignment for bronchial valves. The commenter recommended reclassifying bronchial valve procedure codes 33.71 and 33.73 as operating room procedures rather than nonoperating procedures so that they will map to a surgical MS-DRG for inpatient hospitalizations. The commenter also recommended reassigning cases that currently map to medical MS-DRGs 190, 191, and 192 (Chronic Obstructive Pulmonary Disease with MCC, with CC, and without MCC/CC, respectively) that involve insertion of bronchial valves (ICD-9 CM procedures codes 33.71 and 33.73) to surgical MS-DRGs 163, 164, and 165 (Major Chest Procedures with MCC, with CC, or without MCC/CC, respectively). The commenter stated that currently, bronchial valve procedures are performed under a Humanitarian Device Exemption (HDE) under the Food and Drug Administration (FDA) and indicated for patients with a prolonged air leak, or air leak likely to become prolonged, following lobectomy, segmentectomy, or lung volume reduction surgery. The commenter stated that bronchial valves also are being investigated for emphysema, but this indication has not yet been approved by the FDA. The commenter stated that bronchial valve cases are more clinically complex and costly compared to other types of cases with MS-DRGs 190-192 and are more appropriately assigned to MS-DRGs 163, 164, and 165.

The commenter acknowledged that there were only two cases involving bronchial valves within MS-DRGs 190, 191, and 192. However, the commenter stated that other MS-DRGs such as those for deep brain stimulation therapy in MS-DRGs 023 and 024 (Craniotomy with Major Device Implant/Acute Complex CNS PDX with MCC or Chemo Implant and Craniotomy with Major Device Implant/Acute Complex CNS PDX with MCC or Chemo Implant without MCC, respectively) and liver and intestinal transplantation in MS-DRG 005 and 006 (Liver Transplant and/or Intestinal Transplant with MCC and Liver Transplant and/or Intestinal Transplant without MCC) contain a small number of cases. The commenter believed that the two bronchial valve cases currently assigned to the medical MS-DRG 190 would be better aligned in terms of complexity, length of stay, and costs to a surgical MS-DRG set.

Response: As stated earlier, our clinical advisors do not believe the bronchial valve procedures are clinically similar to other major chest procedures that require significantly more resources to perform. We once again point out the limited circumstances where the FDA has approved the bronchial valve are still limited to postsurgery use. The two cases that were assigned to MS-DRG 190 could have had higher costs due to a number of other factors other than the bronchial valve. Our clinical advisors noted the long length of stay for these two cases, which would not have been the result of the bronchial valve. Therefore, we do not believe it is appropriate to reclassify the bronchial valve procedure codes as operating room procedures and reassign the cases from MS-DRGs 190, 191, and 192 to MS-DRGs 163, 164, and 165.

After consideration of the public comments we received, we are finalizing our proposal not to change the MS-DRG assignments for procedures involving bronchial valve(s) insertion (procedure codes 33.71 and 33.75) within MS-DRGs 190, 191, and 192.

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.

For the FY 2014 IPPS/LTCH PPS proposed rule, 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 determined that an MS-DRG modification was not warranted for FY 2014. Therefore, we did not propose to create a new MS-DRG or to reassign cases reporting this university medical center's approach to pulmonary thromboendarterectomy. We invited public comments on this issue.

Comment: Several commenters supported CMS' proposal to not create a new MS-DRG or to reassign cases for this alternative approach to pulmonary thromboendarterectomy. The commenters stated that the proposal was reasonable, given the data and information provided.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to not create a new MS-DRG or to reassign cases for this alternative approach to pulmonary thromboendarterectomy.

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

a. Discharge/Transfer to Designated Disaster Alternative Care Site

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27516), we proposed 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 the proposed rule, we also proposed to add this new discharge status code to the Medicare Code Editor (MCE) software. We invited public comments on this proposal.

Comment: Several commenters supported CMS' proposal to add the new patient discharge status code 69 to the MS-DRG GROUPER logic for MS-DRGs 280, 281, and 282 to identify patients who are discharged or transferred to an alternative site that will provide basic patient care during a disaster response. One commenter noted that this discharge status code would seldom be used. However, the commenter believed that the code is needed.

Response: We appreciate the commenters' support. We agree that this new discharge status code will be beneficial to identify patients who are involved in those disaster situations.

Comment: One commenter expressed concern with the proposal and questioned the purpose of implementing the new patient discharge status code 69 to only MS-DRGs 280, 281, and 282 within MDC 5.

Response: We take this opportunity to point out that the new discharge status code 69 was created and approved by the National Uniform Billing Committee (NUBC) for implementation on October 1, 2013. The purpose of adding this discharge status code 69 specifically to the GROUPER logic for MS-DRGs 280, 281, and 282 is to identify those patients diagnosed with an acute myocardial infarction (AMI) who were discharged/transferred to a designated disaster alternative care site alive. The GROUPER logic for these MS-DRGs differs from the GROUPER logic for MS-DRGs 283, 284, and 285 (Acute Myocardial Infarction, Expired with MCC, with CC, and without CC/MCC, respectively) where the patient has expired.

To further clarify, as discussed in section II.G.7.b. of the preamble of the proposed rule (78 FR 27520), this new discharge status code was also proposed to be added to the GROUPER and MCE logic. Therefore, it may be assigned to other MS-DRGs.

However, when the logic for an MS-DRG is defined by specific requirements, such as discharge status designation, the logic must be updated if a new discharge status is created to appropriately group a claim. Within MDC 5, for MS-DRGs 280, 281, and 282, the software logic is specifically defined by a patient who has been diagnosed with an AMI and is discharged alive. Assignment of the proposed new discharge status code 69 would not be valid for MS-DRGs 283, 284, and 285 where the patient has been diagnosed with an AMI and has expired. In other words, an AMI patient who has expired would not be discharged/transferred to a designated disaster alternative care site. Therefore, the addition of discharge status code 69 to the software logic for those MS-DRGs (283, 284, and 285) is not applicable within MDC 5. Alternatively, a patient who has been diagnosed with an AMI and is discharged alive would clearly have the opportunity to be discharged/transferred to a designated disaster alternative care site in a given disaster scenario or circumstance. Therefore, to ensure proper MS-DRG assignment, we proposed to add discharge status code 69 to MS-DRGs 280, 281, and 282 within MDC 5.

After consideration of the public comments we received, we are finalizing our proposal to add new patient discharge status code 69 to the MS-DRG GROUPER logic for MS-DRGs 280, 281, and 282.

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

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27516), we also proposed 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.b. of the preamble of the proposed rule, these new discharge status codes was 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 Discharge status 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 invited 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.

Comment: Commenters supported CMS' proposal to add the 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. The commenters noted that these new discharge status codes will enable providers to better track AMI patients with planned versus unplanned readmissions.

Response: We appreciate the commenters' support. We agree that these new discharge status codes will assist in tracking patients diagnosed with an acute myocardial infarction who are discharged alive and expect to be readmitted at a later date.

Comment: One commenter stated that the addition of these 15 new discharge status codes to MS-DRGs 280-282 is unwarranted and believed that it will create a burden for providers to report and update systems. The commenter questioned if there is a timeframe associated with the use of these new discharge status codes and if this timeframe involves reporting a new discharge status code if the planned readmission is to treat the same condition as the current stay. In addition, the commenter questioned how CMS would verify that providers are applying these proposed discharge status codes appropriately. The commenter stated there are “plenty of descriptive discharge status codes that describe where the patient is going upon discharge. To add more to clarify what is planned seems burdensome and unnecessary.” Another commenter expressed concern with “targeting only a small number of DRGs for a large increase in applicable discharge status codes.”

Response: The new discharge status codes related to a planned acute care hospital inpatient readmission were developed and approved by the National Uniform Billing Committee (NUBC) in response to a request by the provider community. The purpose of the new codes is to allow providers to track these types of situations when they occur. According to meeting notes from the NUBC, there is not a designated timeframe (or limitation) in reporting these new codes.

With respect to ensuring that providers apply these proposed new discharge status codes correctly, we would like to point out that the American Health Information Management Association (AHIMA) has promulgated Standards of Ethical Coding that require accurate coding that includes the reporting of all health care data elements (for example, diagnosis and procedure codes, present on admission indicator, discharge status) required for external reporting purposes (for example, reimbursement and other administrative uses, population health, quality and patient safety measurement, and research) completely and accurately, in accordance with regulatory and documentation standards and requirements and applicable official coding conventions, rules, and guidelines. In addition, Medicare program integrity initiatives closely monitor for inaccurate coding, as well as coding inconsistent with medical record documentation.

In regard to the commenter's concern with targeting a small number of MS-DRGs with a large increase in discharge status codes, the discharge status codes were proposed to be added specifically to the GROUPER logic for MS-DRGs 280, 281, and 282 to identify those patients diagnosed with an acute myocardial infarction (AMI) who were discharged/transferred to another facility with a planned acute care hospital inpatient readmission alive. The GROUPER logic for these MS-DRGs differs from the GROUPER logic for MS-DRGs 283, 284, and 285 (Acute Myocardial Infarction, Expired with MCC, with CC, and without CC/MCC, respectively) where the patient has expired.

Similar to the discussion of discharge status code 69 in section II.G.4.a. of the preamble of this final rule, the planned readmission discharge status codes can also be reported for other MS-DRGs. We reiterate that, as discussed in section II.G.7.b. of the preamble of the proposed rule (78 FR 27520), these new discharge status codes were proposed for addition to the GROUPER and MCE logic as well.

When the logic for an MS-DRG is defined by specific requirements, such as a discharge status designation, the logic must be updated if a new discharge status is created to appropriately group a claim. Within MDC 5, for MS-DRGs 280, 281, and 282, the software logic is specifically defined by a patient who has been diagnosed with an AMI and is discharged alive. As such, the GROUPER logic requires that these discharge status codes for planned readmissions be added to the specific AMI DRGs where the patient has been discharged alive. An AMI patient who expired would not have a planned readmission. Therefore, these discharge status codes would not apply to MS-DRGs 283, 284, and 285 within MDC 5. Therefore, to ensure proper MS-DRG assignment, we proposed to add the 15 discharge status codes describing a planned readmission to MS-DRGs 280, 281, and 282 within MDC 5.

After consideration of the public comments we received, we are finalizing our proposal to add the above listed 15 new patient discharge status codes describing a planned acute care hospital inpatient readmission to the MS-DRG GROUPER logic for MS-DRGs 280, 281, and 282, effective October 1, 2013.

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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27517 through 27518), we did not propose 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 did not propose 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 invited public comments on this issue.

Comment: Several commenters supported CMS' proposal not to reassign reverse shoulder procedure cases reporting procedure code 81.88 from their current assignment to MS DRGs 483 and 484 or to create a new MS-DRG. Several commenters stated the proposal was reasonable given the data and information provided.

Other commenters disagreed with our recommendation of making no MS-DRG modifications for reverse shoulder procedures. One commenter stated that the procedure is unique enough in approach and cost to justify reassignment, or as an alternative, reassignment of all reverse shoulder cases to MS-DRG 483, even if the cases do not have a CC or MCC as a secondary diagnosis. The commenter stated that it is important to take into consideration the high volume of reverse shoulder procedures cases that have occurred in a very short period of time since this code was created. The commenter stated that, in the first year of this new code, more than one-third of the cases in each MS-DRG (483 and 484) are reverse shoulder procedures. For a newly created code, the commenter believed that this was extraordinary utilization and should indicate the importance of this unique procedure. The commenter stated that, without an examination of each case and the reason why some cases showed lower costs, it does not seem reasonable to dismiss the substantially higher average costs of the procedures. The commenter further stated that while CMS clinical advisors stated that reverse shoulder is a simply a different technique to accomplish the same goal of a total shoulder replacement, the procedure (and the device used in the procedure) is meeting an unmet need, uses significantly different techniques to implant the device, and requires additional skill, experience, and time to implant. Another commenter recommended that CMS create a new MS-DRG for reverse shoulder procedures because the procedure is used to treat some of the most complex patients and use greater resources.

