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Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2006 Rates

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Start Preamble Start Printed Page 47278

AGENCY:

Centers for Medicare and Medicaid Services (CMS), HHS.

ACTION:

Final rule.

SUMMARY:

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems. In addition, in the Addendum to this final rule, we describe the changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. We also are setting forth rate-of-increase limits as well as policy changes for hospitals and hospital units excluded from the IPPS that are paid in full or in part on a reasonable cost basis subject to these limits. These changes are applicable to discharges occurring on or after October 1, 2005, with one exception: The changes relating to submittal of hospital wage data by a campus or campuses of a multicampus hospital system (that is, the changes to § 412.230(d)(2) of the regulations) are effective on August 12, 2005.

Among the policy changes that we are making are changes relating to: The classification of cases to the diagnosis-related groups (DRGs); the long-term care (LTC)-DRGs and relative weights; the wage data, including the occupational mix data, used to compute the wage index; rebasing and revision of the hospital market basket; applications for new technologies and medical services add-on payments; policies governing postacute care transfers, payments to hospitals for the direct and indirect costs of graduate medical education, submission of hospital quality data, payment adjustment for low-volume hospitals, changes in the requirements for provider-based facilities; and changes in the requirements for critical access hospitals (CAHs).

DATES:

Effective Dates: The provisions of this final rule, except the provisions of § 412.230(d)(2), are effective on October 1, 2005. The provisions of § 412.230(d)(2) are effective on August 12, 2005. This rule is a major rule as defined in 5 U.S.C. 804(2). Pursuant to 5 U.S.C. 801(a)(1)(A), we are submitting a report to Congress on this rule on August 1, 2005.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Marc Hartstein, (410) 786-4548, Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage Index, New Medical Services and Technology Add-On Payments, Hospital Geographic Reclassifications, Postacute Care Transfers, and Disproportionate Share Hospital Issues.

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Critical Access Hospitals, and Long-Term Care (LTC)-DRGs, and Provider-Based Facilities Issues.

Steve Heffler, (410) 786-1211, Hospital Market Basket Revision and Rebasing.

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

Mary Collins, (410) 786-3189, Critical Access Hospitals (CAHs) Issues.

Debbra Hattery, (410) 786-1855, Quality Data for Annual Payment Update Issues.

Martha Kuespert, (410) 786-4605, Specialty Hospitals Definition Issues.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

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Acronyms

AAOS American Association of Orthopedic Surgeons

ACGME Accreditation Council on Graduate Medical Education

AHIMA American Health Information Management Association

AHA American Hospital Association

AICD Automatic implantable cardioverter defibrillator

AMI Acute myocardial infarction

AOA American Osteopathic Association

ASC Ambulatory Surgical Center

ASP Average sales price

AWP Average wholesale price

BBA Balanced Budget Act of 1997, Pub. L. 105-33

BES Business Expenses Survey

BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Pub. L. 106-554

BLS Bureau of Labor Statistics

CAH Critical access hospital

CBSAs Core-Based Statistical Areas

CC Complication or comorbidity

CIPI Capital Input Price Index

CMS Centers for Medicare & Medicaid Services

CMSA Consolidated Metropolitan Statistical Area

COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-272

CoP Condition of Participation

CPI Consumer Price Index

CRNA Certified registered nurse anesthetist

CRT Cardiac Resynchronization Therapy

DRG Diagnosis-related group

DSH Disproportionate share hospital

ECI Employment Cost Index

FDA Food and Drug Administration

FIPS Federal Information Processing Standards

FQHC Federally qualified health center

FTE Full-time equivalent

FY Federal fiscal year

GAAP Generally accepted accounting principles

GAF Geographic adjustment factor

HIC Health Insurance Card

HIS Health Information System

GME Graduate medical education

HCRIS Hospital Cost Report Information System

HIPC Health Information Policy Council

HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191

HHA Home health agency

HHS Department of Health and Human Services

HPSA Health Professions Shortage Area

HQA Hospital Quality Alliance

ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification

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

ICU Intensive Care Unit

IHS Indian Health Service

IME Indirect medical education

IPPS Acute care hospital inpatient prospective payment system

IPF Inpatient psychiatric facility

IRF Inpatient rehabilitation facility

IRP Initial residency period

JCAHO Joint Commission on Accreditation of Healthcare Organizations

LAMCs Large area metropolitan counties

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

MCE Medicare Code Editor

MCO Managed care organization

MDC Major diagnostic category Start Printed Page 47279

MDH Medicare-dependent small rural hospital

MedPAC Medicare Payment Advisory Commission

MedPAR Medicare Provider Analysis and Review File

MEI Medicare Economic Index

MGCRB Medicare Geographic Classification Review Board

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173

MRHFP Medicare Rural Hospital Flexibility Program

MSA Metropolitan Statistical Area

NAICS North American Industrial Classification System

NCD National coverage determination

NCHS National Center for Health Statistics

NCVHS National Committee on Vital and Health Statistics

NECMA New England County Metropolitan Areas

NICU Neonatal intensive care unit

NQF National Quality Forum

NTIS National Technical Information Service

NVHRI National Voluntary Hospital Reporting Initiative

OES Occupational Employment Statistics

OIG Office of the Inspector General

OMB Executive Office of Management and Budget

O.R. Operating room

OSCAR Online Survey Certification and Reporting (System)

PRM Provider Reimbursement Manual

PPI Producer Price Index

PMS Performance Measurement System

PMSAs Primary Metropolitan Statistical Areas

PPS Prospective payment system

PRA Per resident amount

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

PS&R Provider Statistical and Reimbursement System

QIA Quality Improvement Organizations

RHC Rural health clinic

RHQDAPU Reporting Hospital Quality Data for Annual Payment Update

RNHCI Religious nonmedical health care institution

RRC Rural referral center

RUCAs Rural-Urban Commuting Area Codes

SCH Sole community hospital

SDP Single Drug Pricer

SIC Standard Industrial Codes

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

SSA Social Security Administration

SSI Supplemental Security Income

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248

UHDDS Uniform Hospital Discharge Data Set

Table of Contents

I. Background

A. Summary

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

2. Hospitals and Hospital Units Excluded from the IPPS

a. IRFs

b. LTCH

c. IPFs

3. Critical Access Hospitals (CAHs)

4. Payments for Graduate Medical Education (GME)

B. Summary of Provisions of the FY 2006 IPPS Proposed Rule

1. Changes to the DRG Reclassifications and Recalibrations of Relative Weights

2. Changes to the Hospital Wage Index

3. Revision and Rebasing of the Hospital Market Basket

4. Other Decisions and Changes to the PPS for Inpatient Operating and GME Costs

5. PPS for Capital-Related Costs

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

7. Payment for Blood Clotting Factors for Inpatients With Hemophilia

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

9. Impact Analysis

10. Recommendation of Update Factor for Hospital Inpatient Operating Costs

11. Discussion of Medicare Payment Advisory Commission Recommendations

C. Public Comments Received in Response to the FY 2006 IPPS Proposed Rule

II. Changes to DRG Classifications and Relative Weights

A. Background

B. DRG Reclassifications

1. General

2. Yearly Review for Making DRG Changes; Request for Public Comment

3. Pre-MDC: Intestinal Transplantation

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

a. Strokes

b. Unruptured Cerebral Aneurysms

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

a. Severity Adjusted Cardiovascular Procedures

b. Automatic Implantable Cardioverter/Defibrillator

c. Coronary Artery Stents

d. Insertion of Left Atrial Appendage Device

e. External Heart Assist System Implant

f. Carotid Artery Stent

g. Extracorporeal Membrane Oxygenation (ECMO)

6. MDC 6 (Diseases and Disorders of the Digestive System): Artificial Anal Sphincter

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

a. Hip and Knee Replacements

b. Kyphoplasty

c. Multiple Level Spinal Fusion

d. Charite(tm) Spinal Disc Replacement Device

8. MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified Sites)): Severe Sepsis

9. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders): Drug-Induced Dementia

10. Medicare Code Editor (MCE) Changes

a. Newborn Age Edit

b. Newborn Diagnoses Edit

c. Diagnoses Allowed for “Males Only” Edit

d. Tobacco Use Disorder Edit

e. Noncovered Procedure Edit

11. Surgical Hierarchies

12. Refinement of Complications and Comorbidities (CC) List

a. Background

b. Comprehensive Review of the CC List

c. CC Exclusion List for FY 2006

13. Review of Procedure Codes in DRGs 468, 476, and 477

a. Moving Procedure Codes from DRG 468 or DRG 477 to MDCs

b. Reassignment of Procedures among DRGs 468, 476, and 477

c. Adding Diagnosis or Procedure Codes to MDCs

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

15. Other Issues

a. Acute Intermittent Porphyria

b. Prosthetic Cardiac Support Device (Code 37.41)

c. Coronary Intravascular Ultrasound (IVUS) (Procedure Code 00.24)

d. Islet Cell Transplantation

C. Recalibration of DRG Weights

D. LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2006

1. Background

2. Changes in the LTC-DRG Classifications

a. Background

b. Patient Classifications into DRGs

3. Development of the Proposed FY 2006 LTC-DRG Relative Weights

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

b. Data

c. Hospital-Specific Relative Value Methodology

d. Low-Volume LTC-DRGs

4. Steps for Determining the FY 2006 LTC-DRG Relative Weights

5. Other Public Comments Relating to the LTCH PPS Payment Policies

E. Add-On Payments for New Services and Technologies

1. Background

2. FY 2006 Status of Technology Approved for FY 2005 Add-On Payments

3. Reevaluation of FY 2005 Applications That Were Not Approved

4. FY 2006 Applicants for New Technology Add-On Payments

III. Changes to the Hospital Wage Index

A. Background

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

C. Occupational Mix Adjustment to FY 2006 Index

1. Development of Data for the Occupational Mix Adjustment

2. Calculation of the Occupational Mix Adjustment Factor and the Occupational Mix Adjusted Wage Index

D. Worksheet S-3 Wage Data for the FY 2006 Wage Index Update

E. Verification of Worksheet S-3 Wage Data

F. Computation of the FY 2006 Unadjusted Wage Index

G. Computation of the FY 2006 Blended Wage Index

H. Revisions to the Wage Index Based on Hospital Redesignation Start Printed Page 47280

1. General

2. Effects of Reclassification

3. Application of Hold Harmless Protection for Certain Urban Hospitals Redesignated as Rural

4. FY 2006 MGCRB Reclassifications

5. FY 2006 Redesignations under Section 1886(d)(8)(B) of the Act

6. Reclassifications under Section 508 of Pub. L. 108-173

I. FY 2006 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Requests for Wage Index Data Corrections

IV. Rebasing and Revision of the Hospital Market Baskets

A. Background

B. Rebasing and Revising the Hospital Market Basket

1. Development of Cost Categories and Weights

2. PPS—Selection of Price Proxies

3. Labor-Related Share

C. Separate Market Basket for Hospitals and Hospital Units Excluded from the IPPS

1. Hospitals Paid Based on Their Reasonable Costs

2. Excluded Hospitals Paid Under Blend Methodology

3. Development of Cost Categories and Weights for the 2002-Based Excluded Hospital Market Basket

D. Frequency of Updates of Weights in IPPS Hospital Market Basket

E. Capital Input Price Index Section

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

A. Postacute Care Transfer Payment Policy

1. Background

2. Changes to DRGs Subject to the Postacute Care Transfer Policy

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

1. Background

2. Requirements for Hospital Reporting of Quality Data

C. Sole Community Hospitals and Medicare Dependent Hospitals

1. Background

2. Budget Neutrality Adjustment to Hospital Payments Based on Hospital-Specific Rate

3. Technical Change

D. Rural Referral Centers

1. Case-Mix Index

2. Discharges

3. Technical Change

E. Payment Adjustment for Low-Volume Hospitals

F. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment for IPPS-Excluded Hospitals Converting to IPPS Hospitals

3. Section 1886(d)(3)(E) Teaching Hospitals That Withdraw Rural Reclassification

G. Payment to Disproportionate Share Hospitals (DSHs)

1. Background

2. Implementation of Section 951 of Pub. L. 108-173

3. Calculation of the Medicare Fraction

4. Calculation of the Medicaid Fraction

H. Geographic Reclassifications

1. Background

2. Multicampus Hospitals

3. Urban Group Hospital Reclassifications

4. Clarification of Goldsmith Modification Criterion for Urban Hospitals Seeking Reclassification as Rural

I. Payment for Direct Graduate Medical Education

1. Background

2. Direct GME Initial Residency Period

a. Background

b. Direct GME Initial Residency Period Limitation: Simultaneous Match

3. New Teaching Hospitals' Participation in Medicare GME Affiliated Groups

4. GME FTE Cap Adjustments for Rural Hospitals

5. Technical Changes: Cross-References

J. Provider-Based Status of Facilities under Medicare

1. Background

2. Limits on Scope of Provider-Based Regulations—Facilities for Which Provider-Based Determinations Will Not Be Made

3. Location Requirement for Off-Campus Facilities: Application to Certain Neonatal Intensive Care Units

4. Technical and Clarifying Changes

K. Rural Community Hospital Demonstration Program

L. Definition of a Hospital in Connection with Specialty Hospitals

VI. PPS for Capital-Related Costs

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

A. Payments to Excluded Hospitals and Hospital Units

1. Payments to Existing Excluded Hospitals and Hospital Units

2. Updated Caps for New Excluded Hospitals and Units

3. Implementation of a PPS for IRFs

4. Implementation of a PPS for LTCHs

5. Implementation of a PPS for IPFs

6. Report of Adjustment (Exception) Payments

B. Critical Access Hospitals (CAHs)

1. Background

2. Policy Change Relating to Continued Participation by CAHs in Lugar Counties

3. Policy Change Relating to Designation of CAHs as Necessary Providers

a. Determination of the Relocation Status of a CAH

b. Relocation of a CAH Using a Waiver To Meet the CoP for Distance

VIII. Payment for Blood Clotting Factor Administered to Hemophilia Inpatients

IX. MedPAC Recommendations

A. Medicare Payment Policy

1. Update Factor

2. Quality Incentive Payment Policy

3. Refinement of DRGs Based on Severity of Illness

4. APR-DRGs

5. DRG Relative Weights

6. High-Cost Outliers

B. Other MedPAC Recommendations

X. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

Regulation Text

Addendum—Schedule of Standardized Amounts Effective with Discharges Occurring On or After October 1, 2005 and Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2005

I. Summary and Background

II. Changes to Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2006

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

2. Computing the Average Standardized Amount

3. Updating the Average Standardized Amount

4. Other Adjustments to the Average Standardized Amount

a. Recalibration of DRG Weights and Updated Wage Index—Budget Neutrality Adjustment

b. Reclassified Hospitals—Budget Neutrality Adjustment

c. Outliers

d. Rural Community Hospital Demonstration Program Adjustment (Section 410A of Pub. L. 108-173)

5. FY 2006 Standardized Amount

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

1. Adjustment for Area Wage Levels

2. Adjustment for Cost-of-Living in Alaska and Hawaii

C. DRG Relative Weights

D. Calculation of Prospective Payment Rates for FY 2006

1. Federal Rate

2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)

a. Calculation of Hospital-Specific Rate

b. Updating the FY 1982, FY 1987, and FY 1996 Hospital-Specific Rates for FY 2006

3. General Formula for Calculation of Prospective Payment Rates for Hospitals Located in Puerto Rico Beginning On or After October 1, 2005 and Before October 1, 2006

a. Puerto Rico Rate

b. National Rate

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2006

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

1. Capital Standard Federal Rate Update

a. Description of the Update Framework

b. Comparison of CMS and MedPAC Update Recommendation

2. Outlier Payment Adjustment Factor

3. Budget Neutrality Adjustment Factor for Changes in DRG Classifications and Weights and the Geographic Adjustment Factor

4. Exceptions Payment Adjustment Factor

5. Capital Standard Federal Rate for FY 2006

6. Special Capital Rate for Puerto Rico Hospitals

B. Calculation of Inpatient Capital-Related Prospective Payments for FY 2006

C. Capital Input Price Index

1. Background Start Printed Page 47281

2. Forecast of the CIPI for FY 2006

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

A. Payments to Existing Excluded Hospitals and Units

B. Updated Caps for New Excluded Hospitals and Units

V. Payment for Blood Clotting Factor Administered to Hemophilia Inpatients

Tables

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

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

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

Table 1D—Capital Standard Federal Payment Rate

Table 2—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2004; Hospital Wage Indexes for Federal Fiscal Year 2006; Hospital Average Hourly Wage for Federal Fiscal Years 2004 (2000 Wage Data), 2005 (2001 Wage Data), and 2006 (2002 Wage Data); Wage Indexes and 3-Year Average of Hospital Average Hourly Wages

Table 3A—FY 2006 and 3-Year Average Hourly Wage for Urban Areas by CBSA

Table 3B—FY 2006 and 3-Year Average Hourly Wage for Rural Areas by CBSA

Table 4A—Wage Index and Capital Geographic Adjustment Factor (GAF) for Urban Areas by CBSA

Table 4B—Wage Index and Capital Geographic Adjustment Factor (GAF) for Rural Areas by CBSA

Table 4C—Wage Index and Capital Geographic Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA

Table 4F—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) by CBSA

Table 4J—Out-Migration Wage Adjustment—FY 2006

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

Table 6A—New Diagnosis Codes

Table 6B—New Procedure Codes

Table 6C—Invalid Diagnosis Codes

Table 6D—Invalid Procedure Codes

Table 6E—Revised Diagnosis Code Titles

Table 6F—Revised Procedure Code Titles

Table 6G—Additions to the CC Exclusions List

Table 6H—Deletions from the CC Exclusions List

Table 7A—Medicare Prospective Payment System Selected Percentile Lengths of Stay [FY 2004 MedPAR Update March 2005 GROUPER V22.0]

Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: [FY 2004 MedPAR Update March 2005 GROUPER V23.0]

Table 8A—Statewide Average Operating Cost-to-Charge Ratios-July 2005

Table 8B—Statewide Average Capital Cost-to-Charge Ratios-July 2005

Table 9A—Hospital Reclassifications and Redesignations by Individual Hospital and CBSA—FY 2006

Table 9B—Hospital Reclassifications and Redesignation by Individual Hospital Under Section 508 of Pub. L. 108-173—FY 2006

Table 9C—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2006

Table 10—Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased to Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Diagnosis-Related Groups (DRGs)—July 2005

Table 11—FY 2006 LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and 5/6ths of the Geometric Average Length of Stay

Appendix A—Regulatory Impact Analysis

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

I. Background

A. Summary

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

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

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

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

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

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

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

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. For example, sole community hospitals (SCHs) are the sole source of care in their areas, and Medicare-dependent, small rural hospitals (MDHs) are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries. (An MDH receives only 50 percent of the difference between the IPPS rate and its hospital-specific rates if the hospital-specific rate is higher than the IPPS rate. In addition, an MDH does not have the option of using FY 1996 as the base year for its hospital-specific rate.)

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 Start Printed Page 47282capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital PPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Similar adjustments are also made for IME and DSH as under the operating IPPS. In addition, hospitals may receive an outlier payment for those cases that have unusually high costs.

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

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Psychiatric hospitals and units; rehabilitation hospitals and units; long-term care hospitals (LTCHs); children's hospitals; and cancer hospitals. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), and LTCHs, as discussed below. Children's hospitals and cancer hospitals continue to be paid under reasonable cost-based reimbursement.

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

a. IRFs

Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002 (66 FR 41316, August 7, 2001; 67 FR 49982, August 1, 2002; 68 FR 45674, August 1, 2003, and 69 FR 45721, July 30, 2004). The existing regulations governing payments under the IRF PPS are located in 42 CFR part 412, subpart P.

b. LTCHs

Under the authority of sections 123(a) and (c) of Pub. L. 106-113 and section 307(b)(1) of Pub. L. 106-554, LTCHs are being transitioned from being paid for inpatient hospital services based on a blend of reasonable cost-based reimbursement under section 1886(b) of the Act to 100 percent of the Federal rate during a 5-year period, beginning with cost reporting periods that start on or after October 1, 2002. For cost reporting periods beginning on or after October 1, 2006, LTCHs will be paid 100 percent of the Federal rate (LTCH PPS final rule (70 FR 24168)). LTCHs not meeting the definition in § 412.23(e)(4) of the regulations may elect to be paid based on 100 percent of the Federal rate instead of a blended payment in any year during the 5-year transition period. LTCHs meeting the definition in § 412.23(e)(4) will be paid based on 100 percent of the standard Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.

c. IPFs

Under the authority of sections 124(a) and (c) of Pub. L. 106-113, inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the new IPF PPS. Under the IPF PPS, some IPFs are transitioning from being paid for inpatient hospital services based on a blend of reasonable cost-based payment and a Federal per diem payment rate, effective for cost reporting periods beginning on or after January 1, 2005 (November 15, 2004 IPF PPS final rule (69 FR 66921)). For cost reporting periods beginning on or after January 1, 2008, IPFs will be paid 100 percent of the Federal per diem payment amount. The existing regulations governing payment under the IPF PPS are located in 42 CFR 412, subpart N.

3. Critical Access Hospitals (CAHs)

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

4. Payments for Graduate Medical Education (GME)

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

B. Summary of the Provisions of the FY 2006 IPPS Proposed Rule

In the FY 2006 IPPS proposed rule (70 FR 23306), we set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2006. We also set forth proposed changes relating to payments for GME costs, payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis, payments for DSHs, and requirements and payments for CAHs. The changes were proposed to be effective for discharges occurring on or after October 1, 2005, unless otherwise noted.

The following is a summary of the major changes that we proposed and the issues we addressed in the FY 2006 IPPS proposed rule.

1. Changes to the DRG Reclassifications and Recalibrations of Relative Weights

As required by section 1886(d)(4)(C) of the Act, we proposed annual adjustments to the DRG classifications and relative weights. Based on analyses of Medicare claims data, we proposed to establish a number of new DRGs and make changes to the designation of diagnosis and procedure codes under other existing DRGs.

We also presented analysis of FY 2006 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

We proposed the annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights for use under the LTCH PPS for FY 2006.

2. Changes to the Hospital Wage Index

We proposed revisions to the wage index and the annual update of the wage data. Specific issues addressed included the following: Start Printed Page 47283

  • The FY 2006 wage index update, using wage data from cost reporting periods that began during FY 2002.
  • The occupational mix adjustment to the wage index that we began to apply effective October 1, 2004.
  • The revisions to the wage index based on hospital redesignations and reclassifications.
  • The adjustment to the wage index for FY 2006 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 that were in effect for the FY 2006 wage index.

3. Revision and Rebasing of the Hospital Market Baskets

We proposed rebasing and revising the hospital operating and capital market baskets to be used in developing the FY 2006 update factor for the operating prospective payment rates and the excluded hospital market basket to be used in developing the FY 2006 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 relative weights and choice of price proxies.

4. Other Decisions and Changes to the PPS for Inpatient Operating and GME Costs

In the proposed rule, we discussed a number of provisions of the regulations in 42 CFR parts 412 and 413 and set forth proposed changes concerning the following:

  • Solicitation of public comments on two options for possible expansion of the current postacute care transfer policy.
  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Changes in the application of the budget neutrality adjustment to MDHs and SCHs for computing the hospital-specific rate.
  • Updated national and regional case-mix values and discharges for purposes of determining rural referral center status.
  • The payment adjustment for low-volume hospitals.
  • The IME adjustment for TEFRA hospitals that are converting to IPPS hospitals, and IME FTE resident caps for urban hospitals that are granted rural reclassification and then withdraw that rural classification.
  • Changes to implement section 951 of Pub. L. 108-173 relating to the provision of patient stay days/SSI data maintained by CMS to hospitals for the purpose of determining their DSH percentage.
  • Changes relating to hospitals' geographic classifications, including multicampus hospitals and urban group hospital reclassifications.
  • Changes and clarifications relating to GME, including GME initial residency period limitation, new teaching hospitals' participation in Medicare GME affiliated groups, and the GME FTE cap adjustment for rural hospitals;
  • Solicitation of public comments on possible changes in requirements for provider-based entities relating to the location requirements for certain neonatal intensive care units as off-campus facilities;
  • Discussion of the second year of implementation of the Rural Community Hospital Demonstration Program; and
  • Clarification of the definition of a hospital as it relates to “specialty hospitals” participating in the Medicare program.

5. PPS for Capital-Related Costs

In the proposed rule, we did not propose any policy changes to the capital-related prospective payment system. For the readers' benefit, we discussed the payment policy requirements for capital-related costs and capital payments to hospitals.

6. Changes for Hospitals and Hospital Units Excluded from the IPPS

In the proposed rule, we discussed the proposed revisions and clarifications concerning excluded hospitals and hospital units, proposed policy changes relating to continued participation by CAHs located in counties redesignated under section 1886(d)(8)(B) of the Act (Lugar counties), and proposed policy changes relating to designation of CAHs as necessary providers.

7. Changes in Payment for Blood Clotting Factor

In the proposed rule, we discussed the proposed change in payment for blood clotting factor administered to inpatients with hemophilia for FY 2006.

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

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2006 prospective payment rates for operating costs and capital-related costs. We also established the proposed threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2006 for hospitals and hospital units excluded from the PPS.

9. Impact Analysis

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

10. Recommendation of Update Factor for Hospital Inpatient Operating Costs

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 2006 for the following:

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

11. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, the Medicare Payment Advisory Commission (MedPAC) is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2005 recommendation concerning hospital inpatient payment policies addressed only the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and for hospitals and distinct part hospital units excluded from the IPPS. This recommendation is addressed in Appendix B of the proposed rule. MedPAC issued a second Report to Congress: Physician-Owned Specialty Hospitals, March 2005, which addressed other issues relating to Medicare payments to hospitals for inpatient services. The recommendations on these issues from this second report were addressed in section IX. of the preamble of the proposed rule. For further information relating specifically to the MedPAC March 2005 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov. Start Printed Page 47284

C. Public Comments Received in Response to the FY 2006 IPPS Proposed Rule

We received over 2,000 timely items of correspondence containing multiple comments on the FY 2006 IPPS proposed rule. Summaries of the public comments and our responses to those comments are set forth below under the appropriate heading.

II. Changes to DRG Classifications and Relative Weights

A. Background

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

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources. The changes to the DRG classification system and the recalibration of the DRG weights for discharges occurring on or after October 1, 2005, are discussed below.

1. General

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

The process of forming the DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas referred to as Major Diagnostic Categories (MDCs). The MDCs were formed by physician panels as the first step toward ensuring that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final DRG could contain patients in different MDCs. Most MDCs are based on a particular organ system of the body. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2005, cases are assigned to one of 520 DRGs in 25 MDCs. (We note that, in the FY 2006 proposed rule (70 FR 23313), we inadvertently stated that there were 519 DRGs.) The table below lists the 25 MDCs.

Major Diagnostic Categories (MDCs)

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

In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to a DRG. However, for FY 2005, there are nine DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These DRGs are for heart transplant or implant of heart assist systems, liver and/or intestinal transplants, bone marrow, lung, simultaneous pancreas/kidney, and pancreas transplants and for tracheostomies. Cases are assigned to these DRGs before they are classified to an MDC. The table below lists the current nine pre-MDCs. Start Printed Page 47285

Pre-Major Diagnostic Categories (Pre-MDCs)

DRG 103Heart Transplant or Implant of Heart Assist System
DRG 480Liver Transplant and/or Intestinal Transplant
DRG 481Bone Marrow Transplant
DRG 482Tracheostomy for Face, Mouth, and Neck Diagnoses
DRG 495Lung Transplant
DRG 512Simultaneous Pancreas/Kidney Transplant
DRG 513Pancreas Transplant
DRG 541Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major Operating Room Procedures
DRG 542Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis Without Major Operating Room Procedures

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

Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect DRG assignment for certain principal diagnoses, for example, extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones.

Once the medical and surgical classes for an MDC were formed, each class of patients was evaluated to determine if complications, comorbidities, or the patient's age would consistently affect the consumption of hospital resources. Physician panels 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 which, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least one day in at least 75 percent of the patients. Each medical and surgical class within an MDC was tested to determine if the presence of any substantial comorbidities or complications would consistently affect the consumption of hospital resources.

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

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

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

The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights. However, in the July 30, 1999 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule.

In the FY 2006 IPPS proposed rule (70 FR 23312), we proposed numerous changes to the DRG classification system for FY 2006 and to the methodology used to recalibrate the DRG weights. The changes we proposed to the DRG classification system, the public comments we received concerning the proposed changes, the final DRG changes, and the methodology used to recalibrate the DRG weights are set forth below. The changes we are implementing in this final rule will be reflected in the FY 2006 GROUPER, version 23.0, and are effective for discharges occurring on or after October 1, 2005. Unless otherwise noted in this final rule, our DRG analysis is based on data from the September 2004 update of the FY 2004 MedPAR file, which contains hospital bills received through September 30, 2004 for discharges in FY 2004.

2. Yearly Review for Making DRG Changes; Request for Public Comment

Many of the changes to the DRG classifications are the result of specific issues brought to our attention by interested parties. We encourage individuals with concerns about DRG classifications to bring those concerns to our attention in a timely manner so they can be carefully considered for possible inclusion in the next proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the DRG recalibration process, concerns about DRG classification issues should be brought to our attention no later than early Start Printed Page 47286December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.

The actual process of forming the DRGs was, and continues to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In deciding whether to create a separate DRG, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the DRG. We evaluate patient care costs using average charges and lengths of stay as proxies for costs and rely on the judgment of our medical officers to decide whether patients are distinct or clinically similar to other patients in the DRG. In evaluating resource costs, we consider both the absolute and percentage differences in average charges between the cases we are selecting for review and the remainder of cases in the DRG. We also consider variation in charges within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that are extreme in terms of charges or length of stay, or both. Further, we also consider the number of patients who will have a given set of characteristics and generally prefer not to create a new DRG unless it will include a substantial number of cases. As we explain in more detail in section IX. of this preamble, MedPAC has made a number of recommendations regarding the DRG system.

To date, we have not used specific statistical standards as part of our guidelines for determining when DRG changes are warranted. However, we could potentially establish objective guidelines that are used in the DRG development process. For instance, such standards could include a minimum percentage or absolute difference in average charges or length of stay and number of cases in order for us to create a DRG or change the DRG assignment of a particular code or service. As part of our review and analysis of MedPAC's recommendations, we will consider whether to establish such guidelines for making DRG reclassification decisions. We welcome public comments on this issue.

3. Pre-MDC: Intestinal Transplantation

In the FY 2005 IPPS final rule (69 FR 48976), we moved intestinal transplantation cases that were assigned to ICD-9-CM procedure code 46.97 (Transplant of intestine) out of DRG 148 (Major Small and Large Bowel Procedures with CC) and DRG 149 (Major Small and Large Bowel Procedures Without CC) and into DRG 480 (Liver Transplant). We also changed the title for DRG 480 to “Liver Transplant and/or Intestinal Transplant.” We moved these cases out of DRGs 148 and 149 because our analysis demonstrated that the average charges for intestinal transplants are significantly higher than the average charges for other cases in these DRGs. We stated at that time that we would continue to monitor these cases.

Based on our review of the FY 2004 MedPAR data, we found 959 cases assigned to DRG 480 with overall average charges of approximately $165,622. There were only three cases involving an intestinal transplant alone and one case in which both an intestinal transplant and a liver transplant were performed. The average charges for the intestinal transplant cases ($138,922) were comparable to the average charges for the liver transplant cases ($165,314), while the remaining combination of an intestinal transplant and a liver transplant case had much higher charges ($539,841), and would be paid as an outlier case. Therefore, we did not propose any DRG modification for intestinal transplantation cases for FY 2006.

We note that an institution that performs intestinal transplantation, in correspondence to us written following the publication of the FY 2005 IPPS final rule, agreed with our decision to move cases assigned to code 46.97 to DRG 480.

Comment: Several commenters, including an institute that performs intestinal transplantation, supported our decision to reassign intestinal transplantation cases to DRG 480. One commenter commended CMS for its progress, but urged us to continue to evaluate a separate DRG for intestinal transplantation. While payment has improved, the commenter stated that it is still inadequate, and insufficient reimbursement could ultimately hinder beneficiary access to care.

Response: As indicated in the FY 2006 IPPS proposed rule (70 FR 23315), we found only three cases in the Medicare data that included an intestinal transplant. We found that the average charges were less for intestinal transplant cases ($138,922) than liver transplant cases ($165,314). Thus, even though we have a very low number of cases to make these comparisons, the data do not suggest that intestinal transplants are underpaid in DRG 480. We remain committed to assigning procedures to the most appropriate DRG based on clinical coherence and utilization of resources using the most recently available data. As we stated in the FY 2005 IPPS final rule (69 FR 48977), when we receive sufficient additional Medicare data on intestinal transplantation cases, we will again consider the DRG assignment for intestinal transplants.

Comment: One commenter concurred with the decision to assign intestinal transplant cases to DRG 480 but recommended that CMS create separate DRGs for liver-intestinal and liver-kidney transplants. The commenter requested that CMS report average charges for these cases in the final rule. The commenter noted that DRGs have been created for double organ transplants such as DRG 512 (Simultaneous Pancreas/Kidney Transplant).

Response: While the focus of our review in the proposed rule was limited to whether we should reassign intestinal transplants to DRG 480, we reviewed all cases in this DRG. Based on our review of the FY 2004 MedPAR data, the following table illustrates our findings:

DRGNumber of casesAverage length of stayAverage charges
DRG 48095916.65$165,622
Liver Transplantation87616.5165,314
Intestinal Transplantation326.0138,922
Liver-Intestinal Transplantation172.0539,841
Liver-Kidney Transplantation7921.3237,759

As we stated in the proposed rule (70 FR 23315), while the average charges and length of stay were much higher for the one liver-intestinal transplantation case, for which we had data, than the other cases in DRG 480, the case would likely be paid as an outlier. One case is insufficient to create a new DRG. Similarly, we are reluctant to create a Start Printed Page 47287new DRG for such a small number of liver-kidney transplant cases, even though average charges and length of stay are higher for liver-kidney transplants than other cases in DRG 480. As discussed, in section IX.A. of this final rule, we plan in the next year to undertake a comprehensive review of the existing Medicare DRG system and expect to make changes to the DRGs to better reflect the severity of illness. As we study this issue, we will further analyze hospital costs for patients needing multiple organ transplants. At this time, we are not making any further modifications to the DRGs for multiple transplants in FY 2006.

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

a. Strokes

In 1996, the Food and Drug Administration (FDA) approved the use of tissue plasminogen activator (tPA), one type of thrombolytic agent that dissolves blood clots. In 1998, the ICD-9-CM Coordination and Maintenance Committee created code 99.10 (Injection or infusion of thrombolytic agent) in order to be able to uniquely identify the administration of thrombolytic agents. Studies have shown that tPA can be effective in reducing the amount of damage the brain sustains during an ischemic stroke, which is caused by blood clots that block blood flow to the brain. tPA is approved for patients who have blood clots in the brain, but not for patients who have a bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to be most effective when used within the first 3 hours after the onset of a stroke, and it is contraindicated in hemorrhagic stroke. The presence or absence of code 99.10 does not currently influence DRG assignment. Since code 99.10 became effective, CMS has been monitoring the DRGs and cases in which this code can be found, particularly with respect to cardiac and stroke DRGs.

Last year, CMS met with representatives from several hospital stroke centers who recommended modification of the existing stroke DRGs 14 (Intracranial Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and Precerebral Occlusion Without Infarction) by using the administration of tPA as a proxy to identify patients who have severe strokes. The representatives stated that using tPA as a proxy would help to identify patients who have strokes that are more severely and costly and would recognize the higher charges that these cases generate because of their higher hospital resource utilization. At that time, the presenters provided evidence that strokes where tPA was used were both more severe and more resource intensive. Specifically, they showed that patients who were given tPA for strokes had higher stroke severity scores at presentation, and that they were more expensive to care for because of increased intensive care unit monitoring requirements, increased diagnostic imaging costs, and increased laboratory and pharmacy costs. They also demonstrated that these patients had markedly better clinical outcomes. The stroke representatives made two suggestions concerning the stroke DRGs.

The first proposal suggested modifying DRG 14 by renaming it “Ischemic Stroke Treatment with a Reperfusion Agent”, and including only those cases containing code 99.10. The remainder of stroke cases where the patient was not treated with a reperfusion agent would be included in DRG 15, renamed “Hemorrhagic Stroke or Ischemic Stroke without a Reperfusion Agent”. Hemorrhagic stroke cases now found in DRG 14 that are not treated with a reperfusion agent would migrate to DRG 15.

The second suggestion was to leave DRGs 14 and 15 as they currently exist, and create a new DRG, with a recommended title “Ischemic Stroke Treatment with a Reperfusion Agent”. This suggested DRG would include only cases where patients with strokes caused by arterial occlusion (or clot(s)) are also treated with tPA thrombolytic therapy.

We have examined the MedPAR data for the cases in DRGs 14 and 15. We divided the cases based on the presence of a principal diagnosis of hemorrhage or occlusive ischemia and the presence of procedure code 99.10. The following table displays the results:

DRGCountAverage length of stayAverage charges
14—All Cases221,8795.67$18,997
14—Cases with intracranial hemorrhage41,5065.4019,193
14—Cases with intracranial hemorrhage with code 99.10617.437,045
14—Cases with intracranial hemorrhage without code 99.1041,4455.319,167
14—Cases without intracranial hemorrhage180,3735.7418,952
14—Cases without intracranial hemorrhage with code 99.102,0857.2035,128
14—Cases without intracranial hemorrhage without code 99.10178,2885.7218,763
15—All cases71,3354.5314,382
15—Cases with intracranial hemorrhage000
15—Cases without intracranial hemorrhage71,3354.5314,382
15—Cases without intracranial hemorrhage with code 99.103025.1024,876
15—Cases without intracranial hemorrhage without code 99.1071,0334.5314,337

The above table shows that the average standardized charges for cases treated with a reperfusion agent are more than $16,000 and $10,000 higher than all other cases in DRGs 14 and 15, respectively. While these data suggest that patients treated with a reperfusion agent are more expensive than all other stroke patients, this conclusion is based on a small number of cases. In the FY 2006 IPPS proposed rule, we did not propose a change to the stroke DRGs because of the small number of reperfusion cases reported. However, we stated that we believe it is possible that more patients are being treated with a reperfusion agent than indicated by our data because the presence of code 99.10 does not affect DRG assignment and may be underreported.

In the FY 2006 IPPS proposed rule, we invited public comment on the changes to DRGs 14 and 15 suggested by the hospital representatives. In addition, we solicited public comment on the number of patients currently being treated with a reperfusion agent as well as the potential costs of these patients relative to others with strokes that are also included in DRGs 14 and 15.

Comment: Forty commenters supported the creation of a new DRG to recognize the group of patients who presented with stroke and who also received thrombolytic therapy. The commenters cited the following reasons for supporting this proposal: Increased costs of caring for these patients, specifically in intensive care unit, more Start Printed Page 47288diagnostic imaging studies, and laboratory and pharmacy resources. In addition, the commenters noted that the proposal is also supported by evidence that patients receiving thrombolytic therapy have strokes of increased severity. The commenters also stated that the proposal demonstrates the need for hospitals to have an incentive to establish the infrastructure necessary to provide stroke patients with aggressive evaluation and management services, such as thrombolytic therapy, which have become the standard of care.

Response: We appreciate the commenters' responses in reply to our solicitation for public comment on the changes to DRGs 14 and 15 as suggested in the proposed rule. The level of detail provide in the responses helped us to formulate a change to the medical stroke DRGs. We agree with the commenters that there is an increased cost in caring for these patients including increased use of the intensive care unit, more diagnostic imaging studies, and laboratory and pharmacy resources. We also agree that—(1) the data indicate that patients receiving thrombolytic therapy have increased severity; and (2) reperfusion therapy is a good means to segregate these patients into a separate DRG.

Comment: One commenter encouraged CMS to modify DRGs 14 and 15 using one of two options. The first option would be to create DRG “A” where hemorrhagic and ischemic strokes were combined, but only supportive care was given, while DRG “B” would contain those hemorrhagic and ischemic stroke cases in which reperfusion or hemostatic agents were administered.

Alternatively, the commenter suggested that DRGs 14 and 15 could be modified by creating four new DRGs. DRG “A” would contain cases of hemorrhagic stroke and supportive care, DRG “B” would contain cases of hemorrhagic stroke treated with hemostatic agents, DRG “C” would contain cases of ischemic stroke and supportive care, and DRG “D” would contain cases of ischemic stroke treated with reperfusion agents.

Response: This commenter is suggesting that the DRG system recognize treatment of hemorrhage strokes with hemostatic agents as well as ischemic strokes with reperfusion agents. While we anticipate great industry strides in the treatment of stroke, currently no approved hemostatic agent is on the market. According to the manufacturer(s) of hemostatic agents, it is unlikely that these agents will be available for use during FY 2006. Therefore, we do not have any Medicare charge information that supports creating separate DRGs for hemorrhagic stroke patients treated with hemostatic agents as we do for ischemic stroke patients treated with thrombolytic therapy. When hemostatic agents are available on the market, we will reevaluate this issue.

Comment: One commenter believed that the two potential changes to the stroke DRGs as set forth in the proposed rule are too limited as written. The commenter believed that the descriptor, “reperfusion agent”, is not broad enough to encompass other promising pharmacotherapies for stroke that are in late stages of clinical development. The commenter pointed out that these therapies include treatment for both ischemic stroke and hemorrhagic stroke. The commenter further noted that it is unlikely that any of the potential therapies will be approved for use during FY 2006. The commenter recommended that CMS broaden the title for the proposed new DRG to include a wider range of any newly approved therapies.

Response: While we look forward to improved therapies for treating patients with strokes, we are unable to create DRGs that recognize as yet unapproved treatment modalities. When the FDA has approved additional pharmaceuticals for the treatment of either ischemic or hemorrhagic stroke, we will evaluate the data and make DRG changes as appropriate. We point out that the DRG titles cannot possibly acknowledge all the codes located therein. The important part of the DRG is the structure of the logic; that is, what codes are assigned to the DRG.

Comment: One commenter recommended that CMS commit to creating a surgical DRG for ischemic stroke patients who are treated with surgical interventions. The commenter included several scenarios of possible diagnosis and procedure coding combinations that CMS could use to identify stroke cases and increase the scope of our analysis.

Response: Our goal was not to review all stroke cases within the MedPAR database, but to identify those cases in medical DRG 14, and possibly DRG 15, that might have included the administration of tPA as identified by procedure code 99.10. DRGs that identify a precise surgical procedure already exist; all of the combinations of procedure codes suggested by the commenter already appropriately group to DRGs within MDC 1.

Comment: One commenter stated that because code 99.10 was not reimbursable [did not have an impact on DRG assignment], hospital coders often did not use it. Some hospitals in which reperfusion therapy was commonplace never used this code.

Response: We would like to take this opportunity to reiterate that all cases should be accurately and completely coded, irrespective of the DRG implications of a specific code or codes. By coding accurately and completely, we will have more information on patient care costs for different services and treatments that better enable us to research further changes to the DRG system.

Comment: One commenter noted that, because only a single type of reperfusion agent is presently approved for stroke treatment, the proposed change would create a DRG that is, de facto, product specific. In addition, the commenter stated that the DRG change on which CMS requested comment would improve access to therapy for only a small fraction of all stroke patients. The commenter added that implementation of a narrowly-defined change [by creating a specific stroke-plus-tPA DRG] may necessitate further changes to the stroke DRGs in the near future to ensure patient access to emerging drug therapies once approved.

Response: While we did not propose a specific change to the stroke DRGs in the proposed notice, we have decided to modify the DRGs to distinguish those cases in which tPA is used as a treatment modality based on the strong support for this change voiced by commenters. When we reviewed the data represented in the above table, we noted that the average standardized charges for all cases in DRG 14 were $18,997, but that the subset of 2,085 cases in which tPA was used had average standardized charges of $35,128. We noted that the cases in DRG 14 without hemorrhage that did not report the use of tPA had average standardized charges of $18,763, which was comparable with the figures for all cases in the DRG. Given that these cases are easily identifiable through the use of procedure code 99.10, and that the average standardized charges are $16,131 higher for the cases using tPA, we decided to carve these cases out of the existing DRGs 14 and 15, and represent them in a new DRG. We are changing the structure of stroke DRGs not to award higher payment for a specific drug but to recognize the need for better overall care for this group of patients. Even though a tPA is indicated only for a small proportion of stroke patients (only those experiencing ischemic strokes treated within 3 hours of the onset of symptoms), our data suggest that there are enough patients to support the DRG change. While our goal Start Printed Page 47289is to make payment relate more closely to resource use, we also note that use of a tPA in a carefully selected patient population will lead to better outcomes and overall care and may lessen the need for postacute care. With regard to the potential need to modify stroke DRGs in the future, we note that we perform an update to the DRGs and modify DRGs every year. We reiterate that should additional types of therapy be approved, we will evaluate them, and after judicious study, will make appropriate DRG title and/or logic changes as required.

In this final rule, after consideration of public comments received and based on our analysis of MedPAR data that supports the creation of a DRG that identifies embolic stroke combined with tPA treatment, we are creating new DRG 559 (Acute Ischemic Stroke with Use of Thrombolytic Agent). From a data consistency standpoint, we believe that adding a new DRG identifying these cases will be less disruptive to our stakeholders than creating three new DRGs, two of which would mimic existing DRGs 14 and 15. The GROUPER logic for DRGs 14 and 15 will not be affected by this change; that is, the GROUPER content of DRGs 14 and 15 will be the same in FY 2006 as it was in FY 2005. The structure of the new DRG 559 includes the following codes:

Principal Diagnosis

  • 433.01, Occlusion and stenosis of basilar artery, with cerebral infarction
  • 433.11, Occlusion and stenosis of carotid artery, with cerebral infarction
  • 433.21, Occlusion and stenosis of vertebral artery, with cerebral infarction
  • 433.31, Occlusion and stenosis of multiple and bilateral arteries, with cerebral infarction
  • 433.81, Occlusion and stenosis of other specified precerebral artery, with cerebral infarction
  • 433.91, Occlusion and stenosis of unspecified precerebral artery, with cerebral infarction
  • 434.01, Cerebral thrombosis, with cerebral infarction
  • 434.11, Cerebral embolism, with cerebral infarction
  • 434.91, Cerebral artery occlusion, unspecified, with cerebral infarction

and

Nonoperating Room Procedure

  • 99.10, Injection or infusion of thrombolytic agent

We will continue to monitor stroke DRGs in the future. As noted above, should treatment modalities change, we will be open to making changes to the DRG structure that will recognize improvements in treatment and technology.

b. Unruptured Cerebral Aneurysms

In the FY 2004 IPPS final rule (68 FR 45353), we created DRG 528 (Intracranial Vascular Procedures With a Principal Diagnosis of Hemorrhage) in MDC 1. We received a comment at that time that suggested we create another DRG for intracranial vascular procedures for unruptured cerebral aneurysms. For the FY 2004 IPPS final rule (68 FR 45353) and the FY 2005 IPPS final rule (69 FR 48957), we evaluated the data for cases in the MedPAR file involving unruptured cerebral aneurysms assigned to DRG 1 (Craniotomy Age >17 With CC) and DRG 2 (Craniotomy Age >17 Without CC) and concluded that the average charges were consistent with those for other cases found in DRGs 1 and 2. Therefore, we did not propose a change to the DRG assignment for unruptured cerebral aneurysms.

We have reviewed data for unruptured cerebral aneurysms cases in DRGs 1 and 2. In our analysis of these FY 2004 MedPAR data, we found 1,136 unruptured cerebral aneurysm cases assigned to DRG 1 and 964 unruptured cerebral aneurysm cases assigned to DRG 2. Although the average charges for the unruptured cerebral aneurysm cases in DRG 1 ($53,455) and DRG 2 ($34,028) were slightly higher than the average charges for all cases in DRG 1 ($51,466) and DRG 2 ($30,346), we do not believe these differences are significant enough to warrant a change in these two DRGs at this time. Therefore, we did not propose a change in the structure of these DRGs relating to unruptured cerebral aneurysm cases for FY 2006.

Comment: Several commenters agreed that the minimal differences in charges for unruptured cerebral aneurysms cases compared to all cases assigned to DRGs 1 and 2 do not justify a change in the DRG assignment for these cases. One commenter stated that unruptured cerebral aneurysm cases should be reclassified into a new DRG. The commenter stated that a new DRG is warranted to understand the true weight of these procedures and to establish reimbursement that recognizes the cost of medical devices used to treat unruptured cerebral aneurysms.

Response: Our analysis is based on the most recent charge information available reflecting the overall resources used to treat unruptured cerebral aneurysms in Medicare patients. We concur with the commenters that there are minimal differences in the charges for the unruptured cerebral aneurysm cases compared to all cases assigned to DRGs 1 and 2 and that the results of the data do not justify creation of a new DRG. We believe that unruptured cerebral aneurysms are appropriately assigned to DRGs 1 and 2. Therefore, we are not making any modifications to the DRG assignment for unruptured cerebral aneurysms.

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

a. Severity Adjusted Cardiovascular Procedures

In response to the FY 2006 IPPS proposed rule, one commenter noted that section 507(c) of Pub. L. 108-173 required MedPAC to conduct a study to determine how the DRG system should be updated to better reflect the cost of delivering care in a hospital setting. The commenter noted that MedPAC reported that the “cardiac surgery DRGs had high relative profitability ratios.” While the commenter noted that it may take time to conduct and complete a thorough evaluation of the MedPAC payment recommendations for all DRGs, the commenter strongly encouraged CMS to revise the cardiac DRGs through patient severity refinements as part of the final rule to be effective for FY 2006. In section IX.A. of the preamble to this final rule, we are responding in detail to this comment by making significant revisions to a number of cardiovascular DRGs that currently contain patients with a wide range of severity and resource consumption in order to reflect more accurately the resources required to care for different kinds of cardiovascular patients. Accordingly, in response to the issues raised by the commenter and as an interim step until we can complete a comprehensive review of MedPAC's recommendations, we are deleting current DRGs 107, 109, 111, 116, 478, 516, 517, 526, and 527, and creating new DRGs 547 through 558 in their place.

We received several comments on the FY 2006 IPPS proposed rule that recommended that we split additional cardiovascular DRGs based on the presence or absence of heart failure, acute myocardial infarction, and shock. As indicated in section IX.A. of this final rule, we conducted a focused review of a number of different cardiovascular DRGs and are making revisions to them based on a newly designated list of “major cardiovascular conditions.”

We believe these new DRGs will help to address a number of the concerns raised by these commenters. We intend to monitor these DRGs carefully in upcoming years and welcome input regarding the success of these DRGs in Start Printed Page 47290reflecting patient severity and resource use.

b. Automatic Implantable Cardioverter/Defibrillator

As part of our annual review of DRGs, for FY 2006, we performed a review of cases in the FY 2004 MedPAR file involving the implantation of a defibrillator in the following DRGs:

DRG 515 (Cardiac Defibrillator Implant Without Cardiac Catheterization)

DRG 535 (Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction, Heart Failure, or Shock)

DRG 536 (Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction, Heart Failure, or Shock)

While conducting our review, we noted that there had been considerable comments from hospital coders on code 37.26 (Cardiac electrophysiologic stimulation and recording studies (EPS)), which is included in these DRGs. These comments from hospital coders were directed to both CMS and the American Hospital Association. The procedure codes for these three DRGs describe the procedures that are considered to be a cardiac catheterization. Code 37.26 is classified as a cardiac catheterization within these DRGs. Therefore, the submission of code 37.26 affects the DRG assignment for defibrillator cases and leads to the assignment of DRGs 535 or 536. When a cardiac catheterization is performed, the case is assigned to DRGs 535 or 536, depending on whether or not the patient also had an acute myocardial infarction, heart failure, or shock. The following chart shows the number of cases in each DRG, along with their average length of stay and average charges, found in the data:

DRGNumber of casesAverage length of stayAverage charges
51525,2364.32$83,659.76
53512,1188.27113,175.43
53618,3055.3994,453.62

We have received a number of questions from hospital coders regarding the correct use of code 37.26. There is considerable confusion about whether or not code 37.26 should be reported when the procedure is performed as part of the defibrillator implantation. Currently, the ICD-9-CM instructs the coder not to report code 37.26 when a defibrillator is inserted. There is an inclusion term under the defibrillator code 37.94 (Implantation or replacement of automatic cardioverter/defibrillator, total system [AICD]) which states that EPS is included in code 37.94. We discussed modifying this instruction at the October 7-8, 2004 meeting of the ICD-9-CM Coordination and Maintenance Committee. We received a number of comments opposing a modification to the use of code 37.26 that would also allow it to be reported with an AICD insertion. A report of this meeting can be found on the Web site: http://www.cms.hhs.gov/​paymentsystem/​icd9.

We performed an analysis of cases within DRGs 535 and 536 with cardiac catheterization and with and without code 37.26 and with code 37.26 only reported without cardiac catheterization and found the following:

DRGNumber of casesAverage length-of-stayAverage charges
535—Cardiac Catheterization Without Code 37.265,06010.63$127,130.79
535—With Code 37.26 Only Without Cardiac Catheterization5,2645.6198,900.13
535—With Cardiac Catheterization and Code 37.261,7949.44115,701.09
536—Cardiac Catheterization Without Code 37.264,7998.11110,493.86
536—With Code 37.26 Only Without Cardiac Catheterization10,8293.8585,390.88
536—With Cardiac Catheterization and Code 37.262,6776.76102,359.21

The data show that when code 37.26 is the only procedure reported from the list of cardiac catheterizations, the average charges and the average length of stay are considerably lower. For example, the average standardized charges for a defibrillator implant with only an EPS are $85,390.88 in DRG 536, while the average standardized charges for DRG 536 with a cardiac catheterization, but not an EPS, are $110,493.86. The average standardized charges for all cases in DRG 536 are $94,453.62. The data show similar findings for DRG 535, with lower lengths of stay and average charges when the only code reported from the cardiac catheterization list is an EPS. When we also consider the acknowledged coding problems in the use of code 37.26, we believe it is inappropriate to base a defibrillator DRG assignment on the EPS code. Cases identified with this code capture patients who require less resource use than patients who have a cardiac catheterization.

Data reflected in the chart above show that the average standardized charges for DRG 515 were $83,659.76. These average charges are closer to those in DRG 536 with code 37.26 and without any other cardiac catheterization code reported. While the cases in DRG 535 with code 37.26 and without a cardiac catheterization have higher average charges than the average charges for cases in DRG 515, these cases have much lower average charges than the average charges for overall cases in DRG 535. For these reasons, we proposed to remove code 37.26 from the list of cardiac catheterizations for DRGs 535 and 536. If a defibrillator is implanted and an EPS is performed with no other type of cardiac catheterization, the case would be assigned to DRG 515.

CMS issued a National Coverage Determination for implantable cardioverter defibrillators, effective January 27, 2005, that expands coverage and requires, in certain cases, that patient data be reported when the defibrillator is implanted for the clinical indication of primary prevention of sudden cardiac death. The submission of data on patients receiving an implantable cardioverter defibrillator for primary prevention to a data collection system is needed for the determination that the implantable cardioverter defibrillator is reasonable and necessary and for quality improvement. These Start Printed Page 47291data will be made available in some form to providers and practitioners to inform their decisions, monitor performance quality, and benchmark and identify best practices. We made a temporary registry available for use when the policy became effective and used the Quality Net Exchange for data submission because Medicare-participating hospitals already use the Exchange to report data.

We intend to transition from the temporary registry using the Quality Net Exchange to a more sophisticated follow-on registry that will have the ability to collect longitudinal data. Some providers have suggested that CMS increase reimbursement for implantable cardioverter defibrillators to compensate the provider for reporting data. ICD data reporting includes elements of patient demographics, clinical characteristics and indications, medications, provider information, and complications. Since these data elements are commonly found in patient medical records, it is CMS' expectation that these data are readily available to the individuals abstracting and reporting data. Therefore, we believe that increased reimbursement is not needed at this time.

Comment: One commenter stated that there has been considerable confusion surrounding the use of code 37.26. The commenter indicated that coders are unclear whether code 37.26 should be reported when an electrophysiologic study (EPS) is performed as part of a defibrillator implantation or only when defibrillator device checks are performed. The commenter pointed out that the continuing efforts of the Editorial Advisory Board for Coding Clinic to clarify the use of this code have led to changes in coding advice published in Coding Clinic for ICD-9-CM by the American Hospital Association. However, the commenter stated, while the change in coding advice was intended to clarify use of code 37.26, coders continue to have questions about it. The commenter supported our proposal to remove code 37.26 from the list of cardiac catheterizations for DRGs 535 and 536 and agreed with CMS' plans to continue working to clarify use of this code or modify the code through the ICD-9-CM Coordination and Maintenance Committee. The commenter suggested that, once the coding issues are resolved and consistent data are collected, CMS should reexamine the DRG assignment(s) for code 37.26.

Other commenters opposed our proposal to remove code 37.26 from DRGs 535 and 536. These commenters stated that code 37.26 is used to capture a variety of disparate procedures with varying purposes, sites of service, and intensity, and that the resultant data are not representative of any one of these. Other commenters stated that the code contains three separate procedures of varying intensity: Electrophysiology study, intraoperative device interrogation, and noninvasive programmed stimulation. Several commenters believed that the payment change would have a severe financial impact on their hospitals. They believed it is inappropriate to make the change without the data to justify the change. Several commenters stated that the change would have a significant impact on the use of CRT-D implants because the devices are more costly. The commenters suggested that, before considering a revision to DRGs 535 and 536 for code 37.26, CMS should resolve the coding confusion. The commenters asked that the code be discussed at the September 29, 2005 ICD-9-CM Coordination and Maintenance Committee meeting and suggested that separate codes be created for the different procedures currently captured by code 37.26. According to the commenters, the new codes that are created could go into effect on October 1, 2006. The commenters suggested that, once data are available, CMS should consider a revision to DRGs 535 and 536 for EPS procedures.

