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Rule

Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2007 Rates; Fiscal Year 2007 Occupational Mix Adjustment to Wage Index; Health Care Infrastructure Improvement Program; Selection Criteria of Loan Program for Qualifying Hospitals Engaged in Cancer-Related Health Care and Forgiveness of Indebtedness; and Exclusion of Vendor Purchases Made Under the Competitive Acquisition Program (CAP) for Outpatient Drugs and Biologicals Under Part B for the Purpose of Calculating the Average Sales Price (ASP)

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Start Preamble Start Printed Page 47870

AGENCY:

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

ACTION:

Final rules and interim final rule with comment period.

SUMMARY:

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems, and to implement a number of changes made by the Deficit Reduction Act of 2005 (Pub. L. 109-171). 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, 2006.

In this final rule, we discuss public comments we received on our proposals to refine the diagnosis-related group (DRG) system under the IPPS to better recognize severity of illness among patients—to use a hospital-specific relative value (HSRV) cost center weighting methodology to adjust DRG relative weights; and to implement consolidated severity-adjusted DRGs or alternative severity adjustment methods.

Among the other policy changes that we are making are those changes related to: limited revisions of the reclassification of cases to DRGs; the long-term care (LTC)-DRGs and relative weights; the wage data, including the occupational mix data, used to compute the wage index; applications for new technologies and medical services add-on payments; payments to hospitals for the direct and indirect costs of graduate medical education; submission of hospital quality data; payments to sole community hospitals and Medicare-dependent, small rural hospitals; and provisions governing emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).

We are responding to requested public comments on a number of other issues that include performance-based hospital payments for services and health information technology, as well as how to improve health data transparency for consumers.

In addition, we are responding to public comments received on a proposed rule issued in the Federal Register on May 17, 2006 that proposed to revise the methodology for calculating the occupational mix adjustment to the wage index for the FY 2007 hospital inpatient prospective payment system by applying an adjustment to 100 percent of the wage index using new 2006 occupational mix survey data collected from hospitals.

We are finalizing two policy documents published in the Federal Register relating to the implementation of the Health Care Infrastructure Improvement Program, a hospital loan program for cancer research, established under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

This final rule also revises the definition of the term “unit” to specify the exclusion of units of drugs sold to approved Medicare Competitive Acquisition Program (CAP) vendors for use under the CAP from average sales price (ASP) calculations for a period of up to 3 years, at which time we will reevaluate our policy.

DATES:

Effective Dates: The provisions of these final rules are effective on October 1, 2006, with the exception of the provisions in § 412.8, § 414.802, and the procedures for withdrawing or terminating reclassifications established in section III.H.4. of the preamble. The provisions of § 412.8, § 414.802, and the procedures for withdrawing or terminating reclassifications established in section II.H.4. of the preamble are effective August 18, 2006. 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 the Congress on this rule on August 1, 2006.

Comment Date: We will consider comments on the exclusion of CAP drugs from the ASP calculation (§ 414.802) as discussed in section XII. of the preamble of this final rule, if we receive them at one of the addresses provided below, no later than 5 p.m. on October 2, 2006.

ADDRESSES:

In commenting, on section XII. of this rule, please refer to file code CMS-1325-IFC4.

Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (no duplicates, please):

1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.cms.hhs.gov/​eRulemaking. Click on the link “Submit electronic comments on CMS regulations with an open comment period.” (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.)

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1325-IFC4, P.O. Box 8011, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1325-IFC4, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily available to Start Printed Page 47871persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

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

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

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Marc Hartstein, (410) 786-4548, Operating Prospective Payment, Diagnosis-Related Groups (DRGs), Wage Index, Occupational Mix Adjustment, New Medical Services and Technology Add-On Payments, Hospital Geographic Reclassifications, Sole Community Hospital, Disproportionate Share Hospital, and Medicare-Dependent, Small Rural Hospital Issues.

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Critical Access Hospitals, Long-Term Care (LTC)-DRGs, and Terms of Hospital Loans under Health Care Infrastructure Improvement Program Issues.

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

Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment Update Issues.

Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing Issues.

Frederick Grabau, (410) 786-0206, Services in Foreign Hospitals Issues.

Brian Reitz, (410) 786-5001, Obsolete Paper Claims Forms Issues.

Melinda Jones, (410) 786-7069, Loan Forgiveness Criteria for Health Care Infrastructure Improvement Program.

Corinne Axelrod, (410) 786-5620, Competitive Acquisition Program (CAP) for Part B Drugs Issues.

Angela Mason, (410) 786-7452, Payment for Covered Outpatient Drugs and Biologicals Issues.

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1325-IFC4 and the specific “issue identifier” that precedes the section on which you choose to comment.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on a public Web site as soon as possible after they are received: http://www.cms.hhs.gov/​eRulemaking. Clink on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments.

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

Electronic Access

This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents' home page address is http://www.gpoaccess.gov/​, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required).

Acronyms

AHA American Hospital Association

AHIMA American Health Information Management Association

AHRO Agency for Health Care Research and Quality

AMI Acute myocardial infarction

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis-Related Group System

ASC Ambulatory surgical center

ASP Average sales price

AWP Average wholesale price

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

BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113

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

AH Critical access hospital

AP Competitive Acquisition Program

CART CMS Abstraction & Reporting Tool

CBSAs Core-based statistical areas

CC Complication or comorbidity

CDAC Clinical Data Abstraction Center

CIPI Capital input price index

CPI Consumer price index

CMI Case-mix index

CMS Centers for Medicare & Medicaid Services

CMSA Consolidated Metropolitan Statistical Area

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

CPI Consumer price index

CRNA Certified registered nurse anesthetist

CY Calendar year

DRA Deficit Reduction Act of 2005, Pub. L. 109-171

DRG Diagnosis-related group

DSH Disproportionate share hospital

ECI Employment cost index

EMR Electronic medical record

EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L. 99-272

FDA Food and Drug Administration

FFY Federal fiscal year

FIPS Federal information processing standards

FQHC Federally qualified health center

FTE Full-time equivalent

FY Fiscal year

GAAP Generally Accepted Accounting Principles

GAF Geographic Adjustment Factor

GME Graduate medical education

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems

HCFA Health Care Financing Administration

HCRIS Hospital Cost Report Information System

HHA Home health agency

HHS Department of Health and Human Services

HIC Health insurance card

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

HIPC Health Information Policy Council

HIS Health information system

HIT Health information technology

HMO Health maintenance organization

HSA Health savings account

HSCRC Maryland Health Services Cost Review Commission Start Printed Page 47872

HSRV Hospital-specific relative value

HSRVcc Hospital-specific relative value cost center

HQA Hospital Quality Alliance

HQI Hospital Quality Initiative

HwH Hospital-within-a-hospital

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

IOM Institute of Medicine

IPF Inpatient psychiatric facility

IPPS Acute care hospital inpatient prospective payment system

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

MCV Major cardiovascular condition

MDC Major diagnostic category

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

NCQA National Committee for Quality Assurance

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

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)

QIG Quality Improvement Group, CMS

QIO Quality Improvement Organization

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

RY Rate year

SAF Standard Analytic File

SCH Sole community hospital

SFY State fiscal year

SIC Standard Industrial Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

SSA Social Security Administration

SSI Supplemental Security Income

TAG Technical Advisory Group

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. Inpatient Rehabilitation Facilities (IRFs)

b. Long-Term Care Hospitals (LTCHs)

c. Inpatient Psychiatric Facilities (IPFs)

3. Critical Access Hospitals (CAHs)

4. Payments for Graduate Medical Education (GME)

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

C. Summary of the Provisions of the FY 2007 IPPS and FY 2007 Occupational Mix Adjustment to the Wage Index Proposed Rules

1. DRG Reclassifications and Recalibrations of Relative Weights

2. Changes to the Hospital Wage Index

3. Other Decisions and Changes to the IPPS for Operating Costs, GME Costs, and Promoting Hospitals’ Effective Use of Health Information Technology

4. Changes to the PPS for Capital-Related Costs

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

6. Payments for Services Furnished Outside the United States

7. Payment for Blood Clotting Factor Administered to Inpatients with Hemophilia

8. Limitation on Payments to Skilled Nursing Facilities for Bad Debt

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

10. Impact Analysis

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

12. Discussion of Medicare Payment Advisory Commission Recommendations

13. Appendix C and Appendix D

D. Public Comments Received in Response to the FY 2007 IPPS and FY 2007 Occupational Mix Adjustment to the Wage Index Proposed Rules

E. Interim Final Rule on Selection Criteria of Loan Program for Qualifying Hospitals Engaged in Cancer-Related Health Care

F. Proposed Rule on Forgiveness of Indebtedness under the Health Care Infrastructure Improvement Program

G. Interim Final Rule on the Exclusion of Vendor Purchases Made Under the Competitive Acquisition Program for Part B Outpatient Drugs and Biologicals for the Purpose of Calculating the Average Sales Price

II. Changes to DRG Classifications and Relative Weights

A. Background

B. DRG Reclassifications

1. General

2. Yearly Review for Making DRG Changes

C. Revisions to the DRG System Used Under the IPPS

1. MedPAC Recommendations

2. Refinement of the Relative Weight Calculation

3. Refinement of DRGs Based on Severity of Illness

a. Comparison of the CMS DRG System and the APR DRG System

b. CS DRGs for Use in the IPPS

c. Changes to CMI from a New DRG System

4. Effect of CS DRGs on the Outlier Threshold

5. Impact of Refinement of DRG System on Payments

6. Conclusions

7. Severity Refinement to CMS DRGs

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

b. MDC 4 (Diseases and Disorders of the Respiratory System): Respiratory System Diagnosis with Ventilator Support

c. MDC 6 (Diseases and Disorders of the Digestive System)

d. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract): Major Bladder Procedures

e. MDC 16 (Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders): Major Hematological and Immunological Diagnoses

f. MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified Sites)): O.R. Procedure for Patients with Infectious and Parasitic Diseases Start Printed Page 47873

g. Severe Sepsis

D. Changes to Specific DRG Classifications

1. Pre-MDCs

a. Heart Transplant or Implant of Heart Assist System: Addition of Procedure to DRG 103

b. Pancreas Transplants

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

a. Implantation of Intracranial Neurostimulator System for Deep Brain Stimulation (DBS)

b. Carotid Artery Stents

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

a. Insertion of Epicardial Leads for Defibrillator Devices

b. Application of Major Cardiovascular Diagnoses (MCVs) List to Defibrillator DRGs