Response: We agree with the commenters who stated that the data and our clinical analysis support the recommendation of making no MS-DRG changes for reverse shoulder procedures. Our clinical advisors continue to believe the procedure is a different technique to accomplish the same goal, a total shoulder replacement. We do not believe the data or a clinical analysis would support moving all reverse shoulder procedures into a new MS-DRG or moving all the reverse shoulder procedures to MS DRG 483. The difference in average costs for reverse shoulder procedures with a CC/MCC versus those without a CC/MCC is $2,133. The difference in average costs for all cases in MS-DRG 483 and MS-DRG 484 is $2,591. Clearly the presence of a CC or MCC has a consistent impact on the average costs of shoulder replacements. Our clinical advisors believe that it is important to maintain the clinical cohesion of MS-DRGs 483 and 484 to maintain severity levels for all shoulder replacement procedures.

The commenter who disagreed with our proposal pointed out that this procedure is being adopted at a rapid rate with one-third of the shoulder replacements using this new technique. Any growth in this approach of performing total shoulder replacements will be reflected in our claims data and will impact relative weights. Because the data and clinical analysis support keeping the reverse shoulder procedure in the same MS-DRG as other shoulder replacements, we are not modifying the MS-DRGs for reverse shoulder procedures.

After consideration of the public comments we received, we are finalizing our proposal to not reassign reverse shoulder cases reporting procedure code 81.88 from their current assignment in MS DRGs 483 and 484 or to create a new MS-DRG.

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 the FY 2014 IPPS/LTCH PPS rulemaking. 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, the commenter recommended that 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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27518 through 27519), we did not propose to create a new MS-DRG.

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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27518 through 27519), we did not propose 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.

In the FY 2014 IPPS/LTCH PPS proposed rule, we did not propose to create a new total ankle replacement MS-DRG or to reassign all total ankle replacements to MS DRG 469. We proposed to maintain the current MS-DRG assignments for total ankle replacements. We invited public comment on our proposals.

Comment: Several commenters supported CMS' recommendation to maintain the current MS-DRG assignments for total ankle replacements. Several commenters stated that the proposal not to create a new total ankle replacement MS-DRG or to reassign all total ankle replacements to MS DRG 469 was reasonable given the data and information provided. Other commenters offered support for our recommendation to maintain the current MS-DRG assignments for total ankle replacements.

Response: We appreciate the commenters' support.

Comment: Several commenters disagreed with the proposal. One commenter stated that total ankle procedures are more clinically complex than total hip or total knee replacement procedures, and that the higher average cost for total ankle procedures should qualify it for reassignment. Another commenter stated that the proposed policy is detrimental to hospitals' ability to provide in a cost effective manner clinically-proven intervention, and thus jeopardizes beneficiary access to total ankle replacement procedures. The commenter pointed out that CMS suggests that under the MS-DRG system in general, some cases will have average costs higher than the overall average costs for the MS-DRG, while other cases will have lower average costs. However, the commenter believed that, due to the wide variation of procedures that map to MS-DRGs 469 and 470, this is an insufficient rationale to systematically underpay for the average cost of the vast majority of total knee procedures by 28 percent. The commenter stated that total ankle replacement is a complex surgical procedure involving the replacement of the damaged parts of the three bones (talus, tibia and fibula) that make up the articulations of the ankle, as compared to two bones in most other total joint replacement procedures (for example, hip or knee). The commenter stated that establishing a separate MS-DRG for total ankle procedures is the best solution to ensuring that all joint replacement MS-DRGs are clinically coherent, and similar in resource use. The commenter recommended that if a separate MS-DRG could not be created, CMS reassign all total ankle replacements to MS-DRG 469 even if the cases do not report a MCC. Other commenters asked that total ankle replacements be reassigned to higher paying MS-DRGs because the procedures were clinically more complex and have higher average costs than other procedures within the current MS-DRGs.

Response: We disagree with the commenters who stated that the clinical complexity of total ankle procedures justifies reassigning the cases. As stated earlier, our clinical advisors reviewed this issue and determined that the total ankle replacements are appropriately classified with other lower joint procedures within MS-DRGs 469 and 470. They do not support the commenters' contention that these cases are significantly more complex than knee and hip replacements. Our clinical advisors believe that total ankle replacements are clinically consistent with other types of lower extremity joint replacements within MS-DRGs 469 and 470. As we also mentioned earlier, 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. Our clinical advisors do not support creating a new MS-DRG for total ankle procedures or moving the cases to MS-DRG 469.

After consideration of the public comments we received, we are finalizing our proposal to maintain the current MS-DRG assignments for total ankle replacements captured by procedure code 81.56 and assigned to MS-DRGs 469 and 470.

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 proposed to reassign diagnosis codes V64.00 through V64.04, and V64.06 through V64.3 from MS-DRG 794 to MS-DRG 795 (78 FR 27519). 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 invited public comments on this proposal.

Comment: Several commenters supported CMS' proposal to reassign diagnosis codes V64.00 through V64.04 and V64.06 through V64.3 from MS-DRG 794 to MS-DRG 795. The commenters stated that the proposed reassignments were reasonable given the data and information provided.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal of reassigning diagnosis codes V64.00 through V64.04 and V64.06 through V64.3 from MS-DRG 794 to MS-DRG 795.

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

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27519 and 27520), we proposed 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 the proposed rule, these new discharge status codes were also proposed for addition to the Medicare Code Editor (MCE). We invited public comments on our proposal.

Comment: Several commenters supported CMS' proposal to add the three new discharge status codes 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. The commenters noted the proposal was reasonable given the data and information provided.

Response: We appreciate the commenters' support.

Comment: One commenter expressed concern that the addition of these new discharge status codes to MS-DRG 789 would create a burden to providers in updating their systems and was unnecessary.

Response: As noted in the previous section, these new discharge status codes related to a planned acute care hospital inpatient readmission were developed and approved by the NUBC in response to a request by the provider community. For the commenters' benefit, we would like to point out how the GROUPER logic for MS-DRG 789 is designed. When the logic for an MS-DRG is defined by specific requirements, such as a discharge status designation, the logic must be updated if a new discharge status is created to appropriately group a claim.

With regard to the burden on providers for updating their systems, effective October 1 of each year, providers have gone through the process of updating their systems based on changes that were approved and finalized for the upcoming IPPS fiscal year.

After consideration of the public comments we received, we are finalizing our proposal to add new discharge status codes 82, 85, and 94 to the MS-DRG GROUPER logic for MS-DRG 789 for FY 2014.

7. 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 invited 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.

Comment: Commenters supported the proposal to remove diagnosis codes 751.1, 751.2, and 751.61 from the pediatric age conflict edit effective October 1, 2013.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing 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), in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27520), we proposed 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 invited 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).

Comment: Several commenters supported CMS' proposal to add the above listed discharge status codes to the GROUPER and the MCE logic. However, some commenters asked CMS to clarify how it intends to use the new discharge status codes for planned acute care hospital inpatient readmissions. One commenter stated that, based on the description of a planned readmission algorithm in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27595), it appears that CMS is planning to use an algorithm to identify planned readmissions for part of the Hospital Readmissions Reduction Program, rather than relying on the proposed new planned readmission discharge status codes reported on claims. This commenter suggested that CMS work with the NUBC to develop additional guidance on the proper use of the discharge status codes. The commenter noted: “for example, it is not clear if there is a limitation on the timeframe when the planned readmission is expected to occur in order to use these discharge status codes. It is also not clear whether these codes are limited to planned readmissions related to the current admission. For example, the plan of care might mention that the patient is returning in the future for scheduled treatment of a condition unrelated to the current hospitalization.”

Response: We appreciate the commenters' support. The new discharge status codes related to a planned acute care hospital inpatient readmission were developed and approved by the NUBC in response to a request by the provider community. Currently, the purpose of the new codes is to allow providers to track these types of situations when they occur. According to meeting notes from the NUBC, there is not a designated timeframe (or limitation) in reporting these new codes, and they define a readmission as “an intentional readmission after discharge from an acute care hospital that is a scheduled part of a patient's plan of care.”

The commenter is correct in its understanding that, under the Hospital Readmissions Reduction Program, CMS proposed in the FY 2014 IPPS/LTCH PPS proposed rule, and is finalizing in this final rule, an algorithm to identify planned versus unplanned readmissions and will continue to utilize this algorithm for the program. Therefore, at this time, these new discharge status codes are not related in any way to the Hospital Readmissions Reduction Program and will not be taken into account in the readmissions measures for that program.

After consideration of the public comments received, we are finalizing our proposal to add new discharge status code 69 (Discharged/transferred to a designated disaster alternative care site), as well as the 15 new discharge status codes related to a planned acute care hospital inpatient readmission listed above.

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 the FY 2014 IPPS/LTCH PPS proposed rule, we proposed limited changes to the MS-DRG classifications for FY 2014, as discussed in sections II.G.2. and 5. of the preamble of the proposed rule. In our review of these proposed changes, we did not identify any needed changes to the surgical hierarchy. Therefore, in the proposed rule (78 FR 27521), we did not propose any changes to the surgical hierarchy for Pre-MDCs and MDCs for FY 2014.

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

Response: Based on these public comments and our review of the proposal to make no revisions to the surgical hierarchy using the March 2013 update of the FY 2012 MedPAR file and the revised GROUPER software, we found that the proposal to make no revisions is still supported by the data. Therefore, in this final rule, we are making no changes to the surgical hierarchy for FY 2104.

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. 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 Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for FY 2014

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522), we stated that, 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. However, we did note that there may be ICD-9-CM coding changes finalized after the proposed rule (78 FR 27526). We are finalizing, for FY 2014, there were no changes made to the ICD-9-CM diagnosis codes. However, there are changes made to the ICD-9-CM procedure codes for FY 2014 due to new technology. (We refer readers to section II.G.11. of the preamble of the FY 2014 IPPS/LTCH PPS proposed rule and this final rule for a discussion of the ICD-9-CM coding system.)

(2) 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 did 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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522), we did not propose 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 proposed to maintain diagnosis code 414.4 as a non-CC. We invited public comment on our proposal.

Comment: Commenters supported the CMS proposal not to change diagnosis code 414.4 from a non-CC to an MCC. Several commenters stated that the changes seem reasonable given the data and information provided.

Response: We appreciate the commenters' support.

Comment: Several commenters disagreed with the proposal, stating that these patients are more expensive to treat.

Response: The claims data mentioned above do not support that patients with this condition require treatment with average costs at the MCC level. As stated above, the claims data support maintaining this code as a non-CC. Our clinical advisors once again reviewed this issue after reviewing the public comments. Based on their clinical review, our clinical advisors continue to support our proposal not to change diagnosis code 414.4 from a non-CC to an MCC.

Comment: One commenter asked CMS to rerun the data but did not provide a reason why it believed the data are in error nor point out any errors in the methodology. The commenter purchased the FY 2012 MedPAR data file and tried to replicate this analysis. The commenter found more cases in its data analysis. The commenter asked for clarification as to whether CMS used average costs or average charges in its computations, and why its findings might have been different.

Response: Our analysis is based on average costs. As we stated earlier, the December 2012 update of the FY 2012 MedPAR file is the claims data source for our data analysis. Because the commenter used a later file (the March 2013 update), its data included more cases. However, our data and clinical analysis support maintaining diagnosis code 414.4 as a non-CC and not changing it to a MCC.

After consideration of the public comments we received, we are finalizing our proposal to maintain diagnosis code 414.4 as a non-CC for FY 2014.

(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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27522), we proposed 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 invited public comments on our proposal.

Comment: Several commenters stated that the proposal to add diagnosis code 575.0 to the CC Exclusion List when reported as a secondary diagnosis code with principal diagnosis code 574.00 seems reasonable given the data and information provided.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to add diagnosis code 575.0 to the CC Exclusion List when reported as a secondary diagnosis code with principal diagnosis code 574.00 for FY 2014.

(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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27524), we proposed to remove the following diagnosis codes from the CC Exclusion List for diagnosis code 440.4 for FY 2014: 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 invited public comments on this proposal.