Response: We agree with the commenter that there is considerable confusion regarding the use of code 37.26. It is possible that code 37.26 is being used for a variety of electrophysiologic procedures such as EPS, noninvasive programmed electrical stimulation, and programmed electrical stimulation. However, as indicated in the proposed rule and above in this final rule, our data show that the cases coded with 37.26 that were not separately coded with a cardiac catheterization had average charges of $98,900.13 in DRG 535 and $85,390.88 in DRG 536 compared to $127,130.79 and $110,493.86, respectively, for all other cases in these DRGs. For this reason, we believe it is appropriate to include code 37.26 in DRG 515 and no longer assign it to DRGs 535 and 536 that are for patients who receive a cardiac catheterization.

As we discussed earlier in this section of the preamble, Medicare significantly expanded coverage of implantable defibrillators on January 27, 2005 (Pub. No. 100-3, section 20.4) to patients who have a prior history of heart disease but are not in acute heart failure. These prophylactic defibrillator implants are expected to significantly increase the number of patients in DRGs 515, 535, and 536. It is our experience that most of these patients will not be receiving a cardiac catheterization and will be less resource-intensive than the acute heart failure patients receiving an implantable defibrillator. We note that the Bernstein Research Call publication of April 27, 2005 stated that this DRG change could “dampen the elective implantation of de-novo CRT-D or dual chamber devices into relatively stable patients.” The article further states that CMS “realizes that the new prophylactic ICD [implantable cardioverter defibrillators] eligibility requirements do not require an EP test, and that EP tests per se do not consume sufficient resources to justify the reimbursement differentials seen between DRGs 515 versus 535 and 536.” We believe it is particularly important to make the change to DRGs 515, 535, and 536 at this time, given the expansion of Medicare coverage of implantable defibrillators and the evidence that suggests that patients who receive an EP test, but not a cardiac catheterization, are less expensive than other patients receiving these devices.

We will address code 37.26 at our September 29-30, 2005 meeting of the ICD-9-CM Coordination and Maintenance Committee meeting. The public is encouraged to participate in this meeting and offer suggestions for code modifications. Information on this meeting can be found at: http://www.cms.hhs.gov/​paymentsystems/​icd9.

Comment: Five commenters stated that CMS' data show that the average charges for cases with code 37.26 are significantly higher than those in DRG 515. The commenters suggested that the volume of cases is significant enough to create a new DRG for cases with cardiac defibrillator implant without cardiac catheterization, but with code 37.26.

Response: Given the extensive comments concerning coding problems with code 37.26, we do not believe it is appropriate to create a new DRG that would specifically capture defibrillator implants with this code. Therefore, we are not creating the suggested new DRG at this time. As stated earlier, we will continue to work with the coding and health care community to modify code 37.26 so that it will lead to more consistent reporting. Once we have better data, we will evaluate additional DRG modifications.

After consideration of the public comments received on the proposed rule, in this final rule, we are implementing the modification of DRGs 535 and 536 as proposed for FY 2006. We are removing code 37.26 from the list of cardiac catheterizations for DRGs Start Printed Page 47292535 and 536 and adding the code in DRG 515.

c. Coronary Artery Stents

In the FY 2005 IPPS final rule (69 FR 48971 through 48974), we addressed two comments from industry representatives about the DRG assignments for coronary artery stents. These commenters had expressed concern about whether the reimbursement for stents is adequate, especially for insertion of multiple stents. They also expressed concern about whether the current DRG structure represents the most clinically coherent classification of stent cases. In the FY 2006 proposed rule (70 FR 23318 through 23319), we included the following discussion regarding the commenter's concerns:

The current DRG structure incorporates stent cases into the following two pairs of DRGs, depending on whether bare metal or drug-eluting stents are used and whether acute myocardial infarction (AMI) is present:

  • DRG 516 (Percutaneous Cardiovascular Procedures with AMI)
  • DRG 517 (Percutaneous Cardiovascular Procedures with Nondrug-Eluting Stent without AMI)
  • DRG 526 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent with AMI)
  • DRG 527 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent without AMI)

The commenters presented two recommendations for refinement and restructuring of the current coronary stent DRGs. One of the recommendations involved restructuring these DRGs to create two additional stent DRGs that are closely patterned after the existing pairs, and would reflect insertion of multiple stents with and without AMI. The commenters recommended incorporating either stenting code 36.06 (Insertion of nondrug-eluting coronary artery stent(s)) or code 36.07 (Insertion of drug-eluting coronary artery stent(s)) when they are reported along with code 36.05 (Multiple vessel percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy performed during the same operation, with or without mention of thrombolytic agent). The commenter's first concern was that hospitals may be steering patients toward coronary artery bypass graft surgery in place of stenting in order to avoid significant financial losses due to what it considered the inadequate reimbursement for inserting multiple stents.

In our response to comments in the FY 2005 IPPS final rule, we indicated that it was premature to act on this recommendation because the current coding structure for coronary artery stents cannot distinguish cases in which multiple stents are inserted from those in which only a single stent is inserted. Current codes are able to identify performance of PTCA in more than one vessel by use of code 36.05. However, while this code indicates that PTCA was performed in more than one vessel, its use does not reflect the exact number of procedures performed or the exact number of vessels treated. Similarly, when codes 36.06 and 36.07 are used, they document the insertion of at least one stent. However, these stenting codes do not identify how many stents were inserted in a procedure, nor distinguish insertion of a single stent from insertion of multiple stents. Even the use of one of the stenting codes in conjunction with multiple-PTCA code 36.05 does not distinguish insertion of a single stent from multiple stents. The use of code 36.05 in conjunction with code 36.06 or code 36.07 indicates only performance of PTCA in more than one vessel, along with insertion of at least one stent. The precise numbers of PTCA-treated vessels, the number of vessels into which stents were inserted, and the total number of stents inserted in all treated vessels cannot be determined. Therefore, the capabilities of the current coding structure do not permit the distinction between single and multiple vessel stenting that would be required under the recommended restructuring of the coronary stent DRGs.

We agree that the DRG classification of cases involving coronary stents must be clinically coherent and provide for adequate reimbursement, including those cases requiring multiple stents. For this reason, we created four new ICD-9-CM codes identifying multiple stent insertion (codes 00.45, 00.46, 00.47, and 00.48) and four new codes identifying multiple vessel treatment (codes 00.40, 00.41, 00.42, and 00.43) at the October 7, 2004 ICD-9-CM Coordination and Maintenance Committee Meeting. These eight new codes can be found in Table 6B of this proposed rule. We have worked closely with the coronary stent industry and the clinical community to identify the most logical code structure to identify new codes for both multiple vessel and multiple stent use. Effective October 1, 2005, code 36.05 will be deleted and the eight new codes will be used in its place. Coders are encouraged to use as many codes as necessary to describe each case, using one code to describe the angioplasty or atherectomy, and one code each for the number of vessels treated and the number of stents inserted. Coders are encouraged to record codes accurately, as these data will potentially be the basis for future DRG restructuring. While we agree that use of multiple vessel and stent codes will provide useful information in the future on hospital costs associated with percutaneous coronary procedures, we believe it remains premature to proceed with a restructuring of the current coronary stent DRGs on the basis of the number of vessels treated or the number of stents inserted, or both, in the absence of data reflecting use of this new coding structure. The commenter's second recommendation was that we distinguish “complex” from “noncomplex” cases in the stent DRGs by expanding the higher weighted DRGs (516 and 526) to include conditions other than AMI. The commenter recommended recognizing certain comorbid and complicating conditions, including hypertensive renal failure, congestive heart failure, diabetes, arteriosclerotic cardiovascular disease, cerebrovascular disease, and certain procedures such as multiple vessel angioplasty or atherectomy (as evidenced by the presence of procedure code 36.05), as indicators of complex cases for this purpose. Specifically, the commenters recommended replacing the current structure with the following four DRGs:

  • Recommended restructured DRG 516 (Complex percutaneous cardiovascular procedures with non-drug-eluting stents).
  • Recommended restructured DRG 517 (Noncomplex percutaneous cardiovascular procedures with non-drug-eluting stents).
  • Recommended restructured DRG 526 (Complex percutaneous cardiovascular procedures with drug-eluting stents).
  • Recommended restructured DRG 527 (Noncomplex percutaneous cardiovascular procedures with drug-eluting stents).

The commenter argued that this structure would provide an improvement in both clinical and resource coherence over the current structure that classifies cases according to the type of stent inserted and the presence or absence of AMI alone, without considering other complicating conditions. The commenter also presented an analysis, based on previous MedPAR data, that evaluated charges and lengths of stay for cases with expected high resource use and reclassified cases into its recommended new structure of paired “complex” and “noncomplex” DRGs. The commenter's analysis showed some evidence of clinical and resource coherence in the recommended DRG structure. However, we did not adopt the proposal in the FY 2005 IPPS final rule. First, the data presented by the commenter still represented preliminary experience under a relatively new DRG structure. Second, the analysis did not reveal significant gains in resource coherence compared to existing DRGs for stenting cases. Therefore, we were reluctant to adopt this approach because of comments and concern about whether the overall level of payment in the coronary stent DRGs was adequate. However, we indicated that this issue deserved further study and consideration, and that we would conduct an analysis of this recommendation and other approaches to restructuring these DRGs with updated data in the FY 2006 proposed rule.”

In response to those comments, we analyzed the MedPAR data to determine the impact of certain secondary diagnoses or complicating conditions on the four stent DRGs. Specifically, we examined the data in DRGs 516, 517, 526, and 527, based on the presence of coronary stents (codes 36.06 and 36.07) and the following additional diagnoses:

  • Congestive heart failure (represented by codes 398.91 (Rheumatic heart failure (congestive)), 402.01 (Hypertensive heart disease, malignant, with heart failure), 402.11, (Hypertensive heart disease, benign, with heart failure), 402.91 (Hypertensive heart disease, unspecified, with heart failure), 404.01 (Hypertensive heart and renal disease, malignant, with heart failure), 404.03 (Hypertensive heart and renal disease, malignant, with heart Start Printed Page 47293failure and renal failure), 404.11 (Hypertensive heart and renal disease, benign, with heart failure), 404.13 (Hypertensive heart and renal disease, benign, with heart failure and renal failure), 404.91 (Hypertensive heart and renal disease, unspecified, with heart failure), 404.93 (Hypertensive heart and renal disease, unspecified, with heart failure and renal failure), 428.0 (Congestive heart failure, unspecified), and 428.1 (Left heart failure)).
  • Arteriosclerotic cardiovascular disease (represented by code 429.2 (Cardiovascular disease, unspecified)).
  • Cerebrovascular disease (represented by codes 430 (Subarachnoid hemorrhage), 431 (Intracerebral hemorrhage), 432.0 (Nontraumatic extradural hemorrhage), 432.1, Subdural hemorrhage, 432.9, (Unspecified intracranial hemorrhage), 433.01 (Occlusion and stenosis of basilar artery, with cerebral infarction), 433.11 (Occlusion and stenosis of carotid artery, with cerebral infarction), 433.21 (Occlusion and stenosis of vertebral artery, with cerebral infarction), 433.31 (Occlusion and stenosis of multiple and bilateral precerebral arteries, with cerebral infarction), 433.81 (Occlusion and stenosis of other specified precerebral artery, with cerebral infarction), 434.01 (Cerebral thrombosis with cerebral infarction), 434.11 (Cerebral embolism with cerebral infarction), 434.91 (Cerebral artery occlusion with cerebral infarction, unspecified), 436 (Acute, but ill-defined, cerebrovascular disease)).
  • Secondary diagnosis of acute myocardial infarction (represented by codes 410.01 (Acute myocardial infarction of anterolateral wall, initial episode of care), 410.11 (Acute myocardial infarction of other anterior wall, initial episode of care), 410.21 (Acute myocardial infarction of inferolateral wall, initial episode of care), 410.31 (Acute myocardial infarction of inferoposterior wall, initial episode of care), 410.41 (Acute myocardial infarction of other inferior wall, initial episode of care), 410.51 (Acute myocardial infarction of other lateral wall, initial episode of care), 410.61 (True posterior wall infarction, initial episode of care), 410.71 (Subendocardial infarction, initial episode of care), 410.81 (Acute myocardial infarction of other specified sites, initial episode of care), 410.91 (Acute myocardial infarction of unspecified site, initial episode of care)).
  • Renal failure (represented by codes 403.01 (Hypertensive renal disease, malignant, with renal failure), 403.11 (Hypertensive renal disease, benign, with renal failure), 403.91 (Hypertensive renal disease, unspecified, with renal failure), 585 (Chronic renal failure), V42.0 (Organ or tissue replaced by transplant, kidney), V45.1 (Renal dialysis status), V56.0 (Extracorporeal dialysis), V56.1 (Fitting and adjustment of extracorporeal dialysis catheter), V56.2 (Fitting and adjustment of peritoneal dialysis catheter)). Any renal failure with congestive heart failure will be captured in the 404.xx codes listed above.

We reviewed the cases in the four coronary stent DRGs and found that most of the additional or “complicated” cases did, in fact, have higher average charges in most instances. However, these results could potentially be duplicated for many DRGs, or sets of DRGs, within the PPS structure. That is, cases with selected complicating factors will tend to have higher average lengths of stay and average charges than cases without those complicating factors. Because cases with the selected complicating factors necessarily contain sicker patients, longer lengths of stay and higher average charges are to be expected. For example, cases in which patients with a cardiac condition also have renal failure are quite likely to consume higher resources than patients only with a cardiac condition. The presence of code 403.11 (Hypertensive renal disease, malignant, with renal failure) may distinguish cases with higher average charges, but the same argument could be raised for many other procedures across other MDCs.

Generally, we have taken into account the higher costs of cases with complications by maintaining a general list of comorbidities and complications (the CC) list), and, where appropriate, distinguishing pairs of DRGs by “with and without CCs.” (This system also specifies exclusions from each pair, to account for cases where a condition on the CC list is an expected and normal constituent of the diagnoses reflected in the paired DRGs.)

Thus, we proposed to restructure the coronary stent DRGs on the basis of the standard CC list to differentiate cases that require greater resources. We believed this list to be more inclusive of true comorbid or complicating conditions than selection of specific secondary diagnosis codes. Therefore, we anticipated that restructuring these DRGs on this basis would result in a logical arrangement of cases with regard to both clinical coherence and resource consumption. We compared the existing CC list with the list of the codes recommended by the commenter as secondary diagnoses. All of the recommended codes already appear on the CC list except for codes 429.2, 432.9, V56.1, and V56.2. Code 429.2 represents a very vague diagnosis (arteriosclerotic cardiovascular disease (ASCVD)). Code 432.9 represents a nonspecific principal diagnosis that is rejected by the MCE when reported as the principal diagnosis. Codes V56.1 and V56.2 describe conditions relating to dialysis for renal failure. Therefore, we believe that our proposal to utilize the existing CC list encompassed most of the cases on the recommended list, as well as other cases with additional CCs requiring additional resources. We examined the MedPAR data for the cases in the coronary stent DRGs, distinguishing cases that include CCs and those that do not. The following table displays the results:

DRGNumber of casesAverage length-of-stayAverage charges
DRG 516—All Cases37,3254.79$40,278
DRG 516 Cases With CC25,8065.543,691
DRG 516 Cases Without CC11,5193.032,631
DRG 517—All Cases64,0222.5832,145
DRG 517 Cases With CC50,9602.833,178
DRG 517 Cases Without CC13,0621.528,113
DRG 526—All Cases51,4314.3645,924
DRG 526 Cases With CC32,9045.249,751
DRG 526 Cases Without CC18,5272.839,126
DRG 527—All Cases176,9562.2336,087
DRG 527 Cases With CC137,6412.437,142
DRG 527 Cases Without CC39,3151.332,392
Start Printed Page 47294

The data show a clear differentiation in average charges between the cases in DRG 516 and 526 “with CC” and those “without CC.” Therefore, the data suggested that a “with and without CC” split in DRG 516 and 526 was warranted. At the same time, the data did not show such a clear differentiation, in either average charges or lengths of stay, among the cases in DRGs 517 and 527.

As a result of this analysis, in the proposed rule, we had originally proposed to delete DRGs 516 and 526, and to substitute four new DRGs in their place. These new DRGs were to have been patterned after existing DRGs 516 and 526, except that they would be split based on the presence or absence of a secondary diagnosis on the existing CC list. Specifically, we intended to create DRG 547 (Percutaneous Cardiovascular Procedure with AMI with CC), DRG 548 (Percutaneous Cardiovascular Procedure with AMI without CC), DRG 549 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with AMI with CC), and DRG 550 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with AMI without CC). As we noted above, the MedPAR data did not support restructuring DRGs 517 and 527 based on the presence or absence of a CC. Therefore, we proposed to retain these two DRGs in their current forms. We believed this revised structure would result in a more inclusive and comprehensive array of cases within MDC 5 without selectively recognizing certain secondary diagnoses as “complex.”

We received a number of comments on the proposed restructuring of DRGs 516, 517, 526, and 527 in the FY 2006 IPPS proposed rule.

Comment: All of the commenters approved of the proposed restructuring of these DRGs, especially with regard to dividing DRGs 516 and 526 on the basis of the presence or absence of complicating secondary diagnoses.

Response: We appreciate the comments submitted in support of this proposal.

Comment: One commenter noted that the average patient receives 1.5 stents, and expressed the desire for CMS to begin “appropriate reimbursement” in FY 2006, consistent with the additional expense involved when multiple stents are inserted. One commenter remained concerned that the DRG weights significantly underestimate the true costs of performing drug-eluting stent procedures, especially for multiple vessel, multiple stent procedures, and expressed concern that the proposed relative weights could result in financial losses for hospitals, with the result that access to stent procedures is discouraged.

Response: We created new ICD-9-CM procedure codes effective for discharges on or after October 1, 2005, to capture both the number of stents inserted and the number of vessels treated. Absent accurate charge data, we cannot predict the correct relative weight for a DRG containing more than one stent. We reiterate that we will continue to monitor the MedPAR data, and will make future evidence-based changes to the DRG structure and logic as warranted.

Comment: Several commenters supported the maintenance of separate reimbursement structures for drug-eluting stents and recommended that we continue to separate drug-eluting and bare metal stents in different DRGs until such time as the bare metal stents represent an insignificant proportion of the total coronary stent discharges.

Response: We recognize that the resources surrounding bare metal stents and drug-eluting stents differ appreciably and will continue to keep these cases separate from each other until such time as it is appropriate, according to the evidence provided in our MedPAR data, that these cases can be combined.

Comment: Several commenters supported CMS' proposal to create eight new procedure codes; four codes describing the number of vessels treated and four codes describing the number of stents inserted. In addition, two commenters suggested that CMS should issue a separate communication reiterating the correct use of these codes.

Response: We take this opportunity to clear up a misconception. The codes published in Tables 6A through 6F are not proposed codes. They are final codes, and as such, are not subject to comment. Absent any typographical errors or late changes to the codes, they may be considered available for use on October 1 of the following fiscal year. This year, because of the changes made by the March 31, 2005 and April 1, 2005 ICD-9-CM Coordination and Maintenance Committee, the codes in the proposed rule were not as complete as those codes published in this final rule. The codes contained in Tables 6A through 6F of this final rule include all new codes for FY 2006, which will go into effect on October 1, 2005.

CMS partners with the American Hospital Association with regard to correct coding advice published in the Coding Clinic for ICD-9-CM. AHA's fourth edition of the year always includes the new codes for the upcoming year and includes examples on their proper use. In addition, CMS' MedLearn site at http://www.cms.hhs.gov/​medlearn/​icd9code.asp#top contains coding information.

Comment: One commenter recommended that the use of the eight new codes describing number of vessels and number of stents be used on both coronary and peripheral vessels.

Response: The note that will appear at the top of the 00.4 (Adjunct Vascular System Procedures) section of Tabular section of the ICD-9-CM Procedure Coding Book will read as follows: “These codes can apply to both coronary and peripheral vessels. These codes are to be used in conjunction with other therapeutic procedure codes to provide additional information on the number of vessels upon which a procedure was performed or the number of stents inserted, or both. As appropriate, hospitals should code both the number of vessels operated on (00.40 through 00.43) and the number of stents inserted (00.45 through 00.48).

Comment: One commenter stated that by the time CMS gets data on the eight new codes, it will be FY 2008, and hospitals will have had inadequate reimbursement for multiple stents until then. The commenter suggested that CMS incorporated additional payment for multiple stents and multiple vessels treated into the FY 2007 weights.

Response: We will follow the use of these codes, but may not be prepared to make any DRG changes based on their use with only one year's worth of data.

Comment: One commenter stated that DRGs should not be restructured for multiple stent insertion without adequate data to support our decisionmaking process.

Response: We agree and intend to closely follow the use of these eight new codes in the MedPAR data.

Comment: One commenter was not convinced that the proposed new structure of DRGs 516 and 526, with and without comorbidities and complications should be the permanent solution for all coronary stent DRGs. This commenter agreed that the new structure of these DRGs should not preclude subsequent restructuring of the stent DRGs.

Response: We agree that restructuring DRGs 516 and 526 in the proposed manner might not be a permanent solution for classifying all stent DRGs. However, we have now decided not to adopt the proposed restructuring of DRGs 516 and 526 that was described in the proposed rule. We have now determined that it is appropriate to restructure nine DRGs in MDC 5, including DRGs 516, 517, 526, and 527, Start Printed Page 47295on the basis of the presence or absence of a major cardiovascular condition. We are making this change in the DRG structure in response to public comments concerning our response to MedPAC's recommendations to better recognize severity in the DRG system. The full text of the changes we are making to the cardiovascular DRG, including the coronary artery stent DRGs, can be found in section IX.A. of this final rule.

Comment: One commenter requested that CMS adopt an ICD-9-CM code that was discussed at the October 7, 2004 ICD-9-CM Coordination and Maintenance Committee. That code, had it been adopted, would have been 00.44 (Procedure on bifurcated vessels) in the new series of codes describing the number of vessels treated. The commenter stated that the creation of this code is critical to understanding the contemporary approaches to treatment of coronary artery disease. The commenter further stated that treatment of stenosis [of a blood vessel] at a bifurcation represents 25 to 30 percent of percutaneous coronary interventions and recommended that coders use one code for number of vessels, one code for number of stents, and an additional code to note that a bifurcated vessel was treated. According to the commenter, a new code for the treatment of a bifurcated vessel is necessary because the existing codes that describe the number of vessels treated (codes 00.40 through 00.43) will only be used by coders for the counting of uninterrupted, straight vessels.

Response: We did not choose to create a new code for procedure on a bifurcated vessel for two reasons. First, we do not believe that level of granularity is needed in order to accurately code stent insertion for bifurcated vessels. We believe that the codes for multiple stents and vessels will provide the necessary information about resource use for the procedure. Second, we are concerned that coders will not have sufficient information documented in the medical record to identify procedures on bifurcated vessels as opposed to a specific number of procedures on a specific number of vessels. Because procedures on bifurcated vessels are so prevalent (25 to 30 percent, according to the commenter), they should be considered technical variants rather than distinct entities to be coded separately. We solicited input from the industry when creating the new coronary stent codes, and we believe that the new codes as they exist adequately capture resource utilization. We also note that this level of detail is not present in the Current Procedural Terminology (CPT) coding structure, which is the basis upon which physicians are paid.

Accordingly, in this final rule, for FY 2006, we are deleting DRGs 516, 517, 526, and 527 for percutaneous placement of both drug-eluting and nondrug-eluting stents. We are creating four new DRGs in their places. Rather than divide these DRG pairs based on whether the patient had an acute myocardial (AMI), we are splitting each pair of DRGs based on the presence or absence of a major cardiovascular condition. Although, as discussed in the proposed rule, in the past we have expressed concerns regarding selectively recognizing secondary diagnoses or complicating conditions, particularly conditions from other MDCs, in making DRG assignments, we believe these concerns are not relevant to the new cardiovascular DRGs. While we are adopting an approach for distinguishing patients with complex conditions, with a few exceptions, our approach uses complex cardiovascular conditions (or diagnoses within the MDC) to decide whether a patient should be assigned to the higher weighted DRG. In those cases where we have used a diagnosis from another MDC in assigning a patient to the MCV DRG, the condition is generally a closely related vascular condition that is linked to the patient's cardiovascular illness. We believe that this revised structure identifies subgroups of significantly more severe patients who use greater hospital resources more accurately than was possible under the previous DRGs. The new DRG titles are:

  • DRG 555 (Percutaneous Cardiovascular Procedure With Major Cardiovascular Diagnosis (formerly DRG 516)
  • DRG 556 (Percutaneous Cardiovascular Procedure With Non-Drug-Eluting Stent Without Major Cardiovascular Diagnosis (formerly DRG 517)
  • DRG 557 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent With Major Cardiovascular Diagnosis (formerly DRG 526)
  • DRG 558 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent Without Major Cardiovascular Diagnosis (formerly DRG 527)

We refer the reader to section IX.A. of the preamble to this final rule for a full presentation of the changes to the DRGs for coronary artery stents for FY 2006.

Although we are adopting some restructuring of the coronary stent DRGs for FY 2006, it is important to note that this change does not preclude proposals in subsequent years to further restructure the coronary stent DRGs based on the number of vessels treated. We will continue to monitor and analyze clinical and resource trends in this area. For example, we have found indications in the current data that treatment may be moving toward use of drug-eluting stents, and away from use of bare metal stents. Specifically, cases in DRGs 516 and 517, which utilize bare metal stents, comprise only 44.4 percent, or less than half, of the cases in the four coronary stent DRGs in the MedPAR data we analyzed. As use of drug-eluting stents becomes the standard of treatment, we may consider over time whether to dispense with the distinction between these stents and the older bare metal stent technology in the structure of the coronary stent DRGs. In addition, we will continue to consider whether the structure of these DRGs ought to reflect differences in the number of vessels treated or the number of stents inserted, or both. As we discussed above, a new coding structure capable of identifying multiple vessel treatment and the insertion of multiple stents will go into effect on October 1, 2005. It remains premature to restructure the coronary stent DRGs on the basis of the number of vessels treated or the number of stents inserted, or both, until data reflecting the use of these new codes become available. After we have pertinent data in our historical MedPAR database, we will analyze those data in order to determine whether a restructuring of the DRGs based on multiple vessel treatment or insertion of multiple stents, or both, is warranted.

We refer the reader to Table 6B of this final rule for the descriptions of four new ICD-9-CM codes identifying multiple stent insertion (codes 00.45, 00.46, 00.47, and 00.48) and four new codes identifying multiple vessel treatment (codes 00.40, 00.41, 00.42, and 00.43). Coders are encouraged to use as many codes as necessary to describe each case, using new code 00.66 (Percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy) and one code each for the number of vessels treated and the number of stents inserted. Coders are encouraged to record codes accurately, irrespective of whether the code has an impact on the DRG assignment, as these data will potentially be the basis for future DRG restructuring.

d. Insertion of Left Atrial Appendage Device

Atrial fibrillation is a common heart rhythm disorder that can lead to a cardiovascular blood clot formation Start Printed Page 47296leading to increased risk of stroke. According to product literature, nearly all strokes are from embolic clots arising in the left atrial appendage of the heart: an appendage for which there is no useful function. Standard therapy uses anticoagulation drugs. However, these drugs may be contraindicated in certain patients and may cause complications such as bleeding. The underlying concept behind the left atrial appendage device is to block off the left atrial appendage, so that the blood clots formed therein cannot travel to other sites in the vascular system. The device is implanted using a percutaneous catheter procedure under fluoroscopy through the femoral vein. Implantation is performed in a hospital catheterization laboratory using standard transseptal technique, with the patient generally under local anesthesia. The procedure takes approximately 1 hour, and most patients stay overnight in the hospital.

In the FY 2005 IPPS final rule (69 FR 48978, August 11, 2004), we discussed the DRG assignment of new ICD-9-CM procedure code 37.90 (Insertion of left atrial appendage device) for clinical trials, effective for discharges occurring on or after October 1, 2004, to DRG 518 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or Acute Myocardial Infarction). In that final rule, we addressed the DRG assignment of procedure code 37.90 in response to a comment from a manufacturer who suggested that placement of the code in DRG 108 (Other Cardiothoracic Procedures) was more representative of the complexity of the procedure than placement in DRG 518. The manufacturer indicated that the suggested placement of procedure code 37.90 in DRG 108 was justified because another percutaneous procedure, described by ICD-9-CM procedure code 35.52 (Repair of atrial septal defect with prosthesis, closed technique), was assigned to DRG 108. As we indicated in the FY 2005 final rule (69 FR 48978), this comment prompted us to examine data in the FY 2003 MedPAR file for cases of code 35.52 assigned to DRG 108 and DRG 518 in comparison to all cases assigned to DRG 108. We found the following:

DRGNumber of casesAverage length of stayAverage charges
DRG 108 With Code 35.52 Reported5232.69$29,231
DRG 108—All cases5,29310.176,274
DRG 518—All cases39,5534.331,955

Therefore, we concluded that procedure code 35.52 showed a decided similarity to the cases found in DRG 518, not DRG 108. At that time, we determined that we would analyze the cases for both clinical coherence and charge data as part of the IPPS FY 2006 process of identifying the most appropriate DRG assignment for procedure code 35.52.

We examined data from the FY 2004 MedPAR file and found results for cases assigned to DRG 108 and DRG 518 that are similar to last year's findings as indicated in the chart below:

DRGNumber of casesAverage length-of-stayAverage charges
DRG 108 With Code 35.52 Reported8722.42$29,579
DRG 108—All cases8,2649.8181,323
DRG 518—All cases38,6243.4927,591

From this comparison, we found that when an atrial septal defect is percutaneously repaired, and procedure code 35.52 is the only code reported in DRG 108, there is a significant discrepancy in both the average charges and the average length of stay between the cases with procedure code 35.52 reported in DRG 108 and the total cases in DRG 108. The total cases in DRG 108 have average charges of $51,744 greater than the 872 cases in DRG 108 reporting procedure code 35.52 as the only procedure. The total cases in DRG 108 also have an average length of stay of 7.39 days greater than the average length of stay for cases in DRG 108 with procedure code 35.52 reported. In comparison, the total cases in DRG 518 have average charges of only $1,988 lower than the cases in DRG 108 with only procedure code 35.52 reported. In addition, the length of stay in total cases in DRG 518 is more closely related to cases in DRG 108 with only procedure code 35.52 reported. Based on this analysis, we proposed to move procedure code 35.52 out of DRG 108 and place it in DRG 518.

Comment: One commenter agreed that the left atrial appendage device procedure code should be moved out of DRG 108 and into DRG 518 based on significantly lower average charges and length of stay as compared to the majority of cases within the current classification.

Response: Even though this comment did not exactly reflect our proposal regarding the left atrial appendage device, we are interpreting the commenter's statement to mean that it agreed that code 35.52 should be removed from DRG 108.

Comment: One commenter addressed the proposed removal of code 35.52 from DRG 108. The commenter acknowledged that the resource intensity for patients undergoing percutaneous atrial septal defect repair is less than that of open repair, but did not believe that the costs are akin to procedures presently assigned to DRG 518 because of the cost of the closure device and additional testing, such as electrocardiography. The commenter recommended that CMS not move code 35.52 out of DRG 108 until better data can be gathered and a more appropriate reimbursement calculation can be developed.

Response: This year, CMS undertook an extensive review of MDC 5 after issuance of the FY 2006 IPPS proposed rule in response to MedPAC's recommendations regarding restructuring the Medicare DRG system to improve payment accuracy under the IPPS. A discussion of the results of that review and our subsequent decision in response to a comment on the proposed rule to make changes to nine cardiovascular DRGs, can be found in section IX.A. of this preamble. During that review, we evaluated each surgical DRG within MDC 5. In addition, within each DRG, we evaluated each procedure code to determine the number of cases, Start Printed Page 47297the average length of stay, and the average standardized charges. In DRG 108, the results were the same as in the table shown above in this section, and published in the FY 2006 IPPS proposed rule. Code 35.52 had an average length of stay of approximately one fourth of the rest of the cases in that DRG, and had average charges that were greater than $51,700 less than the remainder of the cases in DRG 108. In addition, code 35.52 represents a closed technique approach, unlike the other cases in DRG 108. We believe this is compelling evidence that this procedure is not most appropriately assigned to DRG 108. Therefore, we are finalizing our proposal to move code 35.52 out of DRG 108 and into DRG 518 with cases that resemble it in average length of stay, average charges, and clinical coherence. We believe that this move will result in a more coherent group of cases in DRG 518 that reflect all percutaneous procedures.

Comment: Three commenters did not believe that the left atrial appendage device, represented by new code 37.90, should be placed in DRG 518. They believed that DRG 518 does not cover the costs for the procedure and device, and suggested placement in another DRG that would include similar procedures and a better reimbursement. Two commenters suggested that a more appropriate DRG would be either DRG 108 or DRG 111 (Major Cardiovascular Procedures Without CC).

Response: Based on our data review and discussion above, we do not believe that placement of code 37.90 is appropriate in DRG 108. Code 37.90 is a percutaneously placed device utilizing local anesthesia, and with an expected length of stay of one day.

We reviewed cases in the MedPAR file assigned to both DRG 110 (Major Cardiovascular Procedures With CC) and DRG 111. The results of the review show that both open and percutaneous procedures are grouped in these paired DRGs. A comparison of the MedPAR data in DRGs 110, 111, and 518 is shown in the following table:

DRGNumber of casesAverage length of stayAverage standardized charges
DRG 11053,5271 8.4$66,475
DRG 1119,4381 3.4326,941
DRG 518—All cases38,6243.4927,591
DRG 518 with code 37.90000
1 Days.

As shown in the table, code 37.90 in DRG 518 has not been reported in the database yet. It is a new code; therefore, it has no payment history. We note that the cases in DRG 518 closely match those in DRG 111 in terms of both average length of stay and average charges. However, we also note that DRGs 110 and 111 are paired DRGs with significantly different average charges and lengths of stay. Even with a CC, we believe it is unlikely that an endovascular placement of a left atrial appendage device will approximate the costs of cases to be assigned to DRG 110. Therefore, in our view, there is the potential for significant overpayment if we were to assign the left atrial appendage device to DRG pairs 110 and 111. We continue to believe that placement of the left atrial appendage device in DRG 518 is appropriate absent any evidence that would convince us otherwise. Therefore, we are not making any changes in our proposal in this final rule. We will continue to monitor its data in our annual review of DRGs and the IPPS.

As we proposed, in this final rule we are moving procedure code 35.52 out of DRG 108 and placing it in DRG 518. We believe that this move will result in a more coherent group of cases in DRG 518 that reflect all percutaneous procedures.

e. External Heart Assist System Implant

In the August 1, 2002 final rule (67 FR 49989), we attempted to clinically and financially align ventricular assist device (VAD) procedures by creating DRG 525 (Heart Assist System Implant). We also noted that cases in which a heart transplant also occurred during the same hospitalization episode would continue to be assigned to DRG 103 (Heart Transplant).

After further data review during the subsequent 2 years, we decided to realign the DRGs containing VAD codes for FY 2005. In the August 11, 2004 final rule (69 FR 48927), we announced changes to DRG 103, DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedure with Cardiac Catheterization), DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedures Without Cardiac Catheterization), and DRG 525.

In summary, these changes included—

  • Moving code 37.66 (Insertion of implantable heart assist system) out of DRG 525 and into DRG 103.
  • Renaming DRG 525 as “Other Heart Assist System Implant.”
  • Moving code 37.62 (Insertion of non-implantable heart assist system) out of DRGs 104 and 105 and back into DRG 525.

DRG 525 currently consists of any principal diagnosis in MDC 5, plus the following surgical procedure codes:

  • 37.52, Implantation of total replacement heart system*
  • 37.53, Replacement or repair of thoracic unit of total replacement heart system*
  • 37.54, Replacement or repair of other implantable component of total replacement heart system*
  • 37.62, Insertion of non-implantable heart assist system
  • 37.63, Repair of heart assist system
  • 37.65, Implant of external heart assist system

*These codes represent noncovered services for Medicare beneficiaries. However, it is our longstanding practice to assign every code in the ICD-9-CM classification to a DRG. Therefore, they have been assigned to DRG 525.

Since that decision, we have been encouraged by a manufacturer to reevaluate DRG 525 for FY 2006. The manufacturer requested that we again review the data surrounding cases reporting code 37.65, and suggested moving these cases into DRG 103. The manufacturer pointed out the following: Code 37.65 describes the implantation of an external heart assist system and is currently approved by the FDA as a bridge-to-recovery device. From the standpoint of clinical status, the patients in DRG 103 and the patients receiving an external heart assist system are similar because their native hearts cannot support circulation, and absent a heart transplant, a mechanical pump is needed for patient survival. The surgical procedures for implantation of both an internal VAD and an external VAD are very similar. However, the external heart assist system (code 37.65) is a less expensive device than the implantable heart assist system (code 37.66). Start Printed Page 47298Further, the Medicare charge data show that patients in DRG 525 receiving the external heart assist system had an average length of stay that was more than 28 days less than all patients in DRG 103.

The manufacturer suggested that the payment differential between DRGs 103 and 525 provides an incentive to choose the higher paying device, and asserted that only a subset of patients receiving an implantable heart assist system are best served by this device (code 37.66). The manufacturer also suggested that the initial use of the least expensive therapeutically appropriate device yields both the best clinical outcomes and the lowest total system costs.

We note that, under the DRG system, our intent is to create payments that are reflective of the average resources required to treat a particular case. Our goal is that physicians and hospitals should make treatment decisions based on the clinical needs of the patient and not financial incentives.

When we reviewed the FY 2004 MedPAR data, we were able to demonstrate the following comparisons:

DRGNumber of casesAverage length of stayAverage charges
DRG 103—All cases63337.5$313,583
DRG 103 with code 37.65 reported981.3625,065
DRG 525—All cases29113.66173,854
DRG 525 with code 37.65 reported1109.26206,497
DRG 525 without code 37.65 reported18116.34154,015
Note: This table does not contain the same data that appear in the table in the proposed rule (70 FR 23322). The row containing “DRG 103 without code 37.65” had values of “0” in all fields. These entries were confusing and therefore deleted.

The above table shows that the 37.8 percent of cases in DRG 525 that reported code 37.65 have average charges that are nearly $33,000 higher than the average charges for all cases in the DRG. However, the average charges for the subset of cases with code 37.65 in DRG 525 ($206,497) are more than $107,086 lower than the average charges for all cases in DRG 103 ($313,583). Furthermore, the average length of stay for the subset of patients in DRG 525 receiving an external heart assist system was 9.26 days compared to 37.5 days for the 633 cases in DRG 103.

We note that the analysis above presents the difference in average charges, not costs. Because hospitals' charges are higher than costs, the difference in hospital costs will be less than the figures shown here.

Moving all cases containing code 37.65 from DRG 525 to DRG 103 would have two consequences. The cases in DRG 103 reporting code 37.65 would be appreciably overpaid, which would be inconsistent with our goal of coherent reimbursement structure within the DRGs. In addition, the relative weight of DRG 103 would ultimately decrease by moving the less resource-intensive external heart procedures into the same DRG with the more expensive heart transplant cases. The net effect would be an underpayment for heart transplant cases. Alternatively, we also reconsidered our position on moving the insertion of an implantable heart assist system (code 37.66) back into DRG 525. However, as shown in the FY 2005 IPPS final rule (69 FR 48929), the resource costs associated with caring for a patient receiving an implantable heart assist system are far more similar to those cases receiving a heart transplant in DRG 103 than they are to cases in DRG 525. For these reasons, we did not propose to make any changes to the structure of either DRG 103 or DRG 525.

Comment: Six commenters mentioned the high cost of the external heart assist device and for treatment for implantation of the device, and requested that CMS increase payment to cover the cost of caring for the patients that can benefit from this technology.

Two commenters agreed with CMS' assessment that the cost associated with implantation of an external heart assist system are considerably less than a heart transplant or insertion of an implantable heart assist system. One commenter echoed CMS' concerns that movement of code 37.65 to DRG 103 would result in overpayment for that service and would result in a decrease of the relative weight of the heart transplant DRG, ultimately resulting in underpayment of heart transplant cases. Both commenters agreed with CMS' decision not to include the implantation of external heart assist systems in DRG 103.

Several commenters noted that significant achievements in the areas of patient selection, implantation technique, and post-implant management have been made surrounding this technology. They added that improvements in the external heart assist device itself have been reported to make the newer devices safer and more durable. One commenter noted that observations from personal experience and research demonstrate that recent improvements to the device have resulted in increased survival rates from 35 percent (the national average) to nearly 50 percent. Several commenters mentioned that, with experience, they have discovered that a longer period of support is required than was originally anticipated for the patient's native heart to recover. The commenters stated that, originally, patients were supported an average of 5 to 7 days, but it has been found that patient outcomes were better with a longer support period, perhaps as long as 30 to 60 days. These commenters cited the increased expenses related to supporting the patient and the major financial commitment on the part of the hospitals choosing to treat this severely ill group of patients as reasons for requesting increased payment for this population of cases.

One commenter offered the following four proposals to address the payment differences between the external heart assist device and an implantable device:

  • Create a new DRG for patients requiring heart assist devices who also sustained an Acute Myocardial Infarction (AMI) because these patients have higher resource consumption than patients with other diagnoses in MDC 5.
  • Assign all cases with AMI and a procedure code of 37.65 to DRG 103.
  • Increase the overall weight of DRG 525 to better align it with “true hospital charges.”
  • Allow a second DRG payment or an add-on payment for heart transplantations if recovery of the patient's native heart is first attempted.

Response: We appreciate the commenters' thorough understanding of the IPPS DRG grouping and payment process. We are aware that the external heart assist device cases represent a very resource-intensive group of patients. For this reason, we carefully reviewed the suggestions from the commenter about potential DRG payment policy changes that we could make to address the issue. We reviewed the MedPAR data in DRG 525, using ICD-9-CM codes 410.01 through 410.91 to identify AMIs. In Start Printed Page 47299addition, we reviewed all cases of patients who received the external heart assist device procedure represented by ICD-9-CM code 37.65. The results are summarized in the following table:

Number of casesAverage length of stay (days)Average charges
DRG 525—Cases with Any Diagnosis of AMI468.5$195,758
DRG 525—Cases of Principal Diagnosis of AMI318.9210,369
DRG 525—Cases with Secondary Diagnosis of AMI157.7165,562
DRG 525—Cases with No Diagnosis of AMI719.2204,472
DRG 525—All Cases29113.66206,497

We do not believe that these data demonstrate that the presence of an AMI has significant impact on either the length of stay or the average standardized charges. All cases with AMI have lower lengths of stay than both the average of all cases in DRG 525 (13.66 days) and the 71 cases in which no AMI was documented (9.2 days). Likewise, only those cases with a principal diagnosis of AMI have slightly higher charges than either the group without AMI, or the total of all cases. Because the data do not justify it, we are rejecting the suggestion of creating a new DRG for patients receiving an external heart assist device, as identified by procedure code 37.65, with any diagnosis of AMI.

With respect to the commenter's second suggestion, our data clearly demonstrate in the above table that patients with an AMI and procedure code 37.65 have average standardized charges of $210,369. The first table in this section that was included in the proposed rule shows that cases in DRG 103 have average standardized charges of $313,583. We believe that the relative weight of DRG 103 would eventually decrease by moving all of the less resource-intensive external heart procedures into the same DRG with the more expensive heart transplant cases. For these reasons, we are rejecting the commenter's proposal to assign cases with AMI and code 37.65 to DRG 103.

With regard to the suggestion (received many times) to selectively increase the relative weight of specific DRGs, the DRG relative weights are annually recalibrated based on Medicare hospital discharges using the most current charge information available (FY 2004 MedPAR file for the FY 2006 relative weights). We use a complex mathematical algorithm to determine the relative weights that is fully explained in section II. of this preamble. The DRG relative weights are neither arbitrarily nor capriciously assigned. However, if we adopted the suggestion to select a relative weight for a specific DRG outside of this process, we are concerned that the relative weight determination would be viewed as arbitrary and capricious, and we would lose the advantage of having an objective methodology that bases the relative weight on average hospital charges. For this reason, we are not adopting the commenter's suggestion to select a relative weight for external heart assist device cases outside of our traditional process.

The commenter's fourth suggestion was to make two payments for a single inpatient stay when the patient receives the external heart assist system, recovery of the patient's native heart is attempted and fails, and the patient receives a heart transplant. In cases where the patient received the external heart assist system and later receives a heart transplant, the case is already paid using DRG 103. In this situation, the relative weight for DRG 103 will reflect the average charges for all patients in the DRG, including those described in the scenario presented by the commenter. Thus, to the extent that hospital charges for these patients are already reflected in the relative weight for the DRG, we do not believe that it is necessary for Medicare to make a second payment. To arbitrarily select one DRG, or a group of DRGs, and add an additional DRG payment to those cases is contrary to our stated goal of having a system in which all cases are fairly considered by the same recalibration formula. Therefore, we do not intend to either determine an additional DRG payment or an add-on payment for this category of patients.

We reiterate that our data do not support the argument that patients receiving the external heart assist device have longer lengths of stay than other patients in DRG 525, even though the data show that their average charges are higher, as noted in the above table. In determining the possible reasons for higher average charges and lower lengths of stay, we further examined the Medicare billing data. We found that almost 76 percent of the Medicare beneficiaries receiving the external heart device expired during the hospital stay. Thus, the shorter length of stay and the higher average charges for these patients compared to other patients in DRG 525 are likely explained by the high cost of the device and the fact that these patients are severely ill and frequently expire.

Upon further analysis of the data, we did find that there was a single subgroup of patients who are comparable in resource usage and length of stay to those included in DRG 103. These patients received both the external heart assist device and later had it removed after a lengthy period of rest and recovery. We note that commenters provided information indicating that survival rates are improving for patients receiving more advanced versions of these devices. In addition, commenters provided information indicating that longer periods of support with the external heart assist device are improving patients' survival chances and opportunity to be discharged with their native heart. According to information included with the comments, the data show a 50-percent survival rate with an average total length of stay of 43 days for all AMI heart recovery patients. On average, a surviving patient will receive 31 days of average support time followed by an additional 38 days in the hospital after the device is removed. Based on the commenter's information from a later year than our MedPAR data, it is clear that patients weaned from the external heart assist system have longer lengths of stay and are very different from the average patients having this procedure that are in our FY 2004 data. Given the newness of this procedure, the Medicare charge data included a limited number of patients having the device implanted and removed. However, the Medicare charge data did support that patients receiving both an implant and removal of an external heart assist system in a single hospital stay had an average length of stay exceeding 50 days and average charges of $378,000 that are more comparable to Start Printed Page 47300patients in DRG 103 than DRG 525. While we did not suggest a change to DRG 103 in the proposed rule, we believe that consideration of the comments is best served by recognizing this unique subset of patients and making a DRG change which acknowledges the increased resources required for improvements in their care.

The commenter has provided us with data showing that with superior patient selection, and increased duration of treatment with an improved device, the patients are more likely to be discharged from the hospital with the native heart intact. While we have limited Medicare data and the data are from a different year than the commenter's data, our data do support that patients having an external heart assist device implanted and removed during the same admission are comparable to in costs and average length of stay to heart transplant and implantable heart assist system patients in DRG 103. While we did not suggest a change to DRG 103 in the proposed rule, we believe that consideration of the comments is best served by recognizing this unique subset of patients, and making a DRG change that acknowledges the increased resources required for improvement in their care. Because we believe that this therapy offers a treatment option to patients who have limited alternatives, we are making a change to the DRG using the limited Medicare data we have available rather than waiting a year to receive more supporting data.

For the reasons stated above, for FY 2006, we are reconfiguring DRG 103 in the following manner: Those patients who have both the implantation of the external VAD (code 37.65) and the explantation of that VAD (code 37.64) prior to the hospital discharge will be assigned to DRG 103. The revised DRG 103 contains the following codes:

  • 33.6, Combined heart-lung transplantation
  • 37.51, Heart transplantation
  • 37.66, Insertion of implantable heart assist system

Or

  • 37.65, Implant of external heart assist system

And

  • 37.64, Removal of heart assist system.

By making this change, Medicare will be making higher payments for patients who receive both an implant and an explant of an external heart assist system during a single hospital stay. Our intent in establishing this policy is to recognize the higher costs of patients who have a longer length of stay and are discharged alive with their native heart. Cases in which a heart transplant also occurs during the same hospitalization episode would continue to be assigned to DRG 103.

In order to accurately monitor these patients and obtain more information on patients with these conditions, we intend to have the Quality Improvement Organizations (QIOs, formerly the PROs) review all cases in DRG 103 under the auspices of their eighth scope of work to determine whether implantation and care during the admission were reasonable and necessary to promote the recovery of the injured myocardium and lead to improvement of the patient's condition. For medical review under this contract, the QIOs determine whether items and services are reasonable and medically necessary and whether the quality of such services meets professionally recognized standards of health care. In addition, in hospitals subject to the IPPS, the QIOs review the validity of diagnostic information, the completeness, adequacy, and quality of care provided, and the appropriateness of admissions and discharges. We will continue to examine the claims data in upcoming years to determine if CMS' consideration surrounding the unique circumstances of these patients and this treatment modality were in the best interest of both the patients and the Medicare program.

f. Carotid Artery Stent

Stroke is the third leading cause of death in the United States and the leading cause of serious, long-term disability. Approximately 70 percent of all strokes occur in people age 65 and older. The carotid artery, located in the neck, is the principal artery supplying the head and neck with blood. Accumulation of plaque in the carotid artery can lead to stroke either by decreasing the blood flow to the brain or by having plaque break free and lodge in the brain or in other arteries to the head. The percutaneous transluminal angioplasty (PTA) procedure involves inflating a balloon-like device in the narrowed section of the carotid artery to reopen the vessel. A carotid stent is then deployed in the artery to prevent the vessel from closing or restenosing. A distal filter device (embolic protection device) may also be present, which is intended to prevent pieces of plaque from entering the bloodstream.

Effective July 1, 2001, Medicare covers PTA of the carotid artery concurrent with carotid stent placement when furnished in accordance with the FDA-approved protocols governing Category B Investigational Device Exemption (IDE) clinical trials. PTA of the carotid artery, when provided solely for the purpose of carotid artery dilation concurrent with carotid stent placement, is considered to be a reasonable and necessary service only when provided in the context of such clinical trials and, therefore, is considered a covered service for the purposes of these trials. Performance of PTA in the carotid artery when used to treat obstructive lesions outside of approved protocols governing Category B IDE clinical trials remains a noncovered service. At its April 1, 2004 meeting, the ICD-9-CM Coordination and Maintenance Committee discussed creation of a new code or codes to identify carotid artery stenting, along with a concomitant percutaneous angioplasty or atherectomy (PTA) code for delivery of the stent(s). We established codes for carotid artery stenting procedures for use with discharges occurring on or after October 1, 2004 inpatients who are enrolled in an FDA-approved clinical trial and are using on-label FDA-approved stents and embolic protection devices. These codes are as follows:

  • 00.61 (Percutaneous angioplasty or atherectomy of precerebral (extracranial vessel(s)); and
  • 00.63 (Percutaneous insertion of carotid artery stent(s)).

We assigned procedure code 00.61 to four MDCs and seven DRGs. The most likely scenario is that in which cases are assigned to MDC 1 (Diseases and Disorders of the Nervous System) in DRGs 533 (Extracranial Procedures with CC) and 534 (Extracranial Procedures without CC). Other DRG assignments can be found in Table 6B of the Addendum to the FY 2005 IPPS final rule (69 FR 49624).

In the FY 2005 IPPS final rule, we indicated that we would continue to monitor DRGs 533 and 534 and procedure code 00.61 in combination with procedure code 00.63 in upcoming annual DRG reviews. For the FY 2006 IPPS proposed rule and this final rule, we used proxy codes to evaluate the costs and DRG assignments for carotid artery stenting because codes 00.61 and 00.63 were only approved for use beginning October 1, 2004, and MedPAR data for this period are not yet available. We used procedure code 39.50 (Angioplasty or atherectomy of other noncoronary vessel(s)) in combination with procedure code 39.90 (Insertion of nondrug-eluting peripheral vessel stent(s)) in DRGs 533 and 534 as the proxy codes for carotid artery stenting. For this evaluation, we used principal diagnosis code 433.10 (Occlusion and stenosis of carotid artery, without mention of cerebral Start Printed Page 47301infarction) to reflect the clinical trial criteria.

The following chart shows our findings:

DRGNumber of casesAverage length of stayAverage charges
DRG 533—All cases44,6773.73$24,464
DRG 533 with codes 39.50 and 39.90 reported1,5863.1329,737
DRG 534—All cases42,4931.7915,873
DRG 534 with codes 39.50 and 39.90 reported1,3971.5422,002

The patients receiving a carotid stent (codes 39.50 and 39.90) represented 3.5 percent of all cases in DRG 534. On average, patients receiving a carotid stent had slightly shorter average lengths of stay than other patients in DRGs 533 and 534. While the average charges for patients receiving a carotid artery stent were higher than for other patients in DRG 534, in our view, the small number of cases and the magnitude of the difference in average charges are not sufficient to justify a change in the DRGs.

Because we have a paucity of data for the carotid stent device and its insertion, we believe it is premature to revise the DRG structure at this time. We expect to revisit this analysis once data become available on the new codes for carotid artery stents.

We received 11 comments on our presentation of the carotid stent device issue in the FY 2006 IPPS proposed rule.

Comment: One commenter recommended that CMS include carotid stenting in the DRG for carotid endarterectomy in FY 2006 and ensure that the data it is collecting for setting payment rates in FY 2007 appropriately accounts for the cost of the device.

Response: Code 38.12 (Endarterectomy, other vessels of head and neck) describes the open endarterectomy procedure, and is assigned to DRGs 533 and 534 which is the same DRG assignment as the endovascular endarterectomy. Therefore, both the open endarterectomy and the placement of carotid stent result in assignment to the same DRG, which reflects CMS' policy of placing new codes in predecessor DRGs. We point out that codes 00.61 and 00.63 must be used together to allow payment for carotid stenting. Code 00.63 is not recognized by the GROUPER program as a stand-alone O.R. procedure and, as such, has no impact on DRG assignment. Therefore, we anticipate that the cost of the device will be reflected in the hospital charges.

Comment: One commenter agreed with our presentation in the proposed rule and suggested that we should make no change to the DRG assignment for carotid artery stenting.

Response: We agree and will not be making a change to the DRG assignment for carotid artery stenting.

Comment: Nine commenters encouraged CMS to create two new DRGs for carotid stent procedures and split these new DRGs on the basis of the presence or absence of comorbidities or complications. They believed that, even though the current volume of carotid artery stenting cases appears small, the recent availability of FDA-approved devices, new and ongoing clinical trials, multiple post-market registries, as well as expanded Medicare coverage, will result in a large increase in the number of cases. They also expressed concern that the potential increase in patient volume and their perceived inadequate payment for carotid artery stent cases will create a financial hardship on facilities providing this technology, potentially resulting in decreased Medicare beneficiary access to this beneficial therapy.

Response: We continue to believe that the most appropriate changes to the IPPS and the structure of the DRGs are based on evidence of a significant difference in average costs between technology itself and the DRG where its code is assigned. Because the ICD-9-CM procedure codes are new, we do not have data showing that carotid artery stents are more costly than other cases in DRGs 533 and 534. Further, using codes 39.50 and 39.90 as proxies for carotid artery stenting, we did not observe a substantial difference in average charges between cases using these codes and other cases in the DRGs. For this reason, we do not have sufficient evidence to warrant a DRG change at this time.

In this final rule, we are retaining code 00.61 in DRGs 533 and 534 for FY 2006. We will continue to monitor the Medicare charge data in our annual review of DRGs and the IPPS.

g. Extracorporeal Membrane Oxygenation (ECMO)

Extracorporeal membrane oxygenation (ECMO) is a procedure to create a closed chest, heart-lung bypass system by insertion of vascular catheters. Patients receiving this procedure require mechanical ventilation. ECMO is performed for a small number of severely ill patients who are at high risk of dying without this procedure. Most often it is done for neonates with persistent pulmonary hypertension and respiratory failure for whom other treatments have failed, certain severely ill neonates receiving major cardiac procedures or diaphragmatic hernia repair, and certain older children and adults, most of whom are receiving major cardiac procedures.

Prior to the proposed rule, we received several letters from institutions that perform ECMO. The commenters stated that, in the CMS GROUPER logic, this procedure has little or no impact on the DRG assignment in the newborn, pediatric, and adult population. According to these letters, patients receiving ECMO are highly resource intensive and should have a unique DRG that reflects the costs of these resources. The commenters recommended the creation of a new DRG for ECMO with a DRG weight equal to or greater than the DRG weight for tracheostomy.

ECMO is assigned to procedure code 39.65 (Extracorporeal membrane oxygenation). This code is classified as an O.R. procedure and is assigned to DRG 104 (Cardiac Valve and Other Major Cardiothoracic Procedure With Cardiac Catheterization) and DRG 105 (Cardiac Valve and Other Major Cardiothoracic Procedure Without Cardiac Catheterization). When ECMO is performed with other O.R. procedures, the case is assigned to the higher weighted DRG. For example, when ECMO and a tracheostomy are performed during the same admission, the case would be assigned to DRG 541 (Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses With Major O.R.).