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

a. Hip and Knee Replacements

b. Spinal Fusion

c. CHARITETM Spinal Disc Replacement Device

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

6. Medicare Code Editor (MCE) Changes

a. Edit: Newborn Diagnoses

b. Edit: Diagnoses for Pediatric—Age 0-17 Years Old

c. Edit: Maternity Diagnoses—Age 12 through 55

d. Edit: Diagnoses Allowed for Females Only

e. Edit: Diagnoses Allowed for Males Only

f. Edit: Procedures Allowed for Females Only

g. Edit: Manifestations Not Allowed as Principal Diagnosis

h. Edit: Nonspecific Principal Diagnosis

i. Edit: Unacceptable Principal Diagnosis

j. Edit: Nonspecific O.R. Procedures

k. Edit: Noncovered Procedures

l. Edit: Bilateral Procedure

7. Surgical Hierarchies

8. Refinement of Complications and Comorbidities (CC) List

a. Background

b. Comprehensive Review of the CC List

c. CC Exclusions List for FY 2007

9. 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

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

11. Other Issues

a. Chronic Kidney Disease

b. Bronchial Valve

c. Female Reproductive System Reconstruction Procedures

d. Devices That are Replaced Without Cost or Where Credit for a Replaced Device is Furnished to the Hospital

E. Recalibration of DRG Weights

F. LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2007

1. Background

2. Changes in the LTC-DRG Classifications

a. Background

b. Patient Classifications into DRGs

3. Development of the FY 2007 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 2007 LTC-DRG Relative Weights

5. Summary of Public Comments and Departmental Responses

G. Add-On Payments for New Services and Technologies

1. Background

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

3. FY 2007 Status of Technologies Approved for FY 2006 Add-On Payments

a. Kinetra® Implantable Neurostimulator (Kinetra®) for Deep Brain Stimulation

b. Endovascular Graft Repair of the Thoracic Aorta

c. Restore® Rechargeable Implantable Neurostimulator

4. FY 2007 Applications for New Technology Add-On Payments

a. C-Port® Distal Anastomosis System

b. NovoSeven® for Intracerebral Hemorrhage

c. X STOP Interspinous Process Decompression System

5. Interim and Final Cost Threshold Tables Due to Changes to Wage Index and Budget Neutrality Factors

III. Changes to the Hospital Wage Index

A. Background

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

C. Occupational Mix Adjustment to the FY 2007 Wage Index

1. Development of Data for the FY 2007 Occupational Mix Adjustment

2. Timeline for the Collection, Review, and Correction of the Occupational Mix Data

3. Calculation of the Occupational Mix Adjustment

D. Worksheet S-3 Wage Data for the FY 2007 Wage Index Update

E. Verification of Worksheet S-3 Wage Data

F. Computation of the FY 2007 Unadjusted Wage Index

G. Implementation of the FY 2007 Occupational Mix Adjustment to the Wage Index

H. Revisions to the Wage Index Based on Hospital Redesignations

1. General

2. Effects of Reclassification/Redesignation

3. FY 2007 MGCRB Reclassifications

4. Procedures for Hospitals Applying for Reclassification Effective in FY 2008 and Reinstating Reclassifications in FY 2008

5. FY 2007 Redesignations Under Section 1886(d)(8)(B) of the Act

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

7. Wage Indices for Reclassified Hospitals and Reclassification Budget Neutrality Factor

I. FY 2007 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Process for Requests for Wage Index Data Corrections

K. Labor-Related Share for the Wage Index for FY 2007

L. Proxy for the Hospital Market Basket

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

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

1. Background

2. New Procedures for Hospital Reporting of Quality Data

a. Two Percentage Point Reduction

b. New Procedures

c. Expanded Quality Measures

d. HCAHPS® Survey

e. Data Submission

f. RHQDAPU Program Withdrawal and Chart Validation Requirements

g. Data Validation and Attestation

h. Public Display and Reconsideration Procedures

i. Conclusion

3. Electronic Medical Records

B. Value-Based Purchasing

1. Introduction

2. Premier Hospital Quality Incentive Demonstration

3. RHQDAPU Program

a. Section 501(b) of Pub. L. 108-173 (MMA)

b. Section 5001(a) of Pub. L. 109-171 (DRA)

4. Plan for Implementing Hospital Value-Based Purchasing Beginning with FY 2009

a. Measure Development and Refinement

b. Data Infrastructure

c. Incentive Methodology

d. Public Reporting

5. Considerations Related to Certain Conditions, Including Hospital-Acquired Infections

6. Promoting Effective Use of Health Information Technology

C. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs)

1. Background

2. Volume Decrease Adjustment for SCHs and MDHs

a. HAS/Monitrend Data

b. HAS/Monitrend Data Book Replacement Alternative

3. Mandatory Reporting Requirements for Any Changes in the Circumstances Under Which a Hospital Was Designated as an SCH or MDH

4. Payment Changes for MDHs under the DRA of 2005

a. Background

b. Regulation Changes

5. Technical Change

D. Rural Referral Centers

1. Case-Mix Index

2. Discharges

E. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2007

3. Technical Change to Revise Cross-Reference

F. Payment Adjustment for Disproportionate Share Hospitals (DSHs) Start Printed Page 47874

1. Background

2. Technical Corrections

3. Reinstatement of Inadvertently Deleted Provisions on DSH Payment Adjustment Factors

4. Enhanced DSH Adjustment for MDHs

G. Geographic Reclassifications

1. Background

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

3. Multicampus Hospitals

4. Urban Group Hospital Reclassifications

5. Effect of Change of Ownership on Urban County Group Reclassifications

6. Requested Reclassification for Hospitals Located in a Single Hospital MSA Surrounded by Rural Counties

7. Special Adjustment for the Hospital Group Reclassification Denied on the Basis of Incomplete CSA Listing

H. Payment for Direct Graduate Medical Education

1. Background

2. Determination of Weighted Average Per Resident Amounts (PRAs) for Merged Teaching Hospitals

3. Determination of Per Resident Amounts (PRAs) for New Teaching Hospitals

4. Requirements for Counting and Appropriate Documentation of FTE Residents: Clarification

5. Resident Time Spent in Nonpatient Care Activities as Part of Approved Residency Programs

6. Medicare GME Affiliated Groups: Technical Changes to Regulations

I. Payment for the Costs of Nursing and Allied Health Education Activities: Clarification

J. Hospital Emergency Services under EMTALA

1. Background

2. Role of the EMTALA Technical Advisory Group (TAG)

3. Definition of “Labor”

4. Application of EMTALA Requirements to Hospitals Without Dedicated Emergency Departments

5. Clarification of Reference to “Referral Centers”

K. Other Technical Changes

1. Cross-Reference Correction in Regulations on Limitations on Beneficiary Charges

2. Cross-Reference Corrections in Regulations on Payment Denials Based on Admissions and Quality Reviews

3. Cross-Reference Correction in Regulations on Outlier Payments

4. Removing References to Two Paper Claims Forms

L. Rural Community Hospital Demonstration Program

M. Health Care Information Transparency Initiative

V. Changes to the PPS for Capital-Related Costs

A. Background

B. Treatment of Certain Urban Hospitals Reclassified as Rural Hospitals Under § 412.103

C. Other Technical Corrections Relating to the Capital PPS Geographic Adjustment Factors

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

A. Payments to Excluded Hospitals and Hospital Units

1. Payments to Existing Excluded and New Hospitals and Hospital Units

2. Separate PPS for IRFs

3. Separate PPS for LTCHs

4. Separate PPS for IPFs

5. Grandfathering of Hospitals-Within-Hospitals (HwHs) and Satellite Facilities

6. Changes to the Methodology for Determining LTCH Cost-to-Charge Ratios (CCRs) and the Reconciliation of High-Cost and Short-Stay Outlier Payments under the LTCH PPS

a. Background

b. High-Cost Outliers

c. Short-Stay Outliers

d. CCR Ceiling

e. Statewide Average CCRs

f. Data Used to Determine a CCR

g. Reconciliation of Outlier Payments Upon Cost report Settlement

7. Technical Corrections Relating to LTCHs

8. Cross-Reference Correction in Authority Citations for 42 CFR 412 and 413

9. Report of Adjustment (Exceptions) Payments

B. Critical Access Hospitals (CAHs)

1. Background

2. Sunset of Designation of CAHs as Necessary Providers: Technical Correction

VII. Payment for Services Furnished Outside the United States

A. Background

B. Proposed Clarification of Regulations

VIII. Payment for Blood Clotting Factor Administered to Inpatients with Hemophilia

IX. Limitation on Payments to Skilled Nursing Facilities for Bad Debt

A. Background

B. Changes Made by Section 5004 of Pub. L. 109-171

C. Proposed Regulation Changes

X. MedPAC Recommendations

XI. Health Care Infrastructure Improvement Program: Selection Criteria for Loan Program for Qualifying Hospitals Engaged in Cancer-Related Health Care and Forgiveness of Indebtedness

A. Background

B. Issuance of an Interim Final Rule with Comment Period and a Proposed Regulation

C. Provisions of the Interim Final Rule With Comment Period

1. Loan Qualifying Criteria

2. Selection Criteria

3. Terms of the Loan

4. Public Comments Received on the Interim Final Rule With Comment Period

5. Provisions of this Final Rule

D. Proposed Rule on Forgiveness of Indebtedness

1. Conditions for Loan Forgiveness

2. Plan Criteria for Meeting the Conditions for Loan Forgiveness

3. Public Comments Received on the Proposed Rule and Our Responses

4. Provisions of the Final Rule

E. Statutory Requirements for Issuance of Regulations

XII. Exclusion of Vendor Purchases Made Under the Competitive Acquisition Program (CAP) for Outpatient Drugs and Biologicals Under Part B for the Purpose of Calculating the Average Sales Price (ASP)