Comment: Several commenters supported CMS' proposal to remove 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 from the CC Exclusion List for diagnosis code 440.4. Several commenters agreed with CMS' clinical advisors' assessment on aneurysm and atherosclerosis cases with CTO in that a case with a principal diagnosis of aneurysm with CTO adds substantial complexity and does not necessarily have the same immediate cause, and a case with a principal diagnosis of atherosclerosis with CTO reported represents a more severe form of the disease and, therefore, is more complex. Several commenters stated that this proposed change will compensate hospitals appropriately for the high cost and resource use associated with CTO treatment. Several commenters stated that the proposal seems reasonable given the data and information provided.

Response: We appreciate the commenters' support and agree that the change is warranted for these cases.

After consideration of the public comments we received, we are finalizing our proposal to remove 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 from the CC Exclusion List for diagnosis code 440.4. Diagnosis codes 443.81 through 443.9 would remain on the CC Exclusion List for diagnosis code 440.4 for FY 2014.

For FY 2014, we proposed changes to Table 6G (Additions to the CC Exclusion List) and Table 6H (Deletions from the CC Exclusion List) (78 FR 27524). As we discussed earlier, we are finalizing those changes for acute cholecystitis and chronic total occlusion of artery of the extremities diagnosis codes for FY 2014. As we discussed in the FY 2014 IPPS/LTCH PPS proposed rule, we did not propose any changes to the severity level for diagnosis code 414.4. In this final rule, we are finalizing our decision to maintain diagnosis code 414.4 as a non-CC. These two tables, which contain codes that are effective for discharges occurring on or after October 1, 2013, were not published in the Addendum to the proposed rule (nor are they being published in this final rule) because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/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 additions or deletions to the MS-DRG MCC List for FY 2014. There also are no 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 includes the final FY 2014 MS-DRG changes, is 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 did not propose to change the procedures assigned among these MS-DRGs.

We did not receive any public comments on this proposal. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 for FY 2014.

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

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983 or MS-DRGs 987 through 989 for FY 2014.

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 did not propose to move any procedure codes among these MS-DRGs.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not moving any procedures assigned to MS-DRGs 981 through 983, MS-DRGs 984 through 986, and MS-DRGs 987 through 989 for FY 2014.

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 did not propose to add any diagnosis or procedure codes to MDCs for FY 2014. We did not receive any public comments on our proposal. Therefore, as we proposed, we are not adding any diagnosis or procedure codes to MDCs for FY 2014.

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

a. ICD-9-CM Coding System

The ICD-9-CM is a coding system currently used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The Official 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. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27525), we stated that 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 identified at the time of the publication of the proposed rule. However, we noted that there may be ICD-9-CM coding changes finalized after the proposed rule based on public comments that we receive after the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee meeting.

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 were made by May 2013 are 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 the proposed rule are included in Table 6B, which is listed in section VI. of the Addendum to this final rule and available via the Internet on the CMS Web site, and are marked with an asterisk (*).

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27526), we stated that, for FY 2014, there were no changes to the ICD-9-CM coding system due to the partial code freeze or for new technology. However, at the March 5, 2013 ICD-9-CM Coordination and Maintenance meeting, there were two requests for codes for new technology. As discussed below, only codes for new technologies or new diagnoses are being considered during the partial code freeze. After discussions at the March 5, 2013 meeting and public comments we received after the meeting, it was decided that there will be four new procedure codes effective for October 1, 2014. There are no new, revised, or deleted diagnosis codes and no revised or deleted procedure codes that are usually announced in Tables 6A (New Diagnosis Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F (Revised Procedure Codes). The new procedure codes are listed in Table 6B (New Procedure Codes) for this final rule, which is available via the Internet on the CMS Web site. Therefore, there are no Tables 6A and 6C through 6F published as part of this final rule for FY 2014.

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.

Comment: Several commenters supported the partial code freeze which is limited to the creation of new ICD-9-CM and ICD-10-CM/PCS codes to capture new technologies and diseases through FY 2015. The commenters stated that if new codes can still be introduced into ICD-10-CM/PCS in FY 2015, it will make the resolution of any issues more complex and costly. Specifically, they stated that successful implementation of ICD-10-CM/PCS will require significant planning, education, and systems modifications. The commenters stated that while the adoption of ICD-10-CM/PCS is welcome and long overdue, implementation of the new system must be carefully orchestrated to minimize the administrative burden on providers. At a time when in the health care field, all payers and other stakeholders are struggling to meet deadlines to change their systems and test their changes with all their trading partners, the commenters believed it would be catastrophic to have to make additional changes during nationwide implementation of ICD-10.

Response: We agree with the commenters that the partial code freeze has been extremely beneficial in minimizing the administrative burden on providers that are preparing for the implementation of ICD-10 on October 1, 2014. This partial code freeze has dramatically decreased the number of codes created each year as shown by the following information.

Total Number of Codes and Changes in Total Number of Codes per Fiscal Year Back to Top
ICD-9-CM Codes ICD-10-CM and ICD-10-PCS Codes
Fiscal Year Number Change Fiscal Year Number Change
FY 2009 (October 1, 2008): FY 2009:
Diagnoses 14,025 348 ICD-10-CM 68,069 +5
Procedures 3,824 56 ICD-10-PCS 72,589 −14,327
FY 2010 (October 1, 2009): FY 2010:
Diagnoses 14,315 290 ICD-10-CM 69,099 +1,030
Procedures 3,838 14 ICD-10-PCS 71,957 −632
FY 2011 (October 1, 2010):
Diagnoses 14,432 117 ICD-10-CM 69,368 +269
Procedures 3,859 21 ICD-10-PCS 72,081 +124
FY 2012 (October 1, 2011): FY 2012:
Diagnoses 14,567 135 ICD-10-CM 69,833 +465
Procedures 3,877 18 ICD-10-PCS 71,918 −163
FY 2013 (October 1, 2012): FY 2013:
Diagnoses 14,567 0 ICD-10-CM 69,832 −1
Procedures 3,878 1 ICD-10-PCS 71,920 +2
FY 2014 (October 1, 2013): FY 2014:
Diagnoses 14,567 0 ICD-10-CM 69,823 −9
Procedures 3,882 4 ICD-10-PCS 71,924 +4

As mentioned earlier, the public is provided the opportunity to comment on any requests for new diagnosis or procedure codes discussed at the ICD-9-CM Coordination and Maintenance Committee meeting. The public has supported only a limited number of new codes during this partial code freeze, as can be seen by data shown above. We have gone from creating several hundred new codes each year to creating only a limited number of new ICD-9-CM and ICD-10 codes. At the September 18-19, 2013 and March 19-20, 2014 Committee meetings, we will be discussing any requests for new ICD-10-CM diagnosis and ICD-10-PCS procedure codes to be implemented on October 1, 2014. We will not be discussing ICD-9-CM codes because we will not be using ICD-9-CM for encounters occurring on or after October 1, 2014. The public will be given the opportunity to comment on whether or not new ICD-10-CM and ICD-10-PCS codes should be created effective October 1, 2014, based on the partial code freeze criteria as to whether they are needed to capture new diagnoses or new technologies, or whether the codes should be created after the partial code freeze ends on October 1, 2015. We welcome public comments on any code requests discussed at the September 18-19, 2013 and March 19-20, 2014 Committee meetings for implementation on October 1, 2014.

Comment: One commenter requested that CMS publish the list of any new ICD-10-CM and ICD-10-PCS codes in the IPPS final rule. The commenter pointed out that annual ICD-9-CM updates are currently included in the IPPS proposed and final rules. The commenter mentioned that the ICD-9-CM Coordination and Maintenance Committee is addressing requests for new ICD-10 codes that would be created during the code freeze as well as codes that would be created after the code freeze ends. The commenter wanted to receive interim decisions on any new ICD-10 codes that might be created after the code freeze ends on October 1, 2015. The commenter also requested that CMS assign ICD-9-CM codes or temporary Healthcare Common Procedure Coding System (HCPCS) codes to procedures provided in connection with newly approved ICD-10-PCS codes. Finally, the commenter requested that CMS establish October 1, 2014 as the effective date for all ICD-10 code set updates.

Response: We will address the commenter's last request first. As discussed earlier, October 1, 2014 has been established as the implementation date for ICD-10. This date was established through rulemaking (77 FR 54664). We have provided this information on our ICD-10 Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/index.html.

CMS currently posts updates of ICD-9-CM procedure codes in June of each year on its Web page at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. CMS also includes information on ICD-9-CM code updates within the IPPS proposed and final rules because these codes are used to determine the MS-DRG assignment. Any new, revised, or deleted ICD-9-CM diagnoses or procedure codes are described in Tables 6A through 6F. We include this information along with the proposed and final MS-DRG assignment for new ICD-9-CM codes in our rules because it impacts inpatient payment. CDC posts updates of ICD-9-CM diagnosis codes in June of each year on its Web site at: http://www.cdc.gov/nchs/icd/icd9cm.html. We do not include new, revised, or deleted ICD-10-CM/PCS codes in the current IPPS rule because the ICD-10 codes are not currently used with the MS-DRGs. Once ICD-10 is implemented, and the MS-DRGs are based on ICD-10 codes, we will provide information on new, revised, or deleted ICD-10 codes in Tables 6A through 6F.

CMS posts annual updates to ICD-10-CM and ICD-10-PCS codes in June of each year on its ICD-10 Web page at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/index.html. CDC also posts annual updates to ICD-10-CM codes in June of each year on its Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm. We believe we provide the public complete and regular updates on any annual updates to both ICD-9-CM and ICD-10 codes. Any new, revised, or deleted ICD-10-CM/PCS codes as part of the FY 2016 (October 1, 2015) updates will be posted on CMS' ICD-10 Web site in June 2015. No final decisions have been made at this time on the October 1, 2015 ICD-10 code updates.

On the issue of CMS assigning ICD-9-CM codes or temporary HCPCS codes to procedures provided in connection with newly approved ICD-10-PCS codes, we would point out that mapping between ICD-10-PCS and ICD-9-CM procedure codes is provided in the annual updates to the General Equivalence Mappings (GEMs). The GEMs are updated annually based on updates to ICD-10 codes and are posted on our ICD-10 Web site in October of each year. The ICD-10 Web site can be found at: http://www.cms.hhs.gov/Medicare/Coding/ICD10/index.html. The GEMs map between ICD-9-CM and ICD-10 codes because the ICD-10 codes will replace ICD-9-CM codes. The GEMs do not map between ICD-10 and HCPCS codes because ICD-10 will not replace HCPCS codes. HCPCS codes will continue to be used for reported ambulatory and physician services.

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-DRGs.

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.

Comment: Several commenters complimented CMS on making available the Version 30.0 ICD-10 MS-DRGs software and Definitions Manual. The commenters found these tools to be useful as hospitals prepare for ICD-10 implementation. The commenters stated that this information allowed hospitals to analyze the impact of these changes, including thorough financial analysis and modeling, and allowed for hands-on training of medical coders. The commenters stated that information from other payment systems, such as those for CAHs, IPFs, and IRFs would also be helpful as hospitals prepare for ICD-10-CM/PCS implementation.

Response: We appreciate the positive feedback on our efforts to develop an ICD-10 version of the MS-DRGs and to use this approach in updating other ICD-9-CM based payment systems from ICD-9-CM to ICD-10-CM/PCS codes.

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

We received two public comments regarding MS-DRG issues that were outside of the scope of the proposals included in the FY 2014 IPPS/LTCH PPS proposed rule. We have summarized these public comments below. However, because these public comments were outside of the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.G. of the preamble of this final rule, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than December of each year so they can be considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. We will consider these comments for possible proposals in future rulemaking as part of our annual review process.

a. Intracerebral Therapies

One commenter requested that CMS create a new MS-DRG for intracerebral therapies, including implantation of chemotherapeutic agents.

b. Porphyria

One commenter requested that a new MS-DRG be created for porphyria cases.

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

1. Data Sources for Developing the Relative Weights

In developing the 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 final rule include discharges occurring on October 1, 2011, through September 30, 2012, based on bills received by CMS through March 31, 2013, 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 relative weights includes data for approximately 10,363,200 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 31, 2013 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 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 March 31, 2013 update of the FY 2011 HCRIS for calculating the FY 2014 cost-based relative weights.