We note that the primary focus of updates to the Medicare DRG classification system is changes relating to the Medicare patient population, not the pediatric patient population. Start Printed Page 47302Because ECMO is primarily a pediatric procedure and rarely performed in an adult population, we have few cases in our data to use to evaluate resource costs. We are aware that other insurers sometimes use Medicare's rates to make payments. We advise private insurers to make appropriate modifications to our payment system when it is being used for children or other patients who are not generally found in the Medicare population.

To evaluate the appropriateness of payment under the current DRG assignment, we have reviewed the FY 2004 MedPAR data and found 78 ECMO cases in 13 DRGs.

The following table illustrates the results of our findings:

DRG with code 39.65 reportedNumber of casesAverage length of stayAverage charges for ECMO casesAverage charges for all cases in the DRG
4239$147,766$120,496
105218131,70089,831
5411462.9561,210273,656
All Other DRGs2018.1308,341NA

The average charges for all ECMO cases were approximately $258,821, and the average length of stay was approximately 20.7 days. The average charges for the ECMO cases are closer to the average charges for DRG 541 ($273,656) than to the average charges of DRG 104 ($147,766) and DRG 105 ($131,700). Of the 78 ECMO cases, 14 cases are already assigned to DRG 541. We believe that the data indicate that DRG 541 would be a more appropriate DRG assignment for cases where ECMO is performed. We further note that under the All Payer DRG System used in New York State, cases involving ECMO are assigned to the tracheostomy DRG. Thus, the assignment of ECMO cases to the tracheostomy DRG for Medicare would be similar to how these cases are grouped in another DRG system. For these reasons, we proposed to reassign ECMO cases reporting code 39.65 to DRG 541. We also proposed to change the title of DRG 541 to: “ECMO or Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth and Neck Diagnoses With Major O.R. Procedure”.

Comment: Several commenters supported the proposed modification to ECMO cases reporting code 39.65 to DRG 541.

Response: We appreciate the commenters' support.

Accordingly, in this final rule, we are adopting as final the proposed change to ECMO cases reporting code 39.65 to DRG 541 with minor modification. To further clarify the change, we are changing the title of DRG 541 to “ECMO or Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck With Major O.R.” This title has been modified since the proposed rule (70 FR 23324) to delete the term “Diagnoses” from the title. For consistency purposes, we are also changing the DRG title for DRG 542 from “Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses Without Major O.R. Procedure” to “Tracheostomy With Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Without Major O.R.”

6. MDC 6 (Diseases and Disorders of the Digestive System): Artificial Anal Sphincter

In the FY 2003 IPPS final rule (67 FR 50242), we created two new codes for procedures involving an artificial anal sphincter, effective for discharges occurring on or after October 1, 2002: Code 49.75 (Implantation or revision of artificial anal sphincter) is used to identify cases involving implantation or revision of an artificial anal sphincter and code 49.76 (Removal of artificial anal sphincter) is used to identify cases involving the removal of the device. In Table 6B of that final rule, we assigned both codes to one of four MDCs, based on principal diagnosis, and one of six DRGs within those MDCs: MDC 6 (Diseases and Disorders of the Digestive System), DRGs 157 and 158 (Anal and Stomal Procedures With and Without CC, respectively); MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast), DRG 267 (Perianal and Pilonidal Procedures); MDC 21 (Injuries, Poisonings, and Toxic Effects of Drugs), DRGs 442 and 443 (Other O.R. Procedures for Injuries With and Without CC, respectively); and MDC 24 (Multiple Significant Trauma), DRG 486 (Other O.R. Procedures for Multiple Significant Trauma).

In the FY 2004 IPPS final rule (68 FR 45372), we discussed the assignment of these codes in response to a request we received to consider reassignment of these two codes to different MDCs and DRGs. The requester believed that the average charges ($44,000) for these codes warranted reassignment. In the FY 2004 IPPS final rule, we stated that we did not have sufficient MedPAR data available on the reporting of codes 49.75 and 49.76 to make a determination on DRG reassignment of these codes. We agreed that, if warranted, we would give further consideration to the DRG assignments of these codes because it is our customary practice to review DRG assignment(s) for newly created codes to determine clinical coherence and similar resource consumption after we have had the opportunity to collect MedPAR data on utilization, average lengths of stay, average charges, and distribution throughout the system. In the FY 2005 IPPS final rule, we reviewed the FY 2003 MedPAR data for the presence of codes 49.75 and 49.76 and determined that these procedures were not a clinical match with the other procedures in DRGs 157 and 158. Therefore, for FY 2005, we moved procedure codes 49.75 and 49.76 out of DRGs 157 and 158 and into DRGs 146 and 147 (Rectal Resection With and Without CC, respectively). This change had the effect of doubling the payment for the cases with procedure codes 49.75 and 49.76 assigned to DRGs 146 and 147 based on increases in the relative weights. One commenter suggested that we create a new DRG for “Complex Anal/Rectal Procedure with Implant.” However, we noted that the DRG structure is a system of averages and is based on groups of patients with similar characteristics. At that time, we indicated that we would continue to monitor procedure codes 49.75 and 49.76 and the DRGs to which they are assigned.

For the FY 2006 proposed rule, we reviewed the FY 2004 MedPAR data for the presence of codes 49.75 and 49.76. We found that these two procedures are still of low incidence. Among the six possible DRG assignments, we found a total of 18 cases reported with codes 49.75 and 49.76 for the implant, Start Printed Page 47303revision, or removal of the artificial anal sphincter. We found 13 of these cases in DRGs 146 and 147 (compared to 12,558 total cases in these DRGs), and the remaining 5 cases in DRGs 442 and 443 (compared to 19,701 total cases in these DRGs).

We believe the number of cases with codes 49.75 and 49.76 in these DRGs is too low to provide meaningful data of statistical significance. Therefore, we did not propose any further changes to the DRGs for these procedures at this time. Neither did we propose to change the structure of DRGs 146 or 147 at this time.

Comment: One commenter agreed that we should maintain the current DRG assignment for codes 49.75 and 49.76. The commenter recommended that CMS continue to monitor the use of these codes and their DRG assignment.

Response: We acknowledge the support of the commenter and will continue to monitor utilization of the services with codes 49.75 and 49.76.

For FY 2006, we are retaining codes 49.75 and 49.76 within DRGs 146 and 147, as proposed.

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

a. Hip and Knee Replacements

Orthopedic surgeons representing the American Association of Orthopaedic Surgeons (AAOS) requested that we subdivide DRG 209 (Major Joint and Limb Reattachment Procedures of Lower Extremity) in MDC 8 by creating a new DRG for revision of lower joint procedures. The AAOS made a presentation at the October 7-8, 2004 meeting of the ICD-9-CM Coordination and Maintenance Committee meeting. A summary report of this meeting can be found at the CMS Web site: http://www.cms.hhs.gov/​paymentsystems/​icd9/​. We also received written comments on this request prior to the issuance of the FY 2006 IPPS proposed rule.

The AAOS surgeons stated that cases involving patients who require a revision of a prior replacement of a knee or hip require significantly more resources than cases in which patients receive an initial joint replacement. They pointed out that total joint replacement is one of the most commonly performed and successful operations in orthopedic surgery. The surgeons mentioned that, in 2002, over 300,000 hip replacement and 350,000 knee replacement procedures were performed in the United States. They also pointed out that these procedures are a frequent reason for Medicare hospitalization. The surgeons stated that total joint replacements have been shown to be highly cost-effective procedures, resulting in dramatic improvements in quality of life for patients suffering from disabling arthritic conditions involving the hip or knee. In addition, they reported that the medical literature indicates success rates of greater than 90 percent for implant survivorship, reduction in pain, and improvement in function at a 10- to 15-year followup. However, despite these excellent results with primary total joint replacement, factors related to implant longevity and evolving patient demographics have led to an increase in the volume of revision total joint procedures performed in the United States over the past decade.

Total hip replacement is an operation that is intended to reduce pain and restore function in the hip joint by replacing the arthritic hip joint with a prosthetic ball and socket joint. The prosthetic hip joint consists of a metal alloy femoral component with a modular femoral head made of either metal or ceramic (the “ball”) that articulates with a metal acetabular component with a modular liner made of either metal, ceramic, or high-density polyethylene (the “socket”).

The AAOS surgeons stated that, in a normal knee, four ligaments help hold the bones in place so that the joint works properly. When a knee becomes arthritic, these ligaments can become scarred or damaged. During knee replacement surgery, some of these ligaments, as well as the joint surfaces, are substituted or replaced by the new artificial prostheses. Two types of fixation are used to hold the prostheses in place. Cemented designs use polymethyl methacrylate to hold the prostheses in place. Cementless designs rely on bone growing into the surface of the implant for fixation.

The surgeons stated that all hip and knee replacements have an articular bearing surface that is subject to wear (the acetabular bearing surface in the hip and the tibial bearing surface in the knee). Traditionally, these bearing surfaces have been made of metal-on-metal or metal-on-polyethylene, although newer materials (both metals and ceramics) have been used more recently. Earlier hip and knee implant designs had nonmodular bearing surfaces, but later designs included modular articular bearing surfaces to reduce inventory and potentially simplify revision surgery. Wear of the articular bearing surface occurs over time and has been found to be related to many factors, including the age and activity level of the patient. In some cases, wear of the articular bearing surface can produce significant debris particles that can cause peri-prosthetic bone resorption (also known as osteolysis) and mechanical loosening of the prosthesis. Wear of the bearing surface can also lead to instability or prosthetic dislocation, or both, and is a common cause of revision hip or knee replacement surgery.

Depending on the cause of failure of the hip replacement, the type of implants used in the previous surgery, the amount and quality of the patient's remaining bone stock, and factors related to the patient's overall health and anatomy, revision hip replacement surgery can be relatively straightforward or extremely complex. Revision hip replacement can involve replacing any part or all of the implant, including the femoral or acetabular components, and the bearing surface (the femoral head and acetabular liner), and may involve major reconstruction of the bones and soft tissues around the hip. All of these procedures differ significantly in their clinical indications, outcomes, and resource intensity.

The AAOS surgeons provided the following summary of the types of revision knee replacement procedures: Among revision knee replacement procedures, patients who underwent complete revision of all components had longer operative times, higher complication rates, longer lengths of stay, and significantly higher resource utilization, according to studies conducted by the AAOS. Revision of the isolated modular tibial insert component was the next most resource-intensive procedure, and primary total knee replacement was the least resource-intensive of all the procedures studied.

  • Isolated Modular Tibial Insert Exchange. Isolated removal and exchange of the modular tibial bearing surface involves replacing the modular polyethylene bearing surface without removing the femoral, tibial, or patellar components of the prosthetic joint. Common indications for this procedure include wear of the polyethylene bearing surface or instability (for example, looseness) of the prosthetic knee joint. Patient recovery times are much shorter with this procedure than with removal and exchange of either the tibial, femoral, or patellar components.
  • Revision of the Tibial Component. Revision of the tibial component involves removal and exchange of the entire tibial component, including both the metal base plate and the modular polyethylene bearing surface. Common indications for tibial component revision are wear of the modular bearing surface, aseptic loosening (often Start Printed Page 47304associated with osteolysis), or infection. Depending on the amount of associated bone loss and the integrity of the ligaments around the knee, tibial component revision may require the use of specialized implants with stems that extend into the tibial canal and/or the use of metal augments or bone graft to fill bony defects.
  • Revision of the Femoral Component. Revision of the femoral component involves removal and exchange of the metal implant that covers the end of the thigh-bone (the distal femur). Common indications for femoral component revision are aseptic loosening with or without associated osteolysis/bone loss, or infection. Similar to tibial revision, femoral component revision that is associated with extensive bone loss often involves the use of specialized implants with stems that extend into the femoral canal and/or the use of metal augments or bone graft to fill bony defects.
  • Revision of the Patellar Component. Complications related to the patella-femoral joint are one of the most common indications for revision knee replacement surgery. Early patellar implant designs had a metal backing covered by high-density polyethylene; these implants were associated with a high rate of failure due to fracture of the relatively thin polyethylene bearing surface. Other common reasons for isolated patellar component revision include poor tracking of the patella in the femoral groove leading to wear and breakage of the implant, fracture of the patella with or without loosening of the patellar implant, rupture of the quadriceps or patellar tendon, and infection.
  • Revision of All Components (Tibial, Femoral, and Patellar). The most common type of revision knee replacement procedure is a complete total knee revision. A complete revision of all implants is more common in knee replacements than hip replacements because the components of an artificial knee are not compatible across vendors or types of prostheses. Therefore, even if only one of the implants is loose or broken, a complete revision of all components is often required in order to ensure that the implants are compatible. Complete total knee revision often involves extensive surgical approaches, including osteotomizing (for example, cutting) the tibia bone in order to adequately expose the knee joint and gain access to the implants. These procedures often involve extensive bone loss, requiring reconstruction with specialized implants with long stems and metal augments or bone graft to fill bony defects. Depending on the status of the ligaments in the knee, complete total knee revision at times requires implantation of a highly constrained or “hinged” knee replacement in order to ensure stability of the knee joint.
  • Reimplantation from previous resection or cement spacer. In cases of deep infection of a prosthetic knee, removal of the implants with implantation of an antibiotic-impregnated cement spacer, followed by 6 weeks of intravenous antibiotics is often required in order to clear the infection. Revision knee replacement from an antibiotic impregnated cement spacer often involves complex bony reconstruction due to extensive bone loss that occurs as a result of the infection and removal of the often well-fixed implants. As noted above, the clinical outcomes following revision from a spacer are often poor due to limited functional capacity while the spacer is in place, prolonged periods of protected weight bearing (following reconstruction of extensive bony defects), and the possibility of chronic infection.

The surgeons stated that the current ICD-9-CM codes did not adequately capture the complex nature of revisions of hip and knee replacements. Currently, code 81.53 (Revision of hip replacement) captures all “partial” and “total” revision hip replacement procedures. Code 81.55 (Revision of knee replacement) captures all revision knee replacement procedures. These two codes currently capture a wide variety of procedures that differ in their clinical indications, resource intensity, and clinical outcomes.

An AAOS representative made a presentation at the October 7-8, 2004 ICD-9-CM Coordination and Maintenance Committee. Based on the comments received at the October 7-8, 2004 meeting and subsequent written comments, new ICD-9-CM procedure codes were developed to better capture the variety of ways that revision of hip and knee replacements can be performed: Codes 00.70 through 00.73 and code 81.53 for revisions of hip replacements and codes 00.80 through 00.84 and code 81.55 for revisions of knee replacements. These new and revised procedure codes, which will be effective on October 1, 2005, can be found in Table 6B and Table 6F of this final rule. The commenters stated that claims data using these new and specific codes should provide improved data on these procedures for future DRG modifications.

However, the commenters requested that CMS consider DRG modifications based on current data using the existing revision codes. The commenters reported on a recently completed study comparing detailed hospital resource utilization and clinical characteristics in over 10,000 primary and revision hip and knee replacement procedures at 3 high volume institutions: The Massachusetts General Hospital, the Mayo Clinic, and the University of California at San Francisco. The purpose of this study was to evaluate differences in clinical outcomes and resource utilization among patients who underwent different types of primary and revision hip or knee replacement procedures. The study found significant differences in operative time, complication rates, hospital length of stay, discharge disposition, and resource utilization among patients who underwent different types of revision hip or knee replacement procedures.

Among revision hip replacement procedures, patients who underwent both femoral and acetabular component revision had longer operative times, higher complication rates, longer lengths of stay, significantly higher resource utilization, and were more likely to be discharged to a subacute care facility. Isolated femoral component revision was the next most resource-intensive procedure, followed by isolated acetabular revision. Primary hip replacement was the least resource intensive of all the procedures studied. Similarly, among revision knee replacement procedures, patients who underwent complete revision of all components had longer operative times, higher complication rates, longer lengths of stay, and significantly higher resource utilization. Revision of one component was the next most resource-intensive procedure. Primary total knee replacement was the least resource intensive of all the procedures studied.

In addition, the commenters indicated that the data showed that extensive bone loss around the implants and the presence of a peri-prosthetic fracture were the most significant predictors of higher resource utilization among all revision hip and knee replacement procedures, even when controlling for other significant patient and procedural characteristics.

For the FY 2006 IPPS proposed rule, we examined data in the FY 2004 MedPAR file on the current hip replacement procedures (codes 81.51, 81.52, 81.53) as well as the replacements and revisions of knee replacement procedures (codes 81.54 and 81.55) in DRG 209. We found that revisions were significantly more resource intensive than the original hip and knee replacements. We found average charges for revisions of hip and knee replacements were approximately Start Printed Page 47305$7,000 higher than average charges for the original joint replacements, as shown in the following charts. The average charges for revisions of hip replacements were 21 percent higher than the average charges for initial hip replacements. The average charges for revisions of knee replacements were 25 percent higher than for initial knee replacements.

DRGNumber of casesAverage length of stay (days)Average charges
209—All cases430,7764.57$30,695.41
209 With hip replacement codes 81.51 and 81.52 reported181,4605.2131,795.84
209 With hip revision code 81.53 reported20,8945.5738,432.04
209 With knee replacement code 81.54 reported209,3383.9228,525.66
209 With knee revision code 81.55 reported18,5904.6435,671.66

We note that there were no cases in DRG 209 for reattachment of the foot, lower leg, or thigh (codes 84.29, 84.27, and 84.28).

To address the higher resource costs associated with hip and knee revisions relative to the initial joint replacement procedure, we proposed to delete DRG 209, create a proposed new DRG 544 (Major Joint Replacement or Reattachment of Lower Extremity), and create a proposed new DRG 545 (Revision of Hip or Knee Replacement).

We proposed to assign the following codes to the new proposed DRG 544: 81.51, 81.52, 81.54, 81.56, 84.26, 84.27, and 84.28.

We proposed to assign the following codes to the proposed new DRG 545: 00.70, 00.71, 00.72, 00.73, 00.80, 00.81, 00.82, 00.83, 00.84, 81.53, and 81.55.

In response to the FY 2006 IPPS proposed rule, we received the following public comments:

Comment. Four commenters supported our proposal to delete DRG 209 and to create proposed new DRGs 544 and DRG 545. One commenter stated that the proposed rule reveals that the average joint revision charges are $7,000 higher than original joint replacements, which supports the point that joint revision procedures are more resource-intensive than initial replacements.

Another commenter commended CMS for its efforts to provide appropriate payment for revision hip and knee arthroplasty by proposing to split DRG 209 into DRG 544 and 545, and to expand the scope of the relevant ICD-9-CM procedure codes included in these DRGs. The commenter stated that the new codes, in particular, are an important component in aligning hospital reimbursement with hospital costs and patient benefits of total joint arthroplasty. The commenter encouraged CMS to continue its dialogue with industry and providers regarding further DRG changes to primary joint arthroplasty procedures, which represent approximately 90 percent of total hip and knee arthroplasty procedures.

One commenter recommended that CMS consider the number of individual components used in the joint replacement when future DRG revisions are made. The commenter stated the hospital's costs will vary based on the number of parts replaced during the procedure. According to the commenter, we may be overpaying simple head and/or liner exchanges in hips, and patellar/insert exchanges in knees relative to primary hip and knee procedures. The commenter indicated that, with the more specific ICD-9-CM codes, CMS will be able to evaluate further changes in the joint replacement and revision DRGs.

We did not receive any comments that opposed the proposed DRG revisions for hip and knee replacements.

Response: We appreciate the support of the commenters. We will use the data obtained from use of the new codes to consider future DRG revisions for joint replacement and revision procedures.

In this final rule, for FY 2006, we are adopting the DRG revisions relating to hip and knee replacements as proposed. We are deleting DRG 209 and creating new DRG 544 (Major Joint Replacement or Reattachment of Lower Extremity) and new DRG 545 (Revision of Hip or Knee Replacement). The new DRG 544 includes the following code assignments:

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

The new DRG 545 includes the following code assignments:

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

We believe that the creation of the new DRGs for revisions of hip and knee replacements should resolve payment issues for hospitals that perform the more difficult revisions of joint replacements. In addition, as stated earlier, we have worked with the orthopedic community to develop new procedure codes that better capture data on the types of revisions of hip and knee replacements. These new codes will be implemented on October 1, 2005. Once we receive claims data using these new codes, we will review data to determine if additional DRG modifications are needed. This effort may include assigning some of the revision codes, such as 00.83 and 00.84, to a separate DRG. As stated earlier, the AAOS has found that some of the procedures may not be as resource intensive. Therefore, the AAOS has requested that CMS closely examine data from the use of the new codes and consider future revisions.

b. Kyphoplasty

In the FY 2005 IPPS final rule (69 FR 48938), we discussed the creation of new codes for vertebroplasty (81.65) and kyphoplasty (81.66), which went into effect on October 1, 2004. Prior to October 1, 2004, both of these surgical procedures were assigned to code 78.49 (Other repair or plastic operation on bone). For FY 2005, we assigned these codes to DRGs 233 and 234 (Other Start Printed Page 47306Musculoskeletal System and Connective Tissue O.R. Procedure With and Without CC, respectively) in MDC 8 (Table 6B of the FY 2005 final rule). (In the FY 2005 IPPS final rule (69 FR 48938), we indicated that new codes 81.65 and 81.66 were assigned to DRGs 223 and 234. We made a typographical error when indicating that these codes were assigned to DRG 223. Codes 81.65 and 81.66 have been assigned to DRGs 233 and 234.) Last year, we received comments opposing the assignment of code 81.66 to DRGs 233 and 234. The commenters supported the creation of the codes for kyphoplasty and vertebroplasty, but recommended that code 81.66 be assigned to DRGs 497 and 498 (Spinal Fusion Except Cervical With and Without CC, respectively). The commenters stated that kyphoplasty requires special inflatable bone tamps and bone cement and is a significantly more resource intensive procedure than vertebroplasty. The commenters further stated that, while kyphoplasty involves internal fixation of the spinal fracture and restoration of vertebral heights, vertebroplasty involves only fixation. The commenters indicated that hospital costs for kyphoplasty procedures are more similar to resources used in a spinal fusion.

We stated in the FY 2005 IPPS final rule that we did not have data in the MedPAR file on kyphoplasty and vertebroplasty. Prior to October 1, 2004, both procedures were assigned in code 78.49, which was assigned to DRGs 233 and 234 in MDC 8. We stated that we would continue to review this area as part of our annual review of MedPAR data. While we do not have separate data for kyphoplasty because code 81.66 was not established until October 1, 2004, for the FY 2006 IPPS proposed rule, we did examine data on code 78.49, which includes both kyphoplasty and vertebroplasty procedures reported in DRGs 233 and 234. The following chart illustrates our findings:

DRGNumber of casesAverage length of stay (days)Average charges
233—All cases14,0666.66$28,967.78
233 With code 78.49 reported8,7025.9125,402.71
233 Without code 78.49 reported5,3647.8834,571.39
234—All cases7,1062.7918,954.80
234 With code 78.49 reported4,4372.6118,426.11
234 Without code 78.94 reported2,6693.0919,833.71

We do not believe these data findings support moving cases represented by code 78.49 out of DRGs 233 and 234. While we cannot distinguish cases that are kyphoplasty from cases that are vertebroplasty, cases represented by code 78.49 have lower charges than do other cases within DRGs 233 and 234. Therefore, in the FY 2006 IPPS proposed rule, we did not propose to change the DRG assignment of code 81.66 to DRGs 233 and 234.

Comment: Two commenters supported our proposal not to change the DRG assignment of code 81.66 (Kyphoplasty). Both commenters agreed with our proposal to keep code 81.66 in DRGs 233 and 234. They also agreed that we should wait for bill data using the new kyphoplasty code prior to considering any DRG modification.

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

In this final rule, for FY 2006, we are retaining the assignment of code 81.66 in DRGs 233 and 234. As we proposed, we will consider whether further changes are warranted once additional hospital charge data are available using the new code.

c. Multiple Level Spinal Fusion

On October 1, 2003, the following ICD-9-CM codes were created to identify the number of levels of vertebra fused during a spinal fusion procedure:

  • 81.62, Fusion or refusion of 2-3 vertebrae
  • 81.63, Fusion or refusion of 4-8 vertebrae
  • 81.64, Fusion or refusion of 9 or more vertebrae

Prior to the creation of these codes, we received a comment recommending the establishment of new DRGs that would be differentiated based on the number of vertebrae fused. In the FY 2005 IPPS final rule (69 FR 48936), we stated that we did not yet have any reported cases utilizing these multiple level spinal fusion codes. We stated that we would wait until sufficient data were available prior to making a final determination on whether to create separate DRGs based on the number of vertebrae fused. We also stated that spinal fusion surgery was an area undergoing rapid changes.

Effective October 1, 2004, we created a series of codes that describe a new type of spinal surgery, spinal disc replacement. Our medical advisors describe these procedures as a more conservative approach for back pain than the spinal fusion surgical procedure. These codes are as follows:

  • 84.60, Insertion of spinal disc prosthesis, not otherwise specified
  • 84.61, Insertion of partial spinal disc prosthesis, cervical
  • 84.62, Insertion of total spinal disc prosthesis, cervical
  • 84.63, Insertion of spinal disc prosthesis, thoracic
  • 84.64, Insertion of partial spinal disc prosthesis, lumbosacral
  • 84.65, Insertion of total spinal disc prosthesis, lumbosacral
  • 84.66, Revision or replacement of artificial spinal disc prosthesis, cervical
  • 84.67, Revision or replacement of artificial spinal disc prosthesis, thoracic
  • 84.68, Revision or replacement of artificial spinal disc prosthesis, lumbosacral
  • 84.69, Revision or replacement of artificial spinal disc prosthesis, not otherwise specified

We also created the following two codes effective October 1, 2004, for these new types of spinal surgery that are also a more conservative approach to back pain than is spinal fusion:

  • 81.65, Vertebroplasty
  • 81.66, Kyphoplasty

We do not yet have data in the MedPAR file on these new types of procedures. Therefore, we cannot yet determine what effect these new types of procedures will have on the frequency of spinal fusion procedures.

However, we do have data in the MedPAR file on multiple level spinal procedures for analysis for this year's IPPS rule. We examined data in the FY 2004 MedPAR file on spinal fusion cases in the following DRGs:

  • DRG 496 (Combined Anterior/Posterior Spinal Fusion)
  • DRG 497 (Spinal Fusion Except Cervical With CC)
  • DRG 498 (Spinal Fusion Except Cervical Without CC)
  • DRG 519 (Cervical Spinal Fusion With CC) Start Printed Page 47307
  • DRG 520 (Cervical Spinal Fusion Without CC)

Multiple level spinal fusion is captured by code 81.63 (Fusion or refusion of 4-8 vertebrae) and code 81.64 (Fusion or refusion of 9 or more vertebrae). Code 81.62 includes the fusion of 2-3 vertebrae and is not considered a multiple level spinal fusion. Orthopedic surgeons stated at the October 7-8, 2004 ICD-9-CM Coordination and Maintenance Committee meeting that the most simple and common type of spinal fusion involves fusing either 2 or 3 vertebrae. These surgeons stated that there was not a significant difference in resource utilization for cases involving the fusion of 2 versus 3 vertebrae. For this reason, the orthopedic surgeons recommended that fusion of 2 and 3 vertebrae remain grouped into one ICD-9-CM code.

We reviewed the Medicare charge data to determine whether the number of vertebrae fused or specific diagnoses have an effect on average length of stay and resource use for a patient. We found that, while fusing 4 or more levels of the spine results in a small increase in the average length of stay and a somewhat larger increase in average charges for spinal fusion patients, an even greater impact was made by the presence of a principal diagnosis of curvature of the spine or malignancy. The following list of diagnoses describes conditions that have a significant impact on resource use for spinal fusion patients:

  • 170.2, Malignant neoplasm of vertebral column, excluding sacrum and coccyx
  • 198.5, Secondary malignant neoplasm of bone and bone marrow
  • 732.0, Juvenile osteochondrosis of spine
  • 733.13, Pathologic fracture of vertebrae
  • 737.0, Adolescent postural kyphosis
  • 737.10, Kyphosis (acquired) (postural)
  • 737.11, Kyphosis due to radiation
  • 737.12, Kyphosis, postlaminectomy
  • 737.19, Kyphosis (acquired), other
  • 737.20, Lordosis (acquired) (postural)
  • 737.21, Lordosis, postlaminectomy
  • 737.22, Other postsurgical lordosis
  • 737.29, Lordosis (acquired), other
  • 737.30, Scoliosis [and kyphoscoliosis], idiopathic
  • 737.31, Resolving infantile idiopathic scoliosis
  • 737.32, Progressive infantile idiopathic scoliosis
  • 737.33, Scoliosis due to radiation
  • 737.34, Thoracogenic scoliosis
  • 737.39, Other kyphoscoliosis and scoliosis
  • 737.40, Curvature of spine, unspecified
  • 737.41, Curvature of spine associated with other conditions, kyphosis
  • 737.42, Curvature of spine associated with other conditions, lordosis
  • 737.43, Curvature of spine associated with other conditions, scoliosis
  • 737.8, Other curvatures of spine
  • 737.9, Unspecified curvature of spine
  • 754.2, Congenital scoliosis
  • 756.51, Osteogenesis imperfecta

The majority of fusion patients with these diagnoses were in DRGs 497 and 498. The chart below reflects our findings. We also include in the chart statistics for cases in DRGs 497 and 498 with spinal fusion of 4 or more vertebrae and cases with a principal diagnosis of curvature of the spine or bone malignancy.

DRGNumber of casesAverage length of stay (days)Average charges
49727,3466.08$64,471.82
49817,9433.8048,440.80
497 and 498 With spinal fusions of 4 or more vertebrae reported7,8816.377,352.00
497 and 498 With principal diagnosis of curvature of the spine or bone malignancy2,0068.9195,315.00

Thus, these diagnoses result in a significant increase in resource use. While the fusing of 4 or more vertebrae resulted in average charges of $77,352, the impact of a principal diagnosis of curvature of the spine or bone malignancy was substantially greater with average charges of $95,315.

Based on this analysis, we proposed to create a new DRG 546 for noncervical spinal fusions with a principal diagnosis of curvature of the spine and malignancies: proposed new DRG 546 (Spinal Fusions Except Cervical With Principal Diagnosis of Curvature of the Spine or Malignancy). We proposed to include in the proposed new DRG cases all noncervical spinal fusions cases previously assigned to DRGs 497 and 498 that have a principal diagnosis of curvature of the spine or malignancy and with the following codes listed above: 170.2, 198.5, 732.0, 733.13, 737.0, 737.10, 737.11, 737.12, 737.19, 737.20, 737.21, 737.22, 737.29, 737.30, 737.31, 737.32, 737.33, 737.34, 737.39, 737.40, 737.41, 737.42, 737.43, 737.8, 737.9, 754.2, and 756.51. We proposed that the proposed DRG 546 would not include cases currently assigned to DRGs 496, 519, or 520 that have a principal diagnosis of curvature of the spine or malignancy and that the structure of DRGs 496, 519, and 520 would remain the same.

As part of our meeting with the AAOS on DRG 209 in February 2005 (discussed under section II.B.6.a. of this preamble), the AAOS offered to work with CMS to analyze clinical issues and make revisions to the spinal fusion DRGs (DRGs 496 through 498 and 519 and 520). Therefore, we limited our proposed changes to the spinal fusion DRGs for FY 2006 to the creation of the proposed DRG 546 discussed above. However, we indicated that we look forward to working with the AAOS to obtain its clinical recommendations concerning our proposed changes and potential additional modifications to the spinal fusion DRGs. We also solicited comments from the public on our proposed changes and how to incorporate new types of spinal procedures such as kyphoplasty and spinal disc prostheses into the spinal fusion DRGs.

Comment: A number of commenters supported our proposal to create new DRG 546 (Spinal Fusions Except Cervical With Principal Diagnosis of Curvature of the Spine or Malignancy) to include all noncervical spinal fusions previously assigned to DRGs 497 and 498 that have a principal diagnosis of curvature of the spine or malignancy. One commenter stated that the addition of new DRG 546, with its higher weight, would help reimburse hospitals more adequately for the resources used in treating patients with significant spinal deformities and other problems. One commenter stated that the cost associated with a multilevel spine fusion when the patient has a diagnosis of curvature of the spine or malignancy exceeds the current Medicare reimbursement.

Several commenters noted that the following four ICD-9-CM diagnosis Start Printed Page 47308codes are manifestation codes that cannot be reported as a principal diagnosis:

  • 737.40, Curvature of spine, unspecified
  • 737.41, Curvature of spine associated with other conditions, kyphosis
  • 737.42, Curvature of spine associated with other conditions, lordosis
  • 737.43, Curvature of spine associated with other conditions, scoliosis

The commenter pointed out that these codes can only be reported as a secondary diagnosis. Therefore, the commenters stated that our proposed DRG logic for DRG 546 would not work with these four codes.

Response: We appreciate the support of the commenters for the creation of the new DRG 546. We agree that this new DRG would better align Medicare payment with hospital costs for treating these more severe orthopedic cases. We also agree that codes 737.40, 737.41, 737.42, and 737.43 are not to be reported as a principal diagnosis because they are manifestation codes. We inadvertently included them among the list of principal diagnoses that would be assigned to DRG 546. In this final rule, we are removing codes 737.40, 737.41, 737.42, and 737.43 from the list of principal diagnosis codes that would lead to an assignment of DRG 546. However, we will retain these codes as a secondary diagnosis that will result in an assignment to DRG 546 because they describe curvature of the spine. Therefore, patients admitted with an orthopedic diagnosis who receive a spinal fusion will be assigned to DRG 546 if codes 737.40, 737.41, 737.42, and 737.43 are present as a secondary diagnosis. Consistent with this change in the GROUPER logic, we will also remove the term “principal diagnosis” from the proposed title so that DRG 546 will be titled “Spinal Fusions Except Cervical With Curvature of the Spine or Malignancy.”

Comment: One commenter suggested that CMS consider adding the following diagnoses to the list of codes that would be assigned to the new DRG 546:

  • 213.2, Benign neoplasm of bone and articular cartilage; vertebral column, excluding sacrum and coccyx
  • 238.0, Neoplasm of uncertain behavior of other and unspecified sites and tissues; Bone and articular cartilage
  • 239.2, Neoplasms of unspecified nature; Bone, soft tissue, and skin
  • 721.7, Spondylosis and allied disorders; Traumatic spondylopathy
  • 724.3, Other and unspecified disorders of back; Sciatica
  • 732.8, Other specified forms of osteochondropathy
  • 756.19, Anomalies of spine; Other

Response: We discussed these additional diagnosis codes recommended by the commenter with our medical advisors and they agree that the first three listed codes (213.2, 238.0, and 239.2) should be added because they are neoplasm codes. Therefore, they are clinically similar to the other neoplasm codes on our proposed list. Our medical advisors did not support the addition on the latter four codes because they are vague codes that do not necessarily represent significant conditions. Therefore, in this final rule, we are adding codes 213.2, 238.0, 239.2 to our list of conditions in DRG 546. We are not adding codes 721.7, 724.3, 732.8, or 756.19.

After careful consideration of the public comments received, in this final rule, we are establishing a new DRG 546 (Spinal Fusions Except Cervical with Curvature of the Spine or Malignancy). New DRG 546 will be composed of all noncervical spinal fusions previously assigned to DRGs 497 and 498 that have a principal or secondary diagnosis of curvature of the spine or a principal diagnosis of a malignancy. The principal diagnosis codes that will lead to this DRG assignment are the following:

  • 170.2, Malignant neoplasm of vertebral column, excluding sacrum and coccyx
  • 198.5, Secondary malignant neoplasm of bone and bone marrow
  • 213.2, Benign neoplasm of bone and articular cartilage; vertebral column, excluding sacrum and coccyx
  • 238.0, Neoplasm of uncertain behavior of other and unspecified sites and tissues; Bone and articular cartilage
  • 239.2, Neoplasms of unspecified nature; bone, soft tissue, and skin
  • 732.0, Juvenile osteochondrosis of spine
  • 733.13, Pathologic fracture of vertebrae
  • 737.0, Adolescent postural kyphosis
  • 737.10, Kyphosis (acquired) (postural)
  • 737.11, Kyphosis due to radiation
  • 737.12, Kyphosis, postlaminectomy
  • 737.19, Kyphosis (acquired), other
  • 737.20, Lordosis (acquired) (postural)
  • 737.21, Lordosis, postlaminectomy
  • 737.22, Other postsurgical lordosis
  • 737.29, Lordosis (acquired), other
  • 737.30, Scoliosis [and kyphoscoliosis], idiopathic
  • 737.31, Resolving infantile idiopathic scoliosis
  • 737.32, Progressive infantile idiopathic scoliosis
  • 737.33, Scoliosis due to radiation
  • 737.34, Thoracogenic scoliosis
  • 737.39, Other kyphoscoliosis and scoliosis
  • 737.8, Other curvatures of spine
  • 737.9, Unspecified curvature of spine
  • 754.2, Congenital scoliosis
  • 756.51, Osteogenesis imperfecta

The secondary diagnoses that will lead to the new DRG 546 assignment are:

  • 737.40, Curvature of spine, unspecified
  • 737.41, Curvature of spine associated with other conditions, kyphosis
  • 737.42, Curvature of spine associated with other conditions, lordosis
  • 737.43, Curvature of spine associated with other conditions, scoliosis

d. CHARITETM Spinal Disc Replacement Device

As we noted in our discussion of applications for new technology add-on payments for FY 2006 in section II.E. of the IPPS proposed rule (70 FR 23362), the applicant for new technology for CHARITETM requested a DRG reassignment for cases involving implantation of the CHARITETM Artificial Disc. CHARITETM is a prosthetic intervertebral disc. On October 26, 2004, the FDA approved the CHARITETM Artificial Disc for single level spinal arthroplasty in skeletally mature patients with degenerative disc disease between L4 and S1. The applicant requested a DRG assignment for these cases from DRG 499 (Back and Neck Procedures Except Spinal Fusion With CC) and 500 (Back and Neck Procedures Except Spinal Fusion Without CC) to DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical Without CC). The applicant argued that the costs of an inpatient stay to implant an artificial disc prosthesis are similar to spinal fusion and inclusion in DRGs 497 and 498 should be made consistent with section 1886(d)(5)(K) of the Act that indicates a clear preference for assigning a new technology to a DRG based on similar clinical or anatomical characteristics and costs. As indicated in section II.E. of this final rule, we did not find that CHARITETM meets the substantial clinical improvement criterion and are not considering a DRG reassignment under the new technology provisions. However, we did evaluate whether to reassign CHARITETM to a different DRG using the Secretary's authority under section 1886(d)(4) of the Act. Start Printed Page 47309

On October 1, 2004, we created new codes for the insertion of spinal disc prostheses (codes 84.60 through 84.69). In the FY 2005 IPPS proposed and final rules, we described the new DRG assignments for these new codes in Table 6B of the Addendum to those rules. We received a number of comments on the FY 2005 IPPS proposed rule recommending that we change the assignments for these codes from DRG DRGs 499 and 500 to the DRGs for spinal fusion (DRGs 497 and 498). In the FY 2005 IPPS final rule (69 FR 48938), we indicated that DRGs 497 and 498 are limited to spinal fusion procedures. Because the surgery involving the CHARITETM is not a spinal fusion, we decided not to include this procedure in these DRGs. However, we stated that we would continue to analyze this issue and solicited further public comments on the DRG assignment for spinal disc prostheses.

We received a number of public comments in response to the FY 2006 proposed rule. A summary of the comments and our responses follow.

Comment: One commenter supported our recommendation to keep the CHARITETM spinal disc procedure code in DRGs 499 and 500. The commenter took no position on CMS' decision on whether to grant add-on payment for new technology for the CHARITETM spinal disc procedure. However, the commenter stated that until further data becomes publicly available, it would be premature to reassign spinal disc prostheses to DRGs 497 and 498. The commenter stated that waiting for Medicare data would be consistent with the approach CMS used in considering changes to DRGs 497 and 498 for account for multilevel spinal fusion. (We did not propose a change for FY 2006 to account for multilevel spinal fusions because sufficient data were not available in MedPAR under the new multilevel spine fusion procedure codes.) The commenter also stated that the spinal fusion DRGs were well-established based on several years of utilization and accrual of cost experience. Without a fuller understanding of the expected resource use of cases with spinal disc prostheses, the commenter was concerned that reassignment of these procedures to DRGs 497 and 498 may have the potential to cause an inappropriate reduction in future weights for spinal fusion. Therefore, the commenter recommended that spinal disc replacements be kept in DRGs 499 and 500 until data are available to evaluate this change.

Response: We agree with the commenter that our policy is to assign a new procedure code to a DRG based on the assignment of its predecessor code until we have Medicare charge data to evaluate a DRG modification. We also agree that the spinal fusion cases are well-established based on several years of utilization and cost experience. Without Medicare data that shows Medicare charges for CHARITETM artificial discs in DRGs 499 and 500 and until we receive Medicare charge data using the new procedure codes, it is difficult to evaluate a request for a DRG modification.

Comment: Eight commenters opposed our proposal of keeping CHARITETM artificial discs in DRGs 499 and 500 until we received Medicare charge data. These commenters recommended that the CHARITETM spinal disc procedure (code 84.65) be moved out of DRGs 499 and 500 and into the spinal fusion DRGs (DRG 497 and 498). According to the commenters, the current DRG assignment to DRGs 499 and 500 provides a very significant economic disincentive for hospitals to use CHARITETM in the Medicare population. Based on information submitted with its new technology application, these commenters argued that hospital resources for patients receiving CHARITETM artificial discs are most closely comparable to patients in DRGs 497 and 498 (the data provided to support the new technology application are discussed in detail in section II.E. of this final rule). The commenters also stated that the Health Service Cost Review Commission (HSCRC) of Maryland developed new artificial disc DRGs for its DRG system.

Response: With respect to the commenter's point regarding the HSCRC, we acknowledge that they recently decided to create new DRGs for artificial disc patients. We understand that the HSCRC established these new DRGs with relative weights that are higher than DRGs 499 and 500 and less than the spinal fusion DRGs (DRGs 497 and 498). We are unaware of the criteria that the HSCRC uses for creating separate DRGs. Currently, we do not have a basis for creating a separate DRG for spinal disc protheses because we have no FY 2004 Medicare charge data that could be used to set the FY 2006 relative weight. Therefore, we are unable to adopt an option similar to that of the HSCRC at this time.

For its new technology application, we note that the applicant supplied cost data for 376 total cases where CHARITETM was actually used, including 12 cases involving Medicare patients. The data for the 12 Medicare patients did not come from the MedPAR data systems because that information is not yet available due to the fact that give that FDA approval and the code used to identify these patients was not effective until October 2004. Thus, as with all new technology applications, the data supporting whether the technology meets the cost criterion came directly from the applicant and not from Medicare's data systems. While the applicant also supplied data from the FY 2003 MedPAR file, we note that these cases did not actually involve the CHARITETM artificial disc. Rather the applicant modified the claims data for spinal fusion cases by removing the medical and surgical costs associated with the spinal fusions. The applicant then replaced these costs with costs represented to be those of a typical CHARITETM artificial disc. These data are acceptable to evaluate whether a new technology meets the cost criterion in a new technology application because, by definition, there is limited or no Medicare data upon which to evaluate a new technology's costs. However, these data do not meet the standards that we apply for making a change to a DRG. That is, we use the predecessor code for a new technology until we have evidence from Medicare's data systems that suggest a change to the DRG assignment is warranted.

As stated previously, we do not have Medicare charge information to evaluate a DRG change at this time. For this reason, we are not making a change to the DRG assignment for CHARITÉTM. However, we will consider whether a DRG reassignment for CHARITÉTM is warranted for FY 2007, once we have information from Medicare's data system that will assist us in evaluating the cost of these patients.

8. MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified Sites)): Severe Sepsis

As we did for FY 2005, we received a request to consider the creation of a separate DRG for the diagnosis of severe sepsis for FY 2006. Severe sepsis is described by ICD-9-CM code 995.92 (Systemic inflammatory response syndrome due to infection with organ dysfunction). Patients admitted with sepsis as a principal diagnosis currently are assigned to DRG 416 (Septicemia Age >17) and DRG 417 (Septicemia Age 0-17) in MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified Sites)). The commenter requested that all cases in which severe sepsis is present on admission, as well as those cases in which it develops after admission (which are currently classified elsewhere), be included in this new DRG. We again addressed this issue in the FY 2006 IPPS proposed rule Start Printed Page 47310(70 FR 23329) as we had in the FY 2005 IPPS final rule (69 FR 48975). In both instances, we did not believe the current clinical definition of severe sepsis is specific enough to identify a meaningful cohort of patients in terms of clinical coherence and resource utilization to warrant a separate DRG. Sepsis is found across hundreds of medical and surgical DRGs, and the term “organ dysfunction” implicates numerous currently existing diagnosis codes. While we recognize that Medicare beneficiaries with severe sepsis are quite ill and require extensive hospital resources, we do not believe that they can be identified adequately to justify removing them from all of the other DRGs in which they appear. For this reason, we did not propose a new DRG for severe sepsis for FY 2006.

Comment: Two commenters expressed concerns about the sequencing instructions for severe sepsis. They pointed out that current ICD-9-CM coding guidelines mandate that a code from category 038.x be sequenced as the principal diagnosis followed by code 995.92 for patients admitted in respiratory failure who also have severe sepsis. The commenters expressed concerns that this sequencing instruction results in lower hospital reimbursement for patients with severe sepsis placed on mechanical ventilation. These commenters did not recommend that CMS create a new DRG for patients with severe sepsis. Instead, they suggested that the codes or guidelines, or both, be modified so that other conditions can be sequenced as the principal diagnosis.

Response: We share the concern of the commenters about sequencing guidelines for patients with severe sepsis and respiratory failure. The current ICD-9-CM codes for systemic inflammatory response syndrome (SIRS), codes 995.91 through 995.94, that include severe sepsis mandate these sequencing guidelines. However, the National Center for Health Statistics (NCHS) discussed modifications to these codes at the April 1, 2005 ICD-9-CM Coordination and Maintenance Committee meeting. NCHS has scheduled this topic for further discussion at the September 29-30, 2005 Committee meeting. Suggestions for revising these codes and any resulting guidelines should be sent to Donna Pickett, NCHS, 3311 Toledo Road, Room 2402, Hyattsville, MD 2082, or to the e-mail address dfp4@cdc.gov.

Comment: One commenter expressed disappointment that CMS did not create a new DRG for severe sepsis. The commenter disagreed with our statement that these patients could not be easily identified within our Medicare data. The commenter stated that severe sepsis is a systemic inflammatory syndrome in response to infection that is associated with acute organ dysfunction. The commenter suggested that CMS use the SIRS ICD-9-CM codes for infection plus organ dysfunction along with an ICD-9-CM procedure code for organ support such as ventilation management (code 96.7x), acute renal replacement (codes 39.95 and 54.98), or vasopressor support (code 00.17), to identify these patients. The commenter recommended that CMS create two new DRGs, one for medical severe sepsis patients with organ support and another for surgical severe sepsis patients with organ support. The commenter recommended that these two DRGs be assigned as pre-MDCs.

Response: There were extensive discussions about the problems in using the current SIRS codes at the March 31-April 1, 2005 ICD-9-CM Coordination and Maintenance Committee meeting. A summary report of this meeting can be found at the Web site: http://www.cdc.gov/​nchs/​icd9cm. As stated earlier, NCHS has scheduled further discussions on this topic for the September 29-30 Committee meeting.

Given the considerable confusion among the coding community regarding the use of these codes, we believe it would be premature to consider new DRGs for severe sepsis patients at this time. Therefore, we are not making revisions to the DRG for severe sepsis patients at this time. We will continue to work with NCHS to improve the codes so that our data on these patients improve. We will continue to examine data on these patients as we consider future modifications.

9. MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders): Drug-Induced Dementia

In the FY 2005 IPPS final rule (69 FR 48939, August 11, 2004), we discussed a request that CMS modify DRGs 521 through 523 by removing the principal diagnosis code 292.82 (Drug-induced dementia) from these alcohol and drug abuse DRGs. These DRGs are as follows:

  • DRG 521 (Alcohol/Drug Abuse or Dependence With CC).
  • DRG 522 (Alcohol/Drug Abuse or Dependence With Rehabilitation Therapy Without CC).
  • DRG 523 (Alcohol/Drug Abuse or Dependence Without Rehabilitation Therapy Without CC).

The commenter indicated that a patient who has a drug-induced dementia should not be classified to an alcohol/drug DRG. However, the commenter did not propose a new DRG assignment for code 292.82. Our medical advisors evaluated the request and determined that the most appropriate DRG classification for a patient with drug-induced dementia was within MDC 20. The medical advisors indicated that because the dementia is drug induced, it is appropriately classified to DRGs 521 through 523 in MDC 20. Therefore, we did not propose a new DRG classification for the principal diagnosis code 292.82.

In the FY 2005 IPPS final rule, we addressed a comment from an organization representing hospital coders that disagreed with our decision to keep code 292.82 in DRGs 521 through 523. The commenter stated that DRGs 521 through 523 are described as alcohol/drug abuse and dependence DRGs, and that drug-induced dementia can be caused by an adverse effect of a prescribed medication or a poisoning. The commenter did not believe that assignment to DRGs 521 through 523 was appropriate if the drug-induced dementia is due to one of these events and the patient is not alcohol or drug dependent. The commenter recommended that admissions for drug-induced dementia be classified to DRGs 521 through 523 only if there is a secondary diagnosis indicating alcohol/drug abuse or dependence.

The commenter recommended that drug-induced dementia that is due to the adverse effect of a drug or poisoning be classified to the same DRGs as other types of dementia, such as DRG 429 (Organic Disturbances and Mental Retardation). The commenter believed that when drug-induced dementia is caused by a poisoning, either accidental or intentional, the appropriate poisoning code would be sequenced as the principal diagnosis and, therefore, these cases would likely already be assigned to DRGs 449 and 450 (Poisoning and Toxic Effects of Drugs, Age Greater than 17, With and Without CC, respectively) and DRG 451 (Poisoning and Toxic Effects of Drugs, Age 0-17). The commenter stated that these would be the appropriate DRG assignments for drug-induced dementia due to a poisoning. We received a similar comment from a hospital organization.

In the FY 2005 IPPS final rule, we acknowledged that the commenters raised additional issues surrounding the DRG assignment for code 292.82 that should be considered. The commenters provided alternatives for DRG assignment based on sequencing of the principal diagnosis and reporting of additional secondary diagnoses. We recognized that patients may develop drug-induced dementia from drugs that Start Printed Page 47311are prescribed, as well as from drugs that are not prescribed. However, because dementia develops as a result of use of a drug, we believed the current DRG assignment to DRGs 521 through 523 remained appropriate. Some commenters have agreed with the current DRG assignment of code 292.82 since the dementia was caused by use of a drug. We agree that if either accidental or intentional poisoning caused the drug-induced dementia, the appropriate poisoning code should be sequenced as the principal diagnosis. As one commenter stated, these cases would be assigned to DRGs 449 through 451. We encouraged hospitals to examine the coding for these types of cases to determine if there were any coding or sequencing errors. As suggested by the commenter, if code 292.82 were reported as a secondary diagnosis and not a principal diagnosis in cases of poisoning or adverse drug reactions, the number of cases on DRGs 521 through 523 would decline.

In the FY 2005 IPPS final rule, we agreed to analyze this area for FY 2006 and to look at the alternative DRG assignments suggested by the commenters. As indicated in the FY 2006 IPPS proposed rule, we examined data from the FY 2004 MedPAR file on cases in DRGs 521 through 523 with a principal diagnosis of code 292.82. We found that there were only 134 cases reported with the principal diagnosis code 292.82 in DRGs 521 through 523 without a diagnosis of drug and alcohol abuse. The average standardized charges for cases with a principal diagnosis of code 292.82 that did not have a secondary diagnosis of drug/alcohol abuse or dependence were $12,244.35, compared to the average standardized charges for all cases in DRG 521, which were $10,543.69. There were no cases in DRG 522 with a principal diagnosis of code 292.82. We found only 24 cases in DRG 523 with a principal diagnosis of code 292.82. Given the small number of cases in DRG 522 and 523, and the similarity in average standardized charges between those cases in DRG 521 with a principal diagnosis of code 292.82 and without a secondary diagnosis of drug/alcohol abuse or dependence to the overall average for all cases in the DRG, we do not believe the data suggest that a modification to DRGs 521 through 523 is warranted. Therefore, we did not propose changes to the current structure of DRGs 521 through 523 for FY 2006.

Comment: One commenter expressed concern that CMS did not propose any DRG change to code 292.82, drug-induced dementia. The commenter stated that a patient admitted with dementia due to an adverse effect of a drug would result in code 292.82, followed by the appropriate E code as a secondary diagnosis, grouping to one of the alcohol and drug abuse DRGs (521 through 523). The commenter indicated an adverse effect of a drug should not be confused with alcohol or drug abuse and recommended that CMS examine the potential impact of not reassigning code 292.82 into a new DRG from both a quality of care and a financial perspective.

Response: We appreciate the commenter's recommendation. However, as we indicated above and in the FY 2006 IPPS proposed rule, drug-induced dementia develops as a result of use of a drug. Therefore, it is appropriate to assign the code to DRGs 521, 522, or 523. As we indicated in the FY 2006 proposed rule (70 FR 23330), we did receive suggestions that drug-induced dementia due to the adverse effects of a drug or poisoning be assigned to DRGs 429, 449, 450, or 451. However, we believe these DRGs should only be assigned when the hospital uses the appropriate poisoning or other codes sequenced as the principal diagnosis. In addition, the data analyzed from the FY 2004 MedPAR file did not support a modification to DRGs 521 through 523. Our data show that hospital charges for patients assigned to DRGs 521 through 523 with a principal diagnosis of code 292.82 and no drug abuse secondary diagnosis were similar to other patients in these DRGs. Given that no other secondary diagnosis codes were used, it is not possible to know whether these patients were more clinically similar to patients in DRGs 426, 449, 450, 451, or 521 through 523. Absent any other diagnoses other than code 292.82, we have no evidence that these patients were clinically different than other patients in DRGs 521 through 523.

After consideration of the comments received, as we proposed, in this final rule we are not changing the DRG assignment for drug-induced dementia (code 292.82) for FY 2006.

10. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of this preamble, 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), discharge status, and demographic information go into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into a DRG.

a. Newborn Age Edit

In the past, we have discussed and received comments concerning revision of the pediatric portions of the Medicare IPPS DRG classification system, that is, MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period). Most recently, we addressed these comments in both the FY 2005 proposed rule (69 FR 28210) and the FY 2005 IPPS final rule (69 FR 48938). In those rules, we indicated that we would be responsive to specific requests for updating MDC 15 on a limited, case-by-case basis.

We have recently received a request through the Open Door Forum to revise the MCE “newborn age edit” by removing over 100 codes located in Chapter 15 of ICD-9-CM that are identified as “newborn” codes. This request was made because these codes usually cause an edit or denial to be triggered when they are used on children greater than 1 year of age. However, the underlying issue with these particular edits is that other payers have adopted the CMS Medicare Code Editor in a wholesale manner, instead of adapting it for use in their own patient populations.

We acknowledge that Medicare DRGs are sometimes used to classify other patient groups. However, CMS' primary focus of updates to the Medicare DRG classification system is on changes relating to the Medicare patient population, not the pediatric or neonatal patient populations.

There are practical considerations regarding the assumption of a larger role for the Medicare DRGs in the pediatric or neonatal areas, given the difference between the Medicare population and that of newborns and children. There are also challenges surrounding the development of DRG classification systems and applications appropriate to children. We do not have the clinical expertise to make decisions about these patients, and must rely on outside clinicians for advice. In addition, because newborns and other children are generally not eligible for Medicare, we must rely on outside data to make decisions. We recognize that there are evolving alternative classification systems for children and encourage payers to use the CMS MCE as a template while making modifications appropriate for pediatric patients.

Therefore, we would encourage those non-Medicare systems needing a more comprehensive pediatric system of edits to update their systems by choosing from other existing systems or programs that are currently in use. Because of our reluctance to assume expertise in the Start Printed Page 47312pediatric arena, as we proposed we are not making the commenter's suggested changes to the MCE “newborn age edit” for FY 2006.

Comment: One commenter requested that CMS reconsider making the necessary revisions to the “newborn age edit” and other pediatric data. The commenter suggested that if CMS continues its current stance regarding the internal level of expertise to develop newborn and pediatric edits, then these edit should be removed from the MCE.

Response: We believe the commenter's recommendation to remove the newborn and pediatric edits from the MCE has merits and will consider it for FY 2007. However, we believe it is important that we have an opportunity to analyze this issue further and consider any comments from interested parties before eliminating these edits.

b. Newborn Diagnoses Edit

Last year, in our changes to the MCE, we inadvertently added code 796.6 (Abnormal findings on neonatal screening) to both the MCE edit for “Maternity Diagnoses—age 12 through 55”, and the MCE edit for “Diagnoses Allowed for Females Only”. In the FY 2006 IPPS proposed rule, we proposed to remove code 796.6 from these two edits and add it to the “Newborn Diagnoses” edit.

We did not receive any comments on this proposal. Therefore, in this final rule, we are adopting the proposal as final without modification.

c. Diagnoses Allowed for “Males Only” Edit

We have received a request to remove two codes from the “Diagnoses Allowed for Males Only” edit, related to androgen insensitivity syndrome (AIS). AIS is a new term for testicular feminization. Code 257.8 (Other testicular dysfunction) is used to describe individuals who, despite having XY chromosomes, develop as females with normal female genitalia and mammary glands. Testicles are present in the same general area as the ovaries, but are undescended and are at risk for development of testicular cancer, so are generally surgically removed. These individuals have been raised as females, and would continue to be considered female, despite their XY chromosome makeup. Therefore, as AIS is coded to 257.8, and has posed a problem associated with the gender edit, in the FY 2006 IPPS proposed rule, we proposed to remove this code from the “Males Only” edit in the MCE.