A. Background

1. Average Sales Price (ASP)

2. Competitive Acquisition Program (CAP)

3. Regulatory History

B. Regulation Change

XIII. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

C. Waiver of Proposed Rulemaking and Delay in the Effective Date

D. Response to Comments

Regulation Text

Addendum—Schedule of Tentative Standardized Amounts, Tentative Update Factors and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2006

I. Summary and Background

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

A. Calculation of the Tentative Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

2. Computing the Tentative Average Standardized Amount

3. Updating the Tentative 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—Tentative Budget Neutrality Adjustment

c. Outliers

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

5. Tentative FY 2007 Standardized Amount

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

1. Tentative Adjustment for Area Wage Levels

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

C. DRG Relative Weights

D. Calculation of the Prospective Payment Rates

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, FY 1996, and FY 2002 Hospital-Specific Rates for FY 2007

3. General Formula for Calculation of Prospective Payment Rates for Hospitals Located in Puerto Rico Beginning On or After October 1, 2006, and Before October 1, 2007

a. Puerto Rico Rate

b. National Rate

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2007

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

1. Projected Capital Standard Federal Rate Update Start Printed Page 47875

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 GAF

4. Exceptions Payment Adjustment Factor

5. Capital Standard Federal Rate for FY 2007

6. Special Capital Rate for Puerto Rico Hospitals

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2007

C. Capital Input Price Index

1. Background

2. Forecast of the CIPI for FY 2007

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

A. Payments to Existing Excluded Hospitals and Units

B. New Excluded Hospitals and Units

V. Payment for Blood Clotting Factor Administered to Inpatients with Hemophilia

Tables

The following tables are included as part of this final rule:

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) (Tentative)

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) (Tentative)

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

Table 1D—Capital Standard Federal Payment Rate (Tentative)

Table 4J—Out-Migration Wage Adjustment—FY 2007 (Tentative)

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

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 2005 MedPAR Update March 2006 GROUPER V23.0

Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2005 MedPAR Update March 2006 GROUPER V24.0

Table 8A—Statewide Average Operating Cost-to-Charge Ratios—July 2006

Table 8B—Statewide Average Capital Cost-to-Charge Ratios—July 2006

Table 8C— Statewide Average Total Cost-to-Charge Ratios for LTCHs—July 2006

Table 9A—Hospital Reclassifications and Redesignations by Individual Hospital and CBSA for FY 2007 (Tentative)

Table 9B—Hospital Reclassifications and Redesignation by Individual Hospital Under Section 508 of Pub. L. 108-173 for FY 2007 (Tentative)

Table 9C—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act for FY 2007 (Tentative)

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 Group (DRG)—July 2006 (Tentative)

Table 11—FY 2007 LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and 5/6ths of the Geometric Average Length of Stay

Appendix A—Regulatory Impact Analysis

I. Overall Impact

II. Objectives

III. Limitations on Our Analysis

IV. Hospitals Included In and Excluded From the IPPS

V. Effects on Excluded Hospitals and Hospital Units

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

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects on the Hospitals that Failed the Quality Data Submission Process (Column 2)

D. Effects of the DRA Provision Related to MDHs (Column 3)

E. Effects of the Changes to the DRG Reclassifications and Relative Cost-Based Weights (Column 4)

F. Effects of Wage Index Changes (Column 5)

G. Combined Effects of DRG and Wage Index Changes, Including Budget Neutrality Adjustment (Column 6)

H. Effects of the 3-Year Provision Allowing Urban Hospitals that Were Converted to Rural as a Result of the FY 2005 Labor Market Area Changes to Maintain the Wage Index of the Urban Labor Market Area in Which They Were Formerly Located (Column 7)

I. Effects of MGCRB Reclassifications (Column 8)

J. Effects of the Wage Index Adjustment for Out-Migration (Column 9)

K. Effects of All Changes (Column 10)

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

M. Impact Analysis of Table II

VII. Effects of Other Policy Changes

A. Effects of LTC-DRG Reclassifications and Relative Weights for LTCHs

B. Effects of New Technology Add-On Payments

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

D. Effects of Other Policy Changes Affecting Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs)

E. Effects of Policy on Payment for Direct Costs of Graduate Medical Education

1. Determination of Weighted Average GME PRAs for Merged Teaching Hospitals

2. Determination of PRAs for New Teaching Hospitals

3. Requirements for Counting and Appropriate Documentation of FTE Residents

4. Resident Time Spent in Nonpatient Care Activities as Part of an Approved Residency Program

F. Effects of Policy Changes Relating to Emergency Services under EMTALA

G. Effects of Policy on Rural Community Hospital Demonstration Program

H. Effects of Policy on Hospitals-within-Hospitals and Satellite Facilities

I. Effects of Policy Changes to the Methodology for Determining LTCH CCRs and the Reconciliation of LTCH PPS Outlier Payments

J. Effects of Policy on Payment for Services Furnished Outside the United States

K. Effects of Final Policy on Limitation on Payments to SNFs

L. Effects of Policy on CAP for Outpatient Drugs and Biologicals under Part B for the Purpose of Calculating the ASP

VIII. Impact of Changes in the Capital PPS

A. General Considerations

B. Results

IX. Impact of Changes Relating to the Loan Program for Capital Cost under the Health Care Infrastructure Improvement Program

A. Effects on Hospitals

B. Effects on the Medicare and Medicaid Programs

X. Alternatives Considered

XI. Overall Conclusion

XII. Accounting Statement

XIII. Executive Order 12866

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

I. Background

II. Secretary's Final Recommendation for Updating the Prospective Payment System Standardized Amounts

III. Secretary's Final Recommendation for Updating the Rate-of-Increase Limits for Excluded Hospitals and Hospital Units

IV. Secretary's Recommendation for Updating the Capital Prospective Payment Amounts

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 Start Printed Page 47876predetermined, 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 patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.

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

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

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any 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, FY 1996, or FY 2002) 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 special payment protection in order to maintain access to services for beneficiaries. (Through FY 2007, an MDH receives the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospital-specific rate if the hospital-specific rate is higher than the IPPS rate. In addition, an MDH may not use FY 1996 as its base year for the hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the IPPS rate and its hospital-specific rate, if the hospital-specific rate is higher than the IPPS 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 capital 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. Capital PPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

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

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: inpatient rehabilitation hospitals and units (commonly referred to as inpatient rehabilitation facilities (IRFs); long-term care hospitals (LTCHs); inpatient psychiatric hospitals and units (commonly referred to as inpatient psychiatric facilities (IPFs); children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (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 IRFs, LTCHs, and IPFs, as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system.

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

a. Inpatient Rehabilitation Facilities (IRFs)

Under section 1886(j) of the Act, IRFs have been transitioned from payment based on a blend of reasonable cost reimbursement and the adjusted IRF 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. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P.

b. Long-Term Care Hospitals (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 that do not meet the definition of “new” under § 412.23(e)(4) 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 with cost reporting periods beginning on or after October 1, 2002. Those LTCHs that do not meet the definition of “new” may elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5-year transition. For cost reporting periods beginning on or after October 1, 2006, LTCHs will be paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O.

c. Inpatient Psychiatric Facilities (IPFs)

Under the authority of sections 124(a) and (c) of Pub. L. 106-113, IPFs are paid under the 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 to a Federal per diem Start Printed Page 47877payment rate, effective for cost reporting periods beginning on or after January 1, 2005 (November 15, 2004 IPF PPS final rule (69 FR 66922) and May 9, 2006 IPF PPS final rule (71 FR 27040)). For cost reporting periods beginning on or after January 1, 2008, all 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. Provisions of the Deficit Reduction Act of 2005 (DRA)

On February 8, 2006, the Deficit Reduction Act of 2005 (DRA), Pub. L. 109-171, was enacted. Pub. L. 109-171 made a number of changes to the Act relating to prospective payments to hospitals and other providers for inpatient services. This final rule implements amendments made by the following sections of Pub. L. 109-171:

  • Section 5001(a), which, effective for FY 2007 and subsequent years, allows for expansion of the requirements for hospital quality data reporting.
  • Section 5003, which makes several changes to the MDH program. It extends special payment provisions, requires MDHs to use FY 2002 as their base year for determining whether use of their hospital-specific rate enhances payment (but permits them to continue to use either their 1982 or 1987 hospital-specific rate if using either of those rates results in higher payments), and removes the application of the 12-percent cap on the DSH payment adjustment factor for MDHs.
  • Section 5004, which reduces certain allowable SNF bad debt payments by 30 percent. Payments for the bad debts of full-benefit, dual eligible individuals are not reduced.

In this final rule, we also discuss the provisions of section 5001(b) of Pub. L. 109-171, which require us to develop a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals and summarize the public comments received in response to our invitation for public comments. This discussion also includes the provisions of section 5001(c) of Pub. L. 109-171, which requires a quality adjustment in DRG payments for certain hospital-acquired conditions, effective for FY 2008.

C. Summary of the Provisions of the FY 2007 IPPS and FY 2007 Occupational Mix Adjustment to the Wage Index Proposed Rules

In the FY 2007 IPPS proposed rule, we set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2007. 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, and payments for SCHs and MDHs. The changes were proposed to be effective for discharges occurring on or after October 1, 2006, unless otherwise noted.