2. Methodology for Calculation of the Relative Weights

As we explain in section II.E.2. of the preamble of this final rule, as we proposed in the FY 2014 IPPS/LTCH PPS proposed rule, we are calculating the relative weights based on 19 CCRs, instead of the 15 CCRs previously used. The methodology we used to calculate the 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 FY 2014 MS-DRG classifications discussed in sections II.B. and II.G. of the preamble of this final rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 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 final rule, we are calculating the relative weights using 19 cost centers instead of the 15 cost centers previously used in calculating the FY 2013 relative weights. In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed, in calculating the FY 2014 relative weights, 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 to add 4 cost centers to the relative weight calculations, which we are finalizing in this final rule, this trim kept approximately 92.7 percent of the IPPS providers in the MedPAR file upon which we base our final 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 in prior years, we stated in the proposed rule our belief 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 stated that we believe that this proposal is appropriate because we are not introducing new costs into the relative weight calculation; we are only making 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 making 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 invited public comments on the proposal to trim the data used in our relative weight calculations. However, we did not receive any public comments on this proposal. Therefore, for the reasons described above, we are finalizing this policy as proposed.

  • 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 final 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 using 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 19 CCRs, instead of the previous 15 CCRs, and we have made some minor corrections to revenue codes and cost report cost centers that are grouped with each CCR.)

BILLING CODE 4120-01-P

BILLING CODE 4120-01-C

In the table above, revenue code 0274 is listed among the revenue codes included in the Supplies and Equipment CCR. In the actual calculation of the Supplies and Equipment CCR for the FY 2014 proposed rule, we inadvertently included charges from MedPAR associated with revenue 0274 in the Implantable Devices CCR. For this final rule, we have corrected this oversight and included the MedPAR charges associated with revenue code 0274 in the calculation of the Supplies and Equipment CCR. (We refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48462) for a discussion on the revenue codes included in the Supplies and Equipment and Implantable Devices CCRs, respectively.)

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 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 FY 2014 cost-based relative weights were then normalized by an adjustment factor of 1.615238977 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 19 national average CCRs for FY 2014 are as follows:

Group CCR
Routine Days 0.500
Intensive Days 0.414
Drugs 0.193
Supplies & Equipment 0.300
Implantable Devices 0.356
Therapy Services 0.356
Laboratory 0.134
Operating Room 0.221
Cardiology 0.130
Cardiac Catheterization 0.136
Radiology 0.171
MRIs 0.090
CT Scans 0.045
Emergency Room 0.206
Blood and Blood Products 0.365
Other Services 0.400
Labor & Delivery 0.424
Inhalation Therapy 0.186
Anesthesia 0.119

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. In the FY 2014 IPPS/LTCH PPS proposed rule, we proposed to use that same case threshold in recalibrating the 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 proposed 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).

We did not receive any public comments on this proposal and, therefore, are finalizing it for FY 2014 as proposed.

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 proposed 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 did not receive any public comments on this proposal and, therefore, are finalizing it for FY 2014 as proposed. 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. 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 we 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 the 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 the 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 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 the proposed rule. In response to the published notice and the new technology town hall meeting, commenters submitted and presented public comments that were unrelated to the substantial clinical improvement criterion in regard to the new technology applications for FY 2014. We also received public comments in response to the proposed rule relating to topics such as marginal cost factors for new technology add-on payments, and the use of external data in determining the cost threshold and mapping new technologies to the appropriate MS-DRG. Because we did not request public comments nor propose to make any changes to any of the issues above, we are not summarizing these public comments nor responding to them in this final rule.

We also live-streamed the town hall meeting over the Internet and received very positive feedback from the public on use of this option. In the FY 2014 IPPS/LTCH PPS proposed rule, we stated that 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 invited public comments on the possibility of holding a virtual town hall meeting instead of an in-person town hall meeting in Baltimore, MD.

Comment: Some commenters expressed concern that limiting the town hall meeting to a virtual town hall meeting may give less of a voice to applicants. The commenters supported the option to observe the town hall meeting via live stream on line but recommended that we maintain the in-person option as well.

Response: In the proposed rule, we noted that we received positive comments concerning the virtual town hall meeting. We expect that applicants would still be an integral part of the virtual town hall meeting as it is typical for applicants to make presentations at the annual town hall meeting about their technologies and why their technologies represent a substantial clinical improvement over existing technologies. However, we note that some applicants have either chosen not to make a presentation at the town hall meeting and/or to make all or part of their presentation by phone. Therefore, we do not believe a virtual town hall would offer less of a voice to applicants. The purpose of a virtual town hall meeting would be to continue to provide the information to the public in advance of the proposed rule while reducing the burden and providing greater access for all applicants and interested parties by eliminating the need to make special travel arrangements or by mitigating any other issue that would limit the public from attending the meeting in person. For example, in 2010, we postponed the town hall meeting due to inclement weather. We will consider the issues raised by these commenters as we consider whether to transition to a virtual town hall meeting. Further information regarding the mechanism we use to engage the public for future town hall meetings will be provided via public notice.

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] 's entry onto the market will occur on May 11, 2013, which is prior to the beginning of FY 2014, we proposed to discontinue new technology add-on payments for the AutoLITT [TM] for FY 2014.

We invited public comments on this proposal. However, we did not receive any public comments in response to our invitation. Therefore, we are finalizing our proposal to discontinue new technology add-on payments for the AutoLITT [TM] for FY 2014.

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 proposed to continue new technology add-on payments for this technology for FY 2014. We invited public comments on this proposal.

Comment: Several commenters supported the continuation of making new technology add-on payments for Voraxaze® in FY 2014.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to continue to make new technology add-on payments for Voraxaze® in FY 2014.

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 proposed to continue new technology add-on payments for DIFICID [TM] for FY 2014. We invited public comments on this proposal.

Comment: Several commenters supported the continuation of making new technology add-on payments for DIFICID [TM] in FY 2014. In addition, the applicant submitted a comment stating that the new technology add-on payment for DIFICID [TM] has expanded Medicare beneficiary access for DIFICID [TM] in the acute care setting. The manufacturer also provided supplemental data demonstrating that cases of DIFICID [TM] within the inpatient setting continue to incur an average dosage of 6.2 days. Based on this supplemental data, the manufacturer recommended that we continue to consider 6.2 days of inpatient administration of DIFICID [TM] in its calculations for the cost criterion and the add-on payment.

Response: We appreciate the commenters' support. We agree that the supplemental data submitted by the manufacturer continues to support the use of 6.2 days for the cost criterion and the add-on payment.

After consideration of the public comments we received, we are finalizing our proposal to continue to make new technology add-on payments for DIFICID [TM] in FY 2014.

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 proposed to continue new technology add-on payments for this technology for FY 2014. We invited public comments on this proposal.

Comment: Several commenters supported the continuation of new technology add-on payments for the Zenith® F. Graft in FY 2014.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to continue to make new technology add-on payments for the Zenith® F. Graft in FY 2014.

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

We received five applications for new technology add-on payments for FY 2014. In accordance with the regulations under § 412.87(c), applicants for new technology add-on payments must have FDA approval by July 1 of each year prior to the beginning of the fiscal year that the application is being considered. Two of the five technologies for which we received applications for new technology add-on payments, the NeuroPace Responsive Neurostimulator System (RNS) System and the Abbott Vascular MitraClip® System, did not receive FDA approval by the July 1 deadline. Therefore, these applications are not eligible for consideration for new technology add-on payments for FY 2014. In addition, the applicant for the NeuroPace RNS System withdrew its application prior to publication of this final rule. We note that we did receive public comments concerning these two applications. However, as stated above, because these two technologies did not receive FDA approval by the July 1 deadline and, therefore, cannot be considered for new technology add-on payments for FY 2014, we are not summarizing or responding to these comments in this final rule. We refer readers to the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27543 through 27545 and 27547 through 27552) for summaries of these two applications. A discussion of the remaining three applications is presented below.

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.

Kcentra [TM] was approved by the FDA on April 29, 2013. 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. In this final rule, we have approved new ICD-9-CM procedure code 00.96 (Infusion of 4-Factor Prothrombrin Complex Concentrate) which uniquely identifies Kcentra [TM] . More information on this request and approval 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 and http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html.

In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that we were 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 stated in the FY 2014 IPPS/LTCH PPS proposed rule that 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 stated that we believe that both technologies treat the same condition and patient population. Specifically, the patient population for both Kcentra [TM] and FFP are patients with an iatrogenically acquired coagulation factor deficiency due to warfarin and who are experiencing severe bleeding. Delay of treatment of these patients can lead to an increase in complications as well as an increase of the severity of the blood loss. Although FFP needs to thaw before it can be administered and can delay treatment compared to Kcentra [TM] , which can be used in a more timely manner, we stated that we believe that both Kcentra [TM] and FFP treat the same patient population. Based on evaluation of the similarity criteria, we stated that it appears that Kcentra [TM] is substantially similar to FFP with regard to being able to reverse the Warfarin effect of blood coagulation. Therefore, we stated in the proposed rule that Kcentra [TM] may not be considered “new” for purposes of new technology add-on payments. We invited public comments regarding whether Kcentra [TM] is substantially similar to existing technologies and whether Kcentra [TM] meets the newness criterion.

Comment: One commenter, the applicant and manufacturer, submitted a public comment stating that Kcentra [TM] meets the newness criterion because it was approved by the FDA and no data on the product will be available in the DRG payment system until FY 2014. In addition, the applicant asserted that because a new ICD-9-CM procedure code for Kcentra [TM] was created that will be effective October 1, 2013, Kcentra [TM] fulfills the regulatory requirements.

Response: As discussed in the proposed rule, because Kcentra [TM] may be substantially similar to FFP, it is possible that the costs associated with Kcentra [TM] may already be reflected in the MS-DRGs. Below we summarize the applicant's comments and our response concerning substantial similarity.

With regard to considering the technology “new” due to the issuance of a new ICD-9-CM procedure code, in the FY 2005 IPPS final rule (69 FR 49002), we discussed how, generally, we use the FDA approval as the indicator of the time when a technology begins to become available on the market and data reflecting the costs of the technology begin to become available for recalibration of the DRGs. In some specific circumstances, we have recognized a date later than the FDA approval as the appropriate starting point for the 2-year to 3-year period. Using the ICD-9-CM code alone is not an appropriate test of newness because technologies that are new to the market are automatically placed into the closest ICD-9-CM category when they first become available on the market, unless the manufacturer requests the assignment of a new ICD-9-CM code because existing codes do not adequately reflect or describe the medical service or device. We refer readers to the FY 2005 IPPS final rule for a complete discussion concerning the issuance of an ICD-9-CM code and the newness criterion.

Comment: The manufacturer submitted a public comment stating that Kcentra [TM] has a different mechanism of action than FFP in the same way that we determined that the AutoLITT [TM] had a different mechanism of action than the Visual-ase in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50144).

Response: The commenter did not provide any details regarding the perceived similarities between the AutoLITT [TM] and the Kcentra [TM] applications in correlation with the comparison presented in its comment. For example, in the FY 2011 IPPS/LTCH PPS final rule, we determined that the AutoLITT [TM] was different than the Visual-ase due to its side-firing laser versus elliptical-firing. In addition, the AutoLITT [TM] contained a proprietary probe cooling system that removes heat from tissue not directly in the path of the laser beam, while the Visual-ase did not contain this cooling system. Therefore, without more information detailing the comparable differences in mechanism of action and/or the perceived similarities between these two applications, we are unable to provide further response to the comment.

Comment: The manufacturer submitted a public comment asserting that Kcentra [TM] has a different mechanism of action than FFP. The commenter explained that Kcentra [TM] 's mechanism of action for Vitamin K antagonist (VKA) reversal is different from FFP. Kcentra [TM] is purified, heat treated, nanofiltered, non-activated four factor prothorbin complex concentrate. It contains coagulation factors (II, VII, IX, X) and anti-coagulation proteins (C and S) that are 25 times more concentrated than plasma. Kcentra [TM] provides a simple and rapid repletion within 30 minutes. Unlike FPP, it does not require ABO typing as it does not contain ABO antibodies, thereby reducing the risk of a transfusion reaction. The absence of additional proteins removes the risk of transfusion related acute lung injury or TRALI.