A similar clinical scenario can occur with certain disorders that cause a defective biosynthesis of testicular androgen. This disorder is included in code 257.2 (Other testicular hypofunction). Therefore, we also proposed to remove code 257.2 from the “Male Only” gender edit in the MCE.

We did not receive any comments on these proposals. Therefore, in this final rule, we are adopting the proposals as final without modification.

d. Tobacco Use Disorder Edit

We have become aware of the possible need to add code 305.1 (Tobacco use disorder) to the MCE in order to make admissions for tobacco use disorder a noncovered Medicare service when code 305.1 is reported as the principal diagnosis. On March 22, 2005, CMS published a final decision memorandum and related national coverage determination (NCD) on smoking cessation counseling services on its Web site: (http://www.cms.hhs.gov/​coverage/​). Among other things, this NCD provides that: “Inpatient hospital stays with the principal diagnosis of 305.1, Tobacco Use Disorder, are not reasonable and necessary for the effective delivery of tobacco cessation counseling services. Therefore, we will not cover tobacco cessation services if tobacco cessation is the primary reason for the patient's hospital stay.” Therefore, in order to maintain internal consistency with CMS programs and decisions, we proposed to add code 305.1 to the MCE edit “Questionable Admission-Principal Diagnosis Only” in order to make tobacco use disorder a noncovered admission.

We did not receive any comments on this proposal. Therefore, in this final rule, we are adopting the proposal as final without modification.

e. Noncovered Procedure Edit

Effective October 1, 2004, CMS adopted the use of code 00.61 (Percutaneous angioplasty or atherectomy of precerebral (extracranial) vessel(s) (PTA)) and code 00.63 (Percutaneous insertion of carotid artery stent(s). Both codes are to be recorded to indicate the insertion of a carotid artery stent or stents. At the time of the creation of the codes, the coverage indication for carotid artery stenting was only for patients in a clinical trial setting, and diagnostic code V70.7 (Examination of participation in a clinical trial) was required for payment of these cases. However, effective October 12, 2004, Medicare covers PTA of the carotid artery concurrent with the placement of an FDA-approved carotid stent for an FDA-approved indication when furnished in accordance with FDA-approved protocols governing post-approval studies. Therefore, as the coverage indication has changed, we proposed to remove codes 00.61, 00.63, and V70.7 from the MCE noncovered procedure edit.

We did not receive any comments on this proposal. Therefore, in this final rule, we are adopting the proposal as final without modification.

f. Error in Non-Covered Procedure Edit—code 36.32

It has come to our attention that an entry in the Non-Covered Procedures section of the MCE was made in error. Procedure code 36.32 (Other transmyocardial revascularization) is covered as a late or last resort for patients with severe (Canadian Cardiovascular Society classification Classes III or IV) angina (stable or unstable). The angina symptoms must be caused by areas of the heart not amenable to surgical therapies. Therefore, as code 36.32 is erroneously in the Non-Covered Procedure edit in the MCE, we are removing it from the edits for FY 2006.

11. 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 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 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 DRG associated with the most resource-intensive surgical class.

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

A surgical class can be composed of one or more DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single DRG (DRG 302) and the class “kidney, ureter and major bladder procedures” consists of three DRGs (DRGs 303, 304, and 305). Consequently, in many cases, the surgical hierarchy has an impact on more than one DRG. The methodology for determining the most resource-intensive surgical class involves Start Printed Page 47313weighting the average resources for each DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1 is higher than that of DRG 3, but the average charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of each DRG in the class by frequency (that is, by the number of cases in the 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 DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.

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

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

Based on the preliminary recalibration of the DRGs, in the FY 2006 IPPS proposed rule (70 FR 23332), we proposed to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of the Circulatory System) and MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue) as follows:

In MDC 5, we proposed reordering—

  • DRG 116 (Other Permanent Cardiac Pacemaker Implant) above DRG 549 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent With AMI With CC).
  • DRG 549 above DRG 550 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent With AMI Without CC).
  • DRG 550 above DRG 547 (Percutaneous Cardiovascular Procedure With AMI With CC).
  • DRG 547 above DRG 548 (Percutaneous Cardiovascular Procedure With AMI Without CC).
  • DRG 548 above DRG 527 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent Without AMI).
  • DRG 527 above DRG 517 (Percutaneous Cardiovascular Procedure With Non-Drug Eluting Stent Without AMI).
  • DRG 517 above DRG 518 (Percutaneous Cardiovascular Procedure Without Coronary Artery Stent or AMI).
  • DRG 518 above DRGs 478 and 479 (Other Vascular Procedures With and Without CC, respectively).

Comment: Several commenters agreed with the proposed changes in the surgical hierarchy for MDC 5.

Response: We appreciate the commenters' support. However, because in this final rule we are deleting 9 DRGS and creating 12 new DRGs in MDC 5, as discussed under “MedPAC Recommendations” in section IX.A of this preamble, we are reordering the following DRGs in MDC 5:

  • DRG 106 (Coronary Bypass With PTCA) above DRGs 547 and 548 (Coronary Bypass With Cardiac Catheterization With and Without Major CV Diagnosis, respectively);
  • DRGs 547-548 above DRGs 549 and 550 (Coronary Bypass Without Cardiac Catheterization With and Without Major CV Diagnosis, respectively);
  • DRG 113 (Amputation For Circulatory System Disorders Except Upper Limb or Toe) above DRG 551 (Permanent Cardiac Pacemaker Implant With Major CV Diagnosis or AICD Lead or Generator);
  • DRG 551 above DRG 552 (Other Permanent Cardiac Pacemaker Implant Without Major CV Diagnosis);
  • DRG 552 above DRG 557 (Percutaneous Cardiovascular Procedure With Drug Eluting Stent With Major CV Diagnosis);
  • DRG 557 above DRG 555 (Percutaneous Cardiovascular Procedure With Major CV Diagnosis);
  • DRG 555 above DRG 558 (Percutaneous Cardiovascular Procedure With Drug Eluting Stent Without Major CV Diagnosis);
  • DRG 558 above DRG 556 (Percutaneous Cardiovascular Procedure Without Major CV Diagnosis);
  • DRG 556 above DRG 518 (Percutaneous Cardiovascular Procedure Without Coronary Artery Stent Or AMI);
  • DRG 518 above DRG 553 (Other Vascular Procedures With CC With Major CV Diagnosis);
  • DRG 553 above DRG 554 (Other Vascular Procedures With CC Without Major CV Diagnosis);
  • DRG 554 above DRG 479 (Other Vascular Procedures Without CC).

In MDC 8, we proposed to reorder—

  • DRG 496 (Combined Anterior/Posterior Spinal Fusion) above DRG 546 (Spinal Fusions Except Cervical With Curvature of the Spine or Malignancy).
  • DRG 546 above DRGs 497 and 498 (Spinal Fusions Except Cervical With and Without CC, respectively).
  • DRG 217 (Wound Debridement and Skin Graft Except Hand, For Musculoskeletal and Connective Tissue Disease) above DRG 545 (Revision of Hip or Knee Replacement).
  • DRG 545 above DRG 544 (Major Joint Replacement or Reattachment).
  • DRG 544 above DRGs 519 and 520 (Cervical Spinal Fusion With and Without CC, respectively).

Comment: Several commenters agreed with the proposed changes in the surgical hierarchy for MDC 8.

Response: We appreciate the commenters' support. Based on a test of the proposed revisions using the March 2005 update of the FY 2004 MedPAR file and the revised GROUPER software, we found that the revisions to MDC 8 are still supported by the data.

Accordingly, in this final rule, we are adopting the proposed change in the surgical hierarchy for MDC 8 as final, without modification.

12. Refinement of Complications and Comorbidities (CC) List

a. Background

As indicated earlier in this preamble, under the IPPS DRG classification system, we have developed a standard list of diagnoses that are considered complications or comorbidities (CCs). Historically, we developed this list using physician panels that classified Start Printed Page 47314each 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.

b. Comprehensive Review of the CC List

In previous years, we have made changes to the standard list of CCs, either by adding new CCs or deleting CCs already on the list, but we have never conducted a comprehensive review of the list. There are currently 3,285 diagnosis codes on the CC list. There are 121-paired DRGs that are split on the presence or absence of a CC.

We have reviewed these paired DRGs and found that the majority of cases that are assigned to DRGs that have a CC split fall into the DRG with CC. While this fact is not new, we have found that a much higher proportion of cases are being grouped to the DRG with a CC than had occurred in the past. In our review of the DRGs included in Table 7b of the September 1, 1987 Federal Register rule (52 FR 33125), we found the following percentages of cases assigned a CC in those DRGs that had a CC split (DRG Definitions Manual, GROUPER Version 5.0 (1986 data)):

  • Cases with CC: 61.9 percent
  • Cases without CC: 38.1 percent

When we compared the above 1986 DRG data to the 2004 DRG data that were included in the DRGs Definitions Manual, GROUPER Version 22.0, we found the following:

  • Cases with CC: 79.9 percent
  • Cases without CC: 20.1 percent

(We used DRGs Definitions Manual, GROUPER Version 5.0, for this analysis because prior versions of the DRGs Definitions Manual used age as a surrogate for a CC and the split was “CC and/or age greater than 69”.)

The vast majority of patients being treated in inpatient settings have a CC as currently defined, and we believe that it is possible that the CC distinction has lost much of its ability to differentiate the resource needs of patients. The original definition used to develop the CC list (the presence of a CC would be expected to extend the length of stay of at least 75 percent of the patients who had the CC by at least one day) was used beginning in 1981 and has been part of the IPPS since its inception in 1983. There has been no substantive review of the CC list since its original development. In reviewing this issue, our clinical experts found several diseases that appear to be obvious candidates to be on the CC list, but currently are not:

CodeCode description2004 count
041.7Pseudomonas Infection in Conditions Classified Elsewhere and/or of Unspecified Site47,350
253.6Disorders of Neurohypophysis23,613
414.12Dissection of Coronary Artery2,377
359.4Toxic Myopathy1,875
031.2Disseminated Disease Due to Mycobacteria1,428
451.83Phlebitis and Thrombophlebitis of Deep Veins of Upper Extremities376

Conversely, our medical experts believe the following conditions are examples of common conditions that are on the CC list, but are not likely lead to higher treatment costs when present as a secondary diagnosis:

CodeCode description2004 count
424.0Mitral Valve Disorder401,359
305.00Alcohol Abuse Unspecified Use69,099
578.1Blood in Stool53,453
723.4Brachial Neuritis/Radiculitis, Not Otherwise Specified5,829
684Impetigo1,230
293.84Anxiety Disorder in Conditions Classified Elsewhere1,153

We note that the above conditions are examples only of why we believe the CC list needs a comprehensive review. In addition to this review, we note that these conditions may be treated differently under several DRG systems currently in use. For instance, ICD-9-CM code 414.12 (Dissection of coronary artery) is listed as a “Major CC” under the All Patient (AP) DRGs, GROUPER Version 21.0 and an “Extreme” CC under the All Patient Refined (APR) DRGs, GROUPER Version 20.0, but is not listed as a CC at all in GROUPER Version 22.0 of the DRGs Definitions Manual used by Medicare. Similarly, ICD-9-CM code 424.0 (Mitral valve disorder) is a CC under GROUPER Version 22.0 of the DRGs Definitions Manual for Medicare's DRG system, a minor CC under the GROUPER Version 20.0 of the APR-DRGs, and not a CC at all under GROUPER Version 21.0 of the AP-DRGs.

Given the long period of time that has elapsed since the original CC list was developed, the incremental nature of changes to it, and changes in the way inpatient care is delivered, as indicated in the FY 2006 IPPS proposed rule, we are planning a comprehensive and systematic review of the CC list for the IPPS rule for FY 2007. As part of this process, we plan to consider revising the standard for determining when a condition is a CC. For instance, we may use an alternative to classifying a condition as a CC based on how it affects the length of stay of a case. Similar to other aspects of the DRG system, we may consider the effect of a specific secondary diagnosis on the charges or costs of a case to evaluate whether to include the condition on the CC list. Using a statistical algorithm, we may classify each diagnosis based on its effect on hospital charges (or costs) relative to other cases when present as a secondary diagnosis to obtain better information on when a particular condition is likely to increase hospital costs. For example, code 293.84 (Anxiety disorder in conditions classified elsewhere), which is currently listed as a CC, might be removed from the CC list if analysis of the data indicates that the data do not support the fact that it represents a significant increase in resource utilization, and a code such as 359.4 (Toxic myopathy), which is currently not listed as a CC, could be added to the CC list if the data support it. In addition to using hospital Start Printed Page 47315charge data as a basis for a review, we would expect to supplement the process with review by our medical experts. Further, we may also consider doing a comparison of the Medicare DRG CC list with other DRG systems such as the AP-DRGs and the APR-DRGs to determine how the same secondary diagnoses are treated under these systems.

By performing a comprehensive review of the CC list, we expect to revise the DRG classification system to better reflect resource utilization and remove conditions from the CC list that only have a marginal impact on a hospital's costs. We believe that a comprehensive review of the CC list would be consistent with MedPAC's recommendation that we improve the DRG system to better recognize severity. We will provide more detail about how we expect to undertake this analysis in the future, and any significant structural changes to the CC list will only be adopted after a notice and comment rulemaking that fully explains the methodology we plan to use in conducting this review. In the FY 2006 IPPS proposed rule, we encouraged comment regarding possible ways that more meaningful indicators of clinical severity and their implications for resource use can be incorporated into our comprehensive review and possible restructuring of the CC list.

Comment: Several commenters agreed with CMS that changes in resource utilization and in inpatient hospital care, particularly the focus on decreasing length of stay, may be resulting in the CC distinction not being able to differentiate resource utilization and patient severity as well as it has in the past. Several commenters agreed that it may be valuable to conduct a substantial and comprehensive review of the CC list for the future. While some commenters applauded CMS' efforts to keep refining the DRG system, the commenters believed that review of the CC list can only be taken as an interim step and a more refined DRG system can only be accomplished with more specific clinical classification systems capable of providing more complete information about a patient's condition and the services provided to treat those conditions—namely, ICD-10-CM and ICD-10-PCS. Some commenters suggested waiting to adopt the MedPAC recommendations until these new coding classification systems are implemented.

MedPAC stated that a comprehensive review and revision of the CC list might lead to a desirable improvement in the extent to which payment rates reflect patient severity of illness. However, MedPAC does not expect that even a major revision of the list would greatly improve the extent to which the IPPS payment rates recognize the effects of differences in patient severity of illness. MedPAC noted that the CC distinction is based entirely on the presence or absence of any CC, implicitly assuming that all CCs have equal effects on severity of illness and costs. Even if the CC review process were to correctly identify all secondary diagnoses that significantly affect hospitals' costs, MedPAC's research and CMS' earlier work have shown that simply distinguishing between patients with and without CCs fails to capture large, predictable differences in costs among patients. MedPAC stated that further differentiation is necessary to make the most effective use of information about patients' secondary diagnoses and to help minimize opportunities for hospitals to benefit financially from patient selection.

Response: There has not been a comprehensive review of the CC list in over 20 years. Such a review may indicate that a more focused list will better distinguish the effects of CCs on severity of illness than earlier analysis. Until this comprehensive review and analysis are complete, we will not know whether there is merit in adopting a modification of the CC list or whether it will be necessary to adopt a more comprehensive change to the DRG system such as APR-DRGs. We currently plan to continue with our comprehensive review of the CC list. In addition, we expect shortly to engage a contractor highly experienced with DRG development to study the APR-DRGs over the next year. We appreciate the commenters' suggestions about waiting to adopt MedPAC's recommendations until ICD-10-CM and ICD-10-PCS have been implemented. While we do not have a proposal in place at this time to implement ICD-10-CM and ICD-10-PCS, before adopting any major changes to the DRG system, we will consider the implications of potential future changes to our coding systems as part of our analysis of MedPAC's recommendation.

Comment: Commenters gave numerous suggestions for performing the analysis of the CC list. The suggestions include:

  • Analyze all diagnosis and procedures codes reported on the claim, not just nine diagnosis codes and six procedure codes.
  • Examine the impact of multiple CCs on hospital resource consumption and length of stay.
  • Examine further differentiation beyond simply distinguishing between patients with and without CCs to make the most effective use of information about patients' secondary diagnoses and minimize opportunities for hospitals to benefit financially from patient selection.
  • Study the need for a general/standard list of CCs that addresses patient conditions across all body systems and a list of special severity conditions that are unique to specific population/diseases.
  • Consider abandoning length of stay as an indicator for severity because, in today's clinical environment, length of stay is determined more by postacute care referral dynamics than patient need.
  • Consider differentiating comorbidities from complications. The former are predictable and can be used to easily affect admission selection.
  • Compare the existing CC list with those used with other DRG systems.
  • Conduct the comprehensive review and analysis cautiously, systemically, and thoroughly, using external expertise and maintaining transparency and stakeholder involvement throughout the process, and do not rush the analysis simply to meet the deadline for the FY 2007 IPPS rule.
  • Use open door forums to inform the public of progress.
  • Consider combining the cases from each DRG pair in one homogenous DRG. Under such a change, hospitals would still receive the same total reimbursement for the same patients but would have more financial incentive to improve the quality and efficiency of care.
  • Before inclusion as a CC condition, a diagnosis should meet the following four criteria: (1) The patient group represents a higher cost in that DRG than those without the comorbid condition; (2) the condition cannot be prevented, in any possible way, by superior care in the hospital; (3) the condition is not related to the principal diagnosis; and (4) there is at least some indication that the patient would face inadequate options for finding appropriate medical care without a more appropriate payment.

Response: We appreciate these many suggestions. As we indicated above, we will continue to conduct a thorough review of the CC list. We also will be engaging a contractor shortly to assist us with evaluating APR-DRGs and other mechanisms to better recognize severity in our payment systems.

c. CC Exclusions List for FY 2006

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 Start Printed Page 47316of 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. We did not receive any comments specific to the diagnosis codes on the FY 2006 CC list. Therefore, as we proposed in the FY 2006 IPPS proposed rule, we are not deleting any of the diagnosis codes on the CC list for FY 2006.

In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles:

  • Chronic and acute manifestations of the same condition should not be considered CCs for one another.
  • Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another.
  • Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.
  • Codes for the same condition in anatomically proximal sites should not be considered CCs for one another.
  • Closely related conditions should not be considered CCs for one another.

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

As proposed, we are making a limited revision of the CC Exclusions List to take into account the changes that will be made in the ICD-9-CM diagnosis coding system effective October 1, 2005. (See section II.B.14. of this preamble for a discussion of ICD-9-CM changes.) We are making these changes in accordance with the principles established when we created the CC Exclusions List in 1987.

We receive one comment that agreed with the revised CC Exclusion List based on the information provided.

Tables 6G and 6H in the Addendum to this final rule contain the revisions to the CC Exclusions List that will be effective for discharges occurring on or after October 1, 2005. Each table shows the principal diagnoses with changes to the excluded CCs. Each of these principal diagnoses is shown with an asterisk, and the additions or deletions to the CC Exclusions List are provided in an indented column immediately following the affected principal diagnosis.

CCs that are added to the list are in Table 6G—Additions to the CC Exclusions List. Beginning with discharges on or after October 1, 2005, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

CCs that are deleted from the list are in Table 6H—Deletions from the CC Exclusions List. Beginning with discharges on or after October 1, 2005, the indented diagnoses will be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

Copies of the original CC Exclusions List applicable to FY 1988 can be obtained from the National Technical Information Service (NTIS) of the Department of Commerce. It is available in hard copy for $152.50 plus shipping and handling. A request for the FY 1988 CC Exclusions List (which should include the identification accession number (PB) 88-133970) should be made to the following address: National Technical Information Service, United States Department of Commerce, 5285 Port Royal Road, Springfield, VA 22161; or by calling (800) 553-6847.

Users should be aware of the fact that all revisions to the CC Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2001, 2002, 2003, 2004, and 2005) and those in Tables 6G and 6H of this final rule for FY 2006 must be incorporated into the list purchased from NTIS in order to obtain the CC Exclusions List applicable for discharges occurring on or after October 1, 2005. (Note: There was no CC Exclusions List in FY 2000 because we did not make changes to the ICD-9-CM codes for FY 2000.)

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 22.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 23.0 of this manual, which will include the final FY 2006 DRG changes, will be available in hard copy for $250.00. Version 23.0 of the manual is also available on a CD for $200.00; a combination hard copy and CD is available for $400.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303. Please specify the revision or revisions requested.

13. Review of Procedure Codes in DRGs 468, 476, and 477

Each year, we review cases assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these DRGs.

DRGs 468, 476, and 477 are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. DRG 476 is assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis: Start Printed Page 47317

  • 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 DRGs 468 and 477, with DRG 477 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.[2]

a. Moving Procedure Codes from DRG 468 or DRG 477 to MDCs

We annually conduct a review of procedures producing assignment to DRG 468 or DRG 477 on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these DRGs into one of the surgical DRGs for the MDC into which the principal diagnosis falls. The data are arrayed two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. Based on this year's review, we did not identify any procedures in DRGs 468 or 477 that should be removed to one of the surgical DRGs. We did not receive any comments on this provision. Therefore, in this final rule, we are not making any changes for FY 2006.

b. Reassignment of Procedures Among DRGs 468, 476, and 477

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to DRGs 468, 476, and 477, to ascertain if any of those procedures should be reassigned from one of these three DRGs to another of the three DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

It has come to our attention that procedure code 26.12 (Open biopsy of salivary gland or duct) is assigned to DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis). We believe this to be an error, as code 26.31 (Partial sialoadenectomy), which is a more extensive procedure than code 26.12, is assigned to DRG 477. Therefore, we proposed to correct this error by moving code 26.12 out of DRG 468 and reassigning it to DRG 477. We received one comment in support of our proposal to move code 26.12 out of DRG 468 and reassign it to DRG 477. Therefore, we are adopting as final our proposal to move procedure code 26.12 out of DRG 468 and reassigning it to DRG 477. We received no comments opposing our plan of not moving any procedure codes from DRG 476 to DRGs 468 or 477 or from DRG 477 to DRG 468. Therefore, as we proposed, we are not moving any procedure codes from DRG 476 to DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on our review this year, as we proposed, we are not adding any diagnosis codes to MDCs. We did not receive any comments on our proposal and are therefore not adding any diagnosis codes to any MDCs.

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

As described in section II.B.1. of this preamble, the ICD-9-CM is a coding system used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The Official Version of the ICD-9-CM contains the list of valid diagnosis and procedure codes. (The Official Version of the ICD-9-CM is available from the Government Printing Office on CD-ROM for $25.00 by calling (202) 512-1800.) The Official Version of the ICD-9-CM is no longer available in printed manual form from the Federal Government; it is only available on CD-ROM. Users who need a paper version are referred to one of the many products available from publishing houses.

The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such Start Printed Page 47318as 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 2006 at a public meeting held on October 7-8, 2004, and finalized the coding changes after consideration of comments received at the meetings and in writing by January 12, 2005. Those coding changes are announced in Tables 6A through 6F of the Addendum to this final rule. The Committee held its 2005 meeting on March 31-April l, 2005. New codes for which there was a consensus of public support and for which complete tabular and indexing changes were made by May 2005 are included in the October 1, 2005 update to ICD-9-CM. Code revisions that were discussed at the March 31-April 1, 2005 Committee meeting were not finalized in time to include them in the FY 2006 IPPS proposed rule. These additional codes are included in Tables 6A through 6F of this final rule and are marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's October 7-8, 2004 meeting can be obtained from the CMS Web site: http://www.cms.hhs.gov/​paymentsystems/​icd9/​. The minutes of the diagnoses codes discussions at the October 7-8, 2004 meeting are found at: http://www.cdc.gov/​nchs/​icd9.htm. Paper copies of these minutes are no longer available and the mailing list has been discontinued. These Web sites also provide detailed information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by E-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by E-mail to: Patricia.Brooks1@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2005. The new ICD-9-CM codes are listed, along with their DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in the Addendum to this final rule. As we stated above, the code numbers and their titles were presented for public comment at the ICD-9-CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved. In the FY 2006 IPPS proposed rule, we only solicited comments on the proposed classification of these new codes.

For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A. New procedure codes are shown in Table 6B. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2005. Table 6D contains invalid procedure codes. These invalid procedure codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2005. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), which also includes the DRG assignments for these revised codes. Table 6F includes revised procedure code titles for FY 2006.

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 April meeting as part of the code revisions effective the following October. As stated previously, ICD-9-CM codes discussed at the March 31-April 1, 2005 Committee meeting that received consensus and that were finalized are included in Tables 6A through 6F of this final rule.

Section 503(a) of Pub. L. 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 in 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 503(a) 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 capture the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes in order to capture 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, are publicized on CMS and NCHS web pages 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. Start Printed Page 47319

A discussion of this timeline and the need for changes are included in March 31-April 1, 2005 ICD-9-CM Coordination and Maintenance Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 503(a) by developing a mechanism for approving, in time for the April update, diagnoses 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 for an expedited April l, 2005 implementation of an ICD-9-CM code at the October 7-8, 2004 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2005.

We believe that this process captures the intent of section 503(a). This requirement was included in the provision revising the standards and process for recognizing new technology under the IPPS. In addition, the need for approval of new codes outside the existing cycle (October 1) arises most frequently and most acutely where the new codes will capture new technologies that are (or will be) under consideration for new technology add-on payments. Thus, we believe this provision was intended to expedite data collection through the assignment of new ICD-9-CM codes for new technologies seeking higher payments.

Current addendum and code title information is published on the CMS Web page at: http://www.cms.hhs.gov/​paymentsystems/​icd9. Summary tables showing new, revised, and deleted code titles are also posted on the following CMS Web page: http://www.cms.hhs.gov/​medlearn/​icd9code.asp. Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding Guidelines, can be found on the Web page at: http://www.cdc.gov/​nchs/​icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is also provided to the AHA for publication in the Coding Clinic for ICD-9-CM. AHA also distributes information to publishers and software vendors.

CMS also sends copies of all ICD-9-CM coding changes to its contractors for use in updating their systems and providing education to providers.

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. Currently, code titles are also published in the IPPS proposed and final rules. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. The code titles are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same DRG in which its predecessor code was assigned so there will be no DRG impact as far as DRG assignment. This mapping was specified by section 503(a) of Pub. L. 108-173. 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. Codebook publishers are evaluating how they will provide any code updates to their subscribers. Some publishers may decide to publish mid-year book updates. Others may decide to sell an addendum that lists the changes to the October 1 code book. Coding personnel should contact publishers to determine how they will update their books. CMS and its contractors will also consider developing provider education articles concerning this change to the effective date of certain ICD-9-CM codes.

Comment: Five commenters recommended that CMS modify its DRG GROUPER and instruct fiscal intermediaries to expand the number of diagnoses processed from 9 to 25 and the number of procedures processed from 6 to 25. The commenters were concerned that CMS was not evaluating all reported diagnoses and procedures that could possibly affect a patient's severity of illness or the resources used, or both. The commenters pointed out that the current DRG GROUPER only considers 9 diagnoses and up to 6 procedures; that hospitals submit claims to CMS in electronic format, and that the HIPAA compliant electronic transaction standard, HIPAA 837i, allows up to 25 diagnoses and 25 procedures. The commenters stated that fiscal intermediaries are currently ignoring or omitting the additional codes (beyond 9 diagnoses and 6 procedures) submitted by hospital providers, since these additional diagnoses and procedures are not needed by the GROUPER to assign a DRG. Several commenters stated that, while it is important for inpatient acute hospitals, it is even more crucial for LTCHs whose patients are medically complex and have multiple illnesses beyond the nine diagnoses allowed by CMS. Several commenters further stated that a list of CCs qualifying for comorbidity adjustments for inpatient psychiatric facility services was only recently introduced under the new IRP PPS. Thus, the commenter added, these hospitals have not historically used the software available to sort and rearrange secondary diagnosis cods so that all CCs possibly affecting the DRG grouping are prioritized. One commenter stated that the continued use of more limited diagnosis and procedure codes acts as a disincentive for the reporting of additional codes, and will result in less precise assignment of DRGs.

Response: The commenters are correct that the current Medicare GROUPER does not process codes submitted electronically on the 837i electronic format beyond the first 9 diagnoses and the first 6 procedures. This limitation is not being imposed by the GROUPER. CMS made the decision to process only the first 9 diagnosis codes and first 6 procedure codes. While HIPAA requires CMS to accept up to 25 ICD-9-CM diagnosis and procedure codes on the HIPAA 837i electronic format, it does not require that CMS process that many diagnosis and procedure codes.

As suggested by the commenters, there is value in retaining additional data on patient conditions that would Start Printed Page 47320result from expanding Medicare's data system so it can accommodate additional diagnosis and procedure codes. We will consider this issue further as we contemplate further refinements to our DRG system to better recognize patient severity. However, while it would be a simple matter to modify our GROUPER software to accept and evaluate 25 diagnosis and 25 procedure codes, extensive lead time to allow for modifications to our internal and contractors' electronic systems would be necessary before we could process and store this additional information. We are unable to move forward with this recommendation without carefully evaluating implementation issues. Nevertheless, we plan to proceed with this evaluation as we consider further changes to our DRG systems.

Comment: Many commenters recommended that CMS act immediately to adopt coordinated implementation of ICD-10-CM and ICD-10-PCS in the United States. Some of these commenters noted that Pub. L. 108-173 (MMA) included report language urging the Secretary to move forward with the implementation of ICD-10 as quickly as possible. The commenters noted that the National Committee on Vital and Health Statistics (NCVHS) raised concerns about the viability of ICD-9-CM in 2003 and stated it was “increasingly unable to address the needs for accurate data for health care billing, quality assurance, public health reporting, and health services research.” The commenter further noted that the NCVHS recommended in 2003 that DHHS act expeditiously to initiate the regulatory process for adoption of ICD-10-CM and ICD-10-PCS. The commenter stated that, as of 2005, “we are still awaiting a process from HHS to begin this important transition.” While some of the commenters acknowledged the complexities involved with the transition from ICD-9-CM to ICD-10, the commenters still recommended that we act quickly to begin adoption of ICD-10. Other commenters also indicated that the 4-digit structure of ICD-9-CM is limiting the ability of the procedure coding system to identify new procedures and new technologies and it is becoming increasingly outdated. According to these commenters, it is becoming more difficult each year to make changes to the ICD-9-CM coding system because of the availability of new codes. One commenter noted that several participants at the March 31-April 1, 2005 ICD-9-CM Coordination and Maintenance Committee “appeared to be advocating a higher threshold for the award of new codes based on the ever decreasing number of available codes under ICD-9-CM.” Many of the commenters indicated that the coding system's limitations are making it difficult to compare outcomes and efficacy between older and newer technologies, identify costs associated with the new technology, or revise reimbursement policies to appropriately reflect the cost of patient care when new technology is used. One commenter indicated that failure to recognize the looming problems with the ICD-9-CM coding system will impede efforts to meet the President's goal of adopting electronic health records by 2013.

Many of the commenters referred to ICD-10-PCS as the next generation of coding systems. They stated that ICD-10-PCS would modernize and expand CMS' capacity to keep pace with changes in medical practice and technology. In addition, these commenters stated that the structure of ICD-10-PCS would incorporate all new procedures as unique codes that would explicitly identify the technology used to perform the procedure.

Response: We agree that it is becoming increasingly difficult to update ICD-9-CM. However, we are continuing to make revisions to ICD-9-CM and create codes that recognize new medical technology. We continue to update ICD-10-PCS on an annual basis to keep it up to date with changing technology. We agree that it is important to have an accurate and precise coding system for this purpose. However, as noted by many of the commenters, the transition from one coding system to another raises many complex operational issues. The Department will continue to study this matter as we consider whether to adopt ICD-10.

15. Other Issues

a. Acute Intermittent Porphyria

Acute intermittent porphyria is a rare metabolic disorder. The condition is described by code 277.1 (Disorders of porphyrin metabolism). Code 277.1 is assigned to DRG 299 (Inborn Errors of Metabolism) under MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders).

In the FY 2005 final rule (69 FR 48981), we discussed the DRG assignment of acute intermittent porphyria. This discussion was a result of correspondence that we received during the comment period for the FY 2005 proposed rule in which the commenter suggested that Medicare hospitalization payments do not accurately reflect the cost of treatment. At that time, we indicated that we would take this comment into consideration when we analyzed the MedPAR data for this proposed rule for FY 2006.

Our review of the most recent MedPAR data shows a total of 1,370 cases overall in DRG 299, of which 471 had a principal diagnosis coded as 277.1. The average length of stay for all cases in DRG 299 was 5.17 days, while the average length of stay for porphyria cases with code 277.1 was 6.0 days. The average charges for all cases in DRG 299 were $15,891, while the average changes for porphyria cases with code 277.1 were $21,920. Based on our analysis of these data, we did not believe that there is a sufficient difference between the average charges and average length of stay for these cases to justify proposing a change to the DRG assignment for treating this condition.

Comment: One commenter agreed with our proposal not to modify the DRG assignment for acute intermittent porphyria, code 277.1, to DRG 229 due to the minor variance in average charges and length of stay between porphyria cases and other cases in this DRG.

Response: We appreciate the commenter's support of our proposal. Review of the MedPAR data did not demonstrate a significant disparity in the average charges compared to average length of stay.

For FY 2006, as we proposed, we are not modifying the DRG assignment for code 277.1 (Acute intermittent porphyria) to DRG 229.

b. Prosthetic Cardiac Support Device (Code 37.41)

Code 37.41 (Implantation of prosthetic cardiac support device around the heart) was addressed in the FY 2006 IPPS proposed rule only as a notification in Table 6B that the new code was being created to describe a prosthetic cardiac support device (70 FR 23594). Code 37.41 was deemed to be an O.R. procedure and was assigned to MDC 5 (Diseases and Disorders of the Circulatory System), DRGs 110 and 111 (Major Cardiovascular Procedures With and Without CC, respectively). This device is being marketed as the CorCapTM Cardiac Support Device and is intended to prevent and reverse heart failure by improving the heart's structure and function.

This topic was discussed at the ICD-9-CM Coordination and Maintenance Meeting on October 7, 2004. At that time, there was no specific ICD-9-CM code that more precisely identified this procedure, so coders were advised to use code 37.99 (Other operations on Start Printed Page 47321heart and pericardium) to describe the operation. Code 37.99 is currently assigned to DRGs 110 and 111.

As is our established pattern, we assign a new code to its predecessor code's DRG until we obtain a pattern of use of the code in the MedPAR data file. After we have evidence-based justification for reassignment of codes within DRGs, we are better able to make decisions about the most appropriate placement of those new codes.

We received 11 comments on this topic as part of the comments on the FY 2006 IPPS proposed rule.

Comment: Most of the commenters responding were cardiovascular surgeons who were principal investigators participating in the United States' CorCapTM clinical trials. All of the commenters requested that we reconsider the assignment of the prosthetic cardiac support device from DRGs 110 and 111 to DRG 108, where the resources [in DRG 108] more closely approximate those associated with implantation of the device. The commenters stated that procedures in DRG 108 are more clinically similar to the implantation of the prosthetic cardiac support device, being exclusively performed on the internal or external structures of the heart and generally requiring access through a sternotomy.

One commenter likened this procedure to the maze procedure, described by code 37.33 (Excision or destruction of other lesion or tissue of heart, open approach). Another commenter compared it to transmyocardial revascularization, described by code 36.31 (Open chest transmyocardial revascularization). Both of these procedure codes are assigned to DRG 108. Commenters also stated that classification of this procedure to DRGs 110 and 111 would establish a financial disincentive for hospitals to adopt this potentially life-saving and cost-reducing treatment for Medicare beneficiaries suffering from a problem that may otherwise require implantation of a ventricular assist device or heart transplant.

Response: As noted above, we have classified procedure 37.41 to the same DRG as its predecessor code, in accordance with our established policy. Until we have Medicare billing data that will allow us to assess whether the new procedure code has been correctly assigned, our default position is to assign a new procedure code to the same DRG as its predecessor code. Of major concern to CMS is the late June 2005 decision by an FDA advisory panel urging FDA to reject approval of the CorCapTM device on the basis that the panel had not seen sufficient evidence of benefit for patients with heart failure. The FDA's concerns included the efficacy of the device in achieving a longer lifespan for patients, and the possibility that the device's benefits did not outweigh the risks of surgery. In addition, the FDA advisory panel had other concerns, including whether the application of this device around the ventricles of the heart might make future heart surgeries more difficult.

Code 37.41 is too new to be included in the MedPAR data. Therefore, we will continue to monitor this prosthetic cardiac support device in future IPPS updates. As noted above, should FDA approve this device and should there be an evidence-based justification for reassignment of codes within these DRGs, we will be open to making changes to the DRG structure.

c. Coronary Intravascular Ultrasound (IVUS) (Procedure Code 00.24)

Procedure code 00.24 (Coronary intravascular ultrasound) was addressed in the FY 2005 IPPS proposed rule only as a notification in Table 6B that for FY 2005 a new code had been created to describe this imaging technique (69 FR 49624). Code 00.24 describes ultrasonic imaging within the coronary vessels. It was not assigned “O.R.” status within the GROUPER program; that is, the presence or absence of this code does not affect a claim's DRG assignment or payment.

We received one comment on this procedure code as part of the public comments on the FY 2006 IPPS proposed rule.

Comment: One commenter noted that IVUS is an added cost to hospitals. The commenter stated that it has conducted an analysis of coronary IVUS resource use in calendar year 2004 hospital data to determine possible impact. The commenter reported its findings that, in DRGs 516, 517, 526, and 527, cases utilizing IVUS had higher total charges and higher total costs. The commenter requested that CMS perform an analysis of FY 2005 coronary IVUS cases and consider reassigning ICD-9-CM procedure code 00.24 to DRGs where the average resource use most closely approximates the resource use of cases in which an IVUS technique has been employed.

Response: We will perform the requested data analysis using FY 2005 MedPAR data for the FY 2007 annual IPPS update.

d. Islet Cell Transplantation

Islet cell transplantation was not a topic addressed in the FY 2006 IPPS proposed rule. The issue of payment for pancreatic islet cell transplantation in clinical trials was addressed in detail in the FY 2005 IPPS final rule (69 FR 48950). At that time, we discussed section 733(b) of Pub. L. 108-173, which provides that Medicare payments, beginning no earlier than October 1, 2004, for the routine costs as well as the costs of the transplantation and appropriate related items and services will be allowed for Medicare beneficiaries who are participating in clinical trials as if such transplantations were covered under Medicare Part A or Part B. In addition, the DRG payment will be supplemented by an add-on payment that includes pre-transplant tests and services, pancreas procurement, and islet isolation services. Cases were assigned to DRG 315 (Other Kidney and Urinary Tract Procedures).

We received one comment on this topic as part of the public comments on the FY 2006 IPPS proposed rule.

Comment: One commenter was concerned that the proposed relative weight for DRG 315 published in the FY 2006 IPPS proposed rule represented a decrease of almost 33 percent. The commenter also indicated that it continues to believe that this procedure is inappropriately classified, and suggested that these cases be reassigned into pre-MDC DRG 513 (Pancreas Transplant). The commenter believed the suggested DRG change is justified because islet cell and pancreas transplants involve substantially similar patient populations. The commenter further pointed out that the transplants both serve the same clinical function—that of freeing the patient from insulin dependence. The commenter requested that CMS identify those admissions in DRG 315 that involve islet cell transplantation and determine the actual costs involved to decide whether islet cell transplant cases should be reclassified to DRG 513.

Response: We do not understand why the commenter believes that the relative weight for DRG 315 decreased by 33 percent. The FY 2006 proposed relative weight (2.0801 (see Table 5 of the FY 2006 proposed rule, 70 FR 23587)) is approximately 0.3 percent less than the FY 2005 relative weight (2.0861 (see Table 5 of the FY 2005 final rule, 69 FR 49603)). We have reviewed the MedPAR data for the first quarter of FY 2005, and have found no cases of islet cell transplantation in DRG 315. Therefore, we do not have a basis for comparison of islet cell transplantation cases to the remainder of the cases in DRG 315. We also take this opportunity to clarify that the DRGs are groupings of cases that are similar both from a clinical perspective Start Printed Page 47322as well as a resource-intensity perspective. While the commenter's position is that the same clinical endpoint is attempted with both islet cell transplantation and pancreas transplant, the result or endpoint of treatment results is not one of the axis upon which the DRGs are structured. In addtion, the pancreas transplant involves an open abdominal procedure in which one pancreas is surgically removed and a cadaveric pancreas is transplanted. Conversely, islet cells are infused via catheter. Therefore, from the standpoint of clinical similarity, we do not believe that the cases are comparable enough to consider putting the islet cell transplantation into DRG 513.

Comment: The same commenter was concerned about payment for islet cell transplants under a National Institutes of Health (NIH) clinical trial. The commenter believed that the $18,848 islet cell isolation add-on amount is insufficient. This commenter also believed that the data used to calculate the add-on amount were inadequate to form the basis for establishing payment.

Response: The $18,848 isolation add-on amount was based on the best data available, and we remain convinced that it is an appropriate payment for isolating the islet cells from one pancreas. However, we have learned that it typically requires two isolations to acquire enough cells for one infusion. Therefore, while we will maintain the current rate of $18,848 per isolation, we will pay up to two islet isolations per discharge. If only one islet isolation is necessary, Medicare will make an add-on payment of $18,848; if two are necessary, Medicare will make an add-on payment of $37,696. In cases that require two islet isolations, CMS will pay for two pancreata. Pancreata will continue to be paid as a cost pass-through.

We will review the MedPAR data as requested using more complete FY 2005 MedPAR data during our next annual IPPS update for FY 2007.

C. Recalibration of DRG Weights

We are using the same basic methodology for the FY 2006 recalibration as we did for FY 2005 (FY 2005 IPPS final rule (69 FR 48981)). That is, we have recalibrated the DRG weights based on charge data for Medicare discharges using the most current charge information available (the FY 2004 MedPAR file).

The MedPAR file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2004 MedPAR data used in this final rule include discharges occurring between October 1, 2003 and September 30, 2004, based on bills received by CMS through March 31, 2005, 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 2004 MedPAR file includes data for approximately 12,006,022 Medicare discharges. Discharges for Medicare beneficiaries enrolled in a Medicare+Choice managed care plan are excluded from this analysis. The data excludes CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken.

The methodology used to calculate the DRG relative weights from the FY 2004 MedPAR file is as follows:

  • To the extent possible, all the claims were regrouped using the DRG classification revisions discussed in section II.B. of this preamble.
  • The transplant cases that were used to establish the relative weight for heart and heart-lung, liver and/or intestinal, and lung transplants (DRGs 103, 480, and 495) were limited to those Medicare-approved transplant centers that have cases in the FY 2004 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 charge for the DRG and before eliminating statistical outliers.
  • Charges were standardized to remove the effects of differences in area wage levels, indirect medical education and disproportionate share payments, and, for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment.
  • The average standardized charge per DRG was calculated by summing the standardized charges for all cases in the DRG and dividing that amount by the number of cases classified in the DRG. A transfer case is counted as a fraction of a case based on the ratio of its transfer payment under the per diem payment methodology to the full DRG payment for nontransfer cases. That is, a transfer case receiving payment under the transfer methodology equal to half of what the case would receive as a nontransfer would be counted as 0.5 of a total case.
  • Statistical outliers were eliminated by removing all cases that are beyond 3.0 standard deviations from the mean of the log distribution of both the charges per case and the charges per day for each DRG.
  • The average charge for each DRG was then recomputed (excluding the statistical outliers) and divided by the national average standardized charge per case to determine the relative weight.

The new weights are normalized by an adjustment factor of 1.47462 so that the average case weight after recalibration is equal to the average case weight before recalibration. This adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS.

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We used that same case threshold in recalibrating the DRG weights for FY 2006. Using the FY 2004 MedPAR data set, there are 41 DRGs that contain fewer than 10 cases. We compute the weights for these low-volume DRGs by adjusting the FY 2005 weights of these DRGs by the percentage change in the average weight of the cases in the other DRGs.

Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with FY 1991, reclassification and recalibration changes be made in a manner that assures that the aggregate payments are neither greater than nor less than the aggregate payments that would have been made without the changes. Although normalization is intended to achieve this effect, equating the average case weight after recalibration to the average case weight before recalibration does not necessarily achieve budget neutrality with respect to aggregate payments to hospitals because payments to hospitals are affected by factors other than average case weight. Therefore, as we have done in past years and as discussed in section II.A.4.a. of the Addendum to this final rule, we are making a budget neutrality adjustment to ensure that the requirement of section 1886(d)(4)(C)(iii) of the Act is met.

Comment: One commenter noted that there is a reduction in the proposed weights for DRG 103 (Heart Transplant or Implant of Heart Assist System) and DRG 512 (Simultaneous Pancreas/Kidney Transplant). According to the commenter, the proposed weights represent a 6-percent reduction in DRG 103 and an 11-percent reduction in DRG 512. The commenter inquired as to whether these reductions may have Start Printed Page 47323resulted from a methodological change in the way organ acquisition costs are addressed in the DRG weighting process.

Response: There is no change in the calculation of the DRG relative weight. 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 charge for the DRG.

As described above, the relative weight for each DRG is calculated by comparing the average charge for cases within each DRG (after removing statistical outliers) with the national average charge per case. Therefore, there are several factors that can cause a shift in the relative weight of a DRG from one fiscal year to the next. For example, even though the average charges of cases within DRG 103 increased from $278,096 in the FY 2005 final rule to $285,317 in the proposed rule, it did not increase by an equal or greater percentage than the national average. As a result, the DRG weight for DRG 103 declined. For DRG 512, the average charges decreased from $85,630 in the FY 2005 final rule to $83,113 in the proposed rule which accounts for the decline in the weight.

Comment: One commenter pointed out three typographical errors in DRG titles in Table 5 (List of Diagnosis Related Groups (DRGs), Relative Weighting Factors, Geometric and Arithmetic Mean Length of Stay) in the Addendum to the FY 2006 IPPS proposed rule. The commenter indicated that the title for DRG 14 should read “Intracranial Hemorrhage or Cerebral Infarction” based on the change in FY 2005 IPPS final rule (69 FR 48927) and the title for DRG 315 should read “Other Kidney & Urinary Tract Procedures” based on the change in the FY 2003 IPPS final rule (67 FR 49993). The commenter also pointed out a misspelling of the word “Malignant” in the title for DRG 276.

Response: The commenter is correct. We have made these corrections in Table 5 in the Addendum to this final rule.

D. LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2006

1. Background

In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed the LTCH PPS annual payment rate update cycle to be effective July 1 through June 30 instead of October 1 through September 30. In addition, because the patient classification system utilized under the LTCH PPS is based directly on the DRGs used under the IPPS for acute care hospitals, in that same final rule, we explained that the annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the CMS-DRGs used under the IPPS. In that same final rule, we specified that we will continue to update the LTC-DRG classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. Furthermore, we stated that we will publish the annual update of the LTC-DRGs in the proposed and final rules for the IPPS.

In the past, the annual update to the IPPS DRGs has been based on the annual revisions to the ICD-9-CM codes and was effective each October 1. As discussed in the FY 2005 IPPS final rule (69 FR 48954 through 48957) and in the Rate Year (RY) 2006 LTCH PPS final rule (70 FR 24173 through 24175), with the implementation of section 503(a) of Pub. L. 108-173, there is the possibility that one feature of the GROUPER software program may be updated twice during a Federal fiscal year (October 1 and April 1) as required by the statute for the IPPS. Specifically, ICD-9-CM diagnosis and procedure codes for new medical technology may be created and added to existing DRGs in the middle of the Federal fiscal year on April 1. However, this policy change will have no effect on the LTC-DRG relative weights which will continue to be updated only once a year (October 1), nor will there be any impact on Medicare payments under the LTCH PPS. The use of the ICD-9-CM code set is also compliant with the current requirements of the Transactions and Code Sets Standards regulations at 45 CFR Parts 160 and 162, promulgated in accordance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191.

As we explained in the FY 2006 IPPS proposed rule (70 FR 23338 through 23339), in the health care industry, historically annual changes to the ICD-9-CM codes were effective for discharges occurring on or after October 1 each year. Thus, the manual and electronic versions of the GROUPER software, which are based on the ICD-9-CM codes, were also revised annually and effective for discharges occurring on or after October 1 each year. As noted above, the patient classification system used under the LTCH PPS (LTC-DRGs) is based on the patient classification system used under the IPPS (CMS-DRGs), which historically had been updated annually and effective for discharges occurring on or after October 1 through September 30 each year. As mentioned above, the ICD-9-CM coding update process has been revised, as discussed in greater detail in the FY 2005 IPPS final rule (69 FR 48954 through 48957) and in section II.B. 14. of this final rule. Specifically, section 503(a) of Pub. L. 108-173 includes a requirement for updating ICD-9-CM codes as often as twice a year instead of the current process of annual updates on October 1 of each year. This requirement is included as part of the amendments to the Act relating to recognition of new medical technology under the IPPS. Section 503(a) of Pub L. 108-173 amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) which states that “the Secretary shall provide for the addition of new diagnosis and procedure codes in [sic] April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement will improve the recognition of new technologies under the IPPS by accounting for those ICD-9-CM codes in the MedPAR claims data at an earlier date. Despite the fact that aspects of the GROUPER software may be updated to recognize any new technology ICD-9-CM codes, as discussed in the RY 2006 LTCH PPS final rule (70 FR 24173 through 24175) and the FY 2006 IPPS proposed rule (70 FR 23338 through 23339), there will be no impact on either LTC-DRG assignments or payments under the LTCH PPS at that time. That is, changes to the LTC-DRGs (such as the creation or deletion of LTC-DRGs) and the relative weights will continue to be updated in the manner and timing (October 1) as they are now.

As noted above and as described in both the RY 2006 LTCH PPS final rule (70 FR 24174) and the FY 2006 IPPS proposed rule (70 FR 23339), updates to the GROUPER for both the IPPS and the LTCH PPS (with respect to relative weights and the creation or deletion of DRGs) are made in the annual IPPS proposed and final rules and are effective each October 1. We explained in the FY 2005 IPPS final rule (69 FR 48955 and 48956), and in section II.B.13. of this preamble, that since we do not publish a midyear IPPS rule, April 1 code updates discussed above Start Printed Page 47324will not be published in a midyear IPPS rule. Rather, we will assign any new diagnosis or procedure codes to the same DRG in which its predecessor code was assigned, so that there will be no impact on the DRG assignments. Any coding updates will be available through the Web sites indicated in the same rule and provided above in section II.B. of this preamble and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software system. If new codes are implemented on April 1, revised code books and software systems, including the GROUPER software program, will be necessary because we must use current ICD-9-CM codes. Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code must be included in the GROUPER algorithm to classify each case into a LTC-DRG, the GROUPER software program used under the LTCH PPS would need to be revised to accommodate any new codes.

As we discussed in the FY 2005 IPPS final rule (69 FR 48956) and in section II.B.14. of this preamble, in implementing section 503(a) of Pub. L. 108-173, there will only be an April 1 update if new technology codes are requested and approved. We note that any new codes created for April 1 implementation will be limited to those diagnosis and procedure code revisions primarily needed to describe new technologies and medical services. However, we reiterate that the process of discussing updates to the ICD-9-CM has been an open process through the ICD-9-CM Coordination and Maintenance Committee since 1995. Requestors will be given the opportunity to present the merits for a new code and make a clear and convincing case for the need to update ICD-9-CM codes for purposes of the IPPS new technology add-on payment process through an April 1 update.

However, as we explained in the FY 2006 IPPS proposed rule (70 FR 23339), at the October 2004 ICD-9-CM Coordination and Maintenance Committee meeting, there were no requests for an April 1, 2005 implementation of ICD-9-CM codes, and the next update to the ICD-9-CM coding system would not occur until October 1, 2005 (FY 2006). Presently, as there were no coding changes suggested for an April 1, 2005 update, the ICD-9-CM coding set implemented on October 1, 2004, will continue through September 30, 2005 (FY 2005). The update to the ICD-9-CM coding system for FY 2006 is discussed above in section II.B.14. of this preamble.

As we proposed in the FY 2006 IPPS proposed rule (70 FR 23339), in this final rule we are making revisions to the LTC-DRG classifications and relative weights, effective October 1, 2005 through September 30, 2006 (FY 2006), using the latest available data. As we proposed in that same IPPS proposed rule, the final LTC-DRGs and relative weights for FY 2006 in this final rule are based on the final IPPS DRGs (GROUPER Version 23.0) discussed in section II. of the preamble to this final rule.

2. Changes in the LTC-DRG Classifications

a. Background

Section 123 of Pub. L. 106-113 specifically requires that the PPS for LTCHs be a per discharge system with a DRG-based patient classification system reflecting the differences in patient resources and costs in LTCHs while maintaining budget neutrality. Section 307(b)(1) of Pub. L. 106-554 modified the requirements of section 123 of Pub. L. 106-113 by specifically requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the LTCH PPS] on the use of existing (or refined) hospital diagnosis-related groups (DRGs) that have been modified to account for different resource use of long-term care hospital patients as well as the use of the most recently available hospital discharge data.”

In accordance with section 307(b)(1) of Pub. L. 106-554 and § 412.515 of our existing regulations, the LTCH PPS uses information from LTCH patient records to classify patient cases into distinct LTC-DRGs based on clinical characteristics and expected resource needs. The LTC-DRGs used as the patient classification component of the LTCH PPS correspond to the DRGs under the IPPS for acute care hospitals. Thus, as we proposed in the FY 2006 IPPS proposed rule (70 FR 23339), in this final rule, we are establishing the use of the IPPS GROUPER Version 23.0 for FY 2006 to process LTCH PPS claims for LTCH discharges occurring from October 1, 2005 through September 30, 2006. The final changes to the CMS-DRG classification system used under the IPPS for FY 2006 (GROUPER Version 23.0) are discussed in section II.B. of the preamble to this final rule.

Under the LTCH PPS, we determine relative weights for each of the DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristics of LTCH patients. In a departure from the IPPS, as we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and the FY 2006 IPPS proposed rule (70 FR 23340), we use low-volume quintiles in determining the LTC-DRG weights for LTC-DRGs with less than 25 LTCH cases, because LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. Specifically, we group those low-volume LTC-DRGs (LTC-DRGs with fewer than 25 cases) into 5 quintiles based on average charge per discharge. We also adjust for cases in which the stay at the LTCH is less than or equal to five-sixths of the geometric average length of stay; that is, short-stay outlier cases (§ 412.529), as discussed below in section II.D.4. of this preamble.

b. Patient Classifications into DRGs

Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that is, payment varies by the LTC-DRG to which a beneficiary's stay is assigned. Just as cases are classified for acute care hospitals under the IPPS (see section II.B. of this preamble), cases are classified into LTC-DRGs for payment under the LTCH PPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using the ICD-9-CM codes.

As discussed in section II.B. of this preamble, the CMS-DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Accordingly, the principal diagnosis determines MDC assignment. Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Some surgical and medical DRGs are further differentiated based on the presence or absence of CCs. (See section II.B. of this preamble for further discussion of surgical DRGs and medical DRGs.)

Because the assignment of a case to a particular LTC-DRG will help determine the amount that is paid for the case, it is important that the coding is accurate. As used under the IPPS, classifications and terminology used under the LTCH PPS are consistent with the ICD-9-CM and the Uniform Hospital Discharge Data Set (UHDDS), as recommended to the Secretary by the National Committee on Vital and Health Statistics (“Uniform Hospital Discharge Data: Minimum Data Set, National Center for Health Statistics, April Start Printed Page 473251980”) and as revised in 1984 by the Health Information Policy Council (HIPC) of the U.S. Department of Health and Human Services. We point out again that the ICD-9-CM coding terminology and the definitions of principal and other diagnoses of the UHDDS are consistent with the requirements of the Transactions and Code Sets Standards under HIPAA (45 CFR Parts 160 and 162).

The emphasis on the need for proper coding cannot be overstated. Inappropriate coding of cases can adversely affect the uniformity of cases in each LTC-DRG and produce inappropriate weighting factors at recalibration and result in inappropriate payments under the LTCH PPS. LTCHs are to follow the same coding guidelines used by acute care hospitals to ensure accuracy and consistency in coding practices. There will be only one LTC-DRG assigned per long-term care hospitalization; it will be assigned at the time of discharge of the patient. Therefore, it is mandatory that the coders continue to report the same principal diagnosis on all claims and include all diagnosis codes that coexist at the time of admission, that are subsequently developed, or that affect the treatment received. Similarly, all procedures performed during that stay are to be reported on each claim.

Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the ICD-9-CM. Completed claim forms are to be submitted electronically to the LTCH's Medicare fiscal intermediary. Medicare fiscal intermediaries enter the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into an LTC-DRG can be made.

After screening through the MCE, each LTCH claim will be classified into the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH GROUPER is specialized computer software and is the same GROUPER used under the IPPS. After the LTC-DRG is assigned, the Medicare fiscal intermediary determines the prospective payment by using the Medicare LTCH PPS PRICER program, which accounts for LTCH hospital-specific adjustments and payment rates. As provided for under the IPPS, we provide an opportunity for the LTCH to review the LTC-DRG assignments made by the fiscal intermediary and to submit additional information within a specified timeframe (§ 412.513(c)).

The LTCH GROUPER is used both to classify past cases in order to measure relative hospital resource consumption to establish the LTC-DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights during our annual update (as discussed in section II. of this preamble). The LTC-DRG relative weights are based on data for the population of LTCH discharges, reflecting the fact that LTCH patients represent a different patient-mix than patients in short-term acute care hospitals.