After publication of the FY 2007 IPPS proposed rule, the United States Court of Appeals for the Second Circuit issued a decision in the Bellevue case that caused us to modify our proposals on the implementation of the occupational mix adjustment. As a result, we published a second proposed rule in the May 17, 2006 Federal Register that superseded the occupational mix proposals that had been made in the FY 2007 IPPS proposed rule (published April 25, 2006). The following is a summary of the major changes that we proposed to make and the issues that we addressed in the FY 2007 IPPS and FY 2007 Occupational Mix Adjustment to the Wage Index proposed rules:

1. DRG Reclassifications and Recalibrations of Relative Weights

As required by section 1886(d)(4)(C) of the Act, we proposed limited annual revisions to the DRG classifications structure. In this section, we responded to several recommendations made by MedPAC intended to improve the DRG system. We also proposed to use, for FY 2007, hospital-specific relative values (HSRVs) for 10 cost centers to compute DRG relative weights. In addition, we proposed to use consolidated severity-adjusted DRGs or alternative severity adjustment methods in FY 2008 (if not earlier).

We presented our reevaluation of certain FY 2006 applicants for add-on payments for high-cost new medical services and technologies, and our analysis of FY 2007 applicants (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 2007.

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 include the following:

  • The FY 2007 wage index update, using wage data from cost reporting periods that began during FY 2003.
  • The FY 2007 occupational mix adjustment to the wage index (discussed inthe May 17, 2006 proposed rule).
  • The revisions to the wage index based on hospital redesignations and reclassifications.
  • The adjustment to the wage index for FY 2007 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 will be in effect for the proposed FY 2007 wage index.
  • The special timetable that will apply in FY 2007 in order to allow us to make presumptive reclassification withdrawal or termination decisions on behalf of affected hospitals which will then become final unless reversed or modified by the affected hospitals in accordance with CMS procedural rules.
  • The labor-related share for the FY 2007 wage index, including the labor-related share for Puerto Rico.

3. Other Decisions and Changes to the IPPS for Operating Costs, GME Costs, and Promoting Hospitals' Effective Use of Health Information Technology

In the proposed rule, we discussed a number of provisions of the regulations in 42 CFR Parts 412 and 413 and related proposed changes, including the following:

  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Changes in payments to SCHs and MDHs. Start Printed Page 47878
  • Updated national and regional case-mix values and discharges for purposes of determining rural referral center status.
  • The statutorily-required IME adjustment factor for FY 2007.
  • Changes relating to hospitals' geographic classifications, including reclassifications under section 508 of Pub. L. 108-173, multicampus hospitals, urban group hospital reclassification and the effect of change in ownership on urban county group reclassifications.
  • Changes and clarifications relating to GME that address determining the per resident amounts (PRAs) for merged hospitals and new teaching hospitals, counting and appropriate documentation of FTE residents, and counting of resident time spent in nonpatient care activities as part of approved residency programs.
  • Changes relating to payment for costs of nursing and allied health education programs.
  • Changes relating to requirements for emergency services for hospitals under EMTALA.
  • Discussion of the third year of implementation of the Rural Community Hospital Demonstration Program.

We also invited comments on promoting hospitals' effective use of health information technology.

4. Changes to the PPS for Capital-Related Costs

In the proposed rule, we discussed the payment policy requirements for capital-related costs and capital payments to hospitals and proposed several technical corrections to the regulations.

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

In the proposed rule, we discussed payments made to excluded hospitals and hospital units, proposed policy changes regarding decreases in square footage or decreases in the number of beds of the “grandfathering” HwHs and satellite facilities, and proposed changes to the methodology for determining LTCH CCRs and the reconciliation of high-cost and short-stay outlier payments under the LTCH PPS. In addition, we proposed a technical change relating to the designation of CAHs as necessary providers.

6. Payments for Services Furnished Outside the United States

In the proposed rule, we set forth proposed changes to clarify what is considered “outside the United States” for Medicare payment purposes.

7. Payment for Blood Clotting Factor Administered to Inpatients With Hemophilia

In the proposed rule, we discussed the proposed changes in payment for blood clotting factor administered to Medicare beneficiaries with hemophilia for FY 2007.

8. Limitation on Payments to Skilled Nursing Facilities for Bad Debt

In the proposed rule, we proposed to implement section 5004 of Pub. L. 109-171 relating to reduction in payments to SNFs for bad debt.

9. 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 2007 prospective payment rates for operating costs and capital-related costs. We also proposed to establish the threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2007 for hospitals and hospital units excluded from the PPS.

10. Impact Analysis

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

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

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2007 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.

12. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to the Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2006 recommendation concerning hospital inpatient payment policies addressed 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 was addressed in Appendix B of the proposed rule. For further information relating specifically to the MedPAC reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: www.medpac.gov.

13. Appendix C and Appendix D

In Appendix C of the proposed rule, we listed the combinations of the consolidated severity-adjusted DRGs that we proposed to implement on FY 2008 (if not earlier), as discussed in section II.C. of the preamble of the proposed rule. In Appendix D of the proposed rule, we provided a crosswalk of the proposed consolidated severity-adjusted DRG system to the respective All Patient Related Diagnosis-Related Group (APR DRG) system.

D. Public Comments Received in Response to the FY 2007 IPPS and FY 2007 Occupational Mix Adjustment to the Wage Index Proposed Rules

We received over 2,300 timely items of correspondence containing multiple comments on the FY 2007 IPPS proposed rule. We also received over 100 timely items of correspondence on the FY 2007 Occupational Mix Adjustment to the Wage Index proposed rule. Summaries of the public comments and our responses to those comments are set forth under the appropriate heading.

E. Interim Final Rule on Selection Criteria of Loan Program for Qualifying Hospitals Engaged in Cancer-Related Health Care

On September 30, 2005, we published in the Federal Register (70 FR 57368) an interim final rule with comment period (CMS-1287-IFC) that set forth the criteria for implementing a loan program for qualifying hospitals engaged in research in the causes, prevention, and treatment of cancer, as specified in section 1016 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173). Specifically, this interim final rule established a loan application process by which qualifying hospitals, including specified entities, may apply for a loan for the capital costs of health care infrastructure improvement projects. The interim final rule was effective on November 29, 2005.

We received seven timely items of correspondence on the interim final Start Printed Page 47879rule. In section XI. of the preamble to this final rule, we are finalizing this interim final rule with comment period. In that section, we discuss the provisions of the program, the public comments received, our responses to those comments, and the final policy.

F. Proposed Rule on Forgiveness of Indebtedness under the Health Care Infrastructure Improvement Program

On September 30, 2005, we published in the Federal Register (70 FR 57376) a proposed rule (CMS-1320-P) to establish the loan forgiveness criteria for qualifying hospitals who receive loans under the Health Care Infrastructure Improvement Program that was established under section 1016 of Pub. L. 108-173.

We received one timely item of correspondence on this proposed rule. We address the provisions of the proposed rule, a summary of the public comments received and our responses, and the provisions of the final rule in section XI. of the preamble of this final rule.

G. Interim Final Rule on the Exclusion of Vendor Purchases Made Under the Competitive Acquisition Program for Part B Outpatient Drugs and Biologicals for the Purpose of Calculating the Average Sales Price

In November 21, 2005 Federal Register (70 FR 70748), we published an interim final rule with comment period (CMS-1325-IFC3) to clarify and solicit comments on the relationship between drugs supplied under the CAP for Part B Drugs and Biologicals and the calculation of the ASP.

We did not receive any timely items of correspondence on this interim final rule with comment period. We summarize the provisions of the July 6, 2005 and the November 21, 2005 interim final rules and the current interim final provisions in section XII. of the preamble of this final rule.

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.

B. DRG Reclassifications

1. General

As discussed in section II.D. of the preamble to the FY 2007 IPPS proposed rule (71 FR 24030), for FY 2007, we are making only limited changes to the current DRG classifications that will be applicable to discharges occurring on or after October 1, 2006. We are limiting our changes because, as discussed in detail in section II.C. of the preamble to the proposed rule and to this final rule, we are focusing our efforts on addressing the recommendations made last year by MedPAC to refine the entire CMS DRG system by taking into account severity of illness and applying hospital-specific relative value (HSRV) weights to DRGs.

Currently, cases are classified into CMS 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 2006, cases are assigned to one of 526 DRGs in 25 MDCs. The table below lists the 25 MDCs.

Major Diagnostic Categories (MDCs)

1Diseases and Disorders of the Nervous System.
2Diseases and Disorders of the Eye.
3Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
4Diseases and Disorders of the Respiratory System.
5Diseases and Disorders of the Circulatory System.
6Diseases and Disorders of the Digestive System.
7Diseases and Disorders of the Hepatobiliary System and Pancreas.
8Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
9Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
10Endocrine, Nutritional and Metabolic Diseases and Disorders.
11Diseases and Disorders of the Kidney and Urinary Tract.
12Diseases and Disorders of the Male Reproductive System.
13Diseases and Disorders of the Female Reproductive System.
14Pregnancy, Childbirth, and the Puerperium.
15Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
16Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
Start Printed Page 47880
17Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
18Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
19Mental Diseases and Disorders.
20Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
21Injuries, Poisonings, and Toxic Effects of Drugs.
22Burns.
23Factors Influencing Health Status and Other Contacts with Health Services.
24Multiple Significant Trauma.
25Human 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 2006, 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 transplants, lung transplants, simultaneous pancreas/kidney transplants, pancreas transplants, and for tracheostomies. Cases are assigned to these DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.

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 541ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
DRG 542Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis without Major O.R.

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. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or 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. An example is 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 diagnoses 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 CC. A substantial CC 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 CC 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 payment 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 Start Printed Page 47881data 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 2007 IPPS proposed rule, we proposed limited changes to the DRG classification system for FY 2007 for the FY 2007 GROUPER, Version 24.0 and to the methodology used to recalibrate the DRG weights. The changes we proposed, the public comments we received concerning the proposed changes, the final DRG changes, and the methodology used to calculate the DRG weights are set forth below. The changes we are implementing in this final rule will be reflected in the FY 2007 GROUPER, Version 24.0, and are effective for discharges occurring on or after October 1, 2006. Unless otherwise noted in this final rule, our DRG analysis is based on data from the March 2006 update of the FY 2005 MedPAR file, which contains hospital bills received through March 31, 2006, for discharges occurring in FY 2005.