Conversely, the manufacturer stated that FFP is isolated from the whole blood by the removal of cellular components (erythrocytes, granulocytes, lymphocytes and platelets), therefore it contains all the protein components in blood including coagulation proteins among others at a physiologic level of 1 IO/ml. In addition, FFP is a non-specific therapy which does not achieve the goal of repleting all coagulation factors to therapeutic levels. The manufacturer explained that factors II and X and Protein C remain below 50 percent at 3 hours. The manufacturer maintained that the reason for lack of correction of these factors is unclear and suggests that plasma cannot provide simple repletion or that there is another mechanism resulting in a plateau of some of the factors at a sub-therapeutic level. In contrast, the manufacturer noted that Kcentra [TM] increases all coagulation factors (II, VII, IX, X) and anti-coagulation proteins (C and S). The manufacturer added that modest reversal of VKA is also reflected in the slow return to normal of the International Normalized Ratio (INR). The manufacturer compared FFP to Kcentra [TM] and noted that early INR reduction was achieved in 62 percent of Kcentra [TM] patients versus less than 10 percent of FFP patients. The manufacturer also contended that the different method of production of Kcentra [TM] contributes to its distinct mechanism of action by providing a highly specific, highly concentrated product available on an urgent basis. The manufacturer explained that Kcentra [TM] 's blood factor constituents are 25 more times concentrated than those contained in a standard unit of FFP allowing for markedly decrease of infusion time and infusion of smaller volumes compared to equivalent doses of FFP; Kcentra [TM] provides standardized and known concentrations of factors compared to variable concentrations for FFP; Kcentra [TM] is a targeted therapy replacing only what is deficient in vitamin K antagonists reversal resulting in rapid reversal without impact of nonspecific protein content; Kcentra [TM] does not require ABO typing compared to FFP; and Kcentra [TM] is lyophilized powder for reconstitution and is stable for up to 36 months at room temperature making it ideal for emergency use compared to FFP.

Response: We appreciate the details provided in the manufacturer's comment that reference the different reasons why Kcentra [TM] uses a different mechanism of action than FFP. We appreciate the issues that the manufacturer raises that Kcentra [TM] provides a simple and rapid repletion relative to FFP and reduces the risk of a transfusion reaction relative to FFP because it does not contain ABO or RH antibodies, which require blood typing prior to administration. However, despite the arguments presented in the public comment, we remain concerned that Kcentra [TM] still uses the same mechanism of action as FFP because they both use coagulation factors and proteins to improve blood coagulation, in the context of an acquired coagulation deficiency.

Comment: The manufacturer also submitted a public comment asserting that Kcentra [TM] provides a therapeutic option for new patient populations and patient populations not recommended for FFP. The manufacturer listed the following patient populations that would be eligible to use Kcentra [TM] but not FFP:

  • “Jehovah's Witnesses: Certain religious groups' beliefs prevent patients from accepting transfusion of whole blood or its primary components which includes plasma. Fractionated factor concentrates are considered ‘secondary components', and thus they may be acceptable to some followers” (with these beliefs who would otherwise not be eligible for FFP).
  • Immunoglobulin A (IgA) deficient patients can have severe anaphylactoid reactions due to the formation of anti-IgA antibodies. Plasma contains immunoglobulins and plasma in amounts as small as 10 ml, which can result in severe reaction. Kcentra [TM] provides a treatment option for these patients who were not eligible for FFP.
  • Rapid reversal of bleeding is important for patients with intracranial hemorrhaging (ICH) in order to restrict hematoma enlargement and allow timely neurosurgical intervention. The manufacturer believed that Kcentra [TM] provides a therapy for this population because plasma is not ideal because Warfarin increases the risk of ICH, which could lead to stroke. The manufacturer cited a study noting that intervention for ICH within the first hour may improve outcomes and protocol driven treatment can facilitate timely and efficient care. The manufacturer also noted that for patients receiving VKA therapy with an INR less than 1.4, protocol recommends administering agents to normalize the INR within minutes; Kcentra [TM] provides a readily available treatment compared to FFP which takes time to thaw, type the patient and then infuse.
  • The manufacturer also noted that the most significant limitations of plasma are the volume and time required to increase factor levels. Because Kcentra [TM] is concentrated, schemes can be designed to achieve targeted factor level for patients, especially those with cardiac impairment, rather than a maximum tolerated volume. The manufacturer further explained that plasma volume, rate of infusion, left ventricular dysfunction and VKA reversal have been identified as risk factors for the development of Transfusion Associated Circulatory Overload (TACO). The manufacturer cited data from its clinical trial that demonstrated that plasma should not be administered to patients with cardiac impairment or risk of cardiac overload. The manufacturer asserted that Kcentra [TM] provides a therapy for patients with cardiac impairment for whom plasma would not be ideal.
  • The manufacturer explained that given the logistical issues of managing, typing and storing supplies of plasma (fresh/thawed) as well as the limited supply of AB universal blood plasma, Kcentra [TM] provides a new treatment option for hospitals, regardless of size (small, rural, community) or trauma level, to handle urgent warfarin reversals. Plasma requires blood-type matching, thawing and is often located away from the point of care. The applicant cited a study conducted at a large, urban, tertiary care facility, where the median time from time of diagnosis to plasma infusion was 90 minutes (Goldstein STROKE 2006). This did not include time to infuse the plasma, which can take hours. The manufacturer further explained that even at leading hospitals, the logistics around obtaining units of plasma for urgent transfusions is difficult, making good outcomes difficult to obtain (Goldstein STROKE 2006). Smaller hospitals without the resources of a Level 1 trauma center find plasma even more difficult to manage resulting in under-treatment and slow treatment (Menzin Thromb and Hemostasis 2012). Particularly for smaller, community, rural, and hospitals less than Level One Trauma Centers, Kcentra [TM] represents the best opportunity for providing quality care to patients with Warfarin-related bleeding.

Response: We agree that Kcentra [TM] may be used in a patient population that is experiencing an acquired coagulation factor deficiency due to Warfarin and who are experiencing a severe bleed currently but are ineligible for FFP, particularly for use by IgA deficient patients and other patient populations that have no other treatment option to resolve severe bleeding in the context of an acquired Vitamin K deficiency. In addition, as mentioned above, FFP is limited because it requires special storage conditions while Kcentra [TM] is stable for up to 36 months at room temperature thus allowing hospitals that otherwise would not have access to FFP (for example, small rural hospitals as discussed by the applicant in its comments) to keep a supply of Kcentra [TM] and treat patients who would possibly have no access to FFP. We note that, FFP is considered perishable and can be scarce by nature (due to production and other market limitations) thus making some hospitals unable to store FFP, which limits access to certain patient populations in certain locations. Therefore, we believe that Kcentra [TM] provides a therapeutic option for a new patient population and is not substantially similar to FFP. Also, as stated above, we give credence to the information presented by the manufacturer in its comment that Kcentra [TM] provides a simple and rapid repletion relative to FFP and reduces the risk of a transfusion reaction relative to FFP because it does not contain ABO antibodies and does not require ABO typing. Because Kcentra [TM] is not substantially similar to FFP, we believe that Kcentra [TM] meets the newness criterion.

Comment: One commenter recommended that CMS eliminate the substantial similarity criterion. The commenter believed that there are several benefits to this proposal including eliminating the risk that patients would be denied access to new therapies that provide substantial clinical improvement, improving clarity and predictability of the add-on rules and conforming to the statutory and regulatory provisions governing add-on payments, which do not mention substantial similarity and allowing technologies that enter the market subsequent to similar products receiving the add-on payment to be eligible for the add-on payment as well and not giving an advantage to the first product on the market representing a specific technology.

Response: We appreciate the commenter's suggestion. However, we note that we did not propose to eliminate the substantial similarity criterion in the proposed rule. In regard to the commenter's assessment of the benefits of eliminating the substantial similarity criterion, we refer readers to 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), where we explain our policy and reasoning regarding substantial similarity in detail.

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 invited public comments regarding whether Kcentra [TM] meets the cost criterion, particularly with regard to the assumptions and methodology used in the applicant's analysis. However, we did not receive any public comments concerning the cost criterion and, therefore, we believe that Kcentra [TM] meets the cost criterion.

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 applicant maintained that Kcentra [TM] represents a substantial clinical improvement in the treatment of patients with acute severe bleeding who require immediate reversal of their 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 randomized clinical trial) [3] and noted that Kcentra [TM] was noninferior in its ability to reverse the effects of Warfarin to a target 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 these levels remained depressed with plasma for hours after dosing with FFP.

The applicant also explained that Kcentra [TM] undergoes a dedicated pathogen detection and removal process as well as purification steps to produce its specific components 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 documented 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 bacterial diseases (such as babesiosis and Chaga's disease) have already been documented in U.S. patients as a result of FFP 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 and administered. 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 more 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 the time to infuse the FFP 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 those in the equivalent plasma dose. According to the applicant, this translated to an infusion volume that was 87 percent greater in the FFP 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 TACO. According to the applicant, when TACO occurs, acute left ventricular failure may occur resulting in shortness of breath, tachypnea (rapid breathing), and result in other harmful effects.

Finally, the applicant noted that Kcentra [TM] is recommended as the standard of care in the new guidelines issued by the American College of Chest Physicians (ACCP) for patients needing emergent Warfarin reversal. 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 invited public comments regarding whether Kcentra [TM] meets the substantial clinical improvement criterion.

Comment: Several commenters supported making new technology add-on payments for Kcentra [TM] . One commenter stated that Kcentra [TM] is a new, significantly more rapid way to provide substantial improvement over existing technologies. The commenter noted that compared to FFP, Kcentra [TM] is concentrated and includes natural anticoagulants. In addition, the commenter noted that Kcentra [TM] is more targeted than FFP because it does not contain the full range of proteins and other molecules found in FFP and believed that this targeted therapy provides high levels of coagulation factors at a faster rate and a more rapid correction of deficiencies induced by Warfarin. The commenter further stated that Kcentra [TM] can be infused in minutes compared to the hours needed to infuse FFP. The commenter expressed the opinion that this saved time can be critical when treating patients in a trauma or intensive care setting, including patients requiring urgent surgical intervention. The commenter also noted that Vitamin K therapy requires new factor synthesis/modification, which is dependent on optimal organ function, which in the context of patient injury or disease, may occur only after substantial delay, while Kcentra [TM] provides immediate functioning factors.

The commenter also noted that a common use of FFP and/or Vitamin K is sometimes a prophylactic measure for Warfarin reversal prior to an invasive procedure. The commenter believes that once Kcentra [TM] is widely available, it will likely be used in a broader subset of patients than FFP and/or Vitamin K. The commenter finally noted that another benefit of Kcentra [TM] is the low transfusion volume compared to FFP which decreases the risk of exposure to TACO.

Another commenter noted that FFP has not been prospectively studied in controlled randomized trials for urgent Warfarin reversal while current guidelines for Vitamin K antagonist reversal recommend the use of 4-factor PCC over plasma.

Response: We agree that Kcentra TM represents a substantial clinical improvement over existing technologies. Specifically, Kcentra TM provides (1) a rapid, beneficial resolution of the patient's blood clotting factor deficiency, (2) decreases the risk of exposure to blood borne pathogens, and (3) reduces the rate of transfusion-associated complications.

Kcentra TM meets all of the new technology add-on payment policy criteria. Therefore, we are approving Kcentra TM for new technology add-on payments in FY 2014. Cases involving Kcentra TM that are eligible for new technology add-on payments will be identified by ICD-9-CM procedure code 00.96. In the application, the applicant estimated that the average Medicare beneficiary would require an average dosage of 2500 International Units (IU). Vials contain 500 IU at a cost of $635 per vial. Therefore, cases of Kcentra TM would incur an average cost per case of $3,175 ($635 × 5). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the technology or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case of Kcentra TM is $1,587.50.