3. Development of the FY 2006 LTC-DRG Relative Weights

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

As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55981), one of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix in order to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is more costly. To accomplish these goals, we adjust the LTCH PPS standard Federal prospective payment system rate by the applicable LTC-DRG relative weight in determining payment to LTCHs for each case. Under the LTCH PPS, relative weights for each LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each LTC-DRG that represents the resources needed by an average inpatient LTCH case in that LTC-DRG. For example, cases in an LTC-DRG with a relative weight of 2 will, on average, cost twice as much as cases in an LTC-DRG with a weight of 1.

b. Data

In the FY 2006 IPPS proposed rule (70 FR 23341), we proposed to calculate the proposed LTC-DRG relative weights for FY 2006 using total Medicare allowable charges from FY 2004 Medicare hospital bill data from the December 2004 update of the MedPAR file, which were the best available data at that time, and we proposed to use the proposed Version 23.0 of the CMS GROUPER used under the IPPS (as discussed in that same proposed rule) to classify cases. To calculate the LTC-DRG relative weights for FY 2006 in this final rule, we obtained total Medicare allowable charges from FY 2004 Medicare hospital bill data from the March 2005 update of the MedPAR file, which are the most recent available data, and we used the Version 23.0 of the CMS GROUPER used under the IPPS (as discussed in section II.B. of this preamble) to classify cases. In the FY 2006 IPPS proposed rule (70 FR 23341), we stated that “consistent with the methodology under the IPPS, we are proposing to recalculate the FY 2006 LTC-DRG relative weights based on the best available data.” For this final rule, we are using the best available data, that is, the March 2005 update of the MedPAR file.

As we discussed in the FY 2006 IPPS proposed rule (70 FR 23341), we have excluded the data from LTCHs that are all-inclusive rate providers and LTCHs that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Pub. L. 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Pub. L. 92-603 (42 U.S.C. 1395b-1). Therefore, in the development of the final FY 2006 LTC-DRG relative weights, we have excluded the data of the 19 all-inclusive rate providers and the 3 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2004 MedPAR file.

In the FY 2005 IPPS final rule (69 FR 48984), we discussed coding inaccuracies that were found in the claims data for a large chain of LTCHs in the FY 2002 MedPAR file, which were used to determine the LTC-DRG relative weights for FY 2004. As we discussed in the same final rule, after notifying the large chain of LTCHs whose claims contained the coding inaccuracies to request that they resubmit those claims with the correct diagnosis, from an analysis of LTCH claims data from the December 2003 update of the FY 2003 MedPAR file, it appeared that such claims data no longer contain coding errors. Therefore, it was not necessary to correct the FY 2003 MedPAR data for the development of the FY 2005 LTC-DRGs and relative weights established in the same final rule.

As noted above, in the FY 2006 IPPS proposed rule, we proposed to calculate the proposed LTC-DRG relative weights for FY 2006 using the December 2004 Start Printed Page 47326update of the MedPAR file, which were the most recent available data at that time. As stated above, in this final rule, we are using the March 2005 update of the FY 2004 MedPAR file for the determination of the FY 2006 LTC-DRG relative weights as these are the best available data. As we discussed in the FY 2006 IPPS proposed rule (70 FR 23341), based on an analysis of LTCH claims data from the FY 2004 MedPAR file, it appears that such claims data do not contain coding inaccuracies found previously in LTCH claims data. Therefore, it was not necessary to correct the FY 2004 MedPAR data for the development of the FY 2006 LTC-DRGs and relative weights presented in that proposed rule or in this final rule.

Comment: Several commenters cited a study that concluded that the claims data used to develop the proposed LTC-DRG relative weights (that is, the December 2004 update of the FY 2004 MedPAR file) contain irregularities or errors. The commenters' concern was based on a comparison, by a private research group that was commissioned by one of the commenters, of the LTCH FY 2004 MedPAR data to the internal records of one LTCH. The commenters were specifically concerned that the MedPAR data may underrepresent interrupted stay cases and cases during which the beneficiary exhausted Medicare Part A benefits. In addition to the possible underrepresentation of interrupted stay and exhausted benefit cases, these commenters indicated that they had reviewed the FY 2004 MedPAR data used to develop the proposed FY 2006 LTC-DRG relative weights and asserted that there are some cases in the FY 2004 MedPAR file that include overstated or understated charges. They also indicated that there were “missing” LTCH cases that they believe should be included in the MedPAR file. The commenters further believed that the missing LTCH cases may be the consequence of “a high level of suspended claims which were occurring due to the transition [to a different billing system during FY 2004].” Specifically, the commenters stated that because payment for these suspended claims was received by April 2004, their claims and associated charges for these cases should have been reflected in the December 2004 update of the FY 2004 MedPAR file that was used to compute the proposed FY 2006 LTC-DRG relative weights.

The commenters believed that such errors or irregularities may be the source of the observed decrease in the average charges of many LTC-DRGs. Therefore, they urged CMS to reexamine the MedPAR data to ensure that the charges for all cases are fully accounted for in computing the final FY 2006 LTC-DRG relative weights.

The commenter who commissioned the study gave a number of examples of the alleged irregularities/errors in LTCH claims in the FY 2004 MedPAR file. The commenter's findings from a comparison of one provider's internal records and data reported in the December 2004 update of the FY 2004 MedPAR file, which were used in setting the proposed LTC-DRG relative weights, were extrapolated to all LTCHs and then the proposed FY 2006 LTC-DRG relative weights were recalculated “to correct for these errors.” The commenter challenged the integrity of the proposed LTC-DRG relative weights, as well as the final relative weights, which would be based on a more recent update (March 2005) of the FY 2004 MedPAR file, in keeping with our historical practice that uses the best available data for computing payment adjustments for all Medicare PPSs.

Response: After an extensive analysis of the data submitted by one of the commenters, we do not agree with the commenters' assertion that the proposed FY 2006 LTC-DRG relative weights are based on faulty claims data in the FY 2004 MedPAR file. We believe that the use of highly case-specific and interim data drawn from the claims records of one LTCH to challenge the integrity of the LTCH claims in the entire FY 2004 MedPAR file is inappropriate. Our analysis did not reveal systemic problems that would have undermined the data upon which we based the proposed FY 2006 LTC-DRG relative weights or the data upon which we are basing our final FY 2006 LTC-DRG relative weights in this final rule (as discussed above). As indicated by our analysis of the issues presented by the commenter, detailed below, we continue to believe that the March 2005 update of the FY 2004 MedPAR file is the best available data for setting the FY 2006 LTC-DRG relative weights and it accurately reflects LTCH charges per discharge.

The comments were based on the commenters' analysis of one LTCH's data and the results of that analysis were extrapolated to the universe of LTCHs. We reviewed the LTCH data used by the commenter and compared that data to the data in both the December 2004 update of the FY 2004 MedPAR file that were used to determine the proposed FY 2006 LTC-DRG relative weights and in the March 2005 update of the FY 2004 MedPAR file that are being used to determine the final FY 2006 LTC-DRG relative weights in this final rule. The commenter raised four categories of alleged problems: missing discharges related to the exhaustion of Medicare Part A benefits; inaccurate representation of interrupted stay cases; cases not reported in the MedPAR file due to “an atypical level of suspension of LTCH claims”; and cases with incorrectly reported charges (overstated or understated). Our analysis revealed that rather than being distinct problems, three of the concerns raised by the commenters—the benefits-exhausted cases, the interrupted stay cases, and missing hospital claims—are caused by the same basic problems. That is, the December 2003 update of the FY 2004 MedPAR file did not include some patient claims from the records of the one LTCH in question. Because the MedPAR file represents a total beneficiary stay (total single episode of care) in an inpatient hospital once a beneficiary has been physically discharged from the inpatient hospital, as described below, we evaluated the reasons why such a situation could occur under normal claims processing procedures.

The MedPAR file is a discharge file for inpatient claims and, therefore, during the creation of the MedPAR file, inpatient hospital data without a discharge date would not be included. When a claim is processed for payment calculation, the data from the fiscal intermediary are included in the Medicare Common Working File (CWF), at which time payment authorization or denial will be made and, if authorized, a remittance will be generated to the provider. After the remittance is generated, the National Claims History (NCH) is updated to reflect all of the claims submitted for an entire stay, which may include one claim or multiple claims. The NCH inpatient hospital data are used in the creation of the MedPAR file and all adjustments are resolved prior to the creation of a stay record in the MedPAR file. The creation of the MedPAR file takes all claims submitted for a beneficiary at the same facility and collapses all the data so that one record is created that represents a single record of the entire stay at the facility.

A claim that is correctly coded and submitted timely by the provider will be captured by the specific update of the NCH files, the data source for the MedPAR file. However, if there are issues with the claim, the claim may be suspended. Therefore, even though the hospital will have a record of the stay, until the issue with the claim is resolved, it will not process into the NCH and, therefore, will not be recorded in the MedPAR file. Issues leading to claim suspension may Start Printed Page 47327include submission-systems failures by the provider, including the absence of crucial information or incorrect coding of patient status by the provider. Alternatively, issues may arise during the fiscal intermediary processing of the claim, as a result of data processing problems or broader standard systems issues. The fiscal intermediary may also delay processing the claim pending resolution of policy issues in specific situations. A fiscal intermediary may need to contact a subject-matter specialist at Medicare, for example, for assistance in determining whether a particular atypical patient discharge, treatment, and readmittance scenario would be governed by the payment rules established under either of the interrupted stay policies at § 412.531.

Therefore, there are several reasons why claims could be held in suspension and hence not be “resolved” either for payment purposes or for inclusion in the MedPAR file. We understand that, at any one time, there may be as many as 25 percent of a hospital's claims in suspension pending resolution of one or more of the above issues. This statistic is not reflective of any unique problems in the processing procedure but rather is a standard feature of a dynamic claims payment process. In recognition of this fact, and in order to enable a cash flow to a provider where there may be a disproportionate number of unresolved claims in suspension, our regulations at § 412.541(f) provide for accelerated payments, which are reconciled with actual remittances at a future date.

The commenter's first concern was that a substantial number of benefits-exhaust claims from the one LTCH were not included in the March 2004 update of the FY 2004 MedPAR file. Our case-level analysis revealed several reasons for this, which are discussed below. Primarily, we believe that there has been some degree of confusion on by that LTCH as to the policy distinction established under the LTCH PPS between a discharge for payment purposes and a patient's physical discharge. In the August 30, 2002 final rule for the LTCH PPS, we established regulations at § 412.503 specifying that a Medicare patient is considered “discharged” for payment purposes when the patient no longer has any Medicare covered days (that is, when Medicare Part A benefits are exhausted). At that point, a LTCH may submit a “discharge” claim to its fiscal intermediary and Medicare will issue a payment for covered care (CMS Pub. 100-4 Chapter 1, Section 50.2) delivered until the benefits were exhausted. The patient may continue to receive care at the LTCH, but Medicare Part A will no longer be financially responsible for that treatment. In that same final rule, we also established that we would include data for all inpatient days that a Medicare beneficiary was physically in the LTCH for purposes of meeting the length of stay requirements to qualify as a LTCH as set forth under § 412.23(e) (67 FR 55974) and for developing LTC-DRG relative weights (67 FR 55984). Therefore, for purposes of these two policies, data from the fiscal year during which the patient is physically discharged from the LTCH will include the total day count for the patient's entire stay as well as the total charges for the entire length of stay, including data from noncovered days, even where the Medicare payment to the LTCH was made in a prior fiscal year, based on the earlier bill submitted by the LTCH when the patient's benefits exhausted.

In response to the commenter's allegation that the data from the December 2004 update of the FY 2004 MedPAR file did not capture 16 of 35 benefits-exhaust claims for one specific LTCH, CMS' analysis revealed that 5 of these 16 cases noted by the commenter are, in fact, included in the more recent March 2005 update of the FY 2004 MedPAR file. This indicates that if the bill did not appear on the earlier December update due to a processing suspension, these 5 cases appear in the March 2005 update of the MedPAR file because the issue for which the bill was suspended has been resolved by that time. Furthermore, an additional 7 of the 16 claims that the hospital identified as “discharged” represented beneficiaries who were still in the hospital at the end of FY 2004 (September 30, 2004), even though Medicare was no longer making payments for their care (and they had been “discharged for payment purposes” under § 412.503). As noted above, only at physical discharge will data be included in the corresponding MedPAR file. Once those 7 patients are discharged physically from the LTCH in question, their data will appear in the MedPAR file for the fiscal year of their discharge. Accordingly, we do not believe that the absence from the March 2005 update of the FY 2004 MedPAR file of the four discharges for this one LTCH represents a systematic and serious underrepresentation of benefits-exhaust cases in the LTCH FY 2004 MedPAR file.

The commenter also claimed that the MedPAR file had inaccurately reported interrupted stay cases, that is, a LTCH stay that has an intervening stay at an acute care hospital for 9 days or less, an IRF for 27 days or less, or a SNF for 45 days or less during the LTCH stay (§ 412.531). The one LTCH upon which the commenter bases his concerns had records of 102 interrupted stay cases discharged during FY 2004. Of these, it is claimed that 44 were reported correctly in the December 2004 update of the FY 2004 MedPAR file upon which the proposed LTC-DRG relative weights were based. If an episode of care is governed by the greater than 3 days interruption of stay policy, both segments of the stay at the LTCH are paid as one. The commenter claimed that, in such cases, only one-half of particular interrupted stay cases in that LTCH that were reported were included in the December 2004 update of the FY 2004 MedPAR file. The commenter also claimed that in other interrupted stay cases, the entire stay was absent from the December 2004 update of the FY 2004 MedPAR file. We reviewed the commenter's claims and concluded that most of these cases are included in the recent March 2005 update of the FY 2004 MedPAR file. We believe that these cases were not included in the December 2004 update of the FY 2004 MedPAR file because the provider's final bill was in suspension.

It is likely that the cases appear in the March 2005 update of the FY 2004 MedPAR file because the patient was finally physically discharged or issues relating to the claim were otherwise settled and the claims were no longer in suspension. Other claims reported by the LTCH but still not included in the March 2005 update of the FY 2004 MedPAR file are appropriately not in the MedPAR file because they are still in suspension for various reasons (as noted above and discussed in greater detail below).

As stated above, there may be one or even several valid and appropriate reasons why the interrupted stay cases are suspended. We understand that the initial implementation of certain LTCH PPS system changes resulted in problems, including the mechanics of claim submission. Specifically, for many fiscal intermediaries, the implementation of the 3-day or less interruption of stay policy at § 412.531(a) (69 FR 25690) initially led to submission of overlapping claims, inappropriate payments, recoupment of payments, and subsequent withdrawal and resubmission of claims, and required considerable provider education and resulted in initial suspension of the claims during FY 2004. However, this is no longer a significant problem for fiscal intermediaries. In fact, the fiscal intermediary that services the LTCH cited by the commenter noted that several of its providers worked Start Printed Page 47328aggressively and in a timely manner to ensure that their claims governed by this policy were being submitted according to CMS instructions, and paid and reported accurately. However, other LTCHs were still working to rectify their claims submission procedures under the new policies or their internal records. Among those LTCHs that apparently had data submission and payment problems, the fiscal intermediary identified the LTCH that was the subject of the commenter's original data collection. Therefore, while we acknowledge that there were initial claims processing difficulties with interrupted stay cases, based on our conversations with the fiscal intermediary that services approximately two-thirds of all LTCHs, as well as with the fiscal intermediary that services the LTCH in question and 10 other LTCHs, we do not believe that there continues to be a significant issue. Furthermore, we believe that, currently, for the vast majority of LTCHs, internal records are consistent with the actual payment adjustments made by their fiscal intermediaries that are reported in the MedPAR file. However, the few LTCHs that experience an inconsistency between their internal records and the data reported in the MedPAR file do so as a result of provider specific billing issues which are in no way indicative of a widespread or even a significant problem with the integrity of the FY 2003 MedPAR data.

As noted above, the commenter believes that “an atypical level of suspension of LTCH claims” results from dealing with the FY 2004 conversion from the Arkansas Part A Standard System (APASS) billing system to the Fiscal Intermediary Share System (FISS) billing system. The commenter believed this transition resulted in inaccurate and underreported claims in the FY 2004 MedPAR data. While there were some initial difficulties with the system transition, our analysis of the MedPAR data again indicates that those difficulties have been addressed and, in fact, the MedPAR data accurately reflect provider billings and are reliable.

Based on discussions with the fiscal intermediaries that process the vast majority of LTCH bills, we conclude that, although initially there were some problems with the system's processing of a limited number of claims that were impacted by either the 3-day or less interrupted stay policy (§ 412.531(a)) or cases of exhaustion of Medicare benefits, the problems were typically resolved in a timely manner and the claims are reflected in the March 2005 update of the FY 2004 MedPAR file. Furthermore, the fiscal intermediary that serves the LTCH in question also noted experiencing some difficulties with its conversion to the FISS billing system originally, but presently, it is no longer experiencing a significant number of suspended claims as a result of those issues.

We also analyzed the commenter's assertions that, for a number of the LTCH bills in question, the LTCH's internal records of charges included either additional or fewer charges than the amount reported as the charges in the December 2004 update of the FY 2004 MedPAR file. The commenter believed that, because the FY 2004 MedPAR file does not reflect all of the bill's charges for this LTCH, there is a systemic problem that affects the calculations of the FY 2006 LTC-DRG relative weights. We believe the FY 2004 MedPAR file is providing cases with accurate charge data for that fiscal year. Because all Medicare charges that are reported in the MedPAR file are taken directly from claims submitted by providers, in order to further evaluate the commenter's assertion, we requested that the fiscal intermediary serving this LTCH review claims that the commenter alleged exemplified the “discrepancy” between the LTCH charges identified in its records and those that appear in the FY 2004 MedPAR file. A comparison of the electronic claims submitted by the LTCH to the fiscal intermediary did not reveal any inconsistencies. That is, the charges on the electronic claims for those cases matched those charges that appeared in the most recent update (March 2005) of the MedPAR file. Therefore, the MedPAR data are consistent with charge data submitted by the LTCH to CMS. Furthermore, as we analyzed each of the commenter's specific allegations of systemic flaws in the FY 2004 MedPAR data, we have concluded that the only way that the actual charges could be higher or lower on the hospital's own records than those charges that appear on the claim in the NCH (upon which the MedPAR file is derived) would be if the provider did not include those charges on the bill submitted to the fiscal intermediary for processing. We note that this issue of a discrepancy between billed charges and the MedPAR data is not an issue for other providers. Therefore, we believe that any inconsistencies between charges for a few cases as listed in the internal records of one LTCH and those reported for those same cases in the FY 2004 MedPAR file are due to internal data reporting practices of a specific LTCH and are not indicative of a widespread problem with the reporting of charges for LTCHs throughout the country in the FY 2004 MedPAR data that affects the final LTC-DRG relative weights.

Based upon our detailed analysis of the commenter's assertions, we believe that there are no systematic errors in the LTCH FY 2004 MedPAR data and we continue to believe it is appropriate to base the FY 2006 LTC-DRG relative weights on the March 2005 update of the FY 2004 MedPAR file. We believe that the December 2004 update of the FY 2004 MedPAR file that we used to determine the proposed LTC-DRG relative weights for FY 2006 in the FY 2006 IPPS proposed rule reflected the best available data at that time. Moreover, we maintain that calculating the final LTC-DRG payment weights set forth in this final rule using the March 2005 update of the FY 2004 MedPAR file eliminates most of the issues raised by the commenter, even with the specific claims submitted by the one LTCH cited by the commenter. Furthermore, based on our analysis, we conclude that many of the issues experienced by that LTCH were unique to that hospital and were not systemic issues.

In summary, as explained above, we do not believe there is evidence to support the contention that there is a systemic flaw in the LTCH FY 2004 MedPAR data or the integrity of the FY 2006 final LTC-DRG relative weights. Rather, we believe that extrapolation to the entire universe of LTCHs of the issues of one particular LTCH with its own submission and reporting history as proof of the unreliability of our FY 2004 MedPAR data is both misleading and inaccurate. Therefore, in this final rule, we are using the LTCH claims data from the March 2005 update of the FY 2004 MedPAR file to determine the FY 2006 LTC-DRG relative weights using the methodology described below.

c. Hospital-Specific Relative Value Methodology

By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation and wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. This nonarbitrary distribution of cases with relatively high (or low) charges in specific LTC-DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, we use a hospital-specific relative value method to calculate the LTC-DRG relative weights instead of the Start Printed Page 47329methodology used to determine the DRG relative weights under the IPPS described in section II.C. of this preamble. We believe this method will remove this hospital-specific source of bias in measuring LTCH average charges. Specifically, we reduce the impact of the variation in charges across providers on any particular LTC-DRG relative weight by converting each LTCH's charge for a case to a relative value based on that LTCH's average charge.

Under the hospital-specific relative value method, we standardize charges for each LTCH by converting its charges for each case to hospital-specific relative charge values and then adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, averages 1.0 for each LTCH). The average relative weight for a LTCH is its case-mix, so it is reasonable to scale each LTCH's average relative charge value by its case-mix. In this way, each LTCH's relative charge value is adjusted by its case-mix to an average that reflects the complexity of the cases it treats relative to the complexity of the cases treated by all other LTCHs (the average case-mix of all LTCHs).

In accordance with the methodology established under § 412.523, as implemented in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991), we standardize charges for each case by first dividing the adjusted charge for the case (adjusted for short-stay outliers under § 412.529 as described in section II.D.4. (step 3) of this preamble) by the average adjusted charge for all cases at the LTCH in which the case was treated. Short-stay outliers under § 412.529 are cases with a length of stay that is less than or equal to five-sixths the average length of stay of the LTC-DRG. The average adjusted charge reflects the average intensity of the health care services delivered by a particular LTCH and the average cost level of that LTCH. The resulting ratio is multiplied by that LTCH's case-mix index to determine the standardized charge for the case.

Multiplying by the LTCH's case-mix index accounts for the fact that the same relative charges are given greater weight in a LTCH with higher average costs than they would at a LTCH with low average costs which is needed to adjust each LTCH's relative charge value to reflect its case-mix relative to the average case-mix for all LTCHs. Because we standardize charges in this manner, we count charges for a Medicare patient at a LTCH with high average charges as less resource intensive than they would be at a LTCH with low average charges. For example, a $10,000 charge for a case in a LTCH with an average adjusted charge of $17,500 reflects a higher level of relative resource use than a $10,000 charge for a case in a LTCH with the same case-mix, but an average adjusted charge of $35,000. We believe that the adjusted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account.

d. Low-Volume LTC-DRGs

In order to account for LTC-DRGs with low-volume (that is, with fewer than 25 LTCH cases), in accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55984), we group those “low-volume LTC-DRGs” (that is, DRGs that contained between 1 and 24 cases annually) into one of five categories (quintiles) based on average charges, for the purposes of determining relative weights. In the FY 2006 IPPS proposed rule (70 FR 23341), we stated that we would continue to employ this treatment of low volume LTC-DRGs in determining the FY 2006 LTC-DRG relative weights using the best available LTCH data. In that same proposed rule, using LTCH cases from the December 2004 update of the FY 2004 MedPAR file, we identified 172 LTC-DRGs that contained between 1 and 24 cases. For this final rule, using LTCH cases from the March 2005 update of the FY 2004 MedPAR file, we identified 171 LTC-DRGs that contained between 1 and 24 cases. This list of LTC-DRGs was then divided into one of the 5 low-volume quintiles, each containing a minimum of 34 LTC-DRGs (171/5 = 34 with 1 LTC-DRG as the remainder). In accordance with our established methodology, we then make an assignment to a specific low-volume quintile by sorting the low-volume LTC-DRGs in ascending order by average charge. For this final rule, this results in an assignment to a specific low volume quintile of the sorted 171 low-volume LTC-DRGs by ascending order by average charge. Because the number of LTC-DRGs with less than 25 LTCH cases is not evenly divisible by five, the average charge of the low-volume LTC-DRG was used to determine which low-volume quintile received the additional LTC-DRG. After sorting the 171 low-volume LTC-DRGs in ascending order, we group the first fifth of low-volume LTC-DRGs with the lowest average charge into Quintile 1. The highest average charge cases are grouped into Quintile 5. Since the average charge of the 69th LTC-DRG in the sorted list is closer to the 68th LTC-DRG's average charge (assigned to Quintile 2) than to the average charge of the 70th LTC-DRG in the sorted list (to be assigned to Quintile 3), we placed it into Quintile 2. This process was repeated through the remaining low-volume LTC-DRGs so that 1 low-volume quintile contains 35 LTC-DRGs and 4 low-volume quintiles contain 34 LTC-DRGs.

In order to determine the relative weights for the LTC-DRGs with low volume for FY 2006, in accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55984), we used the five low-volume quintiles described above. The composition of each of the five low-volume quintiles shown in the chart below was used in determining the LTC-DRG relative weights for FY 2006. We determined a relative weight and (geometric) average length of stay for each of the five low-volume quintiles using the formula that we apply to the regular LTC-DRGs (25 or more cases), as described below in section II.D.4. of this preamble. We assigned the same relative weight and average length of stay to each of the LTC-DRGs that make up that low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of LTC-DRGs with a low volume of LTCH cases will vary in the future. We use the best available claims data in the MedPAR file to identify low-volume LTC-DRGs and to calculate the relative weights based on our methodology.

Composition of Low-Volume Quintiles for FY 2006

LTC-DRGDescription
QUINTILE 1
17NONSPECIFIC CEREBROVASCULAR DISORDERS W/O CC.
25SEIZURE & HEADACHE AGE >17 W/O CC.
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65DYSEQUILIBRIUM.
69OTITIS MEDIA & URI AGE >17 W/O CC.
86PLEURAL EFFUSION W/O CC.
95PNEUMOTHORAX W/O CC.
102OTHER RESPIRATORY SYSTEM DIAGNOSES W/O CC.
133ATHEROSCLEROSIS W/O CC.
140ANGINA PECTORIS.
142 ***SYNCOPE & COLLAPSE W/O CC.
143CHEST PAIN.
171OTHER DIGESTIVE SYSTEM O.R. PROCEDURES W/O CC.
175G.I. HEMORRHAGE W/O CC.
219LOWER EXTREM & HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE >17 W/O CC.
237SPRAINS, STRAINS, & DISLOCATIONS OF HIP, PELVIS & THIGH.
241CONNECTIVE TISSUE DISORDERS W/O CC.
246NON-SPECIFIC ARTHROPATHIES.
251FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W/O CC.
262BREAST BIOPSY & LOCAL EXCISION FOR NON-MALIGNANCY.
273MAJOR SKIN DISORDERS W/O CC.
281TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE >17 W/O CC.
284MINOR SKIN DISORDERS W/O CC.
301ENDOCRINE DISORDERS W/O CC.
305KIDNEY, URETER & MAJOR BLADDER PROC FOR NON-NEOPL W/O CC.
312URETHRAL PROCEDURES, AGE >17 W CC.
319KIDNEY & URINARY TRACT NEOPLASMS W/O CC.
328URETHRAL STRICTURE AGE >17 W CC.
344OTHER MALE REPRODUCTIVE SYSTEM O.R. PROCEDURES FOR MALIGNANCY.
428DISORDERS OF PERSONALITY & IMPULSE CONTROL.
431CHILDHOOD MENTAL DISORDERS.
441HAND PROCEDURES FOR INJURIES.
445TRAUMATIC INJURY AGE >17 W/O CC.
509FULL THICKNESS BURN W/O SKIN GRFT OR INH INJ W/O CC OR SIG TRAUMA.
511NON-EXTENSIVE BURNS W/O CC OR SIGNIFICANT TRAUMA .
QUINTILE 2
11NERVOUS SYSTEM NEOPLASMS W/O CC.
29TRAUMATIC STUPOR & COMA, COMA <1 HR AGE >17 W/O CC.
44ACUTE MAJOR EYE INFECTIONS.
46OTHER DISORDERS OF THE EYE AGE >17 W CC.
83MAJOR CHEST TRAUMA W CC.
93INTERSTITIAL LUNG DISEASE W/O CC.
97BRONCHITIS & ASTHMA AGE >17 W/O CC.
122CIRCULATORY DISORDERS W AMI W/O MAJOR COMP, DISCHARGED ALIVE.
128DEEP VEIN THROMBOPHLEBITIS.
136CARDIAC CONGENITAL & VALVULAR DISORDERS AGE >17 W/O CC.
139CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W/O CC.
151PERITONEAL ADHESIOLYSIS W/O CC.
173DIGESTIVE MALIGNANCY W/O CC.
206DISORDERS OF LIVER EXCEPT MALIG, CIRR, ALC HEPA W/O CC.
208DISORDERS OF THE BILIARY TRACT W/O CC.
250FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE >17 W CC.
254FX, SPRN, STRN & DISL OF UPARM, LOWLEG EX FOOT AGE >17 W/O CC.
259SUBTOTAL MASTECTOMY FOR MALIGNANCY W CC.
276NON-MALIGANT BREAST DISORDERS.
293OTHER ENDOCRINE, NUTRIT & METAB O.R. PROC W/O CC.
306PROSTATECTOMY W CC.
325KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W CC.
332OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE >17 W/O CC.
334MAJOR MALE PELVIC PROCEDURES W CC.
336TRANSURETHRAL PROSTATECTOMY W CC.
347MALIGNANCY, MALE REPRODUCTIVE SYSTEM, W/O CC.
348BENIGN PROSTATIC HYPERTROPHY W CC.
399RETICULOENDOTHELIAL & IMMUNITY DISORDERS W/O CC.
404LYMPHOMA & NON-ACUTE LEUKEMIA W/O CC.
425ACUTE ADJUSTMENT REACTION & PSYCHOLOGICAL DYSFUNCTION.
432OTHER MENTAL DISORDER DIAGNOSES.
433ALCOHOL/DRUG ABUSE OR DEPENDENCE, LEFT AMA.
447ALLERGIC REACTIONS AGE >17.
484CRANIOTOMY FOR MULTIPLE SIGNIFICANT TRAUMA.
503KNEE PROCEDURES W/O PDX OF INFECTION.
Start Printed Page 47331
QUINTILE 3
8PERIPH & CRANIAL NERVE & OTHER NERV SYST PROC W/O CC.
21VIRAL MENINGITIS.
31CONCUSSION AGE >17 W CC.
61MYRINGOTOMY W TUBE INSERTION AGE >17.
67EPIGLOTTITIS.
100RESPIRATORY SIGNS & SYMPTOMS W/O CC.
110MAJOR CARDIOVASCULAR PROCEDURES W CC.
119VEIN LIGATION & STRIPPING.
125CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX DIAG.
152MINOR SMALL & LARGE BOWEL PROCEDURES W CC.
177UNCOMPLICATED PEPTIC ULCER W CC.
178UNCOMPLICATED PEPTIC ULCER W/O CC.
181G.I. OBSTRUCTION W/O CC.
185DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE >17.
193BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W CC.
195CHOLECYSTECTOMY W C.D.E. W CC.
197CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W CC.
223MAJOR SHOULDER/ELBOW PROC, OR OTHER UPPER EXTREMITY PROC W CC.
227SOFT TISSUE PROCEDURES W/O CC.
235FRACTURES OF FEMUR.
266SKIN GRAFT &/OR DEBRID EXCEPT FOR SKIN ULCER OR CELLULITIS W/O CC.
270OTHER SKIN, SUBCUT TISS & BREAST PROC W/O CC.
274MALIGNANT BREAST DISORDERS W CC.
295DIABETES AGE 0-35.
308MINOR BLADDER PROCEDURES W CC.
369MENSTRUAL & OTHER FEMALE REPRODUCTIVE SYSTEM DISORDERS.
424O.R. PROCEDURE W PRINCIPAL DIAGNOSES OF MENTAL ILLNESS.
443OTHER O.R. PROCEDURES FOR INJURIES W/O CC.
449POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W CC.
454OTHER INJURY, POISONING & TOXIC EFFECT DIAG W CC.
467OTHER FACTORS INFLUENCING HEALTH STATUS.
507FULL THICKNESS BURN W SKIN GRFT OR INHAL INJ W/O CC OR SIG TRAUMA.
531SPINAL PROCEDURES WITH CC.
532SPINAL PROCEDURES WITHOUT CC.
QUINTILE 4
22HYPERTENSIVE ENCEPHALOPATHY.
40EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE >17.
63OTHER EAR, NOSE, MOUTH & THROAT O.R. PROCEDURES.
117CARDIAC PACEMAKER REVISION EXCEPT DEVICE REPLACEMENT.
118CARDIAC PACEMAKER DEVICE REPLACEMENT.
124CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH & COMPLEX DIAG.
150PERITONEAL ADHESIOLYSIS W CC.
157ANAL & STOMAL PROCEDURES W CC.
168MOUTH PROCEDURES W CC.
191PANCREAS, LIVER & SHUNT PROCEDURES W CC.
211HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W/O CC.
216BIOPSIES OF MUSCULOSKELETAL SYSTEM & CONNECTIVE TISSUE.
228MAJOR THUMB OR JOINT PROC, OR OTH HAND OR WRIST PROC W CC.
288O.R. PROCEDURES FOR OBESITY.
299INBORN ERRORS OF METABOLISM.
303KIDNEY, URETER & MAJOR BLADDER PROCEDURES FOR NEOPLASM.
310TRANSURETHRAL PROCEDURES W CC.
323URINARY STONES W CC, &/OR ESW LITHOTRIPSY.
339TESTES PROCEDURES, NON-MALIGNANCY AGE >17.
341PENIS PROCEDURES.
360VAGINA, CERVIX & VULVA PROCEDURES.
406MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R. PROC W CC.
408MYELOPROLIF DISORD OR POORLY DIFF NEOPL W OTHER O.R. PROC.
419FEVER OF UNKNOWN ORIGIN AGE >17 W CC.
476PROSTATIC O.R. PROCEDURE UNRELATED TO PRINCIPAL DIAGNOSIS.
497SPINAL FUSION W CC.
500BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W/O CC.
502KNEE PROCEDURES W PDX OF INFECTION W/O CC.
505EXTENSIVE BURN OR FULL THICKNESS BURNS WITH MECH VENT 96+ HOURS WITHOUT SKIN GRAFT.
506FULL THICKNESS BURN W SKIN GRAFT OR INHAL INJ W CC OR SIG TRAUMA.
539LYMPHOMA AND LEUKEMIA WITH MAJOR O.R. PROCEDURE WITH CC.
551PERMANENT CARDIAC PACEMAKER IMPLANT WITH MAJOR CV DIAGNOSIS OR AICD LEAD OR GNRTR.
552OTHER PERMANENT CARDIAC PACEMAKER IMPLANT WITHOUT MAJOR CV DIAGNOSIS.
Start Printed Page 47332
555PERCUTANEOUS CARDIOVASCULAR PROC WITH MAJOR CV DIAGNOSIS.
556*PERCUTANEOUS CARDIOVASCULAR PROC WITH NON-DRUG-ELUTING STENT WITHOUT MAJOR CV DIAGNOSIS.
557*PERCUTANEOUS CARDIOVASCULAR PROC WITH DRUG-ELUTING STENT WITH MAJOR CV DIAGNOSIS.
QUINTILE 5
1CRANIOTOMY AGE >17 W CC.
75MAJOR CHEST PROCEDURES.
77OTHER RESP SYSTEM O.R. PROCEDURES W/O CC.
154STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE >17 W CC.
161INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W CC.
200HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR NON-MALIGNANCY.
210HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W CC.
218LOWER EXTREM & HUMER PROC EXCEPT HIP, FOOT, FEMUR AGE >17 W CC.
230LOCAL EXCISION & REMOVAL OF INT FIX DEVICES OF HIP & FEMUR.
268SKIN, SUBCUTANEOUS TISSUE & BREAST PLASTIC PROCEDURES.
290THYROID PROCEDURES.
304KIDNEY, URETER & MAJOR BLADDER PROC FOR NON-NEOPL W CC.
345OTHER MALE REPRODUCTIVE SYSTEM O.R. PROC EXCEPT FOR MALIGNANCY.
364D&C, CONIZATION EXCEPT FOR MALIGNANCY.
365OTHER FEMALE REPRODUCTIVE SYSTEM O.R. PROCEDURES.
394OTHER O.R. PROCEDURES OF THE BLOOD AND BLOOD FORMING ORGANS.
401LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W CC.
471BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF LOWER EXTREMITY.
482TRACHEOSTOMY FOR FACE, MOUTH & NECK DIAGNOSES.
486OTHER O.R. PROCEDURES FOR MULTIPLE SIGNIFICANT TRAUMA.
488HIV W EXTENSIVE O.R. PROCEDURE.
491MAJOR JOINT & LIMB REATTACHMENT PROCEDURES OF UPPER EXTREMITY.
493LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC.
499BACK & NECK PROCEDURES EXCEPT SPINAL FUSION W CC.
501KNEE PROCEDURES W PDX OF INFECTION W CC.
515CARDIAC DEFIBRILATOR IMPLANT W/O CARDIAC CATH.
519CERVICAL SPINAL FUSION W CC.
529VENTRICULAR SHUNT PROCEDURES W CC.
533EXTRACRANIAL VASCULAR PROCEDURES WITH CC.
543CRANIOTOMY W IMPLANT OF CHEMO AGENT OR ACUTE COMPLEX CNS PDX.
544MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY.
545REVISION OF HIP OR KNEE REPLACEMENT.
556 **PERCUTANEOUS CARDIOVASCULAR PROC WITH NON-DRUG-ELUTING STENT WITHOUT MAJOR CV DIAGNOSIS.
557 **PERCUTANEOUS CARDIOVASCULAR PROC WITH DRUG-ELUTING STENT WITH MAJOR CV DIAGNOSIS.
* One of the original 171 low-volume LTC-DRGs initially assigned to a different low-volume quintile; reassigned to this low-volume quintile in addressing nonmonotonicity (see step 4 below).
** One of the original 171 low-volume LTC-DRGs initially assigned to this low-volume quintile; reassigned to a different low-volume quintile in addressing nonmonotonicity (see step 4 below).
*** One of the original 171 low-volume LTC-DRGs initially assigned to this low-volume quintile; removed from this low-volume quintile in addressing nonmonotonicity (see step 4 below).

4. Steps for Determining the FY 2006 LTC-DRG Relative Weights

As we noted in the FY 2006 IPPS proposed rule (70 FR 23346), the FY 2006 LTC-DRG relative weights are determined in accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). In summary, LTCH cases must be grouped in the appropriate LTC-DRG, while taking into account the low-volume LTC-DRGs as described above, before the FY 2006 LTC-DRG relative weights can be determined. After grouping the cases in the appropriate LTC-DRG, we calculated the relative weights for FY 2006 in this final rule by first removing statistical outliers and cases with a length of stay of 7 days or less, as discussed in greater detail below. Next, we adjusted the number of cases in each LTC-DRG for the effect of short-stay outlier cases under § 412.529, as also discussed in greater detail below. The short-stay adjusted discharges and corresponding charges are used to calculate “relative adjusted weights” in each LTC-DRG using the hospital-specific relative value method described above.

Comment: A few commenters expressed concern regarding what they believed to be a proposed change in the methodology to compute the LTC-DRG relative weights. Specifically, they asserted that removing statistical outlier cases and cases with a length of stay of 7 days or less may inappropriately remove too many cases from the relative weight calculations. The commenters believed that, by narrowing the universe of cases used to compute the LTC-DRG relative weights, the principle of averaging that is a fundamental feature of a PPS would be eroded or distorted.

Response: We did not propose any policy change in the methodology for determining the LTC-DRG relative weights for FY 2006 in the FY 2006 IPPS proposed rule. The commenters are mistaken in their belief that we did. Rather, the six steps for determining the proposed FY 2006 LTC-DRG relative weights presented in the FY 2006 IPPS proposed rule (70 FR 23346 through 23353) are the same steps that we have used to determine the LTC-DRG relative weights since the implementation of the LTCH PPS in FY 2003 (August 30, 2002 LTCH IPPS final rule (67 FR 55989 through 55991)). In every final rule in which we have updated the LTC-DRG Start Printed Page 47333relative weights since the October 1, 2002 implementation of the LTCH PPS (68 FR 45375 through 45385, and 69 FR 48989 through 49000), we reiterated the same steps of our established methodology to determine the annual update to the LTC-DRG relative weights. We continue to believe that this methodology continues to be valid, and we do not find any reason at this time to revise it.

As we explained in the FY 2006 IPPS proposed rule (70 FR 23346), we believe it is appropriate to remove statistical outlier cases and cases with a length of stay of 7 days or less because including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight, and therefore an inappropriate payment amount, that does not truly reflect relative resource use among the LTC-DRGs. Specifically, we continue to believe that statistical outlier cases may represent aberrations in the data that distort the measure of average resource use and that, as we explained above, including them in the calculation of the relative weights could result in an inappropriate payment amount.

In the RY 2006 LTCH PPS final rule (70 FR 23346) and as we discussed in greater detail in the FY 2005 IPPS final rule (69 FR 48990), we also explained that, generally, cases with a length of stay 7 days or less are not representative of either typical or perhaps even appropriate LTCH patients. Furthermore, in general, in a hospital established solely to treat very long-stay patients, and with a payment system calibrated to reflect the costs incurred in treating such patients, stays of 7 days or less would not fully receive or benefit from treatment or the range of resource use that is typical in a LTCH stay, and full resources are often not used in the earlier stages of admission to a LTCH. We continue to believe that, if we were to include stays of 7 days or less in the computation of the LTC-DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. Specifically, because LTCH cases with very short lengths of stay (that is, 7 days or less) do not use the same amount or type of resources as typical LTCH inlier cases (that is, cases in which Medicare covered days exceed five-sixths of the geometric average length of stay for the LTC-DRG) and the patient is discharged prior to receiving a LTCH PPS high-cost outlier payment, our simulations indicate that including these cases would significantly bias payments against LTCH inlier cases to a point where LTCH inlier cases would be underpaid (69 FR 48990). Thus, we do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH, in order to include data from these very short-stays. Consequently, we disagree with the commenters that removing aberrant LTCH cases (that is, statistical outlier cases and cases with a length of stay of 7 days or less) undermines the averaging principle upon which PPSs are developed.

Although we did not propose any change in the methodology for determining the LTC-DRG relative weights for FY 2006, we disagree with the assertions that removing statistical outlier cases and cases with a length of stay of 7 days or less inappropriately narrows the universe of cases used to compute the LTC-DRG relative weights, resulting in a distortion of the principle of averaging. Rather, because each LTC-DRG relative weight represents the average resources required to treat cases in that particular LTC-DRG, relative to the average resources used to treat cases in all LTC-DRGs, we believe that, by removing cases that do not represent the “average resource use” of the mix of LTCH cases within a DRG (that is, statistical outlier cases and cases with a length of stay of 7 days or less), for the reasons explained above, we are preserving the integrity of a system that is based on averages. Therefore, in establishing the FY 2006 LTC-DRG relative weights in this final rule, we have continued to remove statistical outlier cases and cases with a length of stay of 7 days or less from the MedPAR data used to compute the FY 2006 LTC-DRG relative weights.

Comment: Four commenters believed the estimated decrease in LTCH PPS payments resulting from the proposed changes to the LTC-DRG relative weights is inconsistent with the statutory mandate that the LTCH PPS be maintained in a budget neutral manner. These commenters recommended that we apply a budget neutrality adjustment to the LTC-DRG relative weights in order to mitigate the estimated LTCH PPS payment reductions that we estimated would result from the proposed changes to the LTC-DRG relative weights for FY 2006. Two of those commenters cited the statutory language authorizing the establishment of the LTCH PPS and argued that the language requires that the LTCH PPS continue to operate under “budget neutrality.” They further asserted that, although we did not interpret this language as mandating budget neutrality beyond the initial year of the LTCH PPS, the Secretary should use his or her broad discretionary authority to assure “the same level of payments projected in the FY 2006 LTCH update regulation” by making a budget neutrality adjustment in developing the FY 2006 LTC-DRG relative weights.

Response: We understand that these commenters are concerned about the estimated decrease in payments under LTCH PPS based upon changes in the LTC-DRG relative weights for FY 2006. However, we believe that this issue is distinct from the Secretary's budget neutrality obligation under the statute for the first year of implementation of the LTCH PPS. After the first year of the LTCH PPS, the statute gives the Secretary broad authority to determine the appropriateness of system updates and matters such as annual updates and policy changes. As we discussed in the FY 2005 IPPS final rule (69 FR 48999), with respect to budget neutrality, we interpreted section 123(a)(1) of Pub. L. 106-113 to require that total payments under the LTCH PPS during FY 2003 will be projected to equal estimated payments that would have been made for LTCHs' operating and capital-related inpatient hospital costs had the LTCH PPS not have been implemented. Thus we believe the statute's mandate for budget neutrality applies only to the first year of implementation of the LTCH PPS (that is, FY 2003). Consistent with the broad discretional authority conferred upon the Secretary under section 123(a)(1) of Pub. L. 103-116, as amended by section 307 of Pub. L. 106-554, the Secretary is exercising his broad authority to make updates the LTCH PPS in a nonbudget neutral manner after FY 2003 for various components of the LTCH PPS, including the annual update of the LTC-DRG classifications and relative weights.

Consistent with this budget neutrality requirement for the first year of implementation of the LTCH PPS, under § 412.523(d)(2) of the regulations, an adjustment is made in determining the standard Federal rate for FY 2003 so that aggregate payments under the LTCH PPS are estimated to equal the amount that would have been paid to LTCHs under the reasonable cost-based (TEFRA) payment system if the LTCH PPS were not implemented. Therefore, in the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037), which implemented the LTCH PPS, in order to maintain budget neutrality, we adjusted the LTCH PPS Federal rate for FY 2003 so that aggregate payments under the LTCH PPS are estimated to equal the amount that would have been paid to LTCHs under the reasonable cost-based (TEFRA) payment system Start Printed Page 47334had the LTCH PPS not been implemented.

As we stated in the FY 2005 IPPS final rule (70 FR 48999 through 49000), we continue to believe that section 123 of the Pub. L. 106-113 does not require that the annual update to the LTC-DRG classifications and relative weights maintain budget neutrality. We believe we have satisfied the budget neutrality requirement of section 123 of the Pub. L. 106-113 by establishing the LTCH PPS Federal rate for FY 2003 under § 412.523(d)(2) so that aggregate payment under the LTCH PPS are projected equal to estimated aggregate payments under the reasonable cost-based payment system if the LTCH PPS were not implemented. Therefore, we disagree with the commenters that a budget neutrality adjustment to the LTC-DRG relative weights or to the LTCH PPS Federal rate is required by statute or as a result of the annual update to the LTC-DRGs under § 412.517 for FY 2006.

We agree with the commenters that, under section 123 of the BBRA and section 307 of the BIPA, the Secretary generally has broad authority in developing the LTCH PPS, including whether and how to make adjustments to the LTCH PPS. As we discussed in the RY 2006 LTCH PPS final rule (70 FR 24188), we will consider whether it is appropriate for us to propose a budget neutrality adjustment in the annual update of some aspects of the LTCH PPS under our broad discretionary authority under the statute to provide “appropriate adjustments” to the LTCH PPS. As several commenters noted, LTCHs are still transitioning to a PPS and, while coding practices continue to improve, the FY 2004 claims data may “not yet fully reflect the nature and types of services, staff, and other resources” that LTCH provide to their patients. In the RY 2005 LTCH PPS final rule, we indicated that, until the 5-year transition from reasonable cost-based reimbursement to prospective payment is complete, we believe it may not be appropriate to update any aspects of the LTCH PPS in a budget neutral manner. As noted above, the most recent available LTCH PPS claims data are from discharges occurring during FY 2004. These LTCH claims data are from the second year of the LTCH PPS (FY 2004), which is the only first full year since the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002 (FY 2003). Because it is still early in the 5-year LTCH PPS transition period, we continue to believe that it is inappropriate to update any aspects of the LTCH PPS in a budget neutral manner. A primary reason for waiting until after the transition is complete before evaluating aspects of the LTCH PPS, including the budget neutrality issue, is that the data available to analyze such issues are very limited because the LTCH PPS is still relatively new and there is a lag time in data availability. As several commenters pointed out, the FY 2004 MedPAR data are the first full year of LTCH PPS data since the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002 (FY 2003). In addition, the fact that a number of LTCHs were and some are still transitioning to 100 percent of the Federal prospective payment rate may make the available data on which to base a budget neutrality adjustment even less appropriate because LTCHs may still be modifying their behavior based on their transition to prospective payment and, therefore, our data may not yet fully reflect any operational changes LTCHs may have made in response to prospective payment. We continue to believe that, once we have progressed further through the 5-year transition period, we will have a better opportunity to evaluate the impacts of the implementation of this new payment system based on a number of years of LTCH PPS data, which will most appropriately reflect LTCHs' experience under a PPS.

For the reasons stated above, we do not believe that a budget neutrality adjustment to the FY 2006 LTC-DRG relative weights or to the LTCH PPS Federal rate is necessary or appropriate. Accordingly, in developing the FY 2006 LTC-DRGs and relative weights shown in Table 11 of the Addendum of this final rule, we have not applied an adjustment for budget neutrality nor are we adjusting the 2006 LTCH PPS rate year Federal rate established in the 2006 LTCH PPS final rule (70 FR 24180) to account for the estimated change in LTCH PPS payments that will result from the annual update to the LTC-DRG classifications and relative weights for FY 2006.

Comment: Several commenters recommended implementing a “dampening policy,” similar to that which was implemented for the Ambulatory Payment Classification (APC) changes under the Hospital Outpatient PPS (OPPS) in CY 2003, which would reduce the decrease in any relative weight in excess of a threshold (for example, 15 percent) by half, to mitigate instability in LTCH PPS payments because of the “significant/substantial” decrease in many of the relative weights.

Response: A “dampening policy,” as recommended by the commenters, would limit the decrease in any of the LTC-DRG relative weights to a maximum amount, which would reduce the estimated decrease in LTCH PPS payments that we projected in the FY 2006 IPPS proposed rule as a result of the proposed changes to the LTC-DRG relative weights for FY 2006 (70 FR 23667). The commenters believed that the estimated decrease in the LTCH PPS payments resulting from the proposed changes to the LTC-DRGs for FY 2006 would create a “destabilizing effect” on LTCH PPS payments. For the reasons discussed below, we do not believe the estimated decrease in LTCH PPS payments resulting from the changes we are making to the LTC-DRG relative weights for FY 2006 in this final rule will lead to instability in LTCH PPS payments, and therefore, we are not implementing a “dampening policy,” as recommended by the commenters.

As discussed in the November 1, 2002 OPPS final rule (67 FR 66749 through 66750), we believed it was appropriate to implement the “dampening policy” under the OPPS referenced by the commenters because many of the decreases in payment rates for some of the APCs appeared to be linked to “changes in the methodology for those drugs and devices that will no longer be eligible for pass-through payments; miscoding; restructuring of APCs (in which movement of a single code from one APC to another may change the median cost of both APCs), or use of data from the period following the implementation of the OPPS.” Although Medicare payment for both hospital outpatient services and inpatient LTCH services are reimbursed under a PPS (respectively), there are significant distinctions between the two payment systems. For instance, under the LTCH PPS, a single per LTC-DRG payment is made for all inpatient hospital services provided to a patient for each stay, where in contrast, under the OPPS, payments based on APCs may include distinct payment methodologies for certain drugs and devices that are eligible for pass-through payments. Thus, there are significant distinctions between the two payment systems that warrant different considerations when evaluating the need for a “dampening policy.” Below we discuss the reasons we believe that a “dampening policy” to mitigate the effects of the changes in the LTC-DRG relative weights for FY 2006 on LTCH PPS payments are not necessary or appropriate.

As noted by the commenters, many of the proposed FY 2006 LTC-DRG relative weights decreased in Start Printed Page 47335comparison to the FY 2005 LTC-DRG relative weights, which would result in an aggregate estimated decrease in FY 2006 LTCH PPS payments. As we explained in the FY 2006 IPPS proposed rule (70 FR 23667), we continue to observe an increase of relatively lower charge cases being assigned to LTC-DRGs with higher relative weights in the prior year. The addition of these lower charge cases results in a decrease in the many of the LTC-DRG relative weights from FY 2005 to FY 2006. This decrease in many of the LTC-DRG relative weights, in turn, will result in an estimated decrease in LTCH PPS payments. As we explained in that same proposed rule, contributing to this increased number of relatively lower charge cases being assigned to LTC-DRGs with higher relative weights in the prior year are improvements in coding practices, which are typically found when moving from a reasonable cost-based payment system to a PPS. A further analysis of the LTCH claims in the March 2005 update of the FY 2004 MedPAR data, which we used to determine the FY 2006 LTC-DRG relative weights in this final rule, continue to show an increase of relatively lower charge cases being assigned to LTC-DRGs with higher relative weights in the prior year. As we explained the FY 2006 IPPS proposed rule (70 FR 23667), the impact of including cases with relatively lower charges into LTC-DRGs that had a relatively higher relative weight in the version 22.0 (FY 2005) GROUPER is a decrease in the average relative weight for those LTC-DRGs, which, in turn, results in an estimated aggregate decrease in LTCH PPS payments.

A few commenters acknowledged that with the move from cost-based reimbursement to a PPS, LTCHs' coding practices are still undergoing refinement. Specifically, two commenters stated that “the LTCH PPS, in its third year of implementation, is still in transition; the initial 5-year phase-in will end September 2006. During this time of transition, LTCH coding and data are still undergoing improvement.” Therefore, it is not unreasonable to observe relatively significant changes (either higher or lower) in the average charge for many LTC-DRGs as LTCHs' behavior coding continues to change in response to the implementation of a PPS. As the transition progresses, we expect that LTCH's behavior will result in fewer nonuniform changes in the average charge of many LTC-DRGs, which may impact the LTC-DRG relative weights from year to year.

As we discussed above, we believe that there are no systemic errors in the LTCH FY 2004 MedPAR data, and we believe that the increase of relatively lower charge cases being assigned to LTC-DRGs with higher relative weights that we observed in the FY 2004 LTCH claims data (which results in a decrease in the many of the LTC-DRG relative weights) accurately represents current LTCH costs. Specifically, an analysis of a comparison of the FY 2003 LTCH claims data (used to develop the FY 2005 LTC-DRG relative weights) and the FY 2004 LTCH claims data (used to develop the FY 2006 LTC-DRG relative weights) shows that, of the 155 LTC-DRGs that are used on a “regular basis” (that is, nationally, LTCHs discharge, in total, 25 or more of these cases annually), about 30 percent of those LTC-DRGs have experienced a decrease in the average charge per case, which generally results in a lower relative weight. In addition, about 45 percent of those LTC-DRGs have experienced an increase in the average charge that is less than the increase (16 percent) in the overall average charge across all LTC-DRGs. In general, the LTC-DRG relative weights are determined by dividing the average charge for each LTC-DRG by the average charge across all LTC-DRGs. Accordingly, those LTC-DRGs with an increase in average charge of less than 16 percent (that is, the increase in average charge across all LTC-DRGs) will also experience a reduction in their relative weight because the average charge for each of those LTC-DRGs is being divided by a bigger number (that is, the average charge across all LTC-DRGs). Therefore, because we believe the FY 2004 LTCH claims data used to determine the FY 2006 LTC-DRG relative weights accurately reflect the resources used by LTCHs to treat their patients, and these data show either a decrease in the average charge of the LTC-DRG or an increase in the average charge of the LTC-DRG that is less than the overall increase in the average charge across all LTC-DRGs, we believe that the decrease in many of the LTC-DRG relative weights is appropriate.

The LTC-DRG relative weights are designed to reflect the average of resources used to treat representative cases of the discharges within each LTC-DRG. As we discussed in greater detail above, after our extensive analysis of the FY 2004 MedPAR data, which we used to determine the FY 2006 LTC-DRG relative weights, we concluded that there are no systematic errors in that data. Therefore, we continue to believe it is appropriate to base the FY 2006 LTC-DRG relative weights on LTCH claims data in the FY 2004 MedPAR file. Furthermore, we believe that the decrease in many of the LTC-DRG relative weights is appropriate and is reflective of the changing behaviors of LTCHs' response to a PPS environment. As we discussed above, we believe that the LTCH claims data in the FY 2004 MedPAR file accurately reflects the resources that are expended to treat LTCH patients in each LTC-DRG. Although many of the LTC-DRG relative weights (and consequently aggregate LTCH PPS payments, excluding the update to the LTCH PPS Federal rate effective July 1, 2005 (70 FR 24217) will be lower in FY 2006 as compared to FY 2005, we do not believe that the payment rates for those LTC-DRGs are inappropriate based on the LTCH claims data in the FY 2004 MedPAR files. Rather, we believe that the lower LTC-DRG relative weights (and consequently a reduction in aggregate LTCH PPS payments) are appropriate, given that the average resources used to treat a LTCH patient in a particular LTC-DRG are less than the average resources used to treat a LTCH patient in a particular LTC-DRG based on FY 2003 LTCH claims data. Therefore, we do not agree with the commenters' assertion that the changes to the LTC-DRG relative weights for FY 2006 will result in instability in LTCH PPS payments. Rather, we believe that the changes to the LTC-DRG relative weights for FY 2006 will result in appropriate payments for the resources used to treat LTCH patients in a particular LTC-DRG. Accordingly, for the reasons discussed above, we are not implementing a “dampening policy” in determining the FY 2006 LTC-DRG relative weights in this final rule. We also note that the 4.2 percent decrease in LTCH PPS payments estimated as a result of the changes we are making to the LTC-DRGs and relative weights in this final rule for FY 2006 (see section VII. of the Addendum to this final rule) is partially offset by the projected 5.7 percent increase in LTCH PPS payments estimated based on the updated rates and factors effective for discharges occurring on or after July 1, 2005 established in the FY 2006 LTCH PPS final rule (70 FR 24217).