2. Yearly Review for Making DRG Changes

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 annual proposed rule 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 December 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. For purposes of this final rule, 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 existing 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 clinically distinct or 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.

C. Revisions to the DRG System Used Under the IPPS

1. MedPAC Recommendations

In the FY 2006 IPPS final rule, we discussed a number of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482).

In Recommendation 1-3 in the 2005 Report to Congress on Physician-Owned Specialty Hospitals, MedPAC recommended that CMS refine the current DRGs to more fully capture differences in severity of illness among patients, including:

  • Base the DRG relative weights on the estimated cost of providing care.
  • Base the weights on the national average of the hospital-specific relative values (HSRVs) for each DRG (using hospital-specific costs to derive the HSRVs).
  • Adjust the DRG relative weights to account for differences in the prevalence of high-cost outlier cases.
  • Implement the case-mix measurement and outlier policies over a transitional period.

As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule. Following the publication of the FY 2006 IPPS final rule, we contracted with 3M Health Information Systems to assist us in performing this analysis.

Beginning with MedPAC's relative weight recommendations, we analyzed MedPAC's recommendations to move to a cost-based HSRV weighting methodology. In performing this portion of the analysis, we studied hospital cost report data, departmental cost-to-charge ratios (CCRs), MedPAR claims data, and HSRV weighting methodology. Our intention in undertaking this portion of the analysis was to find an administratively feasible approach to improving the accuracy of the DRG weights. As we described in the proposed rule, we believe some changes can be made to MedPAC's methodology for determining the relative weights that will make it more feasible to replicate on an annual basis but will result in similar impacts.

In conjunction with analyzing MedPAC's relative weight recommendations, we looked at refining the current DRG system to better recognize severity of illness. Starting with the APR DRG GROUPER used by MedPAC in its analysis, we studied Medicare claims data. Based on this analysis, we developed a CS DRG GROUPER that we believe could be a better alternative for recognizing severity of illness among the Medicare population. We note that MedPAC's recommendations with regard to revising the DRGs to better recognize severity of illness may have implications for the outlier threshold, the measurement of real case-mix versus apparent case-mix, and the IME and the DSH adjustments. We discuss these implications in more detail in the following sections.

As we present below, we believe that the recommendations made by MedPAC, or some variants of them, have significant promise to improve the accuracy of the payment rates in the IPPS. We agree with MedPAC about exploring possible refinements to our payment methodology even in the absence of concerns about the proliferation of specialty hospitals. In the FY 2006 final rule, we indicated that until we had completed further analysis of the options and their effects, we could not predict the extent to which changing to APR DRGs would provide payment equity between specialty and general hospitals. In fact, we cautioned that any system that groups cases will always present some opportunities for providers to specialize in cases they believe to have higher margins. We believe that improving payment accuracy should reduce these opportunities and potentially reduce the Start Printed Page 47882incentives that Medicare payments may provide for the further development of specialty hospitals.

We considered MedPAC's recommendation to adjust the relative weights to account for differences in the prevalence of outlier cases. However, we placed most of our attention and resources on the recommendations related to refinement of the current DRGs to more fully capture differences in severity of illness among patients, as we do not have the statutory authority to make the specific changes to our outlier policy that MedPAC recommended. While we have not made MedPAC's recommendation regarding outliers a central focus of our analysis, we do intend to examine this issue in more detail in the future. In sections II.C.2. through C.6. of the FY 2007 proposed rule, we discussed a number of issues related to the MedPAC recommendations. We also presented our analysis and specific proposals for FY 2007 and FY 2008 including their estimated impacts. In this final rule, we present the public comments received on the proposed rule, our responses to those comments, our final decisions for FY 2007 and our intended actions for FY 2008.

2. Refinement of the Relative Weight Calculation

MedPAC made two recommendations with respect to the DRG relative weight calculation. First, MedPAC recommended that CMS base the DRG relative weights on the estimated cost of providing care. Second, MedPAC recommended that CMS base the weights on the national average of hospitals' relative values in each DRG. Because both of these recommendations address the relative weight calculation, we are addressing them together. The work we have done to address these recommendations was discussed in detail in the proposed rule (71 FR 24006-24011).

MedPAC recommended that CMS replace its charge-based relative weight methodology with cost-based weights, as it believed that the charge-based relative weight methodology that CMS has utilized since 1985 has introduced bias into the weights due to differential markups for ancillary services among the DRGs. In analyzing claims data, it is evident to us that some hospital types (for example, teaching hospitals) are systematically more expensive overall than the average hospital and certain case types are more commonly treated at these more expensive facilities. Higher average charges for cases that are treated at more expensive hospitals may result in higher weights for these types of cases. MedPAC suggested a hospital-specific relative value (HSRV) methodology which MedPAC believed would reduce the effect of cost differences among hospitals that may be present in the national relative weights due to differences in case-mix adjusted costs.

Under the HSRV methodology recommended by MedPAC, charges are standardized for each provider by converting its charges for each case to hospital-specific relative charge values and then adjusting those values for the hospital's case-mix. The first step in this process involves dividing the charge for each case at the hospital by the average charge for all cases at the hospital in which the case was treated. The hospital-specific relative charge value, by definition, averages 1.0 for each hospital. The resulting ratio is then multiplied by the hospital's case-mix index (CMI). In this way, each hospital'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 hospitals. We discuss this issue in further detail below.

Our analysis of departmental-level CCRs from the Medicare cost report data has shown that charges for routine days, intensive care days, and various ancillary services are not marked up by a consistent amount. For example, the markup amounts for cardiology services are higher than average. Because charges are the current basis for the DRG relative weights, the practice of differential markups can lead to bias in the DRG weights because various DRGs use, on average, more or less of particular ancillary services. MedPAC believes that the bias in the national DRG relative weights that may arise as a result of differential markups across various cost centers can be removed by moving from charge-based to cost-based weights. Based on the analysis we have conducted, we agree that it is appropriate to adjust the DRG relative weights to account for the differences in charge markups across cost centers.

In the proposed rule, we indicated several concerns about the methodology used by MedPAC. MedPAC's methodology to reduce hospital charges to cost is administratively burdensome, not only to develop, but also to maintain. First, MedPAC developed CCRs for individual hospitals at the most detailed department level. Specifically, in calculating costs as the basis for the relative weights, MedPAC applied hospital-specific CCRs from each provider's cost report to the line item charges on the claims that the hospital submitted during the same time period. This methodology required matching cost report data to claims data, and because cost report data take longer to compile and file, the method necessitates using older claims data to set relative weights. The most recent complete set of Medicare cost reports available to us is from FY 2003. Thus, if we were to model the exact approach used by MedPAC and use claims data for a matching year, we would be using claims data from FY 2003 instead of using FY 2005 claims data, as we would if we were to continue with our current methodology. In addition, MedPAC's hospital-specific approach required detailed cost center distinctions for each hospital that are difficult to define, map, and apply. This approach also required the use of the Standard Analytic File (SAF) because MedPAR data that we currently use to set DRG weights did not have the necessary level of detail. Using the SAF increases processing time and adds further complexity to the process of setting the relative weights.

Second, because MedPAC applied these CCRs at the individual claim level, missing or invalid data resulted in MedPAC deleting a large number of claims (approximately 10 percent) from the relative weight calculation. Lastly, MedPAC acknowledged that its method was too difficult to replicate on an annual basis and suggested that the weights be recalculated once every 5 years with other adjustments based on charges during the intervening years.

As we explained in the FY 2007 IPPS proposed rule, we developed an alternative to MedPAC's approach that we believe achieves similar results in a more administratively feasible manner. This method involves developing hospital-specific charge relative weights at the cost center level and then scaling the weights to costs using the national cost center charge ratios developed from the cost report data. After studying Medicare cost report data, we established 10 cost center categories based upon broad hospital accounting definitions. In our cost center categories, there are 8 ancillary cost groups in addition to routine day costs and intensive care day costs, and each category represents at least 5 percent of the charges in the claims data. The specific cost report lines that contribute to each category and the corresponding charge lines from the MedPAR claims data are itemized in Table A below.

In the proposed rule, we stated that this alternative approach, which we labeled as the HSRV cost center (HSRVcc) methodology, has several advantages. First, the use of national average rather than hospital-specific CCRs avoids the complexity Start Printed Page 47883encountered with cost center CCRs at the hospital level and allows us to retain more data for use in the relative weight calculation. In addition, the methodology eliminates the need to match claims to the time period of the CCRs, resulting in the ability to use more timely claims data. Furthermore, the alternative approach makes it more feasible to update the relative weights annually using a single methodology. We do not have to replicate the methodology once every 5 years and make adjustments based on changes in charges in the intervening years. The HSRVcc methodology is described in detail in the proposed rule (71 FR 24008 through 24011).

Comment: Several commenters supported CMS' effort to restructure the DRG relative weights based on cost. They stated that using charges as a proxy for hospital costs in determining resource utilization under the current system is inappropriate and encouraged CMS to implement a cost-based system consistent with the agency's original intent without delay.

Response: We appreciate the commenters' support of our proposal to implement a cost-based weighting methodology. We believe that adopting cost-based weights will result in significant improvements to Medicare's IPPS payments. MedPAC concluded after an extensive analysis of Medicare hospital inpatient claims and cost data that the IPPS payment rates are badly distorted, resulting in Medicare paying too much for some types of patients and too little for others. As indicated below, we are making some modifications to our proposals in response to the public comments. However, we are adopting a system of cost-based weights for FY 2007 to address the concerns raised by MedPAC. As a result, all hospitals, including specialty hospitals, will be paid more appropriately. In addition, based on our analysis, we concur with MedPAC that the current DRG system needs to be changed to better account for severity of illness among patients. This issue is discussed in more detail in the next section of this final rule.