In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that, if Kcentra TM were to be approved for new technology add-on payments, we did 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 blood 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.) In addition, we stated that if Kcentra TM is approved by the FDA as a blood clotting factor, we believe that it may be eligible for blood clotting factor add-on payments when administered to Medicare beneficiaries with hemophilia. We 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 that it is reasonable to interpret this requirement to mean that the payment mechanism established by the Secretary recognizes only costs for those items that would otherwise be paid based on the prospective payment system (that is, “the payment system established under this subsection”). As noted above, under section 1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is the amount of payment for the operating costs of inpatient hospital services, as defined in section 1886(a)(4) of the Act, for discharges on or after April 1, 1988. We understand this to mean that a new medical service or technology must be an operating cost of inpatient hospital services paid based on the prospective payment system, and not excluded from such costs, in order to be eligible for the new technology add-on payment. We 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 § 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.

We stated that 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 that 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 blood clotting factor add-on payment are eligible for a new technology add-on payment for the blood clotting factor.

To summarize, we believe that 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 invited public comments 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 blood clotting factor). We did not receive any public comments concerning this proposal. Because we are approving new technology add-on payments for Kcentra TM, we are finalizing our proposal not to make a new technology add-on payment for cases of Kcentraw TM in treating a Medicare beneficiary who has hemophilia. We refer readers to Chapter three, section 20.7.3 of the Medicare Claims Processing Manual for a complete discussion on when a blood clotting factor add-on payment is made. The manual can be downloaded from the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf.

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. 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. For this final rule, we have approved new ICD-9-CM procedure code 14.81 (Implantation of Epiretinal Visual Prosthesis) which uniquely identifies the Argus ®II System. The other two codes approved by CMS are for removal, revision or replacement of the device. More information on these codes 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 invited public comments on whether the Argus® II System meets the newness criterion.

Comment: Many commenters expressed their opinion that the Argus® II System meets the newness criterion. The commenters noted that this technology is the first available treatment approved by the FDA for profoundly blind RP patients, pointing out that it “enables patients to interpret the visual patterns and gain independence and mobility,” which has not been possible previously for these patients with any other treatment modality. The commenters also noted that the Argus® II System has not been sold in the United States at this time.

Response: We appreciate the commenters' support. We agree that the Argus®II System meets the newness criterion based on its FDA approval date and due to the fact that we are unaware of any other existing technologies that are substantially similar to it that would allow Medicare beneficiaries with severe to profound Retinitis Pigmentosa (RP) who have no vision to have some functional vision.

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 previously existed 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 invited 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 did not receive any public comments concerning the cost criterion and, therefore, we believe that the Argus® II System meets the cost criterion.

In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that, although we could not 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, blindness, or a disability that is associated with profound blindness.

We also noted that these types of procedures are often performed in the outpatient setting. We expressed concern 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 emphasized 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 invited 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 expressed general concerns relating to the descriptions of the medical necessity of performing this procedure on an inpatient basis. Therefore, we invited 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.

Comment: Some commenters stated that approving new technology add-on payments for the Argus® II System would not create a financial incentive for inappropriate inpatient utilization because these patients are treated in both inpatient and outpatient settings. These commenters stated that the complex clinical judgment of the physician must be the basis for determining inpatient status and/or the site of care. The commenters added that “decisions on the appropriate site of service must be based on the individual patient's health status and expected treatment. . . .”

Response: We appreciate the commenters' input, feedback, and opinions that the appropriate setting and appropriate patients should be based on a complex clinical judgment of the physician and note that this would need to be supported by clinical documentation in the medical record to maintain appropriate use of inpatient and outpatient care settings.

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 gray 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 also noted that we were concerned that the study did not have pre-specified endpoints and changed measurements mid-trial. In addition, we expressed concern 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 received two comments on the Argus®II System during the town hall meeting's public comment period. These comments were summarized and responded to in the FY 2014 IPPS/LTCH PPS proposed rule. We refer readers to the proposed rule for a summary of these comments and our detailed responses (78 FR 27542 through 27543). In addition, we invited 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.

Comment: One commenter, the applicant, submitted a public comment in response to CMS' concern about the lack of pre-specified end points and evolving measures in their studies, noting that at the beginning of its studies, “it was clear that there was an absence of measures that were validated for the intended treatment population (e.g., no functional vision).” The commenter noted that as the trial progressed, new measures were introduced to address the applicability of clinical results to everyday life, and measurements changed to make the testing more challenging for the subjects (for example, with both the system “off” and “on”) and to reduce the likelihood of success based on chance. The applicant further stated that the selection and modification of endpoint measures was done with a “tremendous amount of input from independent third party experts (ophthalmologists, surgeons, optometrists, retinal degeneration specialists, and low vision experts) and the FDA (and many times at the request of the FDA).” The applicant believed that “the resulting trial design and execution was the best possible trial for this target population given the novelty of the Argus II Retinal Prosthesis System.” The commenter asserted that, “Furthermore, the results of this study clearly indicate a beneficial effect for the Argus®II.” Another commenter noted that because the target population for this technology had not previously been studied, there were no pre-existing endpoints. This commenter opined that the new instruments and methods added during the study strengthened the results because they each added difficulty to the tests. Another commenter supported the study design and responded to our concerns that having no fixed endpoints or lack of validation for some of the clinical trial measures is an inevitable consequence of applying this new technology to a population that has had no other options. This commenter expressed its opinion that the measures needed to be designed, and refined, because very few tests existed that could assess such limited vision in quantitative terms.

Response: We appreciate the commenters' views and explanation of the study design, measures, and endpoints in light of the small and rare population of patients with severe to profound Retinitis Pigmentosa being studied for this Argus®II System. We agree with the commenters that, in view of these difficulties that very few tests existed that could assess such limited vision in quantitative terms for this population of blind patients with the indication of severe to profound RP with bare or no light perception in both eyes, the applicant presented data that demonstrated that the Argus®II System represents a substantial clinical improvement over existing technologies.

The Argus®II System meets all of the new technology add-on payment policy criteria. Therefore, we are approving the Argus®II System for new technology add-on payments in FY 2014. Cases involving the Argus®II System that are eligible for new technology add-on payments will be identified by ICD-9-CM procedure code 14.81. We note that section 1886(d)(5)(K)(i) of the Act requires that the Secretary establish a mechanism to recognize the costs of new medical services or technologies under the payment system established under that subsection, which establishes the system for paying for the operating costs of inpatient hospital services. The system of payment for capital costs is established under section 1886(g) of the Act, which makes no mention of any add-on payments for a new medical service or technology. Therefore, it is not appropriate to include capital costs in the add-on payments for a new medical service or technology. In the application, the applicant provided a breakdown of the costs of the Argus®II System. The total operating cost of the Argus®II System is $144,057.50. Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the Argus®II System is $72,028.75.

c. 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 invited public comments regarding how the Zilver® PTX® meets the newness criterion. However, we did not receive any public comments concerning the newness criterion and, therefore, we believe that 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 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 that 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 was 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 80 mm to 120 mm, while the length of the Zilver® PTX® is 80 mm (which could cause a variance in the actual amount of stents used per case when using the Zilver® PTX®). 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 invited public comments on whether or not the Zilver® PTX® meets the cost criterion. In addition, we invited 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. However, we did not receive any public comments concerning the cost criterion and, therefore, we believe that the Zilver® PTX® meets the cost criterion.

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 a percutaneous transluminal balloon angioplasty (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). In the FY 2014 IPPS/LTCH PPS proposed rule, we noted that we were 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]

In the FY 2014 IPPS/LTCH PPS proposed rule, we also expressed concern 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 note that we did not receive any public comments on the Zilver® PTX® during the new technology town hall meeting's public comment period. However, we invited public comments regarding whether the Zilver® PTX® meets the substantial clinical improvement criterion.

Comment: One commenter, the manufacturer and applicant, submitted a public comment responding to our concerns presented in the proposed rule. With regard to our first concern that other endpoints such as walking, walking speed, and climbing were not considered as primary endpoints, the manufacturer noted that in addition to the primary endpoint of primary patency at 12 months, the study investigators (for the Zilver® PTX® Global Registry Clinical Study) understood the importance of including other effective endpoints in the study. Specifically, the commenter noted that the study included Rutherford classification, walking ability, and quality of life. Also, a composite clinical endpoint defined as “freedom from symptoms of ischemia” was calculated based on freedom from worsening claudication, worsening Rutherford class, tissue loss, and other symptoms indicating the need for reintervention.

The commenter added that similar improvements in the Rutherford score, and walking and quality of life scores were observed in both the PTA control and Zilver® PTX® treatment groups of the Zilver® PTX® Global Registry Clinical Study. The commenter noted that the study was designed to allow ongoing, clinically indicated care to optimize each patient's health status and quality of life throughout the course of the study, which would result in improved clinical outcomes. The commenter asserted that while allowing for ongoing care within the clinical trial, the study design confounded the comparison of clinical benefit between the PTA control and Zilver® PTX® treatment groups due to the additional study and/or non-study related procedures that were performed during the study and subsequent to the index procedure(s). The commenter concluded that this confounding aspect of the study design, though in the patient's best interest, argued against using these clinical effectiveness endpoints as primary endpoints.

The commenter also explained that because these standard clinical effectiveness outcomes were not ideally suited to discriminate differences between treatment arms in clinical trial, a secondary clinical benefit index of freedom from symptoms of ischemia was calculated (as described above). The commenter believed that measuring freedom from symptoms of ischemia provides an important measure of clinical benefit of the Zilver® PTX®. The commenter noted that freedom from symptoms of ischemia was maintained in 88.5 percent of the Zilver® PTX® treatment group at 12 month versus 75.3 percent of PTA control group patients. The commenter also pointed out that at the time of submission of the application, only 12-month data had been published in the peer review literature. Since that time, the 2-year safety and effectiveness outcomes have been published [10] and can be accessed on the Internet at: http://www.sciencedirect.com/science/article/pii/S0735109713014149.

With regard to our concerns concerning the recall of the device, the commenter stated that it has “identified the root cause of the underlying failure mode to the delivery device and corrective action has been implemented” with the anticipated return of the Zilver® PTX® to the market in early August 2013. The commenter noted that there are no issues with the Zilver® PTX® itself, only the delivery system to implant the Zilver® PTX®.

Response: After consideration of the public comments received in response to our concerns and proposals presented in the proposed rule, we agree that the Zilver® PTX® represents a substantial clinical improvement over existing technologies 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. We also believe that the commenter has sufficiently responded to our concerns presented in the proposed rule. However, we will continue to monitor the long-term clinical trial data concerning the primary and secondary endpoints as it becomes available.

Comment: Several commenters supported making new technology add-on payments for the Zilver® PTX® in FY 2014.

Response: We appreciate the commenters' support. The Zilver® PTX® meets all of the new technology add-on payment policy criteria. Therefore, we are approving the Zilver® PTX® for new technology add-on payments in FY 2014. Cases involving the Zilver® PTX® that are eligible for new technology add-on payments will be identified by ICD-9-CM procedure code 00.60. As stated above, to determine the amount of Zilver® PTX® stents per case, instead of using the amount of stents used per case based on the ICD-9-CM codes, the applicant used an average of 1.9 stents per case based on the Zilver® PTX® Global Registry Clinical Study. The applicant stated in its application that the anticipated cost per stent is approximately $1,795. Therefore, cases of the Zilver® PTX® would incur an average cost per case of $3,410.50 ($1,795 × 1.9). Under § 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case of the Zilver® PTX® is $1,705.25.

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary 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 FY 2014 hospital wage index based on the statistical areas appears under section III.B. of the preamble of this final 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 adjustment for FY 2014 is discussed in section II.B. of the Addendum to this final rule.

As discussed below in section III.H. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B), 1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2014 is discussed in section II.A.4.b. of the Addendum to this final rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are applying beginning October 1, 2013 (the FY 2014 wage index) appears under section III.F. of the preamble of this final 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 planned to announce new area delineations based on new standards adopted in 2010 (75 FR 37246) and the 2010 Census of Population and Housing data. As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27552), 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 provided 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 out-migration 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 considered 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 the FY 2014 IPPS/LTCH PPS proposed rule. By the time the bulletin was issued, the FY 2014 IPPS/LTCH PPS 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.