Below we discuss in detail the steps for calculating the FY 2006 LTC-DRG relative weights as presented in the FY 2006 IPPS proposed rule (70 FR 23346 through 23353). We note that, as we stated above in section II.D.3.b. of this preamble, as we proposed, we have excluded the data of all-inclusive rate LTCHs and LTCHs that are paid in accordance with demonstration projects Start Printed Page 47336that had claims in the FY 2004 MedPAR file.

Step 1—Remove statistical outliers.

The first step in the calculation of the FY 2006 LTC-DRG relative weights is to remove statistical outlier cases. We define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each LTC-DRG. These statistical outliers are removed prior to calculating the relative weights. As noted above, we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among the LTC-DRGs.

Step 2—Remove cases with a length of stay of 7 days or less.

The FY 2006 LTC-DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay 7 days or less do not belong in a LTCH because these stays do not fully receive or benefit from treatment that is typical in a LTCH stay, and full resources are often not used in the earlier stages of admission to a LTCH. As explained above, if we were to include stays of 7 days or less in the computation of the FY 2006 LTC-DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate.

We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH, in order to include data from these very short-stays. Thus, as explained above, in determining the FY 2006 LTC-DRG relative weights, we remove LTCH cases with a length of stay of 7 days or less.

Step 3—Adjust charges for the effects of short-stay outliers.

After removing cases with a length of stay of 7 days or less, we are left with cases that have a length of stay of greater than or equal to 8 days. The next step in the calculation of the FY 2006 LTC-DRG relative weights is to adjust each LTCH's charges per discharge for those remaining cases for the effects of short-stay outliers as defined in § 412.529(a). (However, we note that even if a case was removed in Step 2 (that is, cases with a length of stay of 7 days or less), it was paid as a short-stay outlier if its length of stay was less than or equal to five-sixths of the average length of stay of the LTC-DRG, in accordance with § 412.529.)

We make this adjustment by counting a short-stay outlier as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay for the LTC-DRG for nonshort-stay outlier cases. This has the effect of proportionately reducing the impact of the lower charges for the short-stay outlier cases in calculating the average charge for the LTC-DRG. This process produces the same result as if the actual charges per discharge of a short-stay outlier case were adjusted to what they would have been had the patient's length of stay been equal to the average length of stay of the LTC-DRG.

As we explained in the FY 2006 IPPS proposed rule (70 FR 23346 through 23347), counting short-stay outlier cases as full discharges with no adjustment in determining the LTC-DRG relative weights would lower the LTC-DRG relative weight for affected LTC-DRGs because the relatively lower charges of the short-stay outlier cases would bring down the average charge for all cases within a LTC-DRG. This would result in an “underpayment” to nonshort-stay outlier cases and an “overpayment” to short-stay outlier cases. Therefore, in this final rule, we adjust for short-stay outlier cases under § 412.529 in this manner because it results in more appropriate payments for all LTCH cases.

Step 4—Calculate the FY 2006 LTC-DRG relative weights on an iterative basis.

The process of calculating the LTC-DRG relative weights using the hospital-specific relative value methodology is iterative. First, for each LTCH case, we calculate a hospital-specific relative charge value by dividing the short-stay outlier adjusted charge per discharge (see step 3) of the LTCH case (after removing the statistical outliers (see step 1)) and LTCH cases with a length of stay of 7 days or less (see step 2) by the average charge per discharge for the LTCH in which the case occurred. The resulting ratio is then multiplied by the LTCH's case-mix index to produce an adjusted hospital-specific relative charge value for the case. An initial case-mix index value of 1.0 is used for each LTCH.

For each LTC-DRG, the FY 2006 LTC-DRG relative weight is calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the LTC-DRG by the overall average hospital-specific relative charge value across all cases for all LTCHs. Using these recalculated LTC-DRG relative weights, each LTCH's average relative weight for all of its cases (case-mix) is calculated by dividing the sum of all the LTCH's LTC-DRG relative weights by its total number of cases. The LTCHs' hospital-specific relative charge values above are multiplied by these hospital-specific case-mix indexes. These hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of LTC-DRG relative weights across all LTCHs. In this final rule, this iterative process is continued until there is convergence between the weights produced at adjacent steps, for example, when the maximum difference is less than 0.0001.

Step 5—Adjust the FY 2006 LTC-DRG relative weights to account for nonmonotonically increasing relative weights.

As explained in section II.B. of this preamble, the FY 2006 CMS DRGs, on which the FY 2006 LTC-DRGs are based, contain “pairs” that are differentiated based on the presence or absence of CCs. The LTC-DRGs with CCs are defined by certain secondary diagnoses not related to or inherently a part of the disease process identified by the principal diagnosis, but the presence of additional diagnoses does not automatically generate a CC. As we discussed in the FY 2005 IPPS final rule (69 FR 48991), the value of monotonically increasing relative weights rises as the resource use increases (for example, from uncomplicated to more complicated). The presence of CCs in a LTC-DRG means that cases classified into a “without CC” LTC-DRG are expected to have lower resource use (and lower costs). In other words, resource use (and costs) are expected to decrease across “with CC/without CC” pairs of LTC-DRGs.

For a case to be assigned to a LTC-DRG with CCs, more coded information is called for (that is, at least one relevant secondary diagnosis), than for a case to be assigned to a LTC-DRG “without CCs” (which is based on only one principal diagnosis and no relevant secondary diagnoses). Currently, the LTCH claims data include both accurately coded cases without complications and cases that have complications (and cost more), but were not coded completely. Both types of cases are grouped to a LTC-DRG “without CCs” when only the principal diagnosis was coded. Since the LTCH PPS was only implemented for cost reporting periods beginning on or after October 1, 2002 (FY 2003), and LTCHs were previously paid under cost-based reimbursement, which is not based on patient diagnoses, coding by LTCHs for Start Printed Page 47337these cases may not have been as detailed as possible.

Thus, in developing the FY 2003 LTC-DRG relative weights for the LTCH PPS based on FY 2001 claims data, as we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 55990), we found on occasion that the data suggested that cases classified to the LTC-DRG “with CCs” of a “with CC”/“without CC” pair had a lower average charge than the corresponding LTC-DRG “without CCs.” Similarly, as discussed in the FY 2005 IPPS final rule (69 FR 48991 through 48992), based on FY 2003 claims data, we also found on occasion that the data suggested that cases classified to the LTC-DRG “with CCs” of a “with CC”/“without CC” pair have a lower average charge than the corresponding LTC-DRG “without CCs” for the FY 2005 LTC-DRG relative weights.

We believe this anomaly may be due to coding that may not have fully reflected all comorbidities that were present. Specifically, LTCHs may have failed to code relevant secondary diagnoses, which resulted in cases that actually had CCs being classified into a “without CC” LTC-DRG. It would not be appropriate to pay a lower amount for the “with CC” LTC-DRG because, in general, cases classified into a “with CC” LTC-DRG are expected to have higher resource use (and higher cost) as discussed above. Therefore, previously when we determined the LTC-DRG relative weights in accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55990), we grouped both the cases “with CCs” and “without CCs” together for the purpose of calculating the LTC-DRG relative weights since the implementation of the LTCH PPS in FY 2003. As we stated in that same final rule, we will continue to employ this methodology to account for nonmonotonically increasing relative weights until we have adequate data to calculate appropriate separate weights for these anomalous LTC-DRG pairs. We expect that, as was the case when we first implemented the IPPS, this problem will be self-correcting, as LTCHs submit more completely coded data in the future.

There are three types of “with CC” and “without CC” pairs that could be nonmonotonic; that is, where the “without CC” LTC-DRG would have a higher average charge than the “with CC” LTC-DRG. For this final rule, using the LTCH cases in the March 2005 update of the FY 2004 MedPAR file (the best available data at this time), we identified three types of nonmonotonic LTC-DRG pairs. As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55990), we believe this anomaly may be due to coding inaccuracies and expect that, as was the case when we first implemented the acute care hospital IPPS, this problem will be self-correcting, as LTCHs submit more completely coded data in the future.

The first category of nonmonotonically increasing relative weights for FY 2006 LTC-DRG pairs “with and without CCs” contains one pair of LTC-DRGs in which both the LTC-DRG “with CCs” and the LTC-DRG “without CCs” had 25 or more LTCH cases and, therefore, did not fall into one of the 5 low-volume quintiles. For those nonmonotonic LTC-DRG pairs, we combine the LTCH cases and compute a new relative weight based on the case-weighted average of the combined LTCH cases of the LTC-DRGs. The case-weighted average charge is determined by dividing the total charges for all LTCH cases by the total number of LTCH cases for the combined LTC-DRG. This new relative weight is then assigned to both of the LTC-DRGs in the pair. In this final rule, for FY 2006, LTC-DRGs 553 and 554 fall into this category.

The second category of nonmonotonically increasing relative weights for LTC-DRG pairs “with and without CCs” consists of one pair of LTC-DRGs that has fewer than 25 cases, and each LTC-DRG is grouped to different low-volume quintiles in which the “without CC” LTC-DRG is in a higher-weighted low-volume quintile than the “with CC” LTC-DRG. For those pairs, we combine the LTCH cases and determine the case-weighted average charge for all LTCH cases. The case-weighted average charge is determined by dividing the total charges for all LTCH cases by the total number of LTCH cases for the combined LTC-DRG. Based on the case-weighted average LTCH charge, we determine within which low-volume quintile the “combined LTC-DRG” is grouped. Both LTC-DRGs in the pair are then grouped into the same low-volume quintile, and thus have the same relative weight. In this final rule, for FY 2006, LTC-DRGs 555, 556 and 557 fall into this category. (We note, 3 LTC-DRGs make up this non-monotonic “pair” of LTC-DRGs because these percutaneous cardiovascular procedure DRGs are further split depending on the presence or absence of a drug eluting stint and the presence or absence of a major “CV” (cardiovascular) diagnosis, which is similar to the adjustment for non-monotonicity for DRGs 521, 522 and 523 in the development of the FY 2005 LTC-DRG relative weights (69 FR 78922).

The third category of nonmonotonically increasing relative weights for LTC-DRG pairs “with and without CCs” consists of one pair of LTC-DRGs where one of the LTC-DRGs has fewer than 25 LTCH cases and is grouped to a low-volume quintile and the other LTC-DRG has 25 or more LTCH cases and has its own LTC-DRG relative weight, and the LTC-DRG “without CCs” has the higher relative weight. We removed the low-volume LTC-DRG from the low-volume quintile and combined it with the other LTC-DRG for the computation of a new relative weight for each of these LTC-DRGs. This new relative weight is assigned to both LTC-DRGs, so they each have the same relative weight. In this final rule, for FY 2006, LTC-DRGs 142 and 143 fall into this category.

Step 6—Determine a FY 2006 LTC-DRG relative weight for LTC-DRGs with no LTCH cases.

As we stated above, we determine the relative weight for each LTC-DRG using charges reported in the March 2005 update of the FY 2004 MedPAR file. Of the 526 LTC-DRGs for FY 2006, we identified 196 LTC-DRGs for which there were no LTCH cases in the database. That is, based on data from the FY 2004 MedPAR file used in this final rule, no patients who would have been classified to those LTC-DRGs were treated in LTCHs during FY 2004 and, therefore, no charge data were reported for those LTC-DRGs. Thus, in the process of determining the LTC-DRG relative weights, we are unable to determine weights for these 196 LTC-DRGs using the methodology described in steps 1 through 5 above. However, because patients with a number of the diagnoses under these LTC-DRGs may be treated at LTCHs beginning in FY 2006, we assign relative weights to each of the 196 “no volume” LTC-DRGs based on clinical similarity and relative costliness to one of the remaining 330 (526 − 196 = 330) LTC-DRGs for which we are able to determine relative weights, based on FY 2004 claims data.

As there are currently no LTCH cases in these “no volume” LTC-DRGs, we determined relative weights for the 196 LTC-DRGs with no LTCH cases in the FY 2004 MedPAR file used in this final rule by grouping them to the appropriate low-volume quintile. This methodology is consistent with our methodology used in determining relative weights to account for the low-volume LTC-DRGs described above.

Our methodology for determining relative weights for the “no volume” LTC-DRGs is as follows: We crosswalk Start Printed Page 47338the no volume LTC-DRGs by matching them to other similar LTC-DRGs for which there were LTCH cases in the FY 2004 MedPAR file based on clinical similarity and intensity of use of resources as determined by care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, post-operative care, and length of stay. We assign the relative weight for the applicable low-volume quintile to the no volume LTC-DRG if the LTC-DRG to which it is crosswalked is grouped to one of the low-volume quintiles. If the LTC-DRG to which the no volume LTC-DRG is crosswalked is not one of the LTC-DRGs to be grouped to one of the low-volume quintiles, we compare the relative weight of the LTC-DRG to which the no volume LTC-DRG is crosswalked to the relative weights of each of the five quintiles and we assign the no volume LTC-DRG the relative weight of the low-volume quintile with the closest weight. For this final rule, a list of the no volume FY 2006 LTC-DRGs and the FY 2006 LTC-DRG to which it is crosswalked in order to determine the appropriate low-volume quintile for the assignment of a relative weight for FY 2006 is shown in the chart below.

No Volume LTC-DRG Crosswalk and Quintile Assignment for FY 2006

LTC-DRGDescriptionCross-walked LTC-DRGLow-volume quintile assignment
2CRANIOTOMY AGE >17 W/O CC1Quintile 5.
3CRANIOTOMY AGE 0-171Quintile 5.
6CARPAL TUNNEL RELEASE251Quintile 1.
26SEIZURE & HEADACHE AGE 0-1725Quintile 1.
30TRAUMATIC STUPOR & COMA, COMA <1 HR AGE 0-1729Quintile 2.
32CONCUSSION AGE >17 W/O CC25Quintile 1.
33CONCUSSION AGE 0-1725Quintile 1.
36RETINAL PROCEDURES40Quintile 4.
37ORBITAL PROCEDURES40Quintile 4.
38PRIMARY IRIS PROCEDURES40Quintile 4.
39LENS PROCEDURES WITH OR WITHOUT VITRECTOMY40Quintile 4.
41EXTRAOCULAR PROCEDURES EXCEPT ORBIT AGE 0-1740Quintile 4.
42INTRAOCULAR PROCEDURES EXCEPT RETINA, IRIS & LENS40Quintile 4.
43HYPHEMA40Quintile 4.
45NEUROLOGICAL EYE DISORDERS40Quintile 4.
47OTHER DISORDERS OF THE EYE AGE >17 W/O CC40Quintile 4.
48OTHER DISORDERS OF THE EYE AGE 0-1740Quintile 4.
49ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE 0-1764Quintile 4.
50SIALOADENECTOMY63Quintile 4.
51SALIVARY GLAND PROCEDURES EXCEPT SIALOADENECTOMY63Quintile 4.
52CLEFT LIP & PALATE REPAIR63Quintile 4.
53SINUS & MASTOID PROCEDURES AGE >1763Quintile 4.
54SINUS & MASTOID PROCEDURES AGE 0-1763Quintile 4.
55MISCELLANEOUS EAR, NOSE, MOUTH & THROAT PROCEDURES63Quintile 4.
56RHINOPLASTY63Quintile 4.
57T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >1769Quintile 1.
58T&A PROC, EXCEPT TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0-1769Quintile 1.
59TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE >1769Quintile 1.
60TONSILLECTOMY &/OR ADENOIDECTOMY ONLY, AGE 0-1769Quintile 1.
62MYRINGOTOMY W TUBE INSERTION AGE 0-1769Quintile 1.
66EPISTAXIS69Quintile 1.
70OTITIS MEDIA & URI AGE 0-1769Quintile 1.
71LARYNGOTRACHEITIS97Quintile 2.
72OTHER DIGESTIVE SYSTEM DIAGNOSES AGE 0-1773Quintile 3.
74OTHER EAR, NOSE, MOUTH & THROAT DIAGNOSES AGE 0-1769Quintile 1.
81RESPIRATORY INFECTIONS & INFLAMMATIONS AGE 0-1769Quintile 1.
84MAJOR CHEST TRAUMA W/O CC93Quintile 2.
91ALCOHOL/DRUG ABUSE OR DEPENDENCE W REHABILITATION THERAPY W/O CC90Quintile 1.
98BRONCHITIS & ASTHMA AGE 0-1797Quintile 2.
104CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W CARDIAC CATH110Quintile 3.
105CARDIAC VALVE & OTHER MAJOR CARDIOTHORACIC PROC W/O CARDIAC CATH110Quintile 3.
106CORONARY BYPASS W PTCA110Quintile 3.
107CORONARY BYPASS W CARDIAC CATH110Quintile 3.
108OTHER CARDIOTHORACIC PROCEDURES110Quintile 3.
109CORONARY BYPASS W/O PTCA OR CARDIAC CATH110Quintile 3.
111MAJOR CARDIOVASCULAR PROCEDURES W/O CC110Quintile 3.
129CARDIAC ARREST, UNEXPLAINED110Quintile 3.
137CARDIAC CONGENITAL & VALVULAR DISORDERS AGE 0-17136Quintile 2.
146ALCOHOL/DRUG ABUSE OR DEPENDENCE W/O REHABILITATION THERAPY W/O CC148Quintile 5.
147NASAL TRAUMA & DEFORMITY148Quintile 5.
149FX, SPRN, STRN & DISL OF FOREARM, HAND, FOOT AGE 0-17176Quintile 3.
153MINOR SMALL & LARGE BOWEL PROCEDURES W/O CC152Quintile 3.
155STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE >17 W/O CC154Quintile 5.
156STOMACH, ESOPHAGEAL & DUODENAL PROCEDURES AGE 0-17154Quintile 5.
158ANAL & STOMAL PROCEDURES W/O CC157Quintile 4.
159HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W CC177Quintile 3.
160HERNIA PROCEDURES EXCEPT INGUINAL & FEMORAL AGE >17 W/O CC177Quintile 3.
Start Printed Page 47339
162INGUINAL & FEMORAL HERNIA PROCEDURES AGE >17 W/O CC178Quintile 3.
163HERNIA PROCEDURES AGE 0-17178Quintile 3.
164NUTRITIONAL & MISC METABOLIC DISORDERS AGE 0-17148Quintile 5.
165CESAREAN SECTION W/O CC148Quintile 5.
166LYMPHOMA & NON-ACUTE LEUKEMIA W OTHER O.R. PROC W/O CC148Quintile 5.
167MAJOR SMALL & LARGE BOWEL PROCEDURES W/O CC148Quintile 5.
169MOUTH PROCEDURES W/O CC185Quintile 3.
184FX, SPRN, STRN & DISL OF UPARM,LOWLEG EX FOOT AGE 0-17183Quintile 1.
186DENTAL & ORAL DIS EXCEPT EXTRACTIONS & RESTORATIONS, AGE 0-17185Quintile 3.
187DENTAL EXTRACTIONS & RESTORATIONS185Quintile 3.
190PERIANAL & PILONIDAL PROCEDURES189Quintile 1.
192PANCREAS, LIVER & SHUNT PROCEDURES W/O CC191Quintile 4.
194BILIARY TRACT PROC EXCEPT ONLY CHOLECYST W OR W/O C.D.E. W/O CC193Quintile 3.
196CHOLECYSTECTOMY W C.D.E. W/O CC197Quintile 3.
198CHOLECYSTECTOMY EXCEPT BY LAPAROSCOPE W/O C.D.E. W/O CC197Quintile 3.
199HEPATOBILIARY DIAGNOSTIC PROCEDURE FOR MALIGNANCY200Quintile 5.
212HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE 0-17210Quintile 5.
220LOWER EXTREM & HUMER PROC EXCEPT HIP,FOOT,FEMUR AGE 0-17218Quintile 5.
224SHOULDER,ELBOW OR FOREARM PROC,EXC MAJOR JOINT PROC, W/O CC227Quintile 3.
229HAND OR WRIST PROC, EXCEPT MAJOR JOINT PROC, W/O CC237Quintile 1.
232ARTHROSCOPY237Quintile 1.
234OTHER MUSCULOSKELET SYS & CONN TISS O.R. PROC W/O CC237Quintile 1.
252SEPTICEMIA AGE 0-17253Quintile 3.
255LIMB REATTACHMENT, HIP AND FEMUR PROC FOR MULTIPLE SIGNIFICANT TR253Quintile 3.
257TOTAL MASTECTOMY FOR MALIGNANCY W CC274Quintile 3.
258TOTAL MASTECTOMY FOR MALIGNANCY W/O CC274Quintile 3.
260SUBTOTAL MASTECTOMY FOR MALIGNANCY W/O CC274Quintile 3.
261BREAST PROC FOR NON-MALIGNANCY EXCEPT BIOPSY & LOCAL EXCISION274Quintile 3.
267MAJOR HEAD & NECK PROCEDURES271Quintile 3.
275MALIGNANT BREAST DISORDERS W/O CC274Quintile 3.
279CELLULITIS AGE 0-17273Quintile 1.
282TRAUMA TO THE SKIN, SUBCUT TISS & BREAST AGE 0-17281Quintile 1.
286EXTREME IMMATURITY292Quintile 5.
289PARATHYROID PROCEDURES63Quintile 4.
291THYROGLOSSAL PROCEDURES63Quintile 4.
298PREMATURITY W MAJOR PROBLEMS297Quintile 2.
307PROSTATECTOMY W/O CC306Quintile 2.
309MINOR BLADDER PROCEDURES W/O CC308Quintile 3.
311TRANSURETHRAL PROCEDURES W/O CC310Quintile 4.
313URETHRAL PROCEDURES, AGE >17 W/O CC312Quintile 1.
314URETHRAL PROCEDURES, AGE 0-17305Quintile 1.
322FULL TERM NEONATE W MAJOR PROBLEMS321Quintile 1.
324NEONATE W OTHER SIGNIFICANT PROBLEMS321Quintile 1.
326RECTAL RESECTION W/O CC321Quintile 1.
327RECTAL RESECTION W CC321Quintile 1.
329URETHRAL STRICTURE AGE >17 W/O CC305Quintile 1.
330URETHRAL STRICTURE AGE 0-17305Quintile 1.
333OTHER KIDNEY & URINARY TRACT DIAGNOSES AGE 0-17332Quintile 2.
335MAJOR MALE PELVIC PROCEDURES W/O CC345Quintile 5.
337TRANSURETHRAL PROSTATECTOMY W/O CC306Quintile 2.
338TESTES PROCEDURES, FOR MALIGNANCY336Quintile 2.
340TESTES PROCEDURES, NON-MALIGNANCY AGE 0-17339Quintile 4.
342CIRCUMCISION AGE >17339Quintile 4.
343CIRCUMCISION AGE 0-17339Quintile 4.
349BENIGN PROSTATIC HYPERTROPHY W/O CC339Quintile 4.
351STERILIZATION, MALE339Quintile 4.
353PELVIC EVISCERATION, RADICAL HYSTERECTOMY & RADICAL VULVECTOMY339Quintile 4.
354UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W CC339Quintile 4.
355UTERINE,ADNEXA PROC FOR NON-OVARIAN/ADNEXAL MALIG W/O CC339Quintile 4.
356FEMALE REPRODUCTIVE SYSTEM RECONSTRUCTIVE PROCEDURES339Quintile 4.
357UTERINE & ADNEXA PROC FOR OVARIAN OR ADNEXAL MALIGNANCY339Quintile 4.
358UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W CC339Quintile 4.
359UTERINE & ADNEXA PROC FOR NON-MALIGNANCY W/O CC339Quintile 4.
361LAPAROSCOPY & INCISIONAL TUBAL INTERRUPTION110Quintile 3.
362ENDOSCOPIC TUBAL INTERRUPTION110Quintile 3.
363D&C, CONIZATION & RADIO-IMPLANT, FOR MALIGNANCY110Quintile 3.
367MALIGNANCY, FEMALE REPRODUCTIVE SYSTEM W/O CC110Quintile 3.
370CESAREAN SECTION W CC369Quintile 3.
371APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W CC368Quintile 2.
372VAGINAL DELIVERY W COMPLICATING DIAGNOSES110Quintile 3.
Start Printed Page 47340
373VAGINAL DELIVERY W/O COMPLICATING DIAGNOSES110Quintile 3.
374VAGINAL DELIVERY W STERILIZATION &/OR D&C110Quintile 3.
375VAGINAL DELIVERY W O.R. PROC EXCEPT STERIL &/OR D&C110Quintile 3.
376POSTPARTUM & POST ABORTION DIAGNOSES W/O O.R. PROCEDURE110Quintile 3.
377POSTPARTUM & POST ABORTION DIAGNOSES W O.R. PROCEDURE110Quintile 3.
378ECTOPIC PREGNANCY369Quintile 3.
379THREATENED ABORTION110Quintile 3.
380ABORTION W/O D&C110Quintile 3.
381ABORTION W D&C, ASPIRATION CURETTAGE OR HYSTEROTOMY110Quintile 3.
382FALSE LABOR110Quintile 3.
383OTHER ANTEPARTUM DIAGNOSES W MEDICAL COMPLICATIONS110Quintile 3.
384OTHER ANTEPARTUM DIAGNOSES W/O MEDICAL COMPLICATIONS110Quintile 3.
385NEONATES, DIED OR TRANSFERRED TO ANOTHER ACUTE CARE FACILITY110Quintile 3.
386KIDNEY & URINARY TRACT INFECTIONS AGE 0-1787Quintile 4.
387URINARY STONES W/O CC87Quintile 4.
388PREMATURITY W/O MAJOR PROBLEMS110Quintile 3.
389KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE 0-1787Quintile 4.
390VIRAL ILLNESS & FEVER OF UNKNOWN ORIGIN AGE 0-1787Quintile 4.
391NORMAL NEWBORN110Quintile 3.
392SPLENECTOMY AGE >17197Quintile 3.
393SPLENECTOMY AGE 0-17197Quintile 3.
396RED BLOOD CELL DISORDERS AGE 0-17399Quintile 2.
402APPENDECTOMY W COMPLICATED PRINCIPAL DIAG W/O CC395Quintile 2.
405ACUTE LEUKEMIA W/O MAJOR O.R. PROCEDURE AGE 0-17404Quintile 2.
407MYELOPROLIF DISORD OR POORLY DIFF NEOPL W MAJ O.R.PROC W/O CC408Quintile 4.
411HISTORY OF MALIGNANCY W/O ENDOSCOPY110Quintile 3.
412HISTORY OF MALIGNANCY W ENDOSCOPY110Quintile 3.
414OTHER MYELOPROLIF DIS OR POORLY DIFF NEOPL DIAG W/O CC399Quintile 2.
417APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W/O CC416Quintile 3.
420FEVER OF UNKNOWN ORIGIN AGE >17 W/O CC419Quintile 4.
422ADRENAL & PITUITARY PROCEDURES419Quintile 4.
446TRAUMATIC INJURY AGE 0-17445Quintile 1.
448ALLERGIC REACTIONS AGE 0-17447Quintile 2.
450POISONING & TOXIC EFFECTS OF DRUGS AGE >17 W/O CC449Quintile 3.
451POISONING & TOXIC EFFECTS OF DRUGS AGE 0-17449Quintile 3.
455OTHER INJURY, POISONING & TOXIC EFFECT DIAG W/O CC449Quintile 3.
478OTHER VASCULAR PROCEDURES W CC110Quintile 3.
479OTHER VASCULAR PROCEDURES W/O CC110Quintile 3.
481BONE MARROW TRANSPLANT394Quintile 5.
485OTHER HEART ASSIST SYSTEM IMPLANT487Quintile 4.
492APPENDECTOMY W/O COMPLICATED PRINCIPAL DIAG W CC410Quintile 4.
494LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W/O CC493Quintile 5.
496COMBINED ANTERIOR/POSTERIOR SPINAL FUSION497Quintile 4.
498SPINAL FUSION W/O CC497Quintile 4.
504CHEMOTHERAPY W ACUTE LEUKEMIA AS SECONDARY DIAGNOSIS468Quintile 5.
518PERCUTANEOUS CARDIVASCULAR PROC W/O CORONARY ARTERY STENT OR AMI125Quintile 3.
520CERVICAL SPINAL FUSION W/O CC497Quintile 4.
522CARDIAC DEFIB IMPLANT W CARDIAC CATH W AMI/HF/SHOCK521Quintile 1.
523CARDIAC DEFIB IMPLANT W CARDIAC CATH W/O AMI/HF/SHOCK521Quintile 1.
525EXTENSIVE BURN OR FULL THICKNESS BURNS WITH MECH VENT 96+ HOURS WITH SKIN GRAFT468Quintile 5.
528INTRACRANIAL VASCULAR PROC W PDX HEMORRHAGE1Quintile 5.
530VENTRICULAR SHUNT PROCEDURES W/O CC529Quintile 5.
534EXTRACRANIAL VASCULAR PROCEDURES WITHOUT CC500Quintile 4.
535ACUTE ISCHEMIC STROKE WITH USE OF THROMBOLYTIC AGENT515Quintile 5.
536KIDNEY & URINARY TRACT SIGNS & SYMPTOMS AGE >17 W/O CC515Quintile 5.
538LOCAL EXCISION AND REMOVAL OF INTERNAL FIXATION DEVICES EXCEPT HIP AND FEMUR WITHOUT CC228Quintile 4.
540LYMPHOMA AND LEUKEMIA WITH MAJOR O.R. PROCEDURE WITHOUT CC399Quintile 2.
546SPINAL FUSION EXCEPT CERVICAL WITH CURVATURE OF SPINE OR MALIGNANCY499Quintile 5.

To illustrate this methodology for determining the relative weights for the 201 LTC-DRGs with no LTCH cases, we are providing the following examples, which refer to the no volume LTC-DRGs crosswalk information for FY 2006 provided in the chart above.

Example 1: There were no cases in the FY 2004 MedPAR file used for this final rule for LTC-DRG 163 (Hernia Procedures Age 0-17). Since the procedure is similar in resource use and the length and complexity of the procedures and the length of stay are similar, we determined that LTC-DRG 178 (Uncomplicated Peptic Ulcer Without CC), which is assigned to low-Start Printed Page 47341volume Quintile 3 for the purpose of determining the FY 2006 relative weights, would display similar clinical and resource use. Therefore, we assign the same relative weight of LTC-DRG 178 of 0.7637 (Quintile 3) for FY 2006 (Table 11 in the Addendum to this final rule) to LTC-DRG 163.

Example 2: There were no LTCH cases in the FY 2004 MedPAR file used in this final rule for LTC-DRG 91 (Simple Pneumonia and Pleurisy Age 0-17). Since the severity of illness in patients with bronchitis and asthma is similar in patients regardless of age, we determined that LTC-DRG 90 (Simple Pneumonia and Pleurisy Age >17 Without CC) would display similar clinical and resource use characteristics and have a similar length of stay to LTC-DRG 91. There were over 25 cases in LTC-DRG 90. Therefore, it would not be assigned to a low-volume quintile for the purpose of determining the LTC-DRG relative weights. However, under our established methodology, LTC-DRG 91, with no LTCH cases, would need to be grouped to a low-volume quintile. We determined that the low-volume quintile with the closest weight to LTC-DRG 90 (0.4970) (refer to Table 11 in the Addendum to this final rule) would be low-volume Quintile 1 (0.4499) (refer to Table 11 in the Addendum to this final rule). Therefore, we assign LTC-DRG 91 a relative weight of 0.4499 for FY 2006.

Furthermore, we are establishing LTC-DRG relative weights of 0.0000 for heart, kidney, liver, lung, pancreas, and simultaneous pancreas/kidney transplants (LTC-DRGs 103, 302, 480, 495, 512, and 513, respectively) for FY 2006 because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified.

Based on our research, we found that most LTCHs only perform minor surgeries, such as minor small and large bowel procedures, to the extent any surgeries are performed at all. Given the extensive criteria that must be met to become certified as a transplant center for Medicare, we believe it is unlikely that any LTCHs would become certified as a transplant center. In fact, in the nearly 20 years since the implementation of the IPPS, there has never been a LTCH that even expressed an interest in becoming a transplant center.

However, if in the future a LTCH applies for certification as a Medicare-approved transplant center, we believe that the application and approval procedure would allow sufficient time for us to determine appropriate weights for the LTC-DRGs affected. At the present time, we would only include these six transplant LTC-DRGs in the GROUPER program for administrative purposes. Because we use the same GROUPER program for LTCHs as is used under the IPPS, removing these LTC-DRGs would be administratively burdensome.

Again, we note that as this system is dynamic, it is entirely possible that the number of LTC-DRGs with a zero volume of LTCH cases based on the system will vary in the future. We used the best most recent available claims data in the MedPAR file to identify zero volume LTC-DRGs and to determine the relative weights in this final rule.

Table 11 in the Addendum to this final rule lists the LTC-DRGs and their respective relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (to assist in the determination of short-stay outlier payments under § 412.529) for FY 2006.

5. Other Public Comments Relating to the LTCH PPS Payment Policies

Comment: One commenter submitted comments that addressed aspects of the existing LTCH PPS, including the hospital-within-hospital policy, which was discussed in the FY 2005 IPPS final rule (69 FR 49191), and the June 2004 MedPAC recommendations concerning the definition of LTCHs, which was discussed in the RY 2006 LTCH PPS final rule (70 FR 5757), for which we did not propose LTCH policy changes in the FY 2006 IPPS proposed rule.

Response: Because those comments pertain to specific aspects of the existing LTCH PPS that were not specific proposed changes to the LTCH PPS presented in the FY 2006 IPPS proposed rule, we are not responding to them at this time. Rather, we believe it is more appropriate to address the issues in the annual LTCH PPS proposed and final rules. We will consider the issues raised in those comments in the context of future rulemaking for the LTCH PPS.

E. 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 under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that the process must apply to a new medical service or technology if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.”

The regulations implementing this provision establish three criteria for new medical services and techniques to receive an additional payment. First, § 412.87(b)(2) defines when a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments. The statutory provision contemplated the special payment treatment for new medical services or technologies until such time as data are available to reflect the cost of the technology in the DRG weights through recalibration. There is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market and when data reflecting the use of the medical service or technology are used to calculate the DRG weights. For example, data from discharges occurring during FY 2004 are used to calculate the FY 2006 DRG weights in this final rule. Section 412.87(b)(2) provides that a “medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered ‘new' under the criterion for this section.”

The 2-year to 3-year period during which a technology or medical service can be considered new would ordinarily begin with FDA approval, unless there was some documented delay in bringing the product onto the market after that approval (for instance, component production or drug production had been postponed until FDA approval due to shelf life concerns or manufacturing issues). After the DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the special add-on payment for new medical services or technology ceases (§ 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2004 and entered the market at that time may be eligible to receive add-on payments as a new technology until FY 2007 Start Printed Page 47342(discharges occurring before October 1, 2006), when data reflecting the costs of the technology would be used to recalibrate the DRG weights. Because the FY 2007 DRG weights will be calculated using FY 2005 MedPAR data, the costs of such a new technology would likely be reflected in the FY 2007 DRG weights.

Section 412.87(b)(3) further provides that, to receive special payment treatment, new medical services or technologies must be inadequately paid otherwise under the DRG system. To assess whether technologies would be inadequately paid under the DRGs, we establish thresholds to evaluate applicants for new technology add-on payments. In the FY 2004 IPPS final rule (68 FR 45385, August 1, 2003), we established the threshold at the geometric mean standardized charge for all cases in the DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and transformed back to charges) for all cases in the DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant DRGs, if the new medical service or technology occurs in many different DRGs). Table 10 in the Addendum to the FY 2004 IPPS final rule (68 FR 45648) listed the qualifying threshold by DRG, based on the discharge data that we used to calculate the FY 2004 DRG weights.

However, section 503(b)(1) of Pub. L. 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide for “applying a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of 1 standard deviation for the diagnosis-related group involved.” The provisions of section 503(b)(1) apply to classification for fiscal years beginning with FY 2005. We updated Table 10 from the Federal Register document that corrects the FY 2004 final rule (68 FR 57753, October 6, 2003), which contains the thresholds that we used to evaluate applications for new service or technology add-on payments for FY 2005, using the section 503(b)(1) measures stated above, and posted these new thresholds on our Web site at: http://www.cms.hhs.gov/​providers/​hipps/​newtech.asp. In the FY 2005 IPPS final rule (in Table 10 of the Addendum), we included the final thresholds that are being used to evaluate applicants for new technology add-on payments for FY 2006. (Refer to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084, August 11, 2004) for a discussion of a revision of the regulations to incorporate the change made by section 503(b)(1) of Pub. L. 108-173.)

Section 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents an advance in medical technology 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. (See the September 7, 2001 final rule, 66 FR 46902, for a complete discussion of this criterion.)

The new medical service or technology add-on payment policy provides additional payments for cases with high costs involving eligible new medical services or technologies while preserving some of the incentives under the average-based payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, Medicare pays a marginal cost factor of 50 percent for the costs of a new medical service or technology in excess of the full DRG payment. If the actual costs of a new medical service or technology case exceed the DRG payment by more than the 50-percent marginal cost factor of the new medical service or technology, Medicare payment is limited to the DRG payment plus 50 percent of the estimated costs of the new technology.

The report language accompanying section 533 of Pub. L. 106-554 indicated Congressional intent that the Secretary implement the new mechanism on a budget neutral basis (H.R. Conf. Rep. No. 106-1033, 106th Cong., 2nd Sess. at 897 (2000)). Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year at the same time we estimated the payment effect of changes to the DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts.

Section 1886(d)(5)(K)(ii)(III) of the Act, as amended by section 503(d)(2) of Pub. L. 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, add-on payments for new medical services or technologies for FY 2005 and later years will not be budget neutral.

Applicants for add-on payments for new medical services or technologies for FY 2007 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate the medical service or technology meets the high-cost threshold, no later than October 15, 2005. Applicants must submit a complete database no later than December 30, 2005. Complete application information, along with final deadlines for submitting a full application, will be available after publication of this final rule at our Web site: http://www.cms.hhs.gov/​providers/​hipps/​default.asp. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2007, the Web site will also list 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 Pub. L. 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 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 an application for add-on payments is pending.
  • Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial improvement. Start Printed Page 47343
  • 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 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 2006 before publication of the FY 2006 IPPS proposed rule, we published a notice in the Federal Register on December 30, 2004 (69 FR 78466) and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 23, 2005. 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 discussions of the substantial clinical improvement criteria for each of the FY 2006 new medical service and technology add-on payment applications before the publication of the FY 2006 IPPS proposed rule.

Approximately 45 participants registered and attended in person, while additional participants listened over an open telephone line. The participants focused on presenting data on the substantial clinical improvement aspect of their products, as well as the need for additional payments to ensure access to Medicare beneficiaries. In addition, we received written comments regarding the substantial clinical improvement criterion for the applicants. We considered these comments in our evaluation of each new application for FY 2006 in the proposed rule and in this final rule. We have summarized these comments or, if applicable, indicated that no comments were received, at the end of the discussion of the individual applications.

Section 1886(d)(5)(K)(ix) of the Act, as added by section 503(c) of Pub. L. 108-173, requires that, before establishing any add-on payment for a new medical service or technology, the Secretary shall seek to identify one or more DRGs associated with the new technology, based on similar clinical or anatomical characteristics and the costs of the technology and assign the new technology into a DRG where the average costs of care most closely approximate the costs of care using the new technology. No add-on payment shall be made with respect to such a new technology.

At the time an application for new technology add-on payments is submitted, the DRGs associated with the new technology are identified. We only determine that a new DRG assignment is necessary or a new technology add-on payment is appropriate when the reimbursement under these currently assigned DRGs is not adequate for this new technology. The criterion for this determination is the cost threshold, which we discuss below. We discuss the assignments of several new technologies within the DRG payment system in section II.B. of this final rule.

In this final rule, we evaluate whether new technology add-on payments will continue in FY 2006 for the three technologies that currently receive such payments. In addition, we present our evaluations of eight applications for add-on payments in FY 2006. The eight applications for FY 2006 include two applications for products that were denied new technology add-on payments for FY 2005.

Comment: Commenters argued that CMS' interpretation of the newness criterion is inconsistent with the statute and that, as a result, CMS is prematurely denying eligibility for many technologies. Commenters believed that instead of basing the newness criterion on FDA approval or market availability, CMS should start the 2-3 year period that a technology can be considered new from the later of the date that the technology is assigned an ICD-9-CM code or is approved by the FDA. Commenters argued that neither the statutory language nor the regulatory language refers to the date of FDA approval in determining whether a technology is new. One commenter further argued that CMS should ensure a maximum period of eligibility for new technology add-on payments that takes into account a “host of ‘newness’ factors” such as production and distribution, negotiation with hospitals, and physician education programs. The commenter proposed that CMS determine newness, based on the latest of the following dates:

  • Date of ICD-9-CM code assignment;
  • Date of FDA approval plus six months; or
  • The time/date at which 50 percent of the Fiscal Intermediaries are processing claims that include the technology in question.

The commenter further recommended that, given the numerous challenges of bringing a device to market, CMS should extend the period that a product is considered new from two to three years to four or five years.

Response: Section 1886(d)(5)(K)(vi) of the Act provides the Secretary with broad discretion to define a “new medical service or technology.” As we have indicated in prior rules (for example, see 66 FR 46914, September 7, 2001), we believe that a product should be considered new 2 to 3 years from the date a product becomes available on the market (generally from the date of FDA approval unless an applicant can demonstrate that there was a delay in making the product available on the market). Once a product becomes available on the market, hospitals that use the new technology will begin including charges for the product on their bills under either an existing or new ICD-9-CM code. These charges will be used to set the DRG relative weights two years later (that is, FY 2004 charge data are being used to set the FY 2006 DRG relative weights). Therefore, 2 to 3 years after the technology is available on the market, there will be a full year of Medicare charge data used to set the relative weights that will reflect the cost of the device. We note that a manufacturer can reasonably predict when a product will become available on the market and, if warranted, could request a new ICD-9-CM code in order to distinctly identify the new technology in our data. In the FY 2005 final rule (69 FR 49002), we provided a detailed explanation for why using the date on which a specific ICD-9-CM code is assigned to a technology is not an appropriate test of newness. In that rule, we noted that, in many instances, a technology may have been in use for several years, or even several decades, prior to the assignment of a new code (69 FR 49003). Thus, we believe it is appropriate to continue to determine newness based on the date on which a product becomes available for use in the Medicare population and the date when hospitals can begin to use either an existing or new ICD-9-CM code to bill for the new service or technology.

Comment: One commenter indicated that, because Medicare does not pay for devices during clinical trials, “little or no internal Medicare claims data exist upon which to base an initial DRG assignment for new technologies.” To address this issue, commenters suggested that CMS should accept external data while maintaining confidentiality for proprietary data. Other commenters indicated that CMS decisions regarding substantial clinical improvement have been largely subjective and made without stakeholder input. Commenters requested that CMS include “a consistent and reasonable set of requirements for manufacturers of novel technologies to meet” in order to be eligible for new technology add-on Start Printed Page 47344payments. Several commenters indicated the process for applying for new technology add-on payments is particularly burdensome for smaller companies. Commenters urged CMS to provide a preliminary assessment of substantial clinical improvement for each technology in the proposed rule, in order for the public to respond CMS' findings during the public comment period.

Response: With respect to the comment about the lack of Medicare claims data for making a DRG assignment for a new medical product, we believe that the new technology process is intended to address precisely this issue. In our evaluation of a new technology application, we consider any external data provided by the applicant to make judgments as to whether a product meets the three criteria we have established either to assign a new technology to a different DRG or to approve a new technology for add-on payments. In addition, while we generally do not pay for an experimental device itself when used as part of a clinical trial, a hospital is not precluded from including an existing or a newly assigned ICD-9-CM code or V-Codes on its bill for Medicare covered services. Thus, we have been able to successfully track devices that are (or were) in clinical trials in our MedPAR data, and have used these data to determine whether several new technologies have met the cost threshold for new technology payment. We addressed the concerns over submissions of external data and proprietary information in the FY 2005 final rule (69 FR 49004, August 11, 2004). As indicated in that rule, we are continuing to consider this issue, but we are not making any changes to our policy on the submission of external data and proprietary information at this time.

We disagree that determinations regarding applications for add-on payments are made without stakeholder input. There is ample opportunity for applicants and other interested parties to make their views known to us throughout the application process, at the public meeting, as well as during the comment period on the proposed rule. We have had numerous meetings with applicants where they have addressed our concerns and/or brought further information to our attention on the merits of their technology. Our initial new technology final rule (66 FR 46914, September 7, 2001) provides the specific guidelines we consider to determine whether a technology is a substantial clinical improvement. In that final rule, we indicated that, in order to meet the substantial clinical improvement criteria, a new technology must be able to offer a new treatment option for a patient population unresponsive to, or ineligible for, currently available treatments; diagnose a previously undetectable condition or allow for earlier diagnosis; or significantly improve clinical outcomes. We provided seven potential measures to evaluate this third standard. While our regulations provide specific criteria for evaluating substantial clinical improvement, by its very nature, this process involves judgment. Before making a final judgment about substantial clinical improvement, we carefully consider all of the information that is provided to us in a new technology application, as well as the viewpoints expressed through the public meeting, during the comment period, and in meetings with individual applicants.

We do not believe that our criteria present an inordinately cumbersome burden for smaller companies that want to apply for new technology add-on payments. Several small companies have already approached us seeking advice on how to apply for new technology add-on payments FY 2007 and later years. We encourage potential applicants to contact us before their technology is available on the market to become familiar with the new technology application process.

With respect to providing preliminary determinations of substantial clinical improvement in the proposed rule, we addressed this issue in the FY 2006 proposed rule (70 FR 23359). We indicated that our decision about new technology add-on payments follows a logical sequence of determinations, moving from the newness criterion, to the cost criterion and finally to the substantial clinical improvement criterion. Therefore, we are reluctant to import substantial clinical improvement considerations into the logically prior decisions about whether technologies satisfy the newness and cost criteria. We acknowledge that an applicant seeking new technology payment for a product expected to receive FDA approval between the proposed and final rule has an interest in knowing CMS' findings about substantial clinical improvement. Nevertheless, we believe that FDA approval of a product is a logical prior determination because substantial clinical improvement is a higher standard to meet than either of the FDA standards for allowing a product on the market. If a product does not meet the FDA standards for a pre-market (“safe and effective”) or humanitarian device exemption (“safe”) approval, it cannot be a substantial clinical improvement. While we do not believe a determination about substantial clinical improvement should be made prior to FDA approval, two applicants have received FDA approval for their products since the publication of the proposed rule. We met with these two applicants during the public comment period to discuss our concerns about substantial clinical improvement. As indicated below, we are approving both of these technologies for new technology add-on payments beginning in FY 2006.

3. FY 2006 Status of Technology Approved for FY 2005 Add-On Payments

a. INFUSE® (Bone Morphogenetic Proteins (BMPs) for Spinal Fusions)

INFUSETM was approved by FDA for use on July 2, 2002, and became available on the market immediately thereafter. In the FY 2004 IPPS final rule (68 FR 45388), we approved INFUSE® for add-on payments under § 412.88, effective for FY 2004. This approval was on the basis of using INFUSE® for single-level, lumbar spinal fusion, consistent with the FDA's approval and the data presented to us by the applicant. Therefore, we limited the add-on payment to cases using this technology for anterior lumbar fusions in DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical Without CC). Cases involving INFUSE® that are eligible for the new technology add-on payment are identified by assignment to DRGs 497 and 498 as a lumbar spinal fusion, with the combination of ICD-9-CM procedure codes 84.51 (Insertion of interbody spinal fusion device) and 84.52 (Insertion of recombinant bone morphogenetic protein).

The FDA approved INFUSE® for use on July 2, 2002. For FY 2005, INFUSE® was still within the 2-year to 3-year period during which a technology can be considered new under the regulations. Therefore, in the FY 2005 IPPS final rule (69 FR 49007 through 49009), we continued add-on payments for FY 2005 for cases receiving INFUSE® for spinal fusions in DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical Without CC).

As we discussed in the new technology final rule (66 FR 46915), September 7, 2001 an approval of a new technology for special payment should extend to all technologies that are substantially similar. Otherwise, our payment policy would bestow an advantage to the first applicant to receive approval for a particular new Start Printed Page 47345technology. In last year's final rule (69 FR 49008), we discussed another product, called OP-1 Putty, manufactured by Stryker Biotech, that promotes natural bone growth by using a closely related bone morphogenetic protein called rhBMP-7. (INFUSE® is rhBMP-2.) We also stated in last year's final rule that we had determined that the costs associated with the OP-1 Putty are similar to those associated with INFUSE®. Because the OP-1 Putty became available on the market in May 2004 (when it received FDA approval for spinal fusions) for similar spinal fusion procedures and because this product also eliminates the need for the autograft bone surgery, we extended new technology add-on payments to this technology as well for FY 2005.

As noted above, the period for which technologies are eligible to receive new technology add-on payments is 2 to 3 years after the product becomes available on the market and data reflecting the cost of the technology are reflected in the DRG weights. The FDA approved INFUSE® bone graft on July 2, 2002. Therefore, data reflecting the cost of the technology are now reflected in the DRG weights. In addition, by the end of FY 2005, the add-on payment will have been made for 2 years. Therefore, as we proposed, we are discontinuing new technology add-on payment for INFUSE® for FY 2006. Because we apply the same policies in making new technology payment for OP-1 Putty as we do for INFUSE®, we are also discontinuing new technology add-on payment for OP-1 Putty for FY 2006.

Comment: Several commenters agreed with our proposal to terminate add-on payment for INFUSE® bone graft for spinal fusions.

Response: We are finalizing our proposal to terminate new technology add-on payments for INFUSE® bone graft for spinal fusions in this final rule.

b. InSync® Defibrillator System (Cardiac Resynchronization Therapy with Defibrillation (CRT-D))

Cardiac Resynchronization Therapy (CRT), also known as bi-ventricular pacing, is a therapy for chronic heart failure. A CRT implantable system provides electrical stimulation to the right atrium, right ventricle, and left ventricle to coordinate or resynchronize ventricular contractions and improve cardiac output.

In the FY 2005 IPPS final rule (69 FR 49016), we determined that cardiac resynchronization therapy with defibrillator (CRT-D) was eligible for add-on payments in FY 2005. Cases involving CRT-D that are eligible for new technology add-on payments are identified by either one of the following two ICD-9-CM procedure codes: 00.51 (Implantation of Cardiac Resynchronization Defibrillator, Total System (CRT-D)) or 00.54 (Implantation or Replacement of Pulse Generator Device Only (CRT-D)). InSync® Defibrillation System received FDA approval on June 26, 2002. However, another manufacturer, Guidant, received FDA approval for its CRT-D device on May 2, 2002. As we discussed in the new technology final rule (66 FR 46915, September 7, 2001), an approval of a new technology for special payment should extend to all technologies that are substantially similar. Otherwise, our payment policy would bestow an advantage to the first applicant to receive approval for a particular new technology. In the FY 2005 final rule, we also noted that we would extend new technology add-on payments for CRT-D for the entire FY 2005 even though the 2-3 year period of newness ended in May 2005 for CRT-D. Predictability is an important aspect of the prospective payment methodology and, therefore, we believe it is appropriate to apply a consistent payment methodology for new technologies throughout the fiscal year (69 FR 49016).

As noted in the FY 2005 IPPS final rule (69 FR 49014), because CRT-Ds were available upon the initial FDA approval in May 2002, we considered the technology to be new from this date. As a result, for FY 2006, the CRT-D will be beyond the 2-3 year period during which a technology can be considered new. Therefore, as we proposed, we are discontinuing add-on payments for the CRT-D for FY 2006.

Comment: One commenter thanked CMS for approving add-on payments for the CRT-D. The commenter also indicated that add-on payment for this device had contributed significantly to patient access and broader physician adoption of this new treatment. Another commenter requested that CMS continue to make add-on payment for CRT-D to avoid financial problems that hospitals will experience if payment is ceased.

Response: We appreciate the commenter's support of our decision to approve add-on payments for CRT-D. Consistent with section 1886(d)(5)(K)(ii) of the Act, the regulations do not permit us to extend payment for CRT-D beyond the 2-3 year period during which a technology can be considered new. Therefore, we are finalizing our proposal to discontinue add on payments for the CRT-D in FY 2006.

c. Kinetra® Implantable Neurostimulator for Deep Brain Stimulation

Medtronic, Inc. submitted an application for approval of the Kinetra® implantable neurostimulator device for new technology add-on payments for FY 2005. The Kinetra® device was approved by the FDA on December 16, 2003. The Kinetra® implantable neurostimulator is designed to deliver electrical stimulation to the subthalamic nucleus (STN) or internal globus pallidus (GPi) in order to ameliorate symptoms caused by abnormal neurotransmitter levels that lead to abnormal cell-to-cell electrical impulses in Parkinson's Disease and essential tremor. Before the development of Kinetra®, treating bilateral symptoms of patients with these disorders required the implantation of two neurostimulators (in the form of a product called SoletraTM, also manufactured by Medtronic): one for the right side of the brain (to control symptoms on the left side of the body), the other for the left side of the brain (to control symptoms on the right side of the body). Additional procedures were required to create pockets in the chest cavity to place the two generators required to run the individual leads. The Kinetra® neurostimulator generator, implanted in the pectoral area, is designed to eliminate the need for two devices by accommodating two leads that are placed in both the left and right sides of the brain to deliver the necessary impulses. The manufacturer argued that the development of a single neurostimulator that treats bilateral symptoms provides a less invasive treatment option for patients, and simpler implantation, followup, and programming procedures for physicians.

The FDA approved the device in December 2003. Therefore, for FY 2006, Kinetra® qualifies under the newness criterion because FDA approval was within the statutory timeframe of 2 to 3 years and its costs are not yet reflected in the DRG weights. Because there were no data available to evaluate costs associated with Kinetra®, in the FY 2005 IPPS final rule, we conducted the cost analysis using SoletraTM, the predecessor technology used to treat this condition, as a proxy for Kinetra®. The preexisting technology provided the closest means to track cases that have actually used similar technology and served to identify the need and use of the new device. The manufacturer informed us that the cost of the Kinetra® device is twice the price of a single SoletraTM device. Because most patients would receive two SoletraTM devices if the Kinetra® device is not implanted, Start Printed Page 47346we believed data regarding the cost of SoletraTM would give a good measure of the actual costs that would be incurred. Medtronic submitted data for 104 cases that involved the SoletraTM device (26 cases in DRG 1 (Craniotomy Age > 17 With CC), and 78 cases in DRG 2 (Craniotomy Age > 17 Without CC)). These cases were identified from the FY 2002 MedPAR file using procedure codes 02.93 (Implantation, intracranial neurostimulator) and 86.09 (Other incision of skin and subcutaneous tissue). In the analysis presented by the applicant, the mean standardized charges for cases involving SoletraTM in DRGs 1 and 2 were $69,018 and $44,779, respectively. The mean standardized charge for these SoletraTM cases according to Medtronic's data was $50,839.

Last year, we used the same procedure codes to identify 187 cases involving the SoletraTM device in DRGs 1 and 2 in the FY 2003 MedPAR file. Similar to the Medtronic data, 53 of the cases were found in DRG 1, and 134 cases were found in DRG 2. The average standardized charges for these cases in DRGs 1 and 2 were $51,163 and $44,874, respectively. Therefore, the case-weighted average standardized charges for cases that included implantation of the SoletraTM device were $46,656. The new cost thresholds established under the revised criteria in Pub. L. 108-173 for DRGs 1 and 2 are $43,245 and $30,129, respectively. Accordingly, the case-weighted threshold to qualify for new technology add-on payment, using the data we identified, was determined to be $33,846. Under this analysis, Kinetra® met the cost threshold.

We note that an ICD-9-CM code was approved for dual array pulse generator devices, effective October 1, 2004, for IPPS tracking purposes. The new ICD-9-CM code assigned to this device is 86.95 (Insertion or replacement of dual array neurostimulator pulse generator), which includes dual array and dual channel generators for intracranial, spinal, and peripheral neurostimulators. The code does not separately identify cases with the Kinetra® device and is only used to distinguish single versus dual channel-pulse generator devices. Because the code only became effective on October 1, 2004, we do not have any specific data regarding the costs of cases involving dual array pulse generator devices.

The manufacturer claimed that Kinetra® provides a range of substantial improvements beyond previously available technology. These include a reduced rate of device-related complications and hospitalizations or physician visits and less surgical trauma because only one generator implantation procedure is required. Kinetra® has a reed switch disabling function that physicians can use to prevent inadvertent shutoff of the device, as occurs when accidentally tripped by electromagnetic inference (caused by common products such as metal detectors and garage door openers). Kinetra® also provides significant patient control, allowing patients to monitor whether the device is on or off, to monitor battery life, and to fine-tune the stimulation therapy within clinician-programmed parameters. While Kinetra® provides the ability for patients to better control their symptoms and reduce the complications associated with the existing technology, it does not eliminate the necessity for two surgeries. Because the patients who receive the device are often frail, the implantation generally occurs in two phases: The brain leads are implanted in one surgery, and the generator is implanted in another surgery, typically on another day. However, implanting Kinetra® does reduce the number of potential surgeries compared to its predecessor (which requires two surgeries to implant the two single-lead arrays to the brain and an additional surgery for implantation of the second generator). Therefore, the Kinetra® device reduces the number of surgeries from 3 to 2.