Comment: A majority of commenters supported CMS' efforts to improve the accuracy of the DRG weights, and better reflect variations in patients' severity of illness. However, many commenters viewed the HSRVcc proposal as flawed from both a methodological and policy perspective, and believed the proposal to implement cost-based weights should be delayed for at least a year. They believed that CMS needs to further consider a number of issues raised in the public comments before such sweeping changes are implemented. In addition, the commenters indicated that CMS needs to provide hospitals with more lead-time before implementing changes so they can budget accurately. They urged CMS to use the current standardized charge-based approach in FY 2007 until these issues can be addressed. At a minimum, they believed CMS should address what were characterized as methodological flaws and publish revised relative weights along with hospital impacts for public comment prior to implementation.

Response: We appreciate the commenters' concerns with regard to a rapid and full implementation of the changes we proposed to the relative weight methodology. However, based on our analysis and study of the MedPAC recommendations that we presented in our proposed rule, it has come to our attention that differential markups between routine and ancillary cost centers have introduced significant bias into the relative weights. In order to reduce the bias in weights and make more appropriate payments under the IPPS, we believe it is necessary to initiate the transition to a cost-based relative weight methodology in FY 2007. However, we have considered the commenters' requests to further review the HSRV methodology. Therefore, in this final rule, we are not adopting our proposal to standardize charges using the HSRV methodology. However, we are adopting our proposal to reduce charges to estimated costs prior to setting DRG weights. We will undertake further analysis of the HSRV methodology during the next year. Based on this analysis, we will consider proposing further changes to adopt the HSRV methodology for FY 2008.

Comment: Many commenters disagreed with CMS' assertion that the more administratively feasible HSRVcc approach achieves similar results to the MedPAC methodology. While they supported CMS' efforts to ensure the DRG weights are updated annually to reflect the most recent trends in inpatient care, they expressed concern with the specifics of the HSRVcc methodology.

First, they noted that CMS stated in the proposed rule that organ acquisition costs were eliminated from hospital charges before the HSRVcc weights were calculated. However, it had come to their attention that organ acquisition charges were actually included in the calculation of DRG weights under the proposed methodology. They stated that organ acquisition is reimbursed by Medicare on a cost basis and should not be included in the weight calculation. Furthermore, the commenters asserted that the inclusion of organ acquisition charges improperly overstated the transplant DRG HSRVcc weights. Commenters recommended that CMS remove the organ acquisition charges from the computation of the DRG weights if the HSRVcc methodology is to be adopted.

Second, commenters believe CMS made questionable methodological decisions when calculating the national CCRs. Under the proposed methodology, CMS calculated hospital-weighted rather than charge-weighted CCRs for each of the 10 cost centers used to scale the charge-based weights. Because the averages are unweighted, the commenters stated that the CCRs do not account for the differential contribution of each hospital to total charges. The commenters asserted that, mathematically, the only correct way to get from total hospital charges to total hospital costs is to use a charge-weighted average of hospital CCRs. Failure to use charge-weighted averages overestimates routine and ICU costs and underestimates ancillary costs, which ultimately exaggerates the shift in payments, according to the commenters. Therefore, commenters believed CMS should recalculate the mean national CCRs using a charge-weighted method.

Third, commenters believed CMS applied questionable trimming criteria in computing the cost center CCRs. They stated that trimming the cost center CCRs at 1.96 standard deviations (rather than 3 standard deviations) from the geometric mean inappropriately excluded over 200 large hospitals that account for 25 percent of routine accommodation charges. They noted that the CCRs for these hospitals appear to be predominantly correct. In addition, the commenters noted that CMS applied the CCRs to the charge data for hospitals that were excluded from the national average CCR calculation. Thus, the commenters argued there is a significant mismatch between the hospital data that was included in the CCR and HSRVcc calculations. These commenters recommended that CMS exclude hospital data from the CCRs if it is more than 3 standard deviations (rather than 1.96) from the mean CCR. Many commenters characterized these methodological decisions as errors and indicated that their combined impact is significant. If CMS is to use the HSRVcc methodology, the commenters indicated that these issues should be addressed.

A few commenters stated that we made incorrect assumptions that may have resulted in new distortions to the relative weights. Specifically, the commenters stated that we were incorrect in applying the same CCR Start Printed Page 47884across all hospitals for a given cost center and applying the same percent mix of services by cost center to all DRGs. The commenters recommended that we first convert charges to costs for each hospital and DRG, and then compute hospital-specific relative values. They stated that the reversal of the calculations in the HSRVcc methodology accommodates cost center mix and charge markup differences across hospitals and across DRGs.

Many commenters argued that the hospital-specific relative value methodology is unnecessary and compresses the DRG weights. Commenters cited past research indicating that HSRV has a disproportionate impact on certain types of hospitals and types of care, and reduces the range of DRG weights between the lowest and highest weight DRGs.1 Commenters noted that the HSRV methodology “produces more compressed DRG weights” than the existing standardization methodology and that “the greater compression of the HSRV weights is counter balanced by the fact that more high-weighted cases qualify as [high cost] outlier cases.” A few commenters expressed concern that adopting MedPAC's recommendation to exclude high-cost outliers in addition to statistical outliers from the computation of the DRG weights so that the weights reflect the average cost only of inlier cases would compound the DRG weight compression caused by the HSRV methodology because high-cost outlier cases occur most frequently in high-weighted DRGs. The commenters indicated that the finding raises the concern of patient access to care for services in higher cost DRGs.

Commenters also believed that the HSRV methodology fails to take into account legitimate variation in costs that occur between hospitals. Therefore, any hospital-level variation in cost that is not explained by the IPPS case mix index is simply ignored, according to the commenters. To the extent that certain services are provided most frequently in hospitals with higher than average cost, the commenters believed that the HSRV methodology will result in inappropriately lower DRG weights for these services.

Therefore, commenters strongly recommended that the HSRV methodology be eliminated in favor of the cost-based weighting methodology adopted under the OPPS. They stated that the main difference between these two approaches is the treatment of cost variation that is not otherwise explained with IPPS payment factors. In the standardization approach employed by OPPS, any variation in hospital costs that is not explained by CMS payment factors affects the calibration of DRG weights. They stated that the HSRV approach proposed by CMS, by contrast, ignores any hospital level variation in charges that is not explained by the case mix index. Many commenters added that CMS could propose to remove other sources of cost variation beyond its current practice of standardizing for wage index, DSH, and IME. They believed a factor-specific approach to standardization would lead to more precise and valid adjustments than those recognized under the HSRV methodology, which eliminates all sources of charge variation irrespective of whether there are legitimate differences among hospitals in costs that are not taken into account in the payment system.

Response: In preparing the FY 2007 relative weights, the costs of organ acquisition were inadvertently included in the relative weight for the calculation of “other services.” The costs of organ acquisition are paid by Medicare on a cost basis and should not be included in setting the IPPS relative weights. These costs have been excluded from the IPPS relative weights calculated for this final rule.

In response to the concerns expressed regarding the CCR calculation, we proposed to establish the geometric mean CCRs using a hospital-weighted methodology because we believed that it served as an acceptable measure of central tendency. In addition, we proposed to trim the CCRs on the basis of 1.96 standard deviations since we were using national averages and thought a more stringent statistical trim would be appropriate. In response to comments, however, we have reconsidered our approach and have implemented the 3 standard deviation statistical trim supported by commenters. Further, we are also adopting the charge-weighted method of calculating CCRs, as we now believe it may be more appropriate to apply CCRs based on aggregate costs and charges among hospitals to the charges that are aggregated by DRG and used to set the relative weights.

Although commenters asserted that the HSRV methodology exacerbates the effect of charge compression on the relative weights, we have not had sufficient time between the close of the comment period and the publication of this final rule to analyze this assertion. Therefore, in response to comments (and as stated above), we are postponing the implementation of the HSRV methodology until we can study this comment further. Instead, as suggested by many commenters, we are using an approach to calculating the IPPS relative weights that is more similar to the approach used in the OPPS. That is, rather than using a hospital-specific relative weighting methodology, we are standardizing charges to remove relevant payment factor adjustments and then adjusting those charges to costs using national cost center CCRs. As we stated in the proposed rule, it is not administratively feasible to adjust charges to cost using hospital-specific cost to charge ratios. Therefore, while we are standardizing charges for the IPPS cost-based weights using a similar process to the OPPS, we are still utilizing national average CCRs to determine cost. Specifically, we are standardizing the charges for each DRG by cost center to remove differences in wage index, indirect medical education and disproportionate share adjustments and are then reducing the standardized charges to cost using the national average CCRs. The relative weights we are adopting in this final rule are calculated based on the average total cost for a DRG in relation to the national average total cost.

Comment: Many commenters expressed concern that CMS collapsed the full set of at least 37 cost centers into only 10. They believed this approach eliminates detail that is available on the cost report. The commenters requested that CMS elaborate on the process it went through to derive the 10 cost centers used to calculate the HSRVcc weights. Some commenters stated CMS should use all 37 cost centers that are used in calculating the OPPS relative weights for the IPPS. Other commenters suggested that CMS expand the number of cost centers used in the calculation. MedPAC found that the CCRs within the proposed 10 cost centers varied significantly in some areas and recommended that CMS expand the number to 13 by distinguishing anesthesia and labor and delivery from the operating room cost center and distinguishing inhalation therapy from the therapy services cost center. Several commenters supported MedPAC's recommendation. Further, MedPAC recommended that the CCRs be based on Medicare-specific costs and charges rather than on the costs and charges for the entire facility. Some commenters advocated that a separate cost center be added for implantable devices. They believed this additional cost center would better identify the mark-up for high cost technological devices than Start Printed Page 47885using the average for all supplies and equipment.

Several commenters encouraged CMS to specifically incorporate nursing costs into the weighting methodology. They stated that nursing care represents approximately 30 percent of all hospital expenditures and nearly half of all direct care costs and have been essentially ignored in the payment formula. Specifically, these commenters urged CMS to create a unique Nursing Cost Center that identifies the inpatient direct and indirect costs for registered nurses, licensed practical nurses, and unlicensed assistive personnel. They defined direct nursing costs as those associated with licensed and assistive nursing personnel assigned to care for an individual patient. Indirect nursing costs are all other salary and benefits related to licensed and assistive nursing personnel not directly assigned to care for individual patients. They suggested that the routine and intensive care cost centers in the proposed HSRVcc methodology be replaced with a nursing cost center and a separate facility cost center to identify the non-nursing cost component of care. They urged CMS to set aside funds to study and implement the above recommendation using methodologically sound research and demonstration projects.