Comment: Several commenters recommended that, if CMS were to implement OMB's MSAs in the FY 2015 final rule, the newly adopted definitions should not be effective until FY 2016, and even then, CMS should phase in the new MSAs. Other commenters specifically stated that CMS should provide a 3-year “hold harmless” period for those hospitals that maintain a specific status under the Medicare program that is jeopardized by changes to the MSAs. For example, two commenters suggested that rural hospitals that currently qualify for MDH and SCH status should be protected from the negative financial consequences of a change to urban status. Several other commenters urged CMS to hold an open-door call to review the CMSA changes and outline for hospitals what may or may not be the next steps for CMS as it plans to proceed, similar to the 2003 process. One commenter suggested that the Secretary allow rural teaching hospitals that will be redesignated to urban to start a new residency training program, and under the GME rules specific to rural hospitals, allow the hospital to count the FTEs for an additional time period of 2 years.

Response: We appreciate the comments made by the commenters. As we indicated in the proposed rule, we intend to assess these new definitions, which require extensive review and verification to identify the new area designation for each county and hospital in the county, before adopting them. Any changes would be made through notice-and-comment rulemaking. We will address the concerns raised in these comments and other issues at part of the FY 2015 rulemaking process.

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

The 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 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 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 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 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 final FY 2014 wage index includes FY 2010 data submitted to us as of June 26, 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 43 providers with data that were too aberrant to include in the proposed wage index, although we stated that if data elements for some of these providers are corrected, we intended to include some of these providers in the final FY 2014 wage index. (We note that in the FY 2014 IPPS/LTCH PPS proposed rule, we inadvertently stated that we excluded 44 providers.) We have received corrected data for 11 providers, and therefore, we are including the data for these 11 providers in the final FY 2014 wage index. Therefore, in total, we are excluding the data of 32 providers from the final FY 2014 wage index.

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 the 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 final FY 2014 wage index is calculated based on 3,440 hospitals.

For the final 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 FY 2014 wage index associated with this final 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 FY 2014 Unadjusted Wage Index

The method used to compute the 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 as we proposed, we are not making 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 FY 2014 national average hourly wage (unadjusted for occupational mix) is $38.3998. The FY 2014 Puerto Rico overall average hourly wage (unadjusted for occupational mix) is $16.4890.

F. Occupational Mix Adjustment to the 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 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, as we proposed, we are again using occupational mix data collected on the 2010 survey to compute the occupational mix adjustment for FY 2014. We are including data for 3,201 hospitals that also have wage data included in the 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 FY 2014 wage index associated with this final 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, which will be applied to the FY 2016 wage index, includes the same data elements and definitions as the 2010 survey and provides for the collection of hospital-specific wages and hours data for nursing employees for calendar year 2013 (that is, payroll periods ending between January 1, 2013 and December 31, 2013). The comment period for the notice ended on February 5, 2013. After considering the public comments that we received on the December 2012 notice, we made a few minor editorial changes and published the 2013 survey in the Federal Register on February 28, 2013 (78 FR 13679). This survey was approved by OMB on May 14, 2013, 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. The 2013 Occupational Mix Survey Hospital Form and Instructions and Definitions are available on the CMS Web site at: http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/Medicare-Wage-Index-Occupational-Mix-Survey2013.html.

3. Calculation of the Occupational Mix Adjustment for FY 2014

For FY 2014, we calculated 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 FY 2014 occupational mix adjusted national average hourly wage is $38.3698. The FY 2014 occupational mix adjusted Puerto Rico-specific average hourly wage is $16.5319.

Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the FY 2014 wage index. For the FY 2010 survey, the response rate was 91.7 percent. In the FY 2014 wage index established in this final 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 Occupational Mix Adjustment and the FY 2014 Occupational Mix Adjusted Wage Index

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

As discussed in section III.F. of this preamble, for FY 2014, we apply the occupational mix adjustment to 100 percent of the FY 2014 wage index. We calculated the final 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 FY 2014 wage index results in a national average hourly wage of $38.3698 and a Puerto-Rico specific average hourly wage of $16.5319. 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 FY 2014 wage index, we calculated the FY 2014 wage index using the occupational mix survey data from 3,201 hospitals. Using the Worksheet S-3, Parts II and III, cost report data of 3,440 hospitals and occupational mix survey data from 3,201 hospitals represents a 93.1 percent survey response rate. The 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 Average hourly wage
National RN 37.430602011
National LPN and Surgical Technician 21.771626577
National Nurse Aide, Orderly, and Attendant 15.323325633
National Medical Assistant 17.2056709
National Nurse Category 31.80354668

The national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $31.80354668. 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 43.45 percent, and the national percentage of hospital employees in the all other occupations category is 56.55 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 FY 2014 occupational mix adjusted wage indices for each CBSA to the unadjusted wage indices for each CBSA. As a result of applying the occupational mix adjustment to the wage data, the wage index values for 205 (52.4 percent) urban areas and 32 (66.7 percent) rural areas will increase. One hundred and twenty (30.7 percent) urban areas will increase by 1 percent or more, and 4 (1.02 percent) urban areas will increase by 5 percent or more. Thirteen (27.1 percent) rural areas will increase by 1 percent or more, and no rural areas will increase by 5 percent or more. However, the wage index values for 182 (46.5 percent) urban areas and 16 (33.3 percent) rural areas will decrease. Eighty (20.5 percent) urban areas will decrease by 1 percent or more, and 1 urban area will decrease by 5 percent or more (0.26 percent). Seven (14.6 percent) rural areas will decrease by 1 percent or more, and no rural areas will decrease by 5 percent or more. The largest positive impacts are 6.61 percent for an urban area and 2.64 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. Four urban areas' wage indices, but no rural area wage indices, will remain unchanged by application of the occupational mix adjustment. These results indicate that a larger percentage of rural areas (66.7 percent) will benefit from the occupational mix adjustment than will urban areas (52.4 percent). However, approximately one-third (33.3 percent) of rural CBSAs will still experience a decrease in their wage indices as a result of the occupational mix adjustment.

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

a. 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 FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27556), we estimated that 434 hospitals would receive an increase in their FY 2014 proposed wage index due to the application of the rural floor. Based on the final FY 2014 wage indices associated with this final rule and available on the CMS Web site, 424 hospitals are receiving an increase in their FY 2014 wage index due to the application of the rural floor. We received some comments concerning the application of the rural floor and additional tables. We respond to these public comments in Appendix A of this final rule.

b. 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, 2013 (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 the preamble of this final rule). 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 final 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 changes.

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. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27556), we proposed 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 proposed to revise the regulations at § 412.64(h)(4) to reflect the proposed 1-year extension. We invited public comments on this extension.

Comment: Many of the commenters supported the CMS proposal, stating that it provides a remedy to the financial and competitive disadvantages suffered by hospitals in all-urban States, and that preserving the current imputed floor policy is the sound course of action as CMS continues to explore potential wage index reforms. One commenter who supported the proposal advised CMS that the American Hospital Association's (AHA's) Medicare Area Wage Index Task Force has issued draft recommendations (including the imputed floor policy) and has requested comments from hospitals prior to finalizing the report. The commenter suggested that the industry have a chance to provide input to CMS prior to finalizing any decisions regarding the imputed floor policy. The commenter also suggested that, if CMS decides to finalize a policy that would result in the expiration of the imputed floor, CMS afford hospitals a multiyear phase out in order to offset their lost revenue.

One commenter objected to the proposal and stated that it did not support the policy behind the imputed floor. The commenter stated that it agreed with the rationale that CMS previously provided in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25878 and 25879) for not proposing to extend the imputed floor policy, and urged CMS to let the policy expire. Another commenter opposed the proposal, stating that it supported CMS' position in the FY 2008 IPPS proposed rule (72 FR 24786) that the imputed floor policy should apply only when required by statute.

Response: We appreciate the commenters' support. For those commenters who objected to the proposed policy and made further recommendations, we will further consider these comments while we continue to explore potential wage index reforms. In response to the commenter who advised that the AHA's Medicare Area Wage Index Task Force has requested comments from hospitals prior to finalizing its report and also suggested that the industry have a change to provide input to CMS prior to finalizing any decisions regarding the imputed floor policy, we are unclear on exactly what the commenter is requesting. We have allowed the industry to comment on the proposals regarding the imputed floor policy; specifically in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27556), we invited public comment on the proposed 1-year extension. With regard to the comment that requested that CMS afford hospitals a multiyear phase-out of the imputed floor policy, we did not propose to let the imputed floor policy expire for FY 2014. We will consider the commenter's suggestion in future rulemaking.

After consideration of the public comments we received, in this final rule, as we proposed, we are providing an extension of 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 reform. We also are adopting as final the proposed conforming changes at § 412.64(h)(4) to reflect the 1-year extension.

The wage index and impact tables associated with this final rule that are available on the CMS Web site include the application of the imputed floor policy at § 412.64(h)(4) and a national budget neutrality adjustment for the rural floor (which includes the imputed floor). There are 25 hospitals in New Jersey that will receive an increase in their FY 2014 wage index due to the imputed floor calculated under the original methodology. The wage index and impact tables for this final rule also reflect the application of the alternative methodology for computing the imputed floor, which will benefit 4 hospitals in Rhode Island.

c. 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 are receiving the frontier floor value of 1.0000 for their FY 2014 wage index. These hospitals are located in Montana, North Dakota, South Dakota, and Wyoming. Although Nevada is also defined as a frontier State, its FY 2014 rural floor value of 1.1454 was greater than 1.0000, and therefore, no Nevada hospitals will receive a frontier floor value for their FY 2014 wage index. We did not receive any public comments concerning the frontier floor.

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

3. FY 2014 Wage Index Tables

The 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 occupational mix adjustment, geographic reclassification or redesignation as discussed in section III.H. of the preamble of this final rule, and the application of the rural, imputed, and frontier State floors as discussed in section III.G.2. of the preamble of this final 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 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 in Step 5 in section III.G. of the preamble of this final rule) 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 average hourly wages in Tables 2, 3A, and 3B, which are available on the CMS Web site, include the occupational mix adjustment. The wage index values in Tables 4A, 4B, 4C, and 4D also include the national rural floor budget neutrality adjustment (which includes the imputed floor). The wage index values in Table 2 also include the 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 adopting 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 in accordance with the provisions of 42 CFR 412.103.

Comment: One commenter noted that CMS did not propose any amendments to § 412.103, but requested that CMS retract the statement that hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification pursuant to 42 CFR 412.103; the commenter believed that this statement is a change in policy. The commenter believed that the statute and regulations permit a hospital in an all-urban State to be treated as if it were located in a rural area, and that no actual rural area in the State is necessary for such reclassification.

Response: We disagree with commenter's request, and maintain our position that hospitals that are geographically located in States without any rural areas are ineligible for § 412.103 reclassification. This is consistent with the statute and CMS' longstanding policy, and we did not propose any changes to this policy.

Comment: One commenter questioned the reclassification process concerning urban hospitals that redesignate from urban status to rural status under § 412.103, then cancel their rural status and subsequently seek reclassification to another urban area through the MGCRB. The commenter also had questions concerning the process of MGCRB reclassification in the case of hospitals that currently have acquired rural status under § 412.103.

Response: We thank the commenter for the comments. We did not make any proposals to change any of the reclassification processes or criteria. The processes for § 412.103 urban to rural redesignation and MGCRB reclassification are specified in 42 CFR 412.103 and 412.230 et. seq. The regulations in the sections above clearly define the process and describe the criteria and conditions for these reclassifications. We refer the commenter to the regulations for complete details on wage index reclassifications.

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 final rule was constructed, the MGCRB had completed its review of FY 2014 reclassification requests. Based on such reviews, there were 296 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 214 hospitals approved for wage index reclassifications in FY 2012, and 196 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 final rule, 679 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 are incorporated into the wage index values published in this 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 final rule, although OMB issued revisions on February 28, 2013 to its area delineations, we did not propose 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 via the Internet on the CMS Web site at: http://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/index.html, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

3. 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 final rule, although OMB issued revisions on February 28, 2013, to its area delineations based on 2010 census data, we did not propose 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 the proposed rule (which is available via the Internet on the CMS Web site), affected hospitals were permitted to 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 could have withdrawn from an MGCRB reclassification within 45 days of the publication of the 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 final 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 [11] ) 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. 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. For FY 2014, we are adopting the out-migration adjustment 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 out-migration adjustments for the FY 2014 wage index.