Last year, we solicited comments on (1) the issue of whether the device is sufficiently different from the previously used technology to qualify as a substantially improved treatment for the same patient symptoms; (2) the cost of the device; and (3) the approval of the device for add-on payment, given the uncertainty over the frequency with which the patients receiving the device have the generator implanted in a second hospital stay, and the frequency with which this implantation occurs in an outpatient setting. In response, we received sufficient evidence to demonstrate that Kinetra® does represent a substantial clinical improvement over the previous SoletraTM device. Specifically, the increased patient control, reduced surgery, fewer complications, and elimination of environmental interference significantly improve patient outcomes. Therefore, we approved Kinetra® for new technology add-on payments for FY 2005.

Cases receiving Kinetra® for Parkinson's disease or essential tremor on or after October 1, 2004, are eligible to receive an add-on payment of up to $8,285, or half the cost of the device, which is approximately $16,570. These cases are identified by the presence of procedure codes 02.93 (Implantation or replacement of intracranial neurostimulator leads) and 86.95 (Insertion or replacement of dual array neurostimulator pulse generator). If a claim has only the procedure code identifying the implantation of the intracranial leads, or if the claim identifies only insertion of the generator, no add-on payment will be made.

This technology received FDA approval on December 16, 2003, and remains within the 2 to 3 year period during which it can be considered new. Therefore, as we proposed, we are continuing add-on payments for Kinetra® Implantable Neurostimulator for deep brain stimulation for FY 2006.

Comment: Several commenters supported our decision to continue add-on payments for Kinetra® Implantable Neurostimulator for deep brain stimulation for FY 2006.

Response: In this final rule, we are finalizing our proposal to continue add-on payments for the Kinetra® Implantable Neurostimulator for deep brain stimulation for FY 2006.

4. FY 2006 Applications for New Technology Add-On

a. INFUSE® Bone Graft (Bone Morphogenetic Proteins (BMPs) for Tibia Fractures)

Bone Morphogenetic Proteins (BMPs) have been shown to have the capacity to induce new bone formation and, therefore, to enhance the healing of fractures. Using recombinant techniques, some BMPs (also referred to as rhBMPs) can be produced in large quantities. This innovation has cleared the way for the potential use of BMPs in a variety of clinical applications such as in delayed union and nonunion of fractured bones and spinal fusions. One such product, rhBMP-2, is developed as an alternative to bone graft with spinal fusions.

Medtronic Sofamor Danek (Medtronic) resubmitted an application (previously submitted for consideration for FY 2005) for a new technology add-on payment in FY 2006 for the use of INFUSE® Bone Graft in open tibia fractures. In cases of open tibia fractures, INFUSE® is applied using an absorbable collagen sponge, which is then applied to the fractured bone to promote new bone formation and improved healing. The manufacturer contends that patient access to this technology is restricted due to the increased costs of treating these cases with INFUSE®. The FDA approved use Start Printed Page 47347of INFUSE® for open tibia fractures on April 30, 2004.

Medtronic's first application for a new technology add-on payment for INFUSE® Bone Graft in open tibia fractures was denied. As we discussed in the FY 2005 IPPS final rule (69 FR 49010), the FY 2005 application for INFUSE® for open tibia fractures was denied because a similar product, OP-1, was approved in 2001 for the treatment of nonunion of tibia fractures.

Comment: In comments presented at the February 2005 new technology town hall meeting, Medtronic contended that there was no opportunity for public comment on our decision that INFUSE® for open tibia fractures was substantially similar to OP-1 Implant for recalcitrant long bone non-unions. Medtronic stated that “the public had no opportunity to comment on whether the follow-on products were ‘substantially similar’ to the primary technologies under consideration. The absence of such provisions led to unpredictability and confusion about the new-technology add-on program.”

Response: In the FY 2005 IPPS final rule, we noted that a commenter brought the existence of the Stryker Biotech OP-1 product to our attention during the comment period on the IPPS proposed rule for FY 2005. The commenter noted OP-1's clinical similarity to INFUSE® and contended that the products should be treated the same with respect to new technology payments when the product is used for tibia fractures. At that time, we determined that, despite the differences in indications under the respective FDA approvals, the two products were in use for many of the same kinds of cases. Specifically, clinical studies on the safety of OP-1 included patients with complicated fractures of the tibia, and those cases were similar to the cases described in the clinical trials for INFUSE® for open tibia fractures. In addition, cases involving the use of OP-1 for long bone union and open tibia fractures are assigned to the same DRGs (DRGs 218 and 219 (Lower Extremity Procedures With and Without CC, respectively)) as cases involving INFUSE®. Therefore, we denied new technology add-on payments for INFUSE® for open tibia fractures for FY 2005 on the grounds that technology using bone morphogenetic proteins to treat severe long bone fractures (including open tibia fractures) and recalcitrant long bone fractures had been in use for more than 3 years.

We note that Medtronic had ample opportunity, prior to the issuance of the FY 2005 IPPS final rule, to bring to our attention the fact that there was a similar product on the market that was being used in long bone fractures and to explain why this product should not affect our consideration of the application for new technology add-on payments for INFUSE®. We based our decision for FY 2005 on the record that was placed at our disposal by the applicant and by commenters during the comment period. Nevertheless, we have considered the issues raised by these two products again in the course of evaluating Medtronic's new application for approval of INFUSE® for open tibia fractures for new technology add-on payments in FY 2006.

As part of its FY 2006 application, Medtronic advanced several arguments designed to demonstrate that OP-1 and INFUSE® are substantially different. The application cites data from several studies as evidence of the clinical superiority of INFUSE® over OP-1. Medtronic presented studies at the February 2005 new technology town hall meeting to provide evidence that INFUSE® is superior to OP-1 in the time it takes for critical-sized defects to heal: in radiographic assessment and mechanical testing of the repaired bone; and in histology of the union for trial subjects receiving INFUSE® compared with OP-1. (Study subjects were canines whose ulnas had 2.5 cm each of bone removed and then equal amounts of OP-1 and INFUSE® were put into the front legs in a head to head trial.) Medtronic has also argued that these studies demonstrate that OP-1 has been shown to be less effective than using the patient's own bone or the current standard of care (nail fixation with soft tissue medical management). Medtronic argued that the INFUSE® product is not only superior to OP-1 for patients with open tibia fractures, but also that it is superior to any other treatment for these serious injuries.

Medtronic also pointed out that the FDA approved OP-1 for Humanitarian Device Exemption (HDE) status, whereas INFUSE® received a Pre-Market Approval (PMA). To receive HDE approval, a product only needs to meet a safety standard, while standards of both safety and efficacy have to be met for a PMA approval. Medtronic argued that, because the only point the manufacturer of OP-1 was able to prove was that it did not harm those individuals that received it, the efficacy of OP-1 not only has not been demonstrated for the general population, but also more specifically, it has not been proven in the Medicare population. Medtronic presented arguments that INFUSE® is a superior product to OP-1 because the INFUSE® product has demonstrated safety and efficacy, while the OP-1 product has merely demonstrated that it is safe to use in humans. Medtronic pointed to the labeled indications and package inserts provided with the two products, stating that only INFUSE® provides a substantial clinical improvement to patients receiving a BMP product.

We do not believe that the different types of FDA approvals for the two products are relevant to distinguish between the two products in determining whether either product should be considered for new technology add-on payments under the IPPS. Manufacturers seek different types of FDA approval for many different reasons, including timing, the availability of adequate studies, the availability of resources to pursue research studies, and the size of the patient population that may be affected. The FDA has stated that the HDE approval process was established to address cases involving devices used in the treatment or diagnosis of diseases affecting fewer than 4,000 individuals in the United States per year: “A device manufacturer's research and development costs could exceed its market returns for diseases or conditions affecting small patient populations. FDA, therefore, developed and published [the regulation establishing the HDE process] to provide an incentive for the development of devices for use in the treatment or diagnosis of diseases affecting these populations.” (http://www.accessdata.fda.gov/​scripts/​cdrh/​cfdocs/​cfHDE/​HDEInformation.cfm) The fact that two products received different types of approval does not demonstrate either that they are substantially different for purposes of new technology add-on payments, or that one is new and the other is not. Nor do the different types of FDA approval imply that one product could meet our substantial clinical improvement criterion and the other could not. Neither type of FDA approval requires that products establish substantial clinical improvement over existing technologies, as is required for approval of new technology add-on payments. Theoretically, a product that receives an FDA HDE approval could subsequently meet our substantial clinical improvement criterion, while a product that receives an FDA PMA approval could fail to do so. We base our substantial clinical improvement determinations on the evidence presented in the course of the application process, and not on the type of FDA approval.

For purposes of determining whether the use of rhBMPs for open tibia fracture Start Printed Page 47348represents a new technology, the crucial consideration is whether the costs of this technology are represented in the weights of the relevant DRGs. Cases that involve treatment of non-healed and acute tibia fractures fall into the same DRGs. We have identified 10,047 cases involving the use of rhBMPs in the FY 2004 MedPAR data file. This use includes the approved indications for INFUSE® in spinal fusions (6,712 cases) and tibia DRGs (77 cases). However, we note that an additional 3,258 cases involving the off-label use of rhBMPs were found in 47 DRGs in the FY 2004 MedPAR data. We also note that, in our analysis of the FY 2003 MedPAR data, an additional 890 cases of off-label use (identified by the presence of ICD-9-CM code 84.52) were found in 36 DRGs. Therefore, we note that the use of rhBMPs, made by Medtronic or otherwise, has penetrated the cost data that were used to set the FY 2005 and FY 2006 DRG weights. Even if it were possible to differentiate between patients who would be eligible to receive the OP-1 Implant for nonunions or the INFUSE® bone graft for open tibia fractures, the patient populations both fall into the same DRGs. In addition, as we stated in last year's final rule in connection with our decision to make add-on payments for both products when used for spinal fusions, we have determined that the costs associated with the two products are comparable (69 FR 49009). Therefore, because BMP products have been used in treating both types of fractures included in the same DRGs since 2001, we continue to believe that the hospital charge data used in developing the relative weights of the relevant DRGs reflect the costs of these products.

Prior to the publication of the FY 2006 IPPS proposed rule, we received the following public comments on the application for add-on payments for FY 2006.

Comment: In our Federal Register announcement of the February 23, 2005 new technology town hall meeting, held on February 23, 2005, we solicited comments on the issue of when products should be considered substantially similar. As a result, Medtronic recommended several criteria for determining whether two or more products are substantially similar and requested that we apply these criteria in determining whether OP-1 and INFUSE® are similar for new technology add-on payment purposes. The three criteria recommended by Medtronic are:

  • The technologies or services in question use the same, or a similar, mechanism of action to achieve the therapeutic outcome.
  • The technologies or services are indicated for use in the same population for the same condition.
  • The technologies or services achieve the same level of substantial improvement.

Medtronic also argued that, according to its proposed criteria, OP-1 would fail on two of the three proposed tests for substantial similarity:

  • According to Medtronic, the OP-1 implant “arguably” uses the same or a similar mechanism of action to achieve the therapeutic outcome.
  • OP-1 and INFUSE® are indicated for use in different populations and different conditions. According to Medtronic, INFUSE® Bone Graft has an indication for acute, open tibia fractures only, used within 14 days, and is to be used with an intramedullary (IM) nail as part of the primary procedure. There is no limitation on the number of patients that can receive the technology. OP-1 Implant is indicated only for recalcitrant long-bone non-unions that have failed to heal. The HDE approval also specifies that use of OP-1 is limited to secondary procedures (as would be expected with nonunions). The number of patients able to receive the device is limited to 4,000 patients per year and there is oversight from an Institutional Review Board.
  • Medtronic argues the products do not achieve the same level of substantial improvement (as discussed above).

Response: We agree with Medtronic that its first proposed criterion has some relevance in determining whether products are substantially similar. In evaluating the application for new technology add-on payments for INFUSE® for open tibia fractures last year, we made the determination that, while these products are not identical chemically, the products do use the same mechanism of action to achieve the therapeutic outcome. However, we do not agree that the other two criteria recommended by Medtronic should be controlling considerations for this purpose. As we have discussed above, we believe that whether cases involving different products are assigned to the same DRGs is a more relevant consideration than whether the products have the same specific indications. In addition, as we have already stated, we continue to believe that the hospital charge data used in developing the relative weights of the relevant DRGs reflect the costs of both of these products. Furthermore, we do not necessarily agree that considerations about the degrees of clinical improvements offered by different products should enter into decisions about whether products are new. We have always based our decisions about new technology add-on payments on a logical sequence of determinations, moving from the newness criterion to the cost criterion and finally to the substantial clinical improvement criterion. Specifically, we do not make determinations about substantial improvement unless a product has already been determined to be new and to meet the cost criterion. Therefore, we are reluctant to import substantial clinical improvement considerations into the logically prior decision about whether technologies are new. Furthermore, while we may sometimes need to make separate determinations about whether similar products meet the substantial clinical improvement criterion, we do not believe that it would be appropriate to make determinations about whether one product or another is clinically superior.

Comment: In response to our request for comments on the issue of substantial similarity in the Federal Register announcement of the new technology town hall meeting, Medtronic also suggested revisions to the application process that are designed to assist in identifying substantially similar products and provide the public with opportunity for comment on specific instances in which substantial similarity is an issue. The suggested proposed revisions are:

  • After receipt of all new applications for a fiscal year, CMS should publish a Federal Register notice specifically asking manufacturers to identify if they wish to receive consideration for products that may be substantially similar to applications received. Such notice would probably occur in January. Responses would be required by a date certain in advance of the new technology town hall meeting, and would include justification of how the products meet the “substantial similarity” criteria.
  • The new technology town hall meeting should include a discussion of products identified by manufacturers as “substantially similar” to other approved products or pending applications.
  • CMS should publish initial findings about “substantial similarity” in the proposed hospital inpatient rule, with opportunity for public comment.
  • CMS should publish ultimate findings in the inpatient final rule.

Alternatively, Medtronic suggested that, if a manufacturer identifies a product that may be substantially similar to a technology with an approved add-on payment, the manufacturer may choose to submit an Start Printed Page 47349application under the normal deadlines for the add-on payment program.

Response: We appreciate Medtronic's suggestions for evaluating similar technologies for new technology add-on payment. We have stated on several occasions that we wish to avoid creating situations in which similar products receive different treatment because only one manufacturer has submitted an application for new technology add-on payments. As we discussed in the new technology final rule (66 FR 46915), an approval of a new technology for special payment should extend to all technologies that are substantially similar. Otherwise, our payment policy would bestow an advantage to the first applicant to receive approval for a particular new technology.

In addition, we note that commenters on the FY 2005 proposed rule placed a great deal of emphasis on the fact that many manufacturers developing new technologies are not aware of the existence of the add-on payment provision or lack the resources to apply for add-on payment. Therefore, commenters on that proposed rule argued that the regulations we have established are already too stringent and cumbersome, especially for small manufacturers to access the new technology add-on payment process. The proposal by Medtronic would place further burden on these small manufacturers, both to know that an application has been made for a similar product and to make representations on a product that may or may not be on the market. Therefore, we are reluctant to adopt a process that places the formal burden on a competitor to seek equal treatment. However, in the FY 2006 IPPS proposed rule, we solicited comments on the use of substantial similarity to determine whether products qualify for new technology add-on payments while we continued to consider these issues. The comments we received in response to this request are addressed below in our discussion of substantial similarity.

We note that, in support of its application for add-on payments for FY 2006, Medtronic submitted data on 236 cases using INFUSE® for open tibia fractures in the FY 2003 MedPAR data file, as identified by procedure code 79.36 (Reduction, fracture, open, internal fixation, tibia and fibula) and diagnosis codes of either 823.30 (Fracture of tibia alone, shaft, open) or 823.32 (Fracture of fibula and tibia, shaft, open). Medtronic also noted that the patients in clinical trials with malunion fractures (diagnosis code 733.81) or nonunion fractures (diagnosis code 733.82) would also be likely candidates to receive INFUSE®. Based on the data submitted by the applicant, INFUSE® would be used primarily in two different DRGs: 218 and 219 (Lower Extremity and Humerus Procedures Except Hip, Foot, Femur Age > 17, With and Without CC, respectively). The analysis performed by the applicant resulted in a case-weighted cost threshold of $24,461 for these DRGs. The average case-weighted standardized charge for cases using INFUSE® in these DRGs would be $39,537. Therefore, the applicant maintains that INFUSE® for open tibia fractures meets the cost criterion.

However, because the costs of INFUSE® and OP-1 are already reflected in the relevant DRGs, these products cannot be considered new. Therefore, in the FY 2006 IPPS proposed rule we proposed to deny new technology add-on payments for INFUSE® bone graft for open tibia fractures for FY 2006.

During the 60-day comment period on the FY 2006 IPPS proposed rule, we received the following comments on this application:

Comment: Several commenters wrote to support the application for INFUSE® bone graft for open tibia fractures for new technology add-on payments. These commenters disagreed with our assertion that the costs for this technology are adequately reflected in the DRG weights. The commenters argued that the data include few claims for OP-1 and do not justify denying add-on payments to INFUSE®. Further, commenters argued that the different types of FDA approval are relevant to the discussion of newness and substantial clinical improvement of the BMP products. Commenters pointed to the limited number of cases that would have been eligible to receive OP-1 due to its limited FDA humanitarian device exemption (HDE) approval. Commenters noted that an HDE approval limits the number of patients that can receive the product to 4,000 patients, and therefore the costs of the cases are not adequately reflected in the DRG weights. According to the commenters, CMS' own analysis supports this point because there were only 77 cases in the FY 2004 MedPAR data, indicating that a patient received a BMP product with no mention as to whether there were any cases in the relevant DRGs for FY 2003. Therefore, commenters argued, the technology is not used frequently enough to be adequately reflected in the DRG weights. In addition, commenters argued that OP-1 is only indicated for non-union fractures while INFUSE® is for open tibia fractures.

Response: We appreciate the commenters' input on this technology. However, we continue to believe that INFUSE® is not a new product because of its substantial similarity to OP-1. These products are both designed to promote healing of broken bones even though they are FDA approved for somewhat different indications. Furthermore, treatment of open tibia fractures and non-unions of tibia fractures will be paid using the same DRGs. Because the OP-1 Implant received FDA approval in 2001 and INFUSE® is a similar product that will be included in the same DRG, we do not believe that the product can be considered new for the purposes of new technology add-on payments. While the commenters argue that the MedPAR data do not include a sufficient number of cases for CMS to argue that payment for BMP products are included in the DRG weights, we do not believe that case volume is a relevant consideration for making the determination as to whether a product is new. Consistent with the statute, a technology no longer qualifies as new once it is more than 2 to 3 years old irrespective of how frequently it has been used in the Medicare population. Thus, if a product is more than 2 to 3 years old, we consider its costs to be included in the DRG relative weights whether its use in the Medicare population has been frequent or infrequent. We also recognize that, without financial incentive to code BMPs, it is possible that hospitals may not have included procedure code 84.52 on hospital bills for all instances when a BMP product was used. Therefore, the incidence of actual use of BMPs for this period may be higher than shown in the Medicare data. Nevertheless, even though hospitals may not have coded all uses of procedure code 84.52, hospital bills would still include charges for all items and services furnished to a Medicare patient including use of a BMP product. Therefore, even though we may be not be able to identify all uses of a BMP product in the Medicare charge data, hospital charges for the DRG would continue to reflect use of these products. In addition, we note that open tibia fractures are not common among the elderly population, and we would therefore not expect to find a high incidence of these cases in the MedPAR data. Also, given the penetration that BMPs have made in DRGs 219 and 220, in addition to many other DRGs, we believe that the BMP technology is adequately reflected in our MedPAR data that were used to recalibrate the DRG weights for FY 2006. Therefore, the Start Printed Page 47350technology can no longer be considered new for the purposes of new technology add-on payments. In this final rule, we are finalizing our proposal to deny add-on payments for INFUSE® bone graft for tibia fractures.

Comment: As discussed above, prior to publication of the FY 2006 IPPS proposed rule, we received a comment offering suggestions for how to define when products are “substantially similar.” We responded to this comment in the proposed rule (70 FR 23359), and indicated that we welcomed further comments on this issue. Several commenters raised concerns about CMS' responses to this comment.

One commenter indicated that CMS “is using the determination of ‘substantial similarity' as a basis to support a preliminary determination that these technologies are ‘not new’ * * * when no such criter[ion] exists in the threshold criteria.” Another commenter indicated that the discussion of substantial similarity creates confusion between the issue of substantial similarity and the three add-on payment criteria. This commenter indicated that the discussion of this issue in the proposed rule implies that substantial similarity is a subfactor of the newness criterion, while prior rules have implied that it is a subfactor of the substantial clinical improvement criterion or a replacement for all three criteria. To support this point, the commenter stated that the new technology final rule (66 FR 46915) indicates that a substantially similar technology would still be required to submit data showing that the technology was inadequately paid and meets the criterion for being new, thus implying that substantial similarity is a subfactor of the substantial clinical improvement criterion. The commenter referenced the discussion in the FY 2005 IPPS final rule (69 FR 49008-49009) indicating that new technology add-on payments would be extended to OP-1 putty without the submission of an application for add-on payments as evidence that substantial similarity has replaced all three criteria. Commenters further expressed concern over the detrimental effects that this standard could have, denying patient access to therapies “merely because the therapy has the same mechanism of action as an existing treatment.” These commenters recommended that CMS eliminate substantial similarity from our new technology add-on payment deliberations, and grant add-on payments based solely on whether a product satisfies the newness, cost, and substantial clinical improvement criteria specified in the regulations.

Other commenters noted that CMS has no way to distinguish between manufacturers when similar products use the same ICD-9-CM codes. Therefore, the commenters argued, there is no need for competitors to apply for their own new technology add-on payment if a product has already been approved for add-on payments, despite the language contained in the new technology final rule stating that the manufacturers of substantially similar products would be required to file a separate application for add-on payment (66 FR 46915).

Response: With respect to the discussion of substantial similarity in the new technology final rule, we did indicate that a manufacturer of a substantially similar product would have to submit an application to be awarded add-on payments. However, we note that this statement was made without any actual experience with the implementation of section 1886(d)(5)(K) of the Act. After reviewing and approving technologies for add-on payment for several years, we have found that our original policy did not adequately reflect the fact that substantially similar products will use the same ICD-9-CM codes and that it would be impractical to create manufacturer-specific codes and also require each manufacturer to submit separate applications for products that are essentially the same. Moreover, given that we cannot distinguish one manufacturer from another when substantially similar technologies use the same ICD-9-CM code, there is no practical purpose for manufacturers of substantially similar products to apply separately for new technology add-on payments. Therefore, we have not required that an application for add-on payments be submitted for a substantially similar product that uses the same ICD-9-CM code as a product that has previously been approved for add-on payments. In addition, we have made an effort to identify competitors that might be eligible to receive new technology add-on payments for their devices. In fact, we note that we have discussed several such technologies in this year's and previous years' rules and have allowed for add-on payments for particular, new classes of technologies that fall within the same ICD-9-CM code (for example, CRT-D).

We believe that these commenters raise interesting and complex policy issues regarding the application of the new technology add-on payment policy to products that are substantially similar. While the commenters generally appear to agree with our policy when we have extended new technology add-on payments to substantially similar products, they appear to disagree with our application of the concept of substantial similarity when we have denied add-on payments. (We note that one commenter disagreed with both the decision to extend new technology add-on payments to OP-1 for spinal fusions and the decision to deny them to INFUSE® for tibia fractures on the basis of substantial similarity. Nevertheless, this same commenter has also asked us to use the concept of substantial similarity to extend new technology add-on payments to the Talent Endovascular Stent Graft.

This apparent policy contradiction is illustrated with the example of INFUSE® and OP-1. We extended new technology add-on payments to OP-1 for spinal fusions without a separate application because of its substantial similarity to INFUSE® and without specifically finding that the product met all three criteria for add-on payments. We determined that OP-1 putty was substantially similar to another product that had been approved for new technology add-on payments. OP-1 putty was clearly new given the date it was approved by the FDA and was substantially similar to another new product that had been approved for new technology add-on payments. However, because the technology of using BMPs for spinal fusions had already been found to meet the newness, cost and substantial clinical improvement criteria, we did not separately address these criteria. Rather, after determining that the two products were substantially similar, we extended the approval of add-on payments to OP-1. The commenters appear to agree with this decision and the concept of extending new technology add-on payments to substantially similar products so that our payment policy does not bestow an advantage to the first applicant representing a particular new technology to receive approval. However, the commenters appear to disagree with our denial of new technology add-on payments to INFUSE® for tibia fractures on the basis of its substantial similarity to OP-1. Because OP-1 Implant for recalcitrant long bone unions had been in use for 3 years and the costs for this technology had been included in the weights for the DRGs where cases involving INFUSE® for tibia fractures are assigned, in the final rule for FY 2005, we determined that INFUSE® could not longer be considered “new.” (69 FR 49012).

We believe that the concept of substantial similarity needs to be applied consistently both in the context of extending and denying new Start Printed Page 47351technology add-on payments. Thus, we believe it is important to clarify whether a finding of substantial similarity among products constitutes only a decision about the newness criterion or about all three criteria. One commenter indicated that our decision to extend new technology add-on payments to OP-1 for spinal fusions because of its similarity to INFUSE® implies that our determination on substantial similarity replaced consideration of the three criteria. This commenter and others believed, however, that our determination on substantial similarity between OP-1 and INFUSE® for tibia fractures implies that we are applying the concept as a subfactor of newness.

In both cases, we only made a determination about the similarity of the products and did not specifically make a finding as to whether all three criteria for add-on payments were met. When we denied new technology add-on payments to INFUSE® for open tibia fractures, we effectively made a logical prior determination about newness based on our finding of substantial similarity and, as a result, we did not need to evaluate either the cost or substantial clinical improvement criteria. Similarly, when we extended new technology add-on payments to OP-1 for spinal fusions on the grounds that it is substantially similar to INFUSE®, we effectively indicated that both products were new but did not make a specific finding about cost and substantial clinical improvement with respect to OP-1. Rather, we extended the existing approval of add-on payments for the new technology of using BMPs in spinal fusions to a substantially similar product in order to avoid bestowing an advantage to the first product to receive an approval of add-on payments for this particular new technology.

We see two policy options to address this issue. Under the first option, we continue our current practice. That is, if we make a finding of substantial similarity among two products, we will extend new technology add-on payment without a further application from the manufacturer of the competing product or a specific finding on cost and clinical improvement. Also, we will deny new technology add-on payments to substantially similar products if one of the products no longer qualifies as a new medical technology without a specific finding on the remaining two criteria. Under the second option, we would depart from our current practice and only extend new technology add-on payment to an applicant's product after making a determination that it meets the newness, cost, and substantial clinical improvement criteria. As we have indicated in the past, we believe that continuing our current practice is the better policy because we avoid:

  • Creating manufacturer-specific codes for substantially similar products.
  • Requiring different manufacturers of substantially similar products from having to submit separate new technology applications.
  • Having to compare the merits of competing technologies on the basis of substantial clinical improvement.
  • Bestowing an advantage to the first applicant representing a particular new technology to receive approval.

The commenters also argued that the concept of substantial similarity is being applied without having been defined in the regulations. We do not believe that it would be appropriate at this time to adopt rigid criteria to define substantial similarity. Such criteria would restrict unduly our ability to make appropriate determinations regarding whether a product should qualify for new technology add-on payments. For example, if we were to use the Medtronic definition of substantial similarity described above, each manufacturer of a competing technology would have to submit a separate application for an add-on payment and, potentially, we would have to create separate codes for each manufacturer's product if we found that one product met all of the criteria for an add-on payment while the other did not. For instance, Medtronic supported the application of W. L. Gore & Associates, Inc. for its Endovascular Graft Repair of the Thoracic Aorta (GORE TAG). If this device were to be approved for new technology add-on payments, Medtronic recommended that we extend these payments to its Talent Endovascular Stent Graft once it is approved by the FDA. As indicated below, we are approving for the GORE TAG device for new technology add-on payments. If we were to use Medtronic's criteria for defining substantial similarity, for us to extend new technology add-on payments to its device for an endovascular thoracic aortic aneurysm repair, we would have to make a determination that the products: (1) Use the same or a similar mechanism of action to achieve the therapeutic outcome; (2) are indicated for use in the same population for the same condition; and (3) achieve the same level of substantial clinical improvement. While it may be possible to make a determination on the first of these two criteria based on a description of the products and their FDA approved indications, we believe it would not be possible to make a decision on the third criterion without a new technology application and specific review in order to determine whether the two products achieve the same level of substantial clinical improvement. Applying Medtronic's criteria, we do not believe that new technology add-on payments could be extended to a substantially similar product in the middle of a fiscal year. Thus, for example, add-on payments for Medtronic's Talent Endovascular Stent Graft, which has not yet received FDA approval, could not begin until at least FY 2007. Further, in the absence of a finding that the products achieve the same level of substantial clinical improvement, we would need to establish a specific code for the GORE TAG device that other manufacturers of similar products could not use unless they also made a new technology application and we made a finding on the three criteria for determining substantial similarity suggested by Medtronic. Thus, in this circumstance, application of Medtronic's suggested criteria for defining substantial similarity would bestow an advantage to GORE TAG until we could make a specific finding on the Talent Endovascular Stent Graft.

In the proposed rule, we indicated that whether a product uses the same or a similar mechanism of action to achieve the therapeutic outcome has some relevance for determining substantial similarity. We also indicated that the whether the products are assigned to the same or a different DRG is also relevant for determining substantial similarity and assessing if the hospital charge data used in developing the relative weights of the relevant DRGs reflects the costs of these products. In making a determination of substantial similarity, we believe both of these criteria should be met. If only one of the criteria is met, we do not believe the products should be considered substantially similar and new technology add-on payments should not be extended or denied on this basis. In the case of OP-1 and INFUSE®, both are bone morphogenetic products that are used to induce bone growth (“use the same or similar mechanism of action to achieve the therapeutic outcome”) assigned to the same DRGs (DRGs 497 and 498 for spinal fusions and DRGs 218 and 219 for tibia fractures). Furthermore, both of these products can be described by the same ICD-9-CM code (code 84.52, Insertion of recombinant bone morphogenetic protein). Thus, our decisions to extend new technology add-on payments to OP-1 for spinal fusions and deny them to INFUSE® for tibia fractures on the Start Printed Page 47352basis of substantial similarity, applied, the two above described criteria consistently.

We believe the above discussion indicates that these are complex issues. While the application of the above two criteria worked well in the context of OP-1 and INFUSE® (as well as the GORE TAG and Talent Endovascular Stent Graft), it is possible that we should have the flexibility to consider these or other factors in some contexts but not in others. For these reasons, we will continue to analyze the question of substantial similarity, and welcome further public input on this issue.

In this final rule, we are finalizing our proposal to deny add-on payments for INFUSE® bone graft for open tibia fractures for the reasons discussed above. b. AquadexTM System 100 Fluid Removal System (System 100)

CHF Solutions, Inc. resubmitted an application (previously submitted for consideration for FY 2005) for the approval of the System 100 for new technology add-on payments for FY 2006. The System 100 is designed to remove excess fluid (primarily excess water) from patients suffering from severe fluid overload through the process of ultrafiltration. Fluid retention, sometimes to an extreme degree, is a common problem for patients with chronic congestive heart failure. This technology removes excess fluid without causing hemodynamic instability. It also avoids the inherent nephrotoxicity and tachyphylaxis associated with aggressive diuretic therapy, the mainstay of current therapy for fluid overload in congestive heart failure.

The System 100 consists of: (1) An S-100 console; (2) a UF 500 blood circuit; (3) an extended length catheter (ELC); and (4) a catheter extension tubing. The System 100 is designed to monitor the extracorporeal blood circuit and to alert the user to abnormal conditions. Vascular access is established via the peripheral venous system, and up to 4 liters of excess fluid can be removed in an 8-hour period.

On June 3, 2002, FDA approved the System 100 for use with peripheral venous access. On November 20, 2003, FDA approved the System 100 for expanded use with central venous access and catheter extension use for infusion or withdrawal circuit line with other commercially applicable venous catheters. According to the applicant, although the FDA first approved System 100 in June 2002, it was not used by hospitals until August 2002 because of the substantial amount of time necessary to market and sell the device to hospitals. The applicant presented data and evidence demonstrating that the System 100 was not marketed until August 2002.

We note the applicant submitted an application for FY 2005 and was denied new technology add-on payments. Our review indicated that the applicant did not present sufficient objective clinical evidence to determine that the System 100 meets the substantial clinical improvement criterion (such as a large prospective, randomized clinical trial) even though it is indicated for use in patients with congestive heart failure, a common condition in the Medicare population. However, for FY 2006, we proposed to deny System 100 new technology add-on payments on the basis of our determination that it is no longer new. Technology is no longer considered new 2 to 3 years after data reflecting its costs begin to become available. Because data on the costs of the System 100 first became available in 2002, the costs are currently reflected in the DRG weights and the device is no longer new.

The applicant also submitted information for the cost and substantial clinical improvement criteria. As stated last year, it is important to note at the outset of the cost analysis that the console is reusable and is, therefore, a capital cost. Only the circuits and catheters are components that represent operating expenses. 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 subsection (d) of section 1886, 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 and these costs should also not be considered in evaluating whether a technology meets the cost criterion. The applicant has applied for add-on payments for only the circuits and catheter, which represent the operating expenses of the device. However, as stated in the FY 2005 IPPS final rule, we believe that the catheters cannot be considered new technology for this device. As a result, we considered only the UF 500 disposable blood circuit as relevant to the evaluation of the cost criterion.

The applicant submitted data from the FY 2003 MedPAR file in support of its application for new technology add-on payments for FY 2006. The applicant used a combination of diagnosis codes to determine which cases could potentially use the System 100. The applicant found 28,155 cases with the following combination of ICD-9-CM diagnosis codes: 428.0 through 428.9 (Heart Failure), 402.91 (Unspecified with Heart Failure), or 402.11 (Hypertensive Heart Disease with Heart Failure), in combination with 276.6 (Fluid Overload) and 782.3 (Edema). The 28,155 cases were found among 148 DRGs with 50.1 percent of cases mapped across DRGs 88, 89, 127, 277 and 316. The applicant eliminated those DRGs with less than 150 cases, which resulted in a total of 22,620 cases that could potentially use the System 100. The case-weighted average standardized charge across all DRGs was $13,619.32. The case-weighted threshold across all DRGs was $16,125.42. Although the case-weighted threshold is greater than the case-weighted standardized charge, it is necessary to include the standardized charge for the circuits used in each case. In order to establish the charge per circuit, the applicant submitted data regarding 76 actual cases that used the System 100. Based on these 76 cases, the standardized charge per circuit was $2,591. The applicant also stated that an average of two circuits is used per case. Therefore, adding $5,182 for the charge of the two circuits to the case-weighted average standardized charge of $13,619.32 results in a total case-weighted standardized charge of $18,801.32. This amount is greater than the case-weighed threshold of $16,125.42.

The applicant contended that the System 100 represents a substantial clinical improvement for the following reasons: It removes excess fluid without the use of diuretics; it does not lead to electrolyte imbalance, hemodynamic instability or worsening renal function; it can restore diuretic responsiveness; it does not adversely affect the renin-angiotensin system; it reduces hospital length of stay for the treatment of congestive heart failure, and it requires only peripheral venous access. The applicant also noted that there are some clinical trials that have demonstrated the clinical safety and effectiveness as well as cost effectiveness of the System 100 in treating patients with fluid overload.

However, as stated above, we proposed to deny new technology add-on payments for the System 100 because it does not meet the newness criterion

We received no public comments regarding this application for add-on payments prior to publication of the FY 2006 IPPS proposed rule. During the 60-Start Printed Page 47353day comment period for the FY 2006 IPPS proposed rule, we also received no comments. Therefore, we are finalizing our proposal to deny new technology add-on payments for the System 100 because it does not meet the newness criterion.

c. CHARITÉTM Artificial Disc (CHARITÉTM)

DePuy SpineTM submitted an application for new technology add-on payments for the CHARITÉTM Artificial Disc for FY 2006. This device is a prosthetic intervertebral disc. DePuy SpineTM stated that the CHARITÉTM Artificial Disc is the first artificial disc approved for use in the United States. It is a 3-piece articulating medical device consisting of a sliding core that is placed between two metal endplates. The sliding core is made from a medical grade plastic and the endplates are made from medical grade cobalt chromium alloy. The endplates support the core and have small teeth that are secured to the vertebrae above and below the disc space. The sliding core fits in between the endplates.

On October 26, 2004, the FDA approved the CHARITÉTM Artificial Disc for single level spinal arthroplasty in skeletally mature patients with degenerative disc disease (DDD) between L4 and S1. The FDA further stated that DDD is defined as discogenic back pain with degeneration of the disc confirmed by patient history and radiographic studies. These DDD patients should have no more than 3 mm of spondylolisthesis at an involved level. Patients receiving the CHARITÉTM Artificial Disc should have failed at least 6 months of conservative treatment prior to implantation of the CHARITÉTM Artificial Disc. Because the device is within the statutory timeframe of 2 to 3 years and data is not yet reflected within the DRGs, we consider the CHARITÉTM Artificial Disc to meet the newness criterion.

We note that an ICD-9-CM code was effective October 1, 2004, for IPPS tracking purposes. The code assigned to the CHARITÉTM was 84.65 (Insertion of total spinal disc prosthesis, lumbosacral).

For analysis of the cost criterion, the applicant submitted two sets of data: one that used actual cases and one that used FY 2003 MedPAR cases. The cases using CHARITÉTM map to DRGs 499 and 500. The applicant submitted 68 actual cases from 35 hospitals that used the CHARITÉTM. Of these 68 cases, only 3 were Medicare patients; the remaining cases were privately insured patients or patients for whom the payer was unknown. Using data from the 68 actual cases, the average standardized charge was $40,722. The applicant maintained that this figure is well in excess of the thresholds for DRGs 499 and 500 (regardless of a case weighted threshold) of $24,828 and $17,299 respectively. Based on this analysis, the applicant maintained that the CHARITÉTM meets the cost criterion because the average standardized charge exceeds the charge thresholds for DRGs 499 and 500.

In addition, as stated above, the applicant submitted cases from the FY 2003 MedPAR file. The applicant searched the MedPAR file for ICD-9-CM procedure codes 81.06, 81.07, and 81.08 in combination with diagnosis codes 722.10, 722.2, 722.5, 722.52, 722.6, 722.7, 722.73 and 756.12, to identify a patient population that could be eligible for the CHARITÉTM Artificial Disc and found a total of 12,680 cases. However, these cases are from the FY 2003 MedPAR file and precede the effective date of ICD-9-CM code 84.65 that is currently used to track the device. Of these 12,680 cases, 55.5 percent were reported in DRG 497, and 44.5 percent were reported in DRG 498. As noted above, cases using the CHARITÉTM device group to the DRGs for back and neck procedures that exclude spinal fusions (DRGs 499 and 500). However, the applicant argues that the CHARITÉTM could be a substitute for spinal fusion procedures found in DRGs 497 and 498 and, therefore, used cases from these DRGs to evaluate whether the CHARITÉTM meets the cost criterion and to argue that procedures using the technology should be grouped to the spinal fusion DRGs. The average standardized charge per case was $50,098 for DRG 497 and $41,290 for DRG 498. Using revenue codes 272 and 278 from the MedPAR file, the applicant then subtracted the charges for surgical and medical supplies used in connection with spinal fusion procedures, which resulted in a standardized charge of all other charges of $24,333 for DRG 497 and $22,183 for DRG 498. Based on the actual cases above, the applicant then estimated the average standardized charge for surgical and medical supplies per case for the CHARITÉTM was $20,033. The applicant estimated that charges have grown by 15 percent from FY 2003 to FY 2005 and, therefore, deflated the average standardized charge for surgical and medical supplies of the CHARITÉTM by 15 percent to $17,420. The applicant then added the average standardized charge for surgical and medical supplies of the CHARITÉTM to the standardized charge of the remaining charges for DRG 497 and 498 and also inflated the charges by 15 percent in order to update the data to FY 2005 charge levels. This computation resulted in a case-weighted average standardized charge of $46,256. Although the analysis was completed with DRGs 497 and 498, it is necessary to compare the average standardized charge to the thresholds of DRGs 499 and 500 where these cases are grouped. As a result, the case-weighted threshold was $21,480. Similar to the analysis above, the applicant stated that the case-weighted average standardized charge is greater than the case-weighted threshold and, as a result, the applicant maintained that the CHARITÉTM meets the cost criterion.

Comment: The applicant commissioned two independent consultants to conduct separate data analyses demonstrating with actual cases of CHARITÉTM that the device meets the cost criterion. The consultants found 308 cases using CHARITÉTM including 9 Medicare cases. One consultant found 94 cases with average standardized charges of $43,065, and the other consultant found 214 cases with average standardized charges of $45,791. As in the proposed rule, the commenter noted that the average standardized charges per case are well in excess of the threshold for DRG 499.

Response: We appreciate the commenter's submission of additional data in support of its application. Based on these data, it appears that the technology meets the cost criterion.

The applicant also contended that the CHARITÉTM represents a substantial clinical improvement over existing technology. Use of the CHARITÉTM may eliminate the need for spinal fusion and the use of autogenous bone, and the applicant stated that, based on the Investigational Device Exemption (IDE) study, “A Prospective Randomized Multicenter Comparison of Artificial Disc vs. Fusion for Single Level Lumbar Degenerative Disc Disease” (Blumenthal, S, et al, National American Spine Society 2004 Abstract) that patients who received the CHARITÉTM Artificial Disc were discharged from the hospital after an average of 3.7 days compared to 4.2 days in the fusion group. Furthermore, the applicant stated that patients who received the CHARITÉTM Artificial Disc had a statistically greater improvement in Oswetry Disability Index scores and Visual Analog Scale Pain scores compared to the fusion group at 6 weeks and 3, 6 and 12 months. The study also showed greater improvement from baseline compared to the fusion group on the Physical Component Score at 3, 6, and 23 months. In addition, the applicant states that patients receiving Start Printed Page 47354the CHARITÉTM Artificial Disc returned to normal activities in half the time, compared to patients who underwent fusion, and at the 2 year follow up, 15 percent of patients who underwent a fusion were dissatisfied with the postoperative improvements compared to 2 percent who received the CHARITÉTM Artificial Disc. Also, patients who received the CHARITÉTM Artificial Disc returned to work on average of 12.3 weeks after surgery compared to 16.3 weeks after circumferential fusion and 14.4 weeks with Bagby and Kuslich cages. The applicant finally stated that the motion preserving technology of the CHARITÉTM Artificial Disc may reduce the risk of increase of degenerative disc disease (DDD). The applicant explained that degeneration of adjacent discs due to increased stress has been strongly associated with spinal fusion utilizing instrumentation. In a follow up of 100 patients (minimum 10 years) who received the CHARITÉTM Artificial Disc, the incidence of adjacent level DDD was 2 percent.

In the FY 2006 IPPS proposed rule, we indicated that we were continuing to review the information on whether the CHARITÉTM Artificial Disc would appear to represent a substantial clinical improvement over existing technology for certain patient populations. Based on the studies submitted to the FDA and CMS, we remain concerned that the information presented may not definitively substantiate whether the CHARITÉTM Artificial Disc is a substantial clinical improvement over spinal fusion. In addition, we are concerned that the cited IDE study enrolled no patients over 60 years of age, which excludes much of the Medicare population. We also are concerned about the prevalence of osteoporosis within the Medicare population, because it is a contraindication for this device. In the FY 2006 IPPS proposed rule, we invited comment on both of these points and on the more general question of whether the device satisfies the substantial clinical improvement criterion.

Despite the issues mentioned above, we noted in the FY 2006 IPPS proposed rule that we were still considering whether it is appropriate to approve new technology add-on payment status for the CHARITÉTM Artificial Disc for FY 2006. If approved for add-on payments, hospitals would be reimbursed for up to half of the costs for the device. Because the manufacturer has stated that the cost for the CHARITÉTM Artificial Disc would be $11,500, the maximum add-on payment for the device would be $5,750.

We finally noted that the applicant requested a DRG reassignment for cases of the CHARITÉTM Artificial Disc from DRGs 499 (Back and Neck Procedures Except Spinal Fusion With CC) and 500 (Back and Neck Procedures Except Spinal Fusion Without CC) to DRGs 497 (Spinal Fusion Except Cervical With CC) and 498 (Spinal Fusion Except Cervical Without CC). The applicant argued that the costs associated with an artificial disc surgery are similar to spinal fusion and inclusion in DRGs 497 and 498 would obviate the need to make a new technology add-on payment. On October 1, 2004, we created new codes for the insertion of spinal disc prostheses (codes 84.60 through 84.69). In the FY 2005 IPPS proposed rule and the final rule, we described the new DRG assignments for these new codes in Table 6B of the Addendum to the rules. We received a number of comments recommending that we change the DRG assignments from DRGs 499 and 500 in MDC 8 to the DRGs for spinal fusion (DRGs 497 and 498). In the FY 2005 IPPS final rule (69 FR 48938), we indicated that DRGs 497 and 498 are limited to spinal fusion procedures. Because the surgery involving the CHARITÉTM is not a spinal fusion, we decided not to include this procedure in these DRGs. However, in the FY 2006 IPPS proposed rule, we indicated that we would continue to analyze this issue and solicited public comments on both the new technology application for the CHARITÉTM and the DRG assignment for spinal disc prostheses.

We received no public comments regarding this application for new technology add-on payments prior to the publication of the FY 2005 IPPS proposed rule. However, we received the following comments during the 60-day comment period on the proposed rule.

Comment: The applicant noted that on July 15, 2005, two new articles were published in the journal “Spine.” [3] The applicant maintained that the studies demonstrate the following conclusions:

  • The CHARITÉTM obviates the iliac crest bone graft donor site morbidity.
  • The CHARITÉTM preserves segmental motion in flexion/extension through 24 months post implantation.
  • The CHARITÉTM provided maintenance of post operative disc height through 24 months compared to anterior interbody fusion; disc space height was maintained in greater than 99 percent of CHARITÉTM subjects through 24 month followup.
  • The CHARITÉTM has the potential to reduce second surgical procedures for adjacent disc disease by maintaining motion (the manufacturer intends to investigate this).
  • The CHARITÉTM provides early improvement in pain and function as measured by the Oswestry Disability Index compared to anterior interbody fusion at 6 weeks, 3 months, 6 months, and 12 months.
  • The CHARITÉTM provides improvement in pain reduction as measured by the Visual Analog Scale compared to anterior interbody fusion at 6 weeks, 3 months, 6 months, and 12 months.
  • The CHARITÉTM provides improvement in quality of life on the physical component score of the SF-36 outcomes tool at 3 months, 6 months, and 24 months.

CMS requested comments on whether or not the results from the IDE study can be generalized to the Medicare population. The commenter commissioned a consultant to conduct a survey to capture clinical information for the Medicare population 65 years or older and the Medicare population that had been implanted with the CHARITÉTM, noting that the under 65 Medicare disabled population represents 14 percent of all Medicare beneficiaries or approximately 5 million people. The consultant found data for 18 Medicare beneficiaries and submitted the following results: Surgeons reported that 94.4 percent of the patients demonstrated improvement in overall outcome, pain, and function after the CHARITÉTM had been implanted. Surgeons also noted the following: 100 percent of the patients reported an improved level of activity; 50 percent of the patients achieved full recovery, the other 50 percent had an improved level of activity compared to their preoperative status; and 100 percent of the surgeons recommended the CHARITÉTM for other Medicare patients who meet the clinical indications. The commenter believed that the above studies and the IDE trial demonstrate that CHARITÉTM offers a substantial clinical improvement over fusion for Medicare beneficiaries.

The commenter also stated that Medicare beneficiaries with disabilities make up 21.8 percent of all discharges in DRGs 496, 497, and 498. It is likely that a significant number of these Start Printed Page 47355patients could benefit from the CHARITÉTM. In response to CMS' concern that CHARITÉTM is contraindicated in patients with osteoporosis, the commenter noted that spinal fusion surgery is also not indicated in this patient population. Nevertheless, the commenter noted that the Medicare charge data included nearly 98,000 spinal fusions in FY 2004.

The commenter further stated that, although many patients above the age of 65 do have osteoporosis, implanting surgeons report seeing many patients over the age of 65 who are extremely active and do not have signs of osteoporosis, as validated by a Dexascan.

The commenter also requested that CMS apply the substantial clinical improvement criteria consistently to CHARITÉTM and INFUSE® bone graft for spinal fusions. The commenter noted that in the FY 2004 IPPS final rule (68 FR 45388, August 1, 2003), CMS approved INFUSE® for new technology add-on payment even though evidence was submitted for a small number of Medicare aged patients treated with the product. CMS acknowledged that there was some positive, though limited, evidence for generalized application for the Medicare population, leading CMS to conclude that based on “[t]hese results, combined with the benefits of the elimination of the need to harvest bone graft from the iliac crest (and associated complications), INFUSE® does meet the substantial clinical improvement criteri[on].” The commenter added that, in addition to eliminating the need for harvesting bone from the iliac crest, the CHARITÉTM provides other significant clinical improvements, including maintaining a more normal range of motion, restoration of disc height, potential to reduce adjacent level disc disease, earlier and sustained improvement in pain and function and earlier return to normal activity and improvement in qualify of life.

Based on the comments above, the commenter noted that the CHARITÉTM meets all the criteria and should be approved for new technology add-on payments.

Response: There have been a number of clinical studies conducted on the CHARITÉTM (some of the studies referenced below were also submitted by the applicant). One study showed unsatisfactory long term results. Three studies [4] [5] [6] demonstrated excellent or good results, but did not explicitly compare the surgery to spinal fusion. One study [7] showed promising short-term results, but had no long-term data and indicated the need for further study. After reviewing all the information supplied by the applicant and in these clinical studies discussed above, CMS acknowledges that the CHARITÉTM may have potential benefit for certain carefully selected Medicare beneficiaries. However, our medical officers could not find sufficient evidence to support a finding that this device meets the criteria for being a substantial clinical improvement. Specifically, we are concerned about the lack of comparative data beyond 24 months in the materials that were submitted for review. While the clinical studies above cited by the manufacturer suggest positive outcomes with the device for up to 24 months, other studies cast doubt on both its short-term and long-term performance, and raise troubling questions regarding longer term adverse outcomes. Specifically, as mentioned above, one study [8] included 27 patients who received the device between 1989 and 2001. Of these patients, 12 reported some short-term benefit, while 14 others reported no benefit at all. The study found that patients in this study had “recurrent or persistent back and leg pain [that] was caused mainly by disc degeneration on neighboring levels, hyperlordosis of the operated segment, subsidence and migration.” In addition, the study indicated that removal of the prosthesis is dangerous, and posterior fusion without removing the prosthesis will give suboptimal results. The study further suggested that the CHARITÉTM should be considered experimental until long term results by unbiased observers can indicate to the orthopedic community if the device is an acceptable orthopedic procedure. We also are concerned about the very low number of Medicare beneficiaries who have received the device (18). In addition, aside from a lack of long-term clinical evidence that demonstrates the effectiveness of the device, we also note significant controversy within the orthopedic and spine surgery community regarding the overall effectiveness and safety of this device regardless of a patient's age, primarily based on the lack of long term data to support its use. Therefore, due to the lack of good evidence of long-term clinical benefit and safety, and because of the degree of controversy surrounding the device within the orthopedic and spine surgery community, we do not believe it meets the criterion for substantial clinical improvement and we are denying the application for new technology add-on payments for FY 2006.

We finally note that we believe we have applied a consistent standard of evidence. While the applicant stated there may be similarities between this device and INFUSE®, as noted above, we believe there are still many unanswered questions regarding CHARITÉTM, including the lack of long-term clinical evidence and the overall effectiveness of the device, which preclude us from determining that it meets the substantial clinical improvement criterion.

Comment: One commenter who had the CHARITÉTM implanted supported approving the CHARITÉTM for new technology add-on payments. The commenter explained that the device has offered clinical benefits, such as pain relief, that other procedures or surgeries were unable to achieve. Other commenters also supported approval of the CHARITÉTM, indicating that the FDA prospective study showed a reduction in length of stay of a half day and patients also returned to normal activities in half of the time of spinal fusion patients.

Response: As noted above, we acknowledge that the CHARITÉTM may have potential benefit for certain carefully selected Medicare beneficiaries. However, we do not believe that one patient's experience is sufficient to show the substantial clinical improvement criterion has been met. Further, while the patient's experience indicates that there may be short-term benefits from receiving treatment with CHARITÉTM, we remain Start Printed Page 47356concerned that the data supplied by the applicant did not demonstrate substantial clinical improvement long term, despite the product being available on the European market since 1987. We are also concerned about the degree of controversy surrounding the device within the orthopedic and spine surgery community. Therefore, we are denying this application for new technology add-on payments because we did not find enough evidence that the product meets the substantial clinical improvement criterion.

Comment: One commenter noted that CMS did not acknowledge that section 1886(d)(5)(K) of the Act states:

“Before establishing any add-on payment * * * with respect to a new technology, the Secretary shall seek to identify one or more diagnosis-related groups associated with such technology, based on similar clinical or anatomical characteristics and the cost of the technology.”

The commenter explained that, in the proposed rule, CMS solicited comment on whether to reassign ICD-9-CM code 84.65 and on the new technology application for the CHARITÉTM. The commenter added that, instead of considering these as two distinct issues, CMS should consider a DRG change within the new technology application as mandated by the statute.

Another commenter indicated that the purpose of the new technology add-on program is to provide a cost-based bridge to compensate hospitals for additional costs related to new technology. Consistent with CMS' position not to consider DRG changes until sufficient data became available in MedPAR to support it, the commenter believed it would be premature to reassign spinal disc prostheses to DRGs 497 and 498 until further data become publicly available. The commenter added that DRGs 497 and 498 are well established and any changes to these DRGs, such as including cases of disc prosthesis in these DRGs without more complete data could result in an inappropriate reduction to the weight of these DRGs.

Response: We agree with the comments regarding section 1886(d)(5)(K) of the Act. If a product meets all of the criteria for Medicare to pay for a product as a new technology, there is a clear preference expressed in the statute for us to assign the technology to a DRG based on similar clinical or anatomical characteristics and costs. However, as stated above, we are denying new technology add on payments for CHARITÉTM because we could not establish that it meets the substantial clinical improvement criterion. Nevertheless, we did evaluate whether to make a DRG change for CHARITÉTM outside of the context of the new technology process. We are providing a full analysis of this issue in section II.B.6.d. of the preamble to this final rule.

d. Endovascular Graft Repair of the Thoracic Aorta

Endovascular stent-grafting of the descending thoracic aorta (TA) provides a less invasive alternative to the traditional open surgical approach required for the management of descending thoracic aortic aneurysms. W. L. Gore & Associates, Inc. submitted an application for consideration of its Endovascular Graft Repair of the Thoracic Aorta (GORE TAG) for new technology add-on payments for FY 2006. The GORE TAG device is a tubular stent-graft mounted on a catheter-based delivery system, and it replaces the synthetic graft normally sutured in place during open surgery. The device is identified using ICD-9-CM procedure code 39.79 (Other endovascular repair (of aneurysm) of other vessels). The applicant has requested a unique ICD-9-CM procedure code. (We refer readers to Tables 6A through 6H in the Addendum to this final rule for information regarding ICD-9-CM codes.)

At the time of the initial application, the FDA had not yet approved this technology for general use. Subsequently, however, we were notified that FDA approval was granted on March 23, 2005. Therefore, GORE TAG meets the newness criterion. Although we discussed some of the data submitted with the application for new technology add-on payments, we were unable to include a detailed analysis of cost data and substantial clinical improvement data in the FY 2006 IPPS proposed rule because FDA approval occurred too late for us to conduct a complete analysis.

The applicant submitted cost threshold information for the GORE TAG device. According to the manufacturer, cases using the GORE TAG device would fall into DRGs 110 and 111 (Major Cardiovascular Procedures With and Without CC, respectively). The applicant identified 185 cases in the FY 2003 MedPAR using procedure code 39.79 (Other endovascular repair (of aneurysm) of other vessels) and primary diagnosis codes 441.2 (Thoracic aneurysm, without mention of rupture), 441.1 (Thoracic aneurysm, ruptured), or 441.01 (Dissection of aorta, thoracic). The case-weighted standardized charge for 177 of these cases was $60,905. According to the manufacturer, the case-weighted cost threshold for these DRGs is $49,817. Based on this analysis, the manufacturer maintained that the technology meets our cost threshold.

The manufacturer argued that the GORE TAG represents a substantial clinical improvement over existing technology, primarily by avoiding the traditional open aneurysm repair procedure with its associated high morbidity and mortality. The applicant argued that a descending thoracic aorta aneurysm is a potentially life threatening condition that currently requires a major operative procedure for its treatment. The mortality and complication rates associated with this surgery are very high, and the surgery is frequently performed under urgent or emergent conditions. The applicant noted that such complications can increase the length of the hospital stay and can include neurological damage, paralysis, renal failure, pulmonary emboli, hemorrhage, and sepsis. The average time for patients undergoing surgical repair to return to normal activity is 3 to 4 months, but can be significantly longer.

In comparison, the applicant argued that endovascular stent-grafting done with the GORE TAG thoracic endoprosthesis is minimally invasive. The manufacturer noted that patients treated with the endovascular technique experience far less aneurysm-related mortality and morbidity, compared to those patients that receive the open procedure, resulting in reduced overall length-of-stay, less intensive care unit days and less operative complications.

We received the following public comments, in accordance with section 503(b)(2) of Pub. L. 108-173, regarding this application for add-on payments prior to publication of the FY 2006 IPPS proposed rule.