Response: As we stated in the proposed rule, we established 10 cost center categories based upon broad hospital accounting definitions. These 10 cost center categories consist of 8 ancillary cost groups, a routine days cost group, and an intensive care days cost group. These cost centers were selected because each category represents at least 5 percent of the charges in the claims data.

We thoroughly reviewed the comments advocating that we expand the number of cost centers used in the calculation. We currently use the MedPAR data set for charge detail. The MedPAR file does not provide enough granularity in the charge detail to support 37 different cost centers. In addition, in the proposed methodology, we eliminated claims for providers that did not have costs greater than zero for at least 8 of the 10 cost centers. At least 96 percent of the providers in the MedPAR file had charges for at least 8 of the 10 cost centers. We believe that if we were to expand to the full set of 37 cost centers outlined in the cost report, we would eliminate a greater number of claims in the calculation of the DRG relative weights.

While we do not believe expanding to 37 cost centers is feasible, we agree with MedPAC that we may have consolidated a few revenue centers that have significantly different CCRs. Upon further examination of the data, in this final rule, we are expanding the number of cost centers from 10 to 13 by creating separate cost centers for anesthesia, labor and delivery, and inhalation therapy. We also agree with MedPAC that it would be more appropriate to set the CCRs based on Medicare-specific charges and costs rather than on the costs and charges for the entire facility. Therefore, in this final rule, we are modifying our CCR calculations to incorporate Medicare-specific charge data from Worksheet D Part 4 in addition to the cost and charge data from Worksheet C Part I that we used in the proposed rule.

Other commenters suggested that we also create separate cost centers for implantable devices and nursing. As noted in the comments, the MedPAR file does not contain the necessary detail to identify a separate cost center for implantable devices or nursing. In addition, we did not have enough time to evaluate whether it would be reasonable to utilize a nursing cost center in the methodology in the future. However, we anticipate undertaking further analysis of the relative weight methodology over the next year in conjunction with the research we are doing on charge compression to determine if additional cost centers are necessary.

Comment: Commenters, referring to Table A, “Charge Line Items from MedPAR Included in Cost Center Charge Group,” noted that MedPAR charge descriptions do not match the Form CMS-2552-96 Cost Center description(s) for several cost centers. For example:

(a) MedPAR lists (18) Lithotripsy Charges where the cost reporting form lists Radioisotopes;

(b) MedPAR lists (6) Other Services where the cost reporting form lists Whole Blood and Packed Red Blood Cells;

(c) MedPAR lists (19) Cardiology Charges as including line 54 of the cost report, which is Electroencephalography;

(d) MedPAR lists (16) Blood Administration Charges where the cost reporting form lists ASC (Non-Distinct Part);

(e) MedPAR lists (24) Outpatient Services Charges where the cost reporting form lists Emergency;

(f) MedPAR lists (25) Emergency Room Charges where the cost reporting form lists Ambulance Services;

(g) MedPAR lists (26) Ambulance Charges where the cost reporting form lists Renal Dialysis;

(h) MedPAR lists (29) ESRD Revenue Setting Charges where the cost reporting form lists Clinic;

(i) MedPAR lists (30) Clinic Visit Charges where the cost reporting form lists Other Outpatient Services, Other Ancillary, Home Program Dialysis and Ambulance Services;

(j) Ambulance Services appear to be included twice, once in (30) Clinic Visit Charges and once in (25) Emergency Room Charges;

(k) Lithotripsy is included in Radiology Services;

(l) Line 62 “Observation Beds” is not reflected separately in Table A; and

(m) Line 68 “Other reimbursement” of the cost report is not listed in Table A.

In addition, commenters were unclear as to whether CMS accounted for subscripted lines in the cost report when calculating CCRs. The commenters noted that subscripted lines did not appear in Table A. Commenters believed this inconsistency in reporting may lead to distorted DRG weights. Therefore, commenters recommended that CMS examine this issue thoroughly before implementing cost-based weights. Several commenters requested that CMS publish a crosswalk of the revenue codes that are used for each MedPAR charge data group and require intermediaries to review cost report data to ensure that providers have reported data consistent with the mapping to the MedPAR data.

Response: We wish to clarify to the commenters that the charge description titles shown in the MedPAR charge description column in Table A were not meant to also be interpreted as the title for each of the cost report line items. That is, we were simply using Table A to illustrate the MedPAR charge groups and the cost report line numbers that were used to create the 10 proposed cost centers. To alleviate this confusion, we are revising Table A to show both the MedPAR charge titles and the titles of the cost report line items. In response to comments (j) and (l), we note that the cost report line item number 65 for ambulance was inadvertently listed twice in the proposed rule; line item 62, observation beds, was used in establishing the CCR for the other services category. Line 65 for ambulance was only used once in the actual other services CCR calculation. Line item 62 should have appeared in the “other services” cost center grouping printed in Table A in the proposed rule. We have corrected this error in the final version of Table A. In addition, in regards to comment (k) above, we have moved the lithotripsy charges from MedPAR to the “other services” cost center grouping and we have also Start Printed Page 47886revised the CCR for “other services” to include the cost report line item 43 for radioisotopes, which was formerly included in the radiology CCR.

In response to the commenters’ question regarding the inclusion of subscripted lines, when we calculated the CCRs for the proposed rule and subsequently for this final rule, we relied on a HCRIS data set that contains rolled-up cost report fields such that line items which are subscripted contain the total value for the line item and any subscripted lines below. Therefore, most subscripted lines were included in the proposed rule CCRs and continue to be included in the final rule CCR calculations. However, some subscripted line items are not rolled up and continue to have their own field on the HCRIS data set that we used to calculate the CCRs. Therefore, we are now including the cost report line item 6201 for observation beds, the cost report line item 6350 for Rural Health clinics and the cost report line item 6360 for Federally Qualified Health clinics in the other services CCR. Cost report line items 6350 and 6360 are only reported by provider-based Rural Health clinics and Federally Qualified Health clinics and are necessary in order to identify all incurred costs applicable to furnishing an observation bed prior to a decision to admit a patient to the hospital. Further, we are now including the cost report line item 68 for other reimbursement in the other services CCR, and we are including professional services charges from MedPAR in the other services charge grouping. In response to the commenters’ requests that we show the revenue codes that comprise the MedPAR charges, we have also inserted an additional column in Table A that lists the revenue codes MedPAR groups into each charge field that we are using in the final 13 cost centers. The final version of Table A appears below:

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Comment: Many commenters warned that the redistribution of payments from the surgical to the medical DRGs under the proposed methodology may create unintended consequences. Several of these commenters stated that this redistribution poses a threat to patients' access to the latest medical advances and highest quality care. They feared that hospitals will invest less in new medical technologies because Medicare would not pay sufficiently for the DRGs that use them. Another commenter stated that the increased reimbursement for psychiatric DRGs may create an incentive for IPFs to decertify and become inpatient units.

Response: We appreciate the commenters' concern that payment redistribution may create the potential for unintended consequences. However, we wish to emphasize that the redistribution of payments among DRGs is necessary to improve payment accuracy and eliminate the distortions in the current IPPS payment rates. Under the methodology in this final rule, we will increase payment for relatively underpaid cases and reduce payment for relatively overpaid cases.

We are adopting a methodology that will realign payments with costs to pay more appropriately for services rendered by hospitals. Therefore, we do not believe altering the DRG relative weighting methodology will affect patients' access to quality medical care. Patients should have continued and uninterrupted access to new, innovative technologies.

We have analyzed the impact of the increased reimbursement for psychiatric DRGs in response to the commenter's concern that increased reimbursement may provide incentives for IPFs to decertify their units and be paid under the IPPS. Because of the differences in payment between the IPPS and the IPF PPS, we do not believe that the DRG relative weights we are adopting in this final rule will provide increased incentive for IPFs to decertify units. Whereas under the IPF PPS, hospitals receive a daily base rate and adjustments to account for certain patient and facility characteristics, hospitals paid under the IPPS are paid a specified amount based on the DRG for the same cases, regardless of the length of the hospital stay. Our analysis suggests that even though the average payment per day (total payment divided by average length of stay) for the psychiatric DRGs in the IPPS proposed rule may be higher than under the IPF PPS, the total average payment per episode of care remains lower (product of the average IPF payment per day and the average length of stay). Thus, because payments per episode of care remain lower under the IPPS than under the IPF PPS, we are not concerned that IPFs will decertify to get paid using the IPPS. In addition, as indicated above, we are making some modifications to our methodology in response to the public comments. Based on these changes, the increase in the relative weights for the psychiatric DRGs presented in this final rule will not be as significant as those contained in the proposed rule.

Comment: Commenters expressed concern that because hospitals often allocate charges on the cost reports differently than charges on the claims, the cost-center level CCRs are calculated based on a different set of charges than the charges on the claims to which the CCRs are later applied. Commenters expressed concern that Medicare cost report data are not detailed enough or consistently reported accurately to determine costs accurately at a DRG level since such data lack specific cost data on individual items and services. They reiterated that the Medicare cost reports, which serve as the primary source of data under the proposed system, were not designed to be used in a prospective payment system and have not been used to establish hospital rates for inpatient services for some time. They noted several limitations in using the cost reports to derive estimated costs utilized in the DRG relative weight calculations that should be carefully examined and addressed before moving forward with the proposed system of hospital-specific cost weights.