We did not receive any public comments with regard to the out-migration adjustment for FY 2014.

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 to CMS 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 were given the opportunity to examine Table 2, which was listed in section VI. of the Addendum to the 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 contained 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 noted that the hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by March 4, 2013.

We released 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 were 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 believed that its wage or occupational mix data were incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital was required to send a letter to both its fiscal intermediary/MAC and CMS that outlined why the hospital believed an error existed and provide all supporting information, including relevant dates (for example, when it first became aware of the error). The hospital was required to send the letter to CMS and its fiscal intermediaries/MACs no later than June 3, 2013.

After the release of the May 2013 wage index data files, changes to the wage and occupational mix data were only 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 approved 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) were incorporated into the final wage index in this 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 did 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 deadline for making corrections to the wage data for the following fiscal year's wage index (for example, June 3, 2013 for the FY 2014 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 for the FY 2014 wage index), 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 final judicial decision reverses a CMS denial of a hospital's wage index data revision request.

K. Labor-Related Share for the 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 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 “would result in lower payments to a hospital than would otherwise be made.” However, these provisions 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.

Comment: Several commenters stated that CMS has not kept pace by adjusting the labor-related share of the standard rate to which the wage index is applied. The commenters explained that CMS has provided incentives for hospitals to reduce costs through a declining wage index while hospitals have responded and made strides in labor efficiency. The commenters recommended that CMS adjust the labor-related share of the standard rate to 42 percent from the current 62 percent for hospitals with a wage index of less than 1.0. The commenters believed that a 42-percent labor component is more reflective of hospitals seeking cost efficiencies in wages.

Response: As stated above, 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. Therefore, any changes to the application of the 62 percent labor-related share would require a change to current law by Congress.

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 proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27561 through 27572), and as described in section IV. of the preamble of this final rule, we are rebasing and revising the IPPS market basket using FY 2010 as the base year. Using the FY 2010-based IPPS market basket, we also recalculated the labor-related share and are finalizing a labor-related share of 69.6 percent for discharges occurring on or after October 1, 2013, as discussed in section IV.B.4. of the preamble of this final rule. As discussed in Appendix A of this final rule, we are implementing 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. For FY 2014, as proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27561 through 27572) and as described in section IV. of the preamble of this final rule, we are including 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 FY 2010-based IPPS market basket.

Therefore, for FY 2014, as discussed in section IV.B.4. of the preamble of this final rule, we are finalizing our proposals without modification and adopting 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 final rule and are available via the Internet, reflect this labor-related share. For FY 2014, for all IPPS hospitals whose wage indices are less than 1.0000, we are applying 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 applying 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 proposed in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27566 through 27568) and as described in section IV.B.4. of the preamble of this final rule, for FY 2014, we also are rebasing and revising the labor-related share for the Puerto Rico-specific standardized amounts using FY 2010 as a base year. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27566 through 27568), we proposed a labor-related share for the Puerto Rico-specific standardized amounts of 63.2 percent for discharges occurring on or after October 1, 2013. For FY 2014, we are finalizing our proposal and adopting a labor-related share for the Puerto Rico-specific standardized amounts of 63.2 percent for discharges occurring on or after October 1, 2013, as discussed in section IV.B.4. of the preamble of this final rule. 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, and 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 adopting 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 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 final rule and available via the Internet.

Comment: Several commenters supported the proposed increase in the labor-related share. We did not receive any public comments on the proposed Puerto Rico labor-related share.

Response: We appreciate the commenters' support.

As discussed in section IV.B.4. of the preamble of this final rule, we are finalizing the labor-related share of 69.6 percent as proposed for all IPPS hospitals whose wage indices are greater than 1.0000. We also are finalizing the Puerto Rico labor-related share of the labor-related share of 63.2 percent as proposed. Further discussion of the FY 2014 labor-related share for the national standardized amount and the Puerto Rico-specific standardized amount can be found in section IV.B.4. of the preamble of this final rule.

IV. 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 (as we proposed, in this final rule, we are using 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. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27561 through 27572), we proposed to rebase the cost structure for the IPPS hospital index from FY 2006 to FY 2010, as discussed below.

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 final rule, we are shifting 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, as we proposed, we are rebasing and revising the IPPS market basket from FY 2006 to FY 2010. We invited public comments on our proposed methodology. A summary of the public comments we received and our responses are included under the appropriate subject area.

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. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27562), we proposed 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 proposed 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 were reported in Table IV01 of the proposed rule. We proposed 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.

Comment: One commenter supported the proposal to move to an FY 2010-based market basket.

Response: We appreciate the commenter's support. In this final rule, we are finalizing our calculation of the FY 2010-based IPPS cost weights using the Medicare cost reports as proposed and describe our methods in more detail below.

Table IV01 below shows the major cost categories and their respective cost weights as calculated directly from the Medicare Cost Reports for this final rule.

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 and final 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 proposed 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 proposed to allocate approximately 78.3 percent of the contract labor cost weight to the wages and salaries cost weight. Table IV02 in the proposed rule showed 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.

We did not receive any specific public comment regarding the allocation of contract labor cost weight to the wages and salaries and employee benefits cost weights. In this final rule, we are finalizing our methodology of allocating the contract labor cost weight as we proposed. Table IV02 below shows the wages and salaries and employee benefit cost weights after contract labor allocation for the FY 2006-based IPPS market basket and the proposed and final 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 and final 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 final FY 2010-based wages and salaries cost weight is relatively similar to the FY 2006-based wages and salaries cost weight while the final 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 proposed 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 proposed 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. At the time of development of the FY 2014 IPPS/LTCH PPS proposed rule, the most recent data available were 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 had not yet released new Benchmark I-O data at the time we prepared our analysis for the proposed rule, and we believe the data to be comprehensive and complete as indicated above, we proposed to use the 2002 Benchmark I-O data in the FY 2010-based IPPS market basket for the FY 2014 IPPS/LTCH PPS proposed rule.

Therefore, instead of using the less detailed, less accurate Annual I-O data, we proposed to age the 2002 Benchmark I-O data forward to FY 2010. The methodology we proposed 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. In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27563), we proposed that, if more recent BEA benchmark I-O data for 2007 was 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 was expected to be released in the summer of 2013. However, at the time we prepared our analysis for this final rule, BEA had not published the 2007 Benchmark I-O data. Therefore, we were unable to incorporate any revised I-O data in the final FY 2010-based IPPS market basket.

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 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.

2. Cost Category Computation

As stated previously, for the proposed FY 2010-based market basket, we proposed to use data from the Medicare cost reports to derive seven major cost categories that were the same detailed cost categories as used in the FY 2006-based IPPS market basket. Also, we did not propose to change our definition of the labor-related share. As discussed in more detail below and similar to the previous rebasings, 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.

Comment: One commenter supported the use of 2002 BEA data if it is not possible to move to 2007 data in the final rule. We did not receive any public comments on the specific methodology for calculating the final cost weights.

Response: Since the 2007 BEA I-O data has not been published, we are unable to incorporate the data into the FY 2010-based IPPS market basket. We appreciate the commenter's support to use the 2002 BEA I-O data, given these data limitations.

In this final rule, we are finalizing the use of the 2002 I-O data as we proposed in the FY 2014 proposed rule. We also are finalizing our calculation of the final cost category weights as we proposed.

3. Selection of Price Proxies

After computing the FY 2010 cost weights for the 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 proposed 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 proposed were 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 proposed 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 proposed 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 proposed 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 was 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 stated in the proposed rule that we believed the proposed PPIs, CPIs, and ECIs selected meet these criteria.

Table IV03 below sets forth the final 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—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 FY 2010-based hospital market basket cost weights 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 and 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 and 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 proposed 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 were selected to most closely match the costs included in each of the cost categories of the FY 2010-based IPPS market basket. We did not receive any public comments on the price proxies we proposed to use in the FY 2010-based IPPS market basket. In this final rule, we are finalizing the use of the price proxies that we proposed. Below is a list of the price proxies we proposed, and are finalizing to use, for the FY 2010-based IPPS market basket.

a. Wages and Salaries

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

d. Electricity

We 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 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 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 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 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 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 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 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 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 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 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 use the PPI for Apparel (BLS series code WPU0381) to measure the price growth of this cost category.

p. Machinery and Equipment

We use the PPI for Machinery and Equipment (BLS series code WPU11) to measure the price growth of this cost category.

q. Miscellaneous Products

We 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 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 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 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 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 use the CPI for Telephone Services (BLS series code CUUR0000SEED) to measure the price growth of this cost category.

w. Postage

We 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 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 in the proposed rule compared 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 below compares both the historical and forecasted percent changes in the FY 2006-based IPPS market basket and the final FY 2010-based IPPS market basket. As stated in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27572), we are incorporating a more recent forecast of the market basket to determine the FY 2014 market basket updates and MFP adjustment in the final rule. Therefore, the forecasted growth rates in Table IV04 are based on IHS Global Insight, Inc.'s (IGI) most recent second quarter 2013 forecast with historical data through first quarter 2013. The proposed rule presented IGI's first quarter 2013 forecast with historical data through fourth quarter of 2012.

Table IV04—FY 2006-Based and 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 FY 2010-based IPPS market basket operating index percent change
Source: IHS Global Insight, Inc., 2nd Quarter 2013 forecast.
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 2.1
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

There is no difference between the FY 2006-based and the FY 2010-based IPPS market basket increases for 2008-2012. For FY 2014, the increase is 2.5 percent for both the FY 2006-based and FY 2010-based IPPS market baskets.

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, in the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27566), we proposed 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 proposed 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 proposed 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 proposed 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 proposed 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.

We did not receive any specific public comments on the use of the professional fees survey. Therefore, we are finalizing our methodology for allocating contracted professional services for FY 2014 as proposed. In the 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 and as we proposed for the FY 2010-based IPPS market basket, for this final rule, we are including 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.

We did not receive any specific public comments on our proposed methodology for allocating home office costs to the labor-related share. Therefore, we are finalizing this methodology as described in the proposed rule and provided below for FY 2014. Our 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.

As proposed, we determined 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 methodology, we determined that 62 percent of hospitals' home office compensation costs were for home offices located in their respective local labor markets. Therefore, we are allocating 62 percent of NAICS 55 expenses to the labor-related share.

In the 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 allocations mentioned above, we apportioned 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 professional fees: Labor-related cost weight of 5.500 percent.

Below is a table comparing the 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 final rule, the wages and salaries and employee benefits cost weight reflect contract labor costs.

Table IV05—Comparison of the FY 2010-Based Labor-Related Share and the FY 2006-Based Labor-Related Share Back to Top
FY 2006-based market basket cost weights 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 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. 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.”

Comment: Several commenters supported the proposed increase in the labor-related share.

Response: We appreciate the commenters' support.

In this final rule, we are finalizing the labor-related share of 69.6 percent for FY 2014 as proposed.

As we proposed, we also updated the labor-related share for Puerto Rico. Consistent with our methodology for determining the national labor-related share, we calculated 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 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 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 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 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.

We did not receive any public comments on the proposal to update the Puerto Rico labor-related share. Therefore, we are finalizing the Puerto Rico labor-related share of 63.2 percent for FY 2014 as proposed.

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.

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27568), 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 proposed 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.

We did not receive any public comments on this proposal. In this final rule, we are finalizing the use of 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 as we proposed.

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 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 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 children hospitals, the 11 cancer 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.

In the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27568), for the FY 2014 IPPS update, we proposed 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 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 were 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 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, as we proposed, we derived 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.

We did not receive any public comments on our proposed methodology for calculating the FY 2010-based CIPI cost weights.

In this final rule, we are finalizing the FY 2010-based CIPI cost weights as proposed. Table IV07 presents a comparison of the FY 2010-based CIPI cost weights and the FY 2006-based CIPI cost weights.

Table IV07—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 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 (12years).
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 expected life of building and fixed equipment was determined to be 26 years, and the 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.

As we proposed, we used 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