Comment: Several commenters expressed support for approval of new technology add-on payments for the GORE TAG device. These commenters noted that the data presented to the FDA advisory panel for consideration for FDA approval of the device clearly demonstrate the safety and efficacy of the GORE TAG device. They also noted that nearly 200 patients have been treated with the endografts, with a highly significant difference in both postoperative mortality and a reduction in the incidence of spinal cord ischemic complications, with some commenters noting the trial results, which showed a reduction in the rate of paraplegia from 14 percent to 3 percent, compared to open surgery. The commenters also stressed the rigorous nature of the open surgery, which requires a left lateral Start Printed Page 47357thoracotomy, resulting in significant morbidity. The commenters further argued that, since many of the patients with degenerative aneurysm of the thoracic aorta are elderly or present with significant comorbidities, or both, it is “a common circumstance in clinical practice to deny repair to such patients because of the magnitude of the conventional open surgery.” Other commenters stated that the 5-year mortality in all patients diagnosed with thoracic aortic aneurysm is as high as 80 percent in some groups of patients. Therefore, the commenters argued, the GORE TAG device for thoracic aortic aneurysm satisfies the criteria for substantial clinical improvement.

Response: We appreciate the commenters' input on this criterion. In the FY 2006 proposed rule, we indicated that we would consider these comments regarding the substantial clinical improvement criterion in the final rule if we determined that the technology meets the other two criteria.

Comment: A representative of another device manufacturer stated at the town hall meeting that the manufacturer has a similar product awaiting FDA approval.

Response: In the proposed rule, we responded that as we discussed in the new technology final rule (66 FR 46915), an approval of a new technology for special payment should extend to all technologies that are substantially similar. Otherwise, our payment policy would bestow an advantage to the first applicant to receive approval for a particular new technology. In this case, we will determine whether the GORE TAG device qualifies for new technology add-on payments in this final rule. In the event that this technology satisfies all the criteria, as we indicated in the FY 2006 IPPS proposed rule, we would extend new technology payments to any substantially similar technology that also receives FDA approval prior to publication of the FY 2006 final rule. In the FY 2006 IPPS proposed rule, we solicited comments regarding this technology in light of its recent FDA approval, particularly with regard to the cost threshold and the substantial clinical improvement criteria.

During the 60-day comment period for the FY 2006 IPPS proposed rule, we received the following comments:

Comment: The applicant submitted an additional validation sample of cases to confirm the costs associated with this technology. In this sample, charges for the device ranged from approximately $7,000.00 to $11,000.00 per device.

Response: We have reviewed the evidence presented above and have determined that the manufacturer has demonstrated that this device meets the cost threshold for the DRGs to which these cases will be assigned. However, we note that we would expect there to be significantly fewer hospital resources required to care for a patient undergoing the endovascular procedure compared to an open thoracotomy. Thus we are concerned that the cost of cases using this device is unnecessarily high. We will continue to monitor the data associated with the endovascular repair of a thoracic aortic aneurysm in the future to obtain further information about this issue.

Comment: Several commenters encouraged CMS to approve the GORE TAG device for new technology add-on payment approval. These commenters indicated that this device is a significant advance in the treatment of thoracic aortic aneurysms, particularly for elderly, frail patients who are not candidates for the open procedure to correct life-threatening aneurysms. They added that physicians pointed to the mortality and comorbidity rates associated with the open procedure, stating “even in centers of excellence, the risk of either mortality or paraplegia complicating surgery runs up to the 10 percent range.”

Response: We appreciate the commenters' input on the substantial clinical improvement criterion, and we have determined that the GORE TAG device meets the substantial clinical improvement criterion. In our view, the GORE TAG device meets a number of the standards that we use to evaluate whether a new technology is a substantial clinical improvement. For instance, GORE TAG offers a treatment option for patients with thoracic aortic aneurysms that are not candidates for open surgery. Prior to endovascular treatment with this device, there were no treatment options available for patients who were not candidates for open repair of a thoracic aortic aneurysm. We also believe that, relative to the open repair procedure, endovascular aneurysm repair improves clinical outcomes through lower mortality and complication rates, reduced overall length-of-stay, less intensive care unit days and less operative complications. For the reasons stated above, we find that the GORE TAG device meets the substantial clinical improvement criterion.

As indicated earlier, GORE TAG meets both the newness and cost criteria. Therefore, in this final rule, we are approving the GORE TAG device for new technology add-on payment for FY 2006. These cases generally are in DRGs 110 and 111. Cases involving the device should code for the device using the newly created ICD-9-CM procedure code 39.73 (Endovascular implantation of graft in thoracic aorta). The cost of a single device is $12,798. Because the average patient receives 1.8 endovascular prostheses, we estimate the cost of the device to be $21,198 per patient. Therefore, beginning October 1, 2005, cases that include code 39.73 will be eligible to receive new technology add-on payments up to $10,599, or half the cost of the device.

Comment: In the proposed rule, we stated that “we would extend new technology payments to any substantially similar technology that also receives FDA approval prior to publication of the FY 2006 final rule.” Commenters argued that, CMS should not require, FDA approval to be granted to substantially similar devices prior to the publication of the final rule for CMS to extend new technology payments to these products.

Response: We agree with the commenters. Any substantially similar device that is FDA-approved after the publication of the final rule that uses the same ICD-9-CM procedure code as GORE TAG and falls into the same DRGs as those approved for new technology add-on payments should also receive the new technology add-on payment associated with this technology in FY 2006. The discussion of this issue in the preamble to the proposed rule was intended to communicate that we would extend new technology payments to any substantially similar product that is assigned to the same ICD-9-CM code, as long as the applicant's product received FDA approval prior to the final rule. For the reason stated above, we have changed our position on this issue and will extend add-on payment to any substantially similar products that are assigned to the same ICD-9-CM code and that receive FDA approval either before or during FY 2006.

e. Restore® Rechargeable Implantable Neurostimulator

Medtronic Neurological submitted an application for new technology add-on payments for its Restore® Rechargeable Implantable Neurostimulator. The Restore® Rechargeable Implantable Neurostimulator is designed to deliver electrical stimulation to the spinal cord for treatment of chronic, intractable pain.

Neurostimulation is designed to deliver electrical stimulation to the spinal cord to block the sensation of pain. The current technology standard for neurostimulators utilizes internal sealed batteries as the power source to Start Printed Page 47358generate the electrical current. These internal batteries have finite lives, and require replacement when their power has been completely discharged. According to the manufacturer, the Restore® Rechargeable Implantable Neurostimulator “represents the next generation of neurostimulator technology, allowing the physician to set the voltage parameters in such a way that fully meets the patient's requirements to achieve adequate pain relief without fear of premature depletion of the battery.” The applicant stated that the expected life of the Restore® rechargeable battery is 9 years, compared to an average life of 3 years for conventional neurostimulator batteries. The applicant stated that this represents a significant clinical improvement because patients can use any power settings that are necessary to achieve pain relief with less concern for battery depletion and subsequent battery replacement.

At the time of the FY 2006 proposed rule, this device had not yet received approval for use by the FDA; however, another manufacturer had received approval for a similar device. (Advanced Bionics' Precision® Rechargeable Neurostimulator was approved by the FDA on April 27, 2004.)

Medtronic Neurological also provided data to determine whether the Restore® Rechargeable Implantable Neurostimulator meets the cost criterion. Medtronic Neurological stated that the cases involving use of the device would primarily fall into DRGs 499, 500, 531 and 532, which have a case-weighted threshold of $24,090. The manufacturer stated that the anticipated average standardized charge per case involving the Restore® technology is $59,265. The manufacturer derived this estimate by identifying cases in the FY 2003 MedPAR that reported procedure code 03.93 (Insertion or replacement of spinal nerostimulators). The manufacturer then added the total cost of the Restore® Rechargeable Implantable Neurostimulator to the average standardized charges for those cases. Of the applicable charges for the Restore® Rechargeable Implantable Neurostimulator, only the components that the applicant identified as new would be eligible for new technology add-on payments. Medtronic Neurological submitted information that distinguished the old and new components of the device and submitted data indicating that the neurostimulator itself is $17,995 and the patient recharger, antenna, and belt are $3,140. Thus, the total cost for new components would be $21,135, with a maximum add-on amount of $10,568 if the product were to be approved for new technology payments.

We note that we reviewed a technology for add-on payments for FY 2003 called RenewTM Radio Frequency Spinal Cord Stimulation (SCS) Therapy, made by Advanced Neuromodulation Systems (ANS). In the FY 2003 final rule, we discussed and subsequently denied an application for new technology add-on payment for RenewTM SCS because “RenewTM SCS was introduced in July 1999 as a device for the treatment of chronic intractable pain of the trunk and limbs” and could no longer be considered a new product (67 FR 50019). We also noted, “[t]his system only requires one surgical placement and does not require additional surgeries to replace batteries as do other internal SCS systems.”

The applicant also stated in its application for Restore® that cases where it is used will be identified by ICD-9-CM procedure code 03.93 (Insertion or replacement of spinal neurostimulators), and this code was also used to identify the predecessor technology in order to perform the cost threshold analysis. As we discussed in the FY 2003 final rule (67 FR 50019), the RenewTM SCS is identified by the same ICD-9-CM procedure code. As discussed in the proposed rule, the applicant applied for and was assigned a new ICD-9-CM code for rechargeable neurostimulator pulse generator. (We refer readers to Tables 6A through 6H in the Addendum to this final rule for information regarding ICD-9-CM codes.) Because the RenewTM SCS and Restore® technologies appear similar, we asked Medtronic to provide information that would demonstrate how the products were substantially different. The applicant noted that the RenewTM SCS, while programmable and rechargeable, is not a good option for those patients who have high energy requirements because of chronic intractable pain that will result in more battery wear and subsequent surgery to replace the device. Both systems rely on rechargeable batteries, and in the case of RenewTM SCS the energy is transmitted through the skin from a radiofrequency source for the purpose of recharging. Medtronic contends that the Restore® device is superior to the RenewTM device because RenewTM requires an external component that uses a skin adhesive that is uncomfortable and inconvenient (causes skin irritation, is affected by moisture that will come from bathing, sweating, swimming, etc.), leading to patient noncompliance.

Because FDA approval had not yet been received for this device, in the proposed rule, we indicated that we were making no decision concerning the Restore® application. We indicated that we would make a formal determination if FDA approval occurs in sufficient time for full consideration in this final FY 2006 rule. However, we noted that we had reservations about whether this technology is new for purposes of the new technology add-on payments because of its similarity to other products that are also used to treat the same conditions. Although we recognized the benefits of a more easily rechargeable neurostimulator system, we believed that the Restore® device might not be sufficiently different from predecessor devices to meet the newness criterion for the new technology add-on payment. As we discussed above, similar products have been on the market since 1999. Therefore, these technologies are already represented in the DRG weights and are not considered new for the purposes of the new technology add-on payment provision. We received no public comments regarding this application for add-on payments prior to the publication of the FY 2006 IPPS proposed rule. In the proposed rule, we solicited comments on this application for add-on payments, specifically regarding how the Restore® device may or may not be significantly different from previous devices. We also sought comments on whether the product meets the cost and significant improvement criteria.

During the 60-day comment period for the proposed rule, we received the following comments:

Comment: Several commenters supported the application for the rechargeable implantable neurostimulator for add-on payment. Commenters noted that there is a large difference between the radio frequency (RF) devices and the rechargeable implantable neurostimulators. They argued that there is little relief with the RF systems, because once the transmitter/power source is removed, the therapy immediately ends. Further, commenters argued that due to these restrictions and the difficulty of ensuring patient compliance with this device, the pain relief the RF system is intended to provide is not possible. As such, the commenters argued that the rechargeable implantable device is a much better option for many patients with high power needs than previously available neurostimulators.

Commenters argued that the new, rechargeable, implantable neurostimulators meet the substantial clinical improvement criterion by eliminating surgeries to replace the Start Printed Page 47359batteries, reducing the infection rate associated with greater frequency of replacement surgeries, and providing more treatment options for those patients that require high energy stimulation. In addition, commenters noted the clinical improvement associated with the ability to use two 16-electrode leads instead of the 8-channel leads that are used in older neurostimulators. They pointed out that, by using leads with more electrodes, the physician can place the leads so that more coverage is provided to the spinal nerves, and the physician is provided an option to reprogram the neurostimulator without further invasive surgery if a lead migrates after the unit is installed. Further, commenters argued that, by paying the higher up-front expenses associated with these technologies, CMS will ultimately save money on reduced surgical and physician encounters, while improving the care that Medicare beneficiaries receive. Finally, the manufacturer submitted an updated price for the Restore® rechargeable implantable neurostimulator that reflects a decrease in total costs for the new components associated with the device. Based on this change, the manufacturer calculated the new maximum add-on payment amount to be $9,320 if the application is approved.

Response: We appreciate these commenters' input regarding this device. While the comments were submitted in support of a finding that this device meets the substantial clinical improvement criterion, they have also convinced us that the device is significantly different from predecessor devices. Therefore, we are reversing our preliminary determination that the Restore® Rechargeable Implantable Neurostimulator is likely not new, and we have determined that it can be considered new for the purposes of the new technology add-on payment for this reason. The manufacturer also provided data from its device registry demonstrating that nearly 34 percent of patients aged 65 and older, who receive non-rechargeable devices, require a replacement surgery within the first 10 years of implantation. In addition, of those patients that require replacement surgeries, more than half of those patients have high energy needs that deplete the battery within the first 3 years. By avoiding the need for a battery replacement surgery, we believe these data demonstrate that this device is a substantial clinical improvement for a large proportion of the patients who receive implantable neurostimulators. In addition, we agree that the patient compliance issues with the predecessor devices that use of RF as the recharging source are significant. The applicant has demonstrated that there will not be the same patient compliance issues with its product. Because of the elimination of the need for serial battery replacement surgeries and in light of the information provided by the manufacturer and commenters further clarifying the distinctions and improvements of the Restore® technology when compared to other devices, we believe that the device is a substantial clinical improvement over prior technologies.

As stated in the proposed rule, we had previously determined that Restore® in combination with the other devices that already received FDA approval in 2004 and 2005, meets the newness and cost threshold criteria. Therefore, we are approving new technology add-on payments for rechargeable, implantable neurostimulators for FY 2006. Cases involving these devices will be identified by the presence of newly created ICD-9-CM code 86.98 (Insertion or replacement of dual array rechargeable neurostimulator pulse generator). These cases are generally included in the following DRGs: 7, 8, 499, 500, 531, or 532. In the proposed rule, we stated that the maximum add-on payment for the new components of the device would be $10,568, or half of $21,135. The applicant reported a reduction in the price to $18,640 after publication of the proposed rule, making the maximum add-on payment for the device $9,320. Therefore, we are finalizing a maximum add-on payment of $9,320 for cases that involve this technology.

f. Safe-Cross(r) Radio Frequency Total Occlusion Crossing System (Safe-Cross®)

Intraluminal Therapeutics submitted an application for the Safe Cross® Radio Frequency (RF) Total Occlusion Crossing System. This device performs the function of a guidewire during percutaneous transluminal angioplasty of chronic total occlusions of peripheral and coronary arteries. Using fiberoptic guidance and radiofrequency ablation, it is able to cross lesions where a standard guidewire is unsuccessful. On November 21, 2003, the FDA approved the Safe Cross® for use in iliac and superficial femoral arteries. In January 2004, the FDA approved the Safe Cross® for coronary arteries. The device was also approved by the FDA for all native peripheral arteries except carotids in August 2004. Because the device is within the statutory timeframe of 2 to 3 years for all approved uses and data regarding the cost of this device are not yet reflected within the DRG weights, we consider the Safe Cross® to meet the newness criterion.

We note that the applicant submitted an application for a distinctive ICD-9-CM code. The applicant noted in its application that the device is currently coded with ICD-9-CM procedure codes 36.09 (Other removal of coronary artery obstruction) and 39.50 (Angioplasty or atherectomy of other noncoronary vessels).

As we stated in last year's final rule, 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 subsection (d) of section 1886, 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, and these costs should not be considered in evaluating whether a technology meets the cost criterion. As a result, we consider only the Safe Cross® crossing wire, ground pad, and accessories to be operating equipment that is relevant to the evaluation of the cost criterion.

The applicant submitted the following two analyses on the cost criterion. The first analysis contained 27 actual cases from two hospitals. Of these 27 cases, 25.1 percent of the cases were reported in DRGs 24 (Seizure and Headache Age >17 With CC), 107 (Coronary Bypass With Cardiac Catheterization), 125 (Circulatory Disorders Except AMI, With Cardiac Catheterization and Without Complex Diagnosis), 518 (Percutaneous Cardiovascular Procedure Without Coronary Artery Stent or AMI), and 526 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent With AMI); and 74.9 percent were reported in DRG 527 (Percutaneous Cardiovascular Procedure With Drug-Eluting Stent Without AMI). This resulted in a case-weighted threshold of $37,304 and a case-weighted average standardized charge of $40,705. (We have updated the case weighted threshold and case weighted average standardized charge from the proposed rule due to an inadvertent clerical error in reporting these figures in the proposed rule.) Because the case-weighted average standardized charge is greater than the case-weighted threshold, the applicant maintained that the Safe Cross® meets the cost criterion. Start Printed Page 47360

The applicant also submitted cases from the FY 2003 MedPAR. The applicant found a total of 1,274,535 cases that could be eligible for the Safe Cross® using diagnosis codes 411 through 411.89 (Other acute and subacute forms of ischemic heart disease) or 414 through 414.19 (Other forms of chronic ischemic heart disease) in combination with any of the following procedure codes: 36.01 (Single vessel percutaneous transluminal coronary angioplasty (PTCA) or coronary atherectomy without mention of thrombolytic agent), 36.02 (Single vessel PTCA or coronary atherectomy with mention of thrombolytic agent), 36.05 (Multiple vessel PTCA or coronary atherectomy performed during the same operation with or without mention of thrombolytic agent), 36.06 (Insertion of nondrug-eluting coronary artery stent(s)), 36.07 (Insertion of drug-eluting coronary artery stent(s)) and 36.09 (Other removal of coronary artery obstruction). A total of 59.40 percent of these cases fell into DRG 517 (Percutaneous Cardiovascular Procedure With Nondrug-Eluting Stent Without AMI), 16.4 percent of cases into DRG 516 (Percutaneous Cardiovascular Procedure With AMI), and 16.2 percent of cases into DRG 527, while the rest of the cases fell into the remaining DRGs 124, 518, and 526. The average case-weighted standardized charge per case was $40,318. This amount included an extra $6,000 for the charges related to the Safe Cross®. The case-weighed threshold across the DRGs mentioned above was $35,955. Similar to the analysis above, because the case-weighted average standardized charge is greater than the case-weighted threshold, the applicant maintained that the Safe Cross® meets the cost criterion.

The applicant maintained that the device meets the substantial clinical improvement criterion. The applicant explained that many traditional guidewires fail to cross a total arterial occlusion due to difficulty in navigating the vessel and to the fibrotic nature of the obstructing plaque. By using fiberoptic guidance and radiofrequency ablation, the Safe Cross® succeeds where standard guidewires fail. The applicant further maintained that in clinical trials where traditional guidewires failed, the Safe Cross® succeeded in 54 percent of cases of coronary artery chronic total occlusions (CTOs), and in 76 percent of cases of peripheral artery CTOs.

However, in the FY 2006 IPPS proposed rule, we noted that we use similar standards to evaluate substantial clinical improvement in the IPPS and OPPS. The IPPS regulations provide that technology may be approved for add-on payments when it “represents an advance in medical technology that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries” (66 FR 46912). Under the OPPS, the standard for approval of new devices is “a substantial improvement in medical benefits for Medicare beneficiaries compared to the benefits obtained by devices in previously established (that is, existing or previously existing) categories or other available treatments” (67 FR 66782). Furthermore, the OPPS and IPPS employ identical language (for IPPS, see 66 FR 46914, and for OPPS, see 67 FR 66782) to explain and elaborate on the kinds of considerations that are taken into account in determining whether a new technology represents substantial improvement. In both systems, we employ the following kinds of considerations in evaluating particular requests for special payment for new technology:

  • The device offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments.
  • The device offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient.
  • Use of the device significantly improves clinical outcomes for a patient population as compared to currently available treatments. Some examples of outcomes that are frequently evaluated in studies of medical devices are the following:

—Reduced mortality rate with use of the device.

—Reduced rate of device-related complications.

—Decreased rate of subsequent diagnostic or therapeutic interventions (for example, due to reduced rate of recurrence of the disease process).

—Decreased number of future hospitalizations or physician visits.

—More rapid beneficial resolution of the disease process treatment because of the use of the device.

—Decreased pain, bleeding, or other quantifiable symptom.

—Reduced recovery time.

In a letter to the applicant dated October 25, 2004, we denied approval of the Safe Cross® for pass-through payments for the OPPS on the basis that the technology did not meet the substantial clinical improvement criterion. In particular, we found that studies failed to show long-term or intermediate-term results, and the device had a relatively low rate of successfully opening occlusions. Since that initial determination, the applicant has requested reconsideration for pass-through payments under the IPPS. However, on the basis of the original findings under the OPPS, we do not now believe that the technology can qualify for new technology add-on payments under the IPPS. Therefore, in the FY 2006 IPPS proposed rule, we proposed to deny new technology add-on payment for FY 2006 for Safe Cross® on the grounds that it does not appear to be a substantial clinical improvement over existing technologies. We sought further information on whether this device meets the substantial clinical improvement criterion, and indicated that we would consider any further information prior to making our final determination in this final rule.

We received no public comments regarding this application for add-on payments prior to the publication of the FY 2006 IPPS proposed rule. During the 60-day comment period on the FY 2006 IPPS proposed rule, we received the following comment:

Comment: One commenter expressed support for the Safe Cross®, explaining that the increased chance of crossing a CTO enables the placement of drug-eluting stents and represents a substantial clinical improvement for treating the most challenging clinical subgroup with these conditions. Using the device also raises the cost per case and, therefore, the commenter recommended that CMS pay new technology add-on payments for this device.

Response: In a letter dated June 3, 2003 to the applicant, CMS denied pass-through payments under the OPPS for the Safe Cross® because it did not demonstrate a substantial clinical improvement. The letter explained that the company has not yet provided intermediate to long-term results regarding reocclusion of previously occluded vessels after angioplasty with substantially improved patient outcomes, which could demonstrate that the Safe Cross® technology leads to significant clinical improvement for patients in comparison with other available treatments. Given the similar criteria for making pass-through payments under the OPPS and new technology add-on payments under the IPPS, a finding that Safe Cross® does not Start Printed Page 47361meet the OPPS criteria means that, in the absence of relevant new information, it cannot qualify for new technology add-on payments under the IPPS. Therefore, we are finalizing our proposal to deny new technology add-on payments for the Safe Cross® in FY 2006 because it does not meet the substantial clinical improvement criterion.

g. Trident® Ceramic Acetabular System

Stryker Orthopaedics submitted an application for new technology add-on payments for the Trident® Ceramic Acetabular System. This system is used to replace the “ball and socket” joint of a hip when a total hip replacement is performed for patients suffering from arthritis or related conditions. The applicant stated that, unlike conventional hip replacement systems, the Trident® system utilizes alumina ceramic-on-ceramic bearing surfaces rather than metal-on-plastic or metal-on-metal. Alumina ceramic is the hardest material next to diamond. The Trident® System is a patented design that captures the ceramic insert in a titanium sleeve. This design increases the strength of the ceramic insert by 50 percent over other designs. The manufacturer stated that the alumina ceramic bearing of the device is a substantial clinical improvement because it is extremely hard and scratch resistant, has a low coefficient of friction and excellent wear resistance, has improved lubrication over metal or polyethylene, has no potential for metal ion release, and has less alumina particle debris. The manufacturer also stated that fewer hip revisions are needed when this product is used (2.7 percent of ceramic versus 7.5 percent for polyethylene). Stryker stated that the ceramic implant also causes less osteolysis (or bone loss from particulate debris). Due to these improvements over traditional hip implants, the manufacturer stated the Trident® Ceramic Acetabular System has demonstrated significantly lower wear versus the conventional plastic/metal system in the laboratory; therefore, it is anticipated that these improved wear characteristics will extend the life of the implant.

In addition, we note that the Trident® Ceramic Acetabular System received FDA approval in February 3, 2003. However, this product was not available on the market until April 2003. The period that technologies are eligible to receive new technology add-on payment is no less than 2 years but not more than 3 years from the point the product comes on the market. At this point, we begin to collect charges reflecting the cost of the device in the MedPAR data. Because the device became available on the market in April 2003, charges reflecting the cost of the device may have been included in the data used to calculate the DRG weights in FY 2005 and the final DRG weights for FY 2006. Therefore, the technology may no longer be considered new for the purposes of new technology add-on payments. For this reason, in the FY 2006 IPPS proposed rule, we proposed to deny add-on payments for the Trident® Ceramic Acetabular System for FY 2006.

The applicant submitted cost threshold information for the Trident® Ceramic Acetabular System, stating that cases using the system would be included in DRG 209 (Major Joint and Limb Reattachment Procedures of Lower Extremity). The manufacturer indicated that there is not an ICD-9-CM code specific to ceramic hip arthroplasty, but it is currently reported using code 81.51 (Total hip replacement). Of the applicable charges for the Trident® Ceramic Acetabular System, only the components that the applicant identified as new would be eligible for new technology add-on payments. The estimated cost of the new portions of the device, according to the information provided in the application, is $6,009. The charge threshold for DRG 209 is $34,195. The data submitted by Stryker Orthopaedics showed an average standardized charge, assuming a 28 percent implant markup, of $34,230.

Regarding the issue of substantial clinical improvement, we recognize that the Trident® Ceramic Acetabular System represents an incremental advance in prosthetic hip technology. However, we also recognize that there are a number of other new prostheses available that utilize a variety of bearing surface materials that also offer increased longevity and decreased wear. For this reason, we do not believe that the Trident® system has demonstrated itself to be a clearly superior new technology.

We received the following public comments, in accordance with section 503(b)(2) of Pub. L. 108-173, regarding this application for add-on payments prior to publication of the FY 2006 IPPS proposed rule.

Comment: One commenter noted that clinical outcomes for the Trident® Ceramic Acetabular System are not a significant clinical improvement over similar devices on the market. A member of the orthopedic community noted at the new technology town hall meeting that this system is not the only new product that promises significantly improved results because of enhancements to materials and design. This commenter suggested that it may be inappropriate to recognize only one of these new hip replacement products for new technology add-on payments.

Response: We appreciate the commenter's input on this criterion. In the proposed rule, we indicated that we would consider these comments regarding the substantial clinical improvement criterion. However, based on the observations provided at the town hall meeting, we noted that we are considering alternative methods of recognizing technological improvements in this area other than approving only one of these new technologies for add-on payments. For example, as discussed in section II.B.6.a. of the preamble to the proposed rule, we proposed to split DRG 209 to create a new DRG for revisions of hip and knee replacements. We would leave all other replacements and attachment procedures in a separate, new DRG. We also stated that we would review these DRGs based on new procedure codes that will provide more detailed data on the specific nature of the revision procedures performed. In addition, we are creating new procedure codes that will identify the type of bearing surface of a hip replacement. As we obtain data from these new codes, we stated that we would consider additional DRG revisions to better capture the various types of joint procedures. We also stated that we may consider a future restructuring of the joint replacement and revision DRGs that would better capture the higher costs of products that offer greater durability, extended life, and improved outcomes. In doing so, of course, we may need to create additional, more precise ICD-9-CM codes. In the FY 2006 IPPS proposed rule, we sought comments on this issue, and generally on whether the Trident® Ceramic Acetabular System meets the criteria to qualify for new technology add-on payments and received the following comments during the 60-day comment period.

During the 60-day comment period on the FY 2006 proposed rule, we received the following comments:

Comment: Several commenters supported new technology add-on payments for the Trident® ceramic on ceramic hip. Many of these comments reiterated the comment from the device manufacturer, disagreeing with our assertion that the technology represents only an incremental improvement over other technologies. The commenters emphasized that the Trident® Ceramic Acetabular System had been evaluated in an extensive prospective, randomized, controlled clinical study, and that the FDA Panel reviewing the Start Printed Page 47362study commended it for its design, statistical report, and patient followup. Therefore, the commenters argued, the product had shown clinical superiority where other devices and improved designs had not shown clinical superiority to the metal on polyethelene hip implants. The commenter also cited a post-market study of a subset of the original study patients that demonstrates continued good patient outcomes at a mean of 5.2 years followup, as presented at the 2005 American Academy of Orthopedic Surgeons Annual Meeting.

Response: The Trident® Ceramic Acetabular System is used to replace the “ball and socket” joint of a hip when a total hip replacement is performed for patients suffering from arthritis or related conditions. Prosthetic hip joints have been used to treat these conditions for many years. The Trident® Ceramic Acetabular System differs from its predecessor prosthetic hips only in the materials that are used in the joint. Thus, the Trident® Ceramic Acetabular System uses the same or a similar mechanism of action to achieve a therapeutic outcome (that is, it replaces the joint to address pain and related conditions for patients suffering from arthritis or related conditions). Further, we note that the cases using the Trident® Ceramic Acetabular System will go into new DRGs 544 or 545 (Major Joint Replacement, Revision of Hip or Knee Replacement), the same DRGs as the patients that receive the older prosthetic hip replacements. Therefore, because the Trident product appears to offer only an incremental advance in the treatment of patients requiring a total hip replacement, we find that it does not meet the substantial clinical improvement criterion. We also note that in this final rule, as proposed, CMS is splitting DRG 209 into two separate DRGs (544 and 545) in order to better reflect the higher costs of revising hip and knee replacements.

Comment: Several commenters objected to our interpretation of the period of new with regard to this technology. Several commenters noted that there appeared to be inconsistency in the method CMS has used to determine the period of “newness” for each technology, noting in particular that both the CRT-D device and INFUSE® bone graft for spinal fusion received new technology add-on payment beyond the 2-3 year period that the devices could be considered new. As noted in the proposed rule, commenters argued that, by CMS' own rationale, payment beyond this period was designed to provide payment predictability and consistency for the entire fiscal year, rather than terminating payments part way through the year. Commenters urged us to reconsider whether this technology meets the newness criterion because it will not be 3 years old until more than 6 months into FY 2006.

Response: We believe the commenters make a good point about application of the newness criteria to the Trident® product. The commenters are correct that 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 add-on payment for an additional year. In general, we extend add-on payments for an additional year if the 3 year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year.

In the case of the Trident® ceramic acetabular system, the device was not available on the market until April, 2003. Thus, the product will not have been available on the market for 3 years until the second half of FY 2006. Thus, under policy, the Trident® ceramic acetabular system could potentially qualify as new for FY 2006. However, the device is very similar to existing products, only differing in the composite material used in manufacturing. It is also used in the same DRGs as these other similar technologies, and we question whether it would be appropriate to deem this technology new and substantially different from previous hip prosthetics. Thus, as noted above, we continue to find that the device does not meet our substantial clinical improvement criterion. Therefore, in this final rule, we are finalizing our decision to deny new technology add-on payments for this device for FY 2006.

h. WingspanTM Stent System With GatewayTM PTA Balloon Catheter

Boston Scientific submitted an application for the WingspanTM Stent System with GatewayTM PTA Balloon Catheter for new technology add-on payments. The device is designed for the treatment of patients with intracranial atherosclerotic disease who suffer from recurrent stroke despite medical management. The device consists of the following: A self-expanding nitinol stent, a multilumen over the wire delivery catheter, and a Gateway PTA Balloon Catheter. The device is used to treat stenoses that occur in the intracranial vessels. Prior to stent placement, the Gateway PTA Balloon is inflated to dilate the target lesion, and then the stent is deployed across the lesion to restore and maintain luminal patency. Effective October 1, 2004, two new ICD-9-CM procedure codes were created to code intracranial angioplasty and intracranial stenting procedures: Procedure codes 00.62 (Percutaneous angioplasty or atherectomy of intracranial vessels) and 00.65 (Percutaneous insertion of intracranial vascular stents).

On January 9, 2004, the FDA designated the WingspanTM as a Humanitarian Use Designation (HUD). The manufacturer has also applied for Humanitarian Device Exemption (HDE) status and expects approval from the FDA in July 2005. It is important to note that currently CMS has a noncoverage policy for percutaneous transluminal angioplasty to treat lesions of intracranial vessels. The applicant is working closely with CMS to review this decision upon FDA approval. Because the device is neither FDA-approved nor Medicare-covered, we did not believe it was appropriate to present our full analysis on whether the technology meets the individual criteria for the new technology add-on payment in the proposed rule. However, we note that the applicant did submit the following information below on the cost criterion and substantial clinical improvement criterion.

The manufacturer submitted data from MedPAR and non-MedPAR databases. The non-MedPAR data was from the 2003 patient discharge data from California's Office of Statewide Health Planning and Development database for hospitals in California and from the 2003 patient data from Florida's Agency for Health Care Administration for hospitals in Florida. The applicant identified cases that had a diagnosis code of 437.0 (Cerebral atherosclerosis), 437.1 (Other generalized ischemic cerebrovascular disease) or 437.9 (Unspecified) or any diagnosis code that begins with the prefix of 434 (Occlusion of cerebral arteries) in combination with procedure code 39.50 (Angioplasty or atherectomy of noncoronary vessel) or procedure code 39.90 (Insertion of nondrug-eluting, noncoronary artery stents). The applicant used procedure codes 39.50 and 39.90 because procedure codes 00.62 and 00.65 were not available until FY 2005. The applicant found cases in DRG 5 (Extracranial Vascular Procedures) (which previously existed under the Medicare IPPS DRG system prior to a DRG split) and in DRGs 533 (Extracranial Procedure with CC) and 534 (Extracranial Procedure Without CC). Even though DRG 5 was split into DRGs 533 and 534 in FY 2003, some hospitals continued to use DRG 5 for non-Medicare cases. The applicant found 22 cases that had an intracranial Start Printed Page 47363PTA with a stent. The average (nonstandardized) charge per case was $78,363.

The applicant also submitted data from the FY 2002 and FY 2003 MedPAR files. Using the latest data from the FY 2003 MedPAR and the same combination of diagnosis and procedure codes mentioned above to identify cases of intracranial PTA with stenting, the applicant found 116 cases in DRG 533 and 20 cases in DRG 534. The case-weighted average standardized charge per case was $51,173. The average case-weighted threshold was $25,394. Based on this analysis, the applicant maintained that the technology meets the cost criteria since the average case-weighted standardized charge per case is greater than the average case-weighted threshold.

The applicant also maintained that the technology meets the substantial clinical improvement criterion. Currently, there is no available surgical or medical treatment for recurrent stroke that occurs despite optimal medical management. The WingspanTM is the first commercially available PTA/stent system designed specifically for the intracranial vasculature. However, because the WingspanTM does not have FDA approval or Medicare coverage, as stated above, in the FY 2006 IPPS proposed rule, we proposed to deny add-on payment for this new technology.

We received no public comments regarding this application for add-on payments prior to the publication of the FY 2006 IPPS proposed rule.

During the 60-day comment period for the FY 2006 IPPS proposed rule, we received the following comment:

Comment: One commenter, the applicant, commented that the WingspanTM represents a substantial clinical improvement over what is currently available to treat patients with intracranial atherosclerotic disease, and who suffer from recurring stroke and recommended that, upon FDA approval of the WingspanTM, CMS determine the most appropriate payment for this new therapy.

Response: We thank the commenter for its comments and upon FDA approval we encourage the applicant to reapply for new technology add-on payments. However, because the WingspanTM does not have FDA approval or Medicare coverage, we are finalizing our proposal to deny add-on payment for this new technology.

III. Changes to the Hospital Wage Index

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the definitions of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2006 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.B. of this preamble.

Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey should measure the earnings and paid hours of employment by occupational category, and must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2006 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 the wage index. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2006 is discussed in section II.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, 2005 (the FY 2006 wage index) appears under section III.C. of this preamble.

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

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we define hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by OMB and announced in December 2003 (69 FR 49027). OMB defines a CBSA, beginning in 2003, as “a geographic entity associated with at least one core of 10,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties.” The standards designate and define two categories of CBSAs: Metropolitan Statistical Areas (MSAs) and Micropolitan Statistical Areas (65 FR 82235).

According to OMB, MSAs are based on urbanized areas of 50,000 or more population, and Micropolitan Statistical Areas (referred to in this discussion as Micropolitan Areas) are based on urban clusters with a population of at least 10,000 but less than 50,000. Counties that do not fall within CBSAs are deemed “Outside CBSAs.” In the past, OMB defined MSAs around areas with a minimum core population of 50,000, and smaller areas were “Outside MSAs.”

The general concept of the CBSAs is that of an area containing a recognized population nucleus and adjacent communities that have a high degree of integration with that nucleus. The purpose of the standards is to provide nationally consistent definitions for collecting, tabulating, and publishing Federal statistics for a set of geographic areas. CBSAs include adjacent counties that have a minimum of 25 percent commuting to the central counties of the area. (This is an increase over the minimum commuting threshold of 15 percent for outlying counties applied in the previous MSA definition.)

The new CBSAs established by OMB comprised MSAs and the new Micropolitan Areas based on Census 2000 data. (A copy of the announcement may be obtained at the following Internet address: http://www.whitehouse.gov/​omb/​bulletins/​Start Printed Page 47364fy04/​b04-03.html.) The definitions recognize 49 new MSAs and 565 new Micropolitan Areas, and extensively revised the composition of many of the existing MSAs.

The new area designations resulted in a higher wage index for some areas and lower wage index for others. Further, some hospitals that were previously classified as urban are now in rural areas. Given the significant payment impacts upon some hospitals because of these changes, we provided a transition period to the new labor market areas in the FY 2005 IPPS final rule (69 FR 49027 through 49034). As part of that transition, we allowed urban hospitals that became rural under the new definitions to maintain their assignment to the Metropolitan Statistical Area (MSA) where they were previously located for the 3-year period of FY 2005, FY 2006, and FY 2007. Specifically, these hospitals were assigned the wage index of the urban area to which they previously belonged. (For purposes of wage index computation, the wage data of these hospitals remained assigned to the statewide rural area in which they are located.) The hospitals receiving this transition will not be considered urban hospitals; rather they will maintain their status as rural hospitals. Thus, the hospital would not be eligible, for example, for a large urban add-on payment under the capital PPS. In other words, it is the wage index, but not the urban or rural status, of these hospitals that is being affected by this transition. The higher wage indices that these hospitals are receiving are also being taken into consideration in determining whether they qualify for the out-commuting adjustment discussed in section III.I. of this preamble and the amount of any adjustment.

FY 2006 will be the second year of this transition period. We will continue to assign the wage index for the urban area in which the hospital was previously located through FY 2007. In order to ensure this provision remains budget neutral, we will continue to adjust the standardized amount by a transition budget neutrality factor to account for these hospitals. Doing so is consistent with the requirement of section 1886(d)(3)(E) of the Act that any “adjustments or updates [to the adjustment for different area wage levels] * * * shall be made in a manner that assures that aggregate payments * * * are not greater or less than those that would have been made in the year without such adjustment.”

Beginning in FY 2008, these hospitals will receive their statewide rural wage index, although they will be eligible to apply for reclassification by the MGCRB, both during this transition period as well as in subsequent years. These hospitals will be considered rural for reclassification purposes.

In addition, in the FY 2005 IPPS final rule (69 FR 49032 and 49033), we provided a 1-year transition blend for hospitals that, due solely to the changes in the labor market definitions, experienced a decrease in their FY 2005 wage index compared to the wage index they would have received using the labor market areas included in calculating their FY 2004 wage index. Hospitals that experienced a decrease in their wage index as a result of adoption of the new labor market area changes received a wage index based on 50 percent of the CBSA labor market area definitions and 50 percent of the wage index that the provider would have received under the FY 2004 MSA boundaries (in both cases using the FY 2001 wage data). This blend applied to any provider experiencing a decrease due to adoption of the new definitions, including providers who were reclassifying under MGCRB requirements, section 1886(d)(8)(B) of the Act, or section 508 of Pub. L. 108-173. In the FY 2005 IPPS final rule (69 FR 49027 through 49033), we described the determination of this blend in detail. We noted that this blend does not prevent a decrease in wage index due to any reason other than adoption of CBSAs, nor does it apply to hospitals that benefited from a higher wage index due to the new labor market definitions.

Consistent with the FY 2005 IPPS final rule, beginning in FY 2006, we are providing that hospitals receive 100 percent of their wage index based upon the new CBSA configurations. Specifically, we have determined for each hospital a new wage index for FY 2006 employing wage index data from FY 2002 hospital cost reports and using the CBSA labor market definitions.

Comment: Commenters asked CMS to defer 100 percent adoption of the new labor market area definitions to allow hospitals more time to adjust to the significant reimbursement impact. Most commenters urged CMS to maintain the current 50 percent CBSA/50 percent MSA blend. One commenter proposed using a 75 percent CBSA/25 percent MSA blend.

Response: We have decided not to provide for a longer transition because we have already, in effect, provided 1 year at a higher wage index for hospitals by delaying full implementation of the new Census designations. Given that the new designations are based on the most recent Census data, whereas the prior labor market areas are based on 1990 Census data, we believe it is both reasonable and appropriate to adopt the new designations for FY 2006.

Comment: One commenter noted that, while CMS provided urban hospitals that became rural under the new definitions hold harmless protection for 3 years, urban hospitals that remained in MSAs that experienced large wage index reductions did not receive that same protection. The commenter stated that, although all hospitals that experienced a decrease in their wage index from the effects of the labor market area changes received a 1-year blended transition, this transition expires on September 30, 2005. The commenter urged CMS to provide hold harmless protection to all hospitals that experienced a wage index decrease of more than 10 percent as a result of the new labor market areas, regardless of whether the hospital remained urban or rural.

Response: We refer readers to the FY 2005 IPPS final rule for a full discussion of our rationale for limiting hold harmless protection to a particular group of hospitals (69 FR 49032).

Comment: A few commenters addressed the use of Micropolitan Areas as geographic areas. They stated that because CMS assigns Micropolitan Areas to the statewide rural area for purposes of the IPPS, several hospitals, by virtue of now being in a Micropolitan county, are reclassified as rural despite their previous designation as an urban hospital. They noted that, although CMS provided a 3-year transition period to help alleviate the decreased wage index payments for hospitals that were previously classified as urban and are now in rural areas based on the new definitions, this transition did not ameliorate any reductions in DSH payments, because the transition did not affect a hospital's urban/rural status. They emphasized that, while urban hospitals of 100 or more beds have no cap on DSH payments, rural hospitals of all sizes are capped at 12 percent for DSH payments. Commenters offered various recommendations about how to protect these hospitals from the changes in the labor market area definitions. Most commenters advocated allowing counties that are reclassified as Micropolitan Areas despite their previous urban designation to be grandfathered into their previously urban MSA. Other commenters recommended that CMS provide an exception to these hospitals under section 1886(d)(5)(I)(i) of the Act. Further, commenters suggested that CMS adopt OMB's new standards for use in defining labor market areas, but lower the commuting threshold used by OMB to define CBSAs. Start Printed Page 47365

Response: We disagree with the commenters that hospitals that changed status from urban to rural received no amelioration with respect to DSH. As stated in the FY 2005 IPPS final rule (69 FR 49033), the provisions of § 412.102 provide special protections for hospitals against abrupt reductions in DSH payments resulting from transitions from urban to rural status. Specifically, as described in § 412.102, in the first year after a hospital loses urban status, the hospital will receive an additional payment that equals two-thirds of the difference between the urban disproportionate share payments applicable to the hospital before its redesignation from urban to rural and the rural disproportionate share payments applicable to its redesignation from urban to rural. In the second year after the hospital loses urban status, the hospital will receive an additional payment that equals one-third of the difference between the urban disproportionate share payments applicable to the hospital before its redesignation from urban to rural and the rural disproportionate share payments applicable to its redesignation from urban to rural. Because hospitals are already receiving adequate relief with respect to DSH payments, we do not believe it is necessary to address the commenters' recommendations regarding grandfathering, exceptions, or use of lower commuting thresholds. We refer readers to the explanation in the FY 2005 IPPS final rule for our adoption of the new Census designations as well as the treatment of Micropolitan areas as rural (69 FR 49027).

C. Occupational Mix Adjustment to FY 2006 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 Occupational Mix Adjustment

In the FY 2005 IPPS final rule (69 FR 49034), we discussed in detail the data we used to calculate the occupational mix adjustment to the FY 2005 wage index. For the final FY 2006 wage index, as proposed, we are using the same CMS Wage Index Occupational Mix Survey and Bureau of Labor Statistics (BLS) data that we used for the FY 2005 wage index, with two exceptions. The CMS survey requires hospitals to report the number of total paid hours for directly hired and contract employees in occupations that provide the following services: Nursing, physical therapy, occupational therapy, respiratory therapy, medical and clinical laboratory, dietary, and pharmacy. These services each include several standard occupational classifications (SOCs), as defined by the BLS' Occupational Employment Statistics (OES) survey. For the FY 2006 wage index, we used revised survey data for 20 hospitals that took advantage of the opportunity we afforded hospitals to submit changes to their occupational mix data during the FY 2006 wage index data collection process (see discussion of wage data corrections process under section III.J. of this preamble). We also excluded survey data for hospitals that became designated as CAHs since the original survey data were collected and hospitals for which there are no corresponding cost report data for the FY 2006 wage index. The FY 2006 wage index includes occupational mix data from 3,541 out of 3,742 hospitals (94.6 percent response rate). The results of the occupational mix survey are included in the chart below.

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Comment: Two commenters noted that the “Medicare Occupational Mix Survey Results” table in the FY 2006 proposed rule (70 FR 23369) did not include data pertaining to medical and clinical laboratory services, all other occupations, and total hospital employees. The commenters requested that CMS publish the complete table in the final rule.

Response: We apologize for any inconveniences caused by the misprint of the table in the proposed rule. The above table includes the complete set of occupational mix survey results for the final FY 2006 wage index.

Comment: As a mechanism to achieve a higher response rate, one commenter recommended that CMS reward hospitals that submit occupational mix survey data. The commenter suggested that, for hospitals that submit occupational mix data, CMS should apply a higher percentage of the occupational mix adjustment if the adjustment results in a positive impact, and a lower percentage if the adjustment results in a negative impact.

Response: Although the commenter's suggestion pertaining to a procedural mechanism by which CMS conducts the occupational mix survey is not a subject of the final policies included in this final rule, we note that we disagree with the suggestion. We do not believe that hospitals should receive a special reward for completing and submitting the occupational mix survey. Rather, a hospital should deem the submission of occupational mix data as a necessary part of its responsibility to provide complete and accurate data for the wage index. We also note that implementing an occupational mix adjustment so that it applies to reporting hospitals only when it is beneficial to such hospitals would defeat the purpose of the occupational mix adjustment.

2. Calculation of the FY 2006 Occupational Mix Adjustment Factor and the FY 2006 Occupational Mix Adjusted Wage Index

For the final FY 2006 wage index, we used the same methodology that we used to calculate the occupational mix adjustment to the FY 2005 wage index (69 FR 49042). We used the following steps for calculating the FY 2006 occupational mix adjustment factor and the occupational mix adjusted wage index:

Step 1—For each hospital, the percentage of the general service category attributable to an SOC is determined by dividing the SOC hours by the general service category's total hours. Repeat this calculation for each of the 19 SOCs.

Step 2—For each hospital, the weighted average hourly rate for an SOC is determined by multiplying the percentage of the general service category (from Step 1) by the national average hourly rate for that SOC from the 2001 BLS OES survey, which was used in calculating the occupational mix adjustment for the FY 2005 wage index. The 2001 OES survey is BLS' latest available hospital-specific survey. (See Chart 4 in the FY 2005 IPPS final rule, 69 FR 49038.) Repeat this calculation for each of the 19 SOCs.

Step 3—For each hospital, the hospital's adjusted average hourly rate for a general service category is computed by summing the weighted hourly rate for each SOC within the general category. Repeat this calculation for each of the seven general service categories.

Step 4—For each hospital, the occupational mix adjustment factor for a general service category is calculated by dividing the national adjusted average hourly rate for the category by the hospital's adjusted average hourly rate for the category. (The national adjusted average hourly rate is computed in the same manner as Steps 1 through 3, using instead, the total SOC and general service category hours for all hospitals in the occupational mix survey database.) Repeat this calculation for each of the seven general service categories. If the hospital's adjusted rate Start Printed Page 47368is less than the national adjusted rate (indicating the hospital employs a less costly mix of employees within the category), the occupational mix adjustment factor will be greater than 1.0000. If the hospital's adjusted rate is greater than the national adjusted rate, the occupational mix adjustment factor will be less than 1.0000.

Step 5—For each hospital, the occupational mix adjusted salaries and wage-related costs for a general service category are calculated by multiplying the hospital's total salaries and wage-related costs (from Step 5 of the unadjusted wage index calculation in section III.F. of this preamble) by the percentage of the hospital's total workers attributable to the general service category and by the general service category's occupational mix adjustment factor (from Step 4 above). Repeat this calculation for each of the seven general service categories. The remaining portion of the hospital's total salaries and wage-related costs that is attributable to all other employees of the hospital is not adjusted for occupational mix.

Step 6—For each hospital, the total occupational mix adjusted salaries and wage-related costs for a hospital are calculated by summing the occupational mix adjusted salaries and wage-related costs for the seven general service categories (from Step 5) and the unadjusted portion of the hospital's salaries and wage-related costs for all other employees. To compute a hospital's occupational mix adjusted average hourly wage, divide the hospital's total occupational mix adjusted salaries and wage-related costs by the hospital's total hours (from Step 4 of the unadjusted wage index calculation in section III.F. of this preamble).

Step 7—To compute the occupational mix adjusted average hourly wage for an urban or rural area, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the area, then sum the total hours for all hospitals in the area. Next, divide the area's occupational mix adjusted salaries and wage-related costs by the area's hours.

Step 8—To compute the national occupational mix adjusted average hourly wage, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the Nation, then sum the total hours for all hospitals in the Nation. Next, divide the national occupational mix adjusted salaries and wage-related costs by the national hours. The national occupational mix adjusted average hourly wage for FY 2006 is $28.0272.

Step 9—To compute the occupational mix adjusted wage index, divide each area's occupational mix adjusted average hourly wage (Step 7) by the national occupational mix adjusted average hourly wage (Step 8).

Step 10—To compute the Puerto Rico specific occupational mix adjusted wage index, follow Steps 1 through 9 above. The Puerto Rico occupational mix adjusted average hourly wage for FY 2006 is $12.7985.

An example of the occupational mix adjustment was included in the FY 2005 IPPS final rule (69 FR 49043).

For the FY 2005 final wage index, we used the unadjusted wage data for hospitals that did not submit occupational mix survey data. For calculation purposes, this equates to applying the national SOC mix to the wage data for these hospitals, because hospitals having the same mix as the Nation would have an occupational mix adjustment factor equaling 1.0000. In the FY 2005 IPPS final rule (69 FR 49035), we noted that we would revisit this matter with subsequent collections of the occupational mix data. Because we are using essentially the same survey data for the FY 2006 occupational mix adjustment that we used for FY 2005, with the only exceptions as stated in section III.C.1. of this preamble, we are treating the wage data for hospitals that did not respond to the survey in this same manner for the FY 2006 wage index.

In implementing an occupational mix adjusted wage index based on the above calculation, the wage index values for 14 rural areas (29.8 percent) and 206 urban areas (53.4 percent) would decrease as a result of the adjustment. Seven (7) rural areas (14.9 percent) and 111 urban areas (28.8 percent) would experience a decrease of 1 percent or greater in their wage index values. The largest negative impact for a rural area would be 1.9 percent and for an urban area, 4.2 percent. Meanwhile, 32 rural areas (68.1 percent) and 179 urban areas (46.4 percent) would experience an increase in their wage index values. Although these results show that rural hospitals would gain the most from an occupational mix adjustment to the wage index, their gains may not be as great as might have been expected. Further, it might not have been anticipated that almost one-third of rural hospitals would actually fare worse under the adjustment. Overall, a fully implemented occupational mix adjusted wage index would have a redistributive effect on Medicare payments to hospitals.

In the FY 2005 IPPS proposed rule, we indicated that, for future data collections, we would revise the occupational mix survey to allow hospitals to provide both salaries and hours data for each of the employment categories that are included on the survey. We also indicated that we would assess whether future occupational mix surveys should be based on the calendar year or if the data should be collected on a fiscal year basis as part of the Medicare cost report. (One logistical problem is that cost report data are collected yearly, but occupational mix survey data are collected only every 3 years.) We are currently reviewing options for revising the occupational mix survey and improving the data collection process.

Comment: Several commenters provided recommendations for the design and release of a revised occupational mix survey.

Response: We plan to release a revised occupational mix survey in an upcoming Federal Register notice. We will address the design and data collection issues, including the commenters' recommendations, as part of that notice.

In our continuing efforts to meet the information needs of the public, we provided via the Internet three additional public use files for the proposed occupational mix adjusted wage index concurrently with the publication of the FY 2006 IPPS proposed rule: (1) A file including each hospital's unadjusted and adjusted average hourly wage (FY 2006 Proposed Rule Occupational Mix Adjusted and Unadjusted Average Hourly Wage by Provider); (2) a file including each CBSA's adjusted and unadjusted average hourly wage (FY 2006 Proposed Rule Occupational Mix Adjusted and Unadjusted Average Hourly Wage and Pre-Reclassified Wage Index by CBSA); and (3) a file including each hospital's occupational mix adjustment factors by occupational category (Provider Occupational Mix Adjustment Factors for Each Occupational Category). We also plan to post these files via the Internet with future applications of the occupational mix adjustment.

D. Worksheet S-3 Wage Data for the FY 2006 Wage Index Update

The FY 2006 wage index values (effective for hospital discharges occurring on or after October 1, 2005 and before October 1, 2006) in section VI. of the Addendum to this final rule are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2002 (the FY 2005 wage index was based on FY 2001 wage data). Start Printed Page 47369

The FY 2006 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).
  • Wage-related costs, including pensions and other deferred compensation costs.

The September 1, 1994 Federal Register (59 FR 45356) included a list of core wage-related costs that are included in the wage index, and discussed criteria for including other wage-related costs. In that discussion, we instructed hospitals to use generally accepted accounting principles (GAAPs) in developing wage-related costs for the wage index for cost reporting periods beginning on or after October 1, 1994. We discussed our rationale that “the application of GAAPs for purposes of compiling data on wage-related costs used to construct the wage index will more accurately reflect relative labor costs, because certain wage-related costs (such as pension costs), as recorded under GAAPs, tend to be more static from year to year.”

Since publication of the September 1, 1994 rule, we have periodically received inquiries for more specific guidance on developing wage-related costs for the wage index. In response, we have provided clarifications in the IPPS rules (for example, health insurance costs (66 FR 39859)) and in the cost report instructions (Provider Reimbursement Manual (PRM), Part II, Section 3605.2). Due to recent questions and concerns we received regarding inconsistent reporting and overreporting of pension and other deferred compensation plan costs, as a result of an ongoing Office of Inspector General review, we are clarifying in this final rule that hospitals must comply with the requirements in 42 CFR 413.100, the PRM, Part I, sections 2140, 2141, and 2142, and related Medicare program instructions for developing pension and other deferred compensation plan costs as wage-related costs for the wage index. The Medicare instructions for pension costs and other deferred compensation costs combine GAAPs, Medicare payment principles, and Department of Labor and Internal Revenue Service requirements. We believe that the Medicare instructions allow for both consistent reporting among hospitals and for the development of reasonable deferred compensation plan costs for purposes of the wage index.

With the FY 2007 wage index, hospitals and fiscal intermediaries must ensure that pension, post-retirement health benefits, and other deferred compensation plan costs for the wage index are developed according to the above terms.

Comment: A few commenters addressed our discussion regarding the treatment of pension, post-retirement health benefits, and other deferred compensation costs for purposes of the wage index. Two commenters expressed concern that the instructions are a significant change from our original instructions published September 1, 1994. The commenters asserted that CMS provided no rationale for moving away from using GAAP for developing these costs for the wage index, and requested an additional opportunity for public comment. One commenter suggested that using GAAP provides a more consistent methodology for capturing these costs than Medicare reasonable cost principles. A fourth commenter requested a more specific description of the treatment of pension, post-retirement health benefits, and other deferred compensation costs if there are other “related Medicare program instructions” as we stated above.

Response: For cost reporting periods beginning prior to October 1, 1994, hospitals were required to include in the wage index only the amount of actual payments that the hospital made to retirees in the reporting year. For periods beginning on or after October 1, 1994, CMS instructed hospitals to use GAAPs, an accrual method of accounting, for developing pension, deferred compensation, and other wage-related costs for wage index purposes. All other wage costs on Worksheet S-3 must reflect costs that are actually expended by the hospital during the cost reporting period. We believed then and continue to believe that the use of accrual accounting allows hospitals to be more inconsistent in their reporting of wage-related costs from year to year so that the wage index could be more static.

Section 413.24 of the regulations also provides for the accrual basis of accounting for developing costs under Medicare's cost finding principles. However, a major difference between GAAP and Medicare principles for recognizable pension and other deferred compensation plan costs is an issue of funding. In § 413.100 (and as discussed in 60 FR 33126, June 27, 2005), we clarified and codified CMS' longstanding requirement that, for purposes of program payment, providers must timely liquidate their liabilities. GAAP does not specify a time requirement for recognizing accrued costs.

In 2003, we updated the cost report instructions in section 3605.2 of the PRM, Part II, to also clarify the September 1, 1994 instructions for the wage index. At the instructions for wage-related costs, lines 13 through 20, we noted that, “Although hospitals must use GAAP in developing wage-related costs, the amount reported for wage index purposes must meet the reasonable cost provisions of Medicare.” The clarification was to ensure that a hospital includes in the wage index only those pension and other deferred compensation plan costs that meet the timel