First, the commenters believed that CMS should address cost report accuracy. The commenters stated that because the cost reports have only been used for payment in limited circumstances (DSH, IME, outlier policy), hospitals have had little incentive to report accurately and completely for the services provided to Medicare beneficiaries. In addition, they claimed the cost reports do not contain the level of detail necessary to accurately determine costs at the DRG level. Instead, the cost report provides payments, costs, and some reimbursement totals by department or cost center. The commenters also advised that CMS perform additional auditing of the cost reports to ensure accuracy. The commenters were concerned that if CMS implements a cost-based weighting methodology, the DRG weights will be based on largely un-audited cost reports since approximately 15 percent of hospital cost reports are audited each year. They noted that MedPAC estimated that a full-scale audit could require 1,000 to 2,000 hours from a fiscal intermediary, Start Printed Page 47893as well as additional time and resources from the hospital. In addition, a few commenters stated that CMS should only use final settled cost report data, not as-submitted data, in calculating DRG weights.

Second, some commenters contended that CMS should evaluate the overall timeliness of cost report data. They stated that cost report data used to recalibrate the DRG weights are outdated and significantly older than the charge-based data currently used to determine DRG weights under the IPPS. Under the proposed methodology, CMS used hospital claims data from FY 2005 and hospital cost reports from FY 2003. The commenters were concerned that because a lag between the cost report year and the payment year exists, the proposed methodology would rely on older data that does not reflect the costs of many newer technologies. The commenters supported an approach that uses more recent claims and cost report data and also urge CMS to explore options for using alternative data sources that include current information on the costs of inpatient care.

Third, the commenters stated that CMS should examine the comparability of cost reports due to variability in how hospitals allocate costs. Commenters explained that a cost allocation methodology must be used to estimate the cost of individual items and services from the aggregate costs reported for each cost-center on the cost-report. They stated that the proposed methodology assumes that all hospitals consistently allocate costs to the same cost centers. However, hospitals may have inconsistent cost accounting practices or use different cost allocation methods (for example, utilization or square-footage) according to the commenters. The commenters suggested these factors and the compression of charges both within and across cost-centers, limits the usefulness of cost report data to accurately estimate costs. According to the commenters, each hospital uses its own method to allocate costs among cost centers, often resulting in cost assignments that do not reflect the departments to which charges are assigned in the MedPAR data. For example, some commenters indicated that they included cardiac catheterization in lines other than 53 and 54 that group to the cardiac cost center. In addition, several commenters noted that hospitals report medical supply costs inconsistently. While some report them in the supply cost center, others report the medical supply cost in the cost center for the procedure in which the device was used (that is, medical supplies specific to the Emergency Room are included in line 61 of the cost report). The commenters suggested that more specific cost report instructions may be necessary to ensure that hospitals report the information correctly and consistently. Some commenters believed that cost report data were not intended or designed to be used to develop accurate payment rates and suggested developing a proxy to more accurately allocate costs at the DRG level, such as collecting data from hospitals that utilize “sophisticated cost accounting tools that provide more accurate allocation of costs.”

Some commenters also recommended that CMS convene an expert panel to explore ways to address the current limitations of the cost report. They stated that this effort should identify methods to better use or improve hospital cost reports for use in setting the inpatient and outpatient relative weights. The expert panel should aim to identify changes to the cost report that reduce the net information burden on hospitals, while improving overall payment accuracy. The panel should report its recommendations by April 2007 to enable CMS enough time to consider the recommendations in setting the relative weights for FY 2008. Other commenters advocated that CMS initiate a national project to correct any misalignments between cost and charges in cost reports and on the MedPAR claims. Other commenters suggested that CMS postpone the adoption of the proposed HSRVcc methodology until such time that providers improve the accuracy of the source data used in the determination of the DRG weights.

Response: With respect to the commenters' recommendation regarding the reporting of costs and charges for services, CMS requires hospitals to report their costs and charges through the cost report with sufficient specificity to support CMS' use of cost report data for monitoring and payment. Within generally accepted principles of cost accounting, CMS allows providers flexibility to accommodate the unique attributes of each institution's accounting systems. For example, providers must match the generally intended meaning of the line-item cost centers, both standard and non-standard, to the unique configuration of department and service categories used by each hospital's accounting system. Also, while the cost report provides a recommended basis of allocation for the general service cost centers, a provider is permitted, within specified guidelines, to use an alternative basis for a general service cost if it can support to its intermediary that the alternative is more accurate than the recommended basis. This approach creates internal consistency between a hospital's accounting system and the cost report but cannot guarantee the precise comparability of costs and charges for individual cost centers across institutions.

However, we believe that achieving greater uniformity by, for example, specifying the exact components of individual cost centers, would be very burdensome for hospitals and auditors. Hospitals would need to tailor their internal accounting systems to reflect a national definition of a cost center. It is not clear that the marginal improvement in precision created here is worth the additional administrative burden. The current hospital practice of matching costs to the generally intended meaning of a cost center ensures that most services in the cost center will be comparable across providers, even if the precise composition of a cost center among hospitals differs. Further, every hospital provides a different mix of services. Even if CMS specified the components of each cost center, costs and charges on the cost report would continue to reflect each hospital's mix of services. At the same time, internal consistency is very important to the IPPS. Costs are estimated on claims by matching CCRs for a given hospital to their own claims data through a cost center-to-revenue code crosswalk.

Despite the concerns raised in the comments, we believe that costs and charges are reported through the cost report with sufficient specificity to support CMS' use of cost report data to develop cost-based weights. The information we obtained from the cost report on the differing level of charge markups occurring between routine and ancillary hospital departments supports MedPAC's conclusions that the most profitable DRGs that are leading to the development of specialty hospitals are those that require a lot of ancillary services with high markups and low CCRs. To the extent that charge markups vary significantly between the various routine and ancillary hospital departments, we believe that there is a need to adjust charges to cost prior to setting the relative weights. We will continue to rely on the cost report to establish the CCRs that we are finalizing to use to adjust the DRG charges to costs.

However, we continue to be interested in receiving suggestions on ways that hospitals can uniformly and consistently report charges and costs related to all cost centers that also acknowledge the ubiquitous tradeoff between greater precision in developing CCRs and administrative burden Start Printed Page 47894coupled with reduced flexibility in hospital accounting practices. Another issue to consider is the potential changes to the relative weights from undertaking efforts of this magnitude that will be costly for both CMS, its fiscal intermediaries and costly and burdensome to hospitals. Although we are not modifying the cost report or our cost report instructions at this time, we would be open to making improvements in the future.

Comment: Several commenters applauded CMS' efforts to find “an administratively feasible approach to improving the accuracy of the DRG weights.” However, they expressed serious concerns about whether the proposed approach achieves that goal. Many commenters asserted that CMS proposes to move to a new cost-based methodology without offering any evidence that the proposed method actually improves payment accuracy.

A few commenters submitted analyses that suggest that the impact of the proposed HSRVcc methodology is substantially different than the MedPAC recommendations, and may even decrease payment accuracy relative to the charge-based weights. A few commenters specifically noted that cardiac procedures are more adversely impacted by the HSRVcc methodology. The proposed methodology reduces relative weights for the three major implantable cardioverter defibrillator (ICD) DRGs (515, 535, and 536) by 25 percent or more. While these proposed reductions imply that the weights based on the existing charge-based methodology overstate the costs of ICD procedures and therefore overpay them, the commenters presented analyses suggesting that these cases are actually underpaid. One such analysis by MedPAC, in its report on physician-owned specialty hospitals, found ICD procedures to have “lower marginal” profitability or “possibly a loss” for hospitals, based on calculation of payment-to-cost ratios and surveys of specialty hospitals. They also indicated that CMS, in approving cardiac resynchronization therapy defibrillators (CRT-D) for new technology add-on payments, found the device to be inadequately paid and granted the add-on payments to defray the costs of the therapy. Given that payment rates under the charge-based weights appear to be inadequate in many of the cardiovascular DRGs, the commenters believed the severe reductions resulting from the proposed HSRVcc methodology appear to be unjustified and provide ample reason to believe that the proposed methodology does not accomplish the goal of improving payment accuracy.

These commenters emphasized that while measuring improved payment accuracy is difficult, the large degree to which the weights fluctuate given the methodological changes alone indicates the need for further analysis and study. The commenters believed CMS should publish reliable indicators that demonstrate how the goal of payment accuracy is achieved. One commenter requested that CMS produce and publish estimates of payment-to-cost ratios and the relative profitability by DRG to determine the effectiveness of different weight-setting and patient classification methodologies in improving overall payment accuracy. The commenter emphasized that such estimates must be adjusted to account for the cost of providing services that include high-technology devices that are understated in the cost reports. Another commenter recommended that CMS construct a process to test the sensitivity of weights to various methodological assumptions and publicly share the results, including: a comparison of the CMS weights to MedPAC's HSRV cost approach; a comparison of CMS weights to an approach using standardized costs (as opposed to HSRV); comparison of CMS weights to weights calculated by estimating costs at the claim level using the 10 cost center approach; evaluation of other alternative methodologies for estimating costs; and an evaluation of the stability of weights over time.

Response: We appreciate the commenters concerns regarding the HSRVcc relative weight setting methodology we proposed and the large change in the relative weights that result from the application of this methodology. As we stated in the FY 2006 IPPS final rule, given the potential for significant redistribution in payments, the MedPAC recommendations should be studied extensively before any broad fundamental changes are made to the current system. In the proposed rule, we provided the results of such an extensive analysis and concluded that changes can be made to the relative weight methodology and the DRG system to improve payment accuracy. Although we agree that adopting a methodology that results in large changes in payment should not be adopted without careful study, we do not believe that the mere presence of such significant impacts invalidates the methodology. On the contrary, we believe large payment impacts may suggest there is a significant degree of distortion present in the current payment system. In our view, we believe that the changes to the IPPS should be evaluated based on whether they represent an improvement to the current system. MedPAC has studied the IPPS extensively and found that improvement can be found in payment accuracy from adopting its recommendations that are similar to those we proposed.[2]

While we acknowledge the need for further study and evaluation of the HSRVcc methodology, we continue to believe that the differential markups among departmental CCRs have introduced distortion into the charge-based relative weights. We note that MedPAC found that “the current payment system encourages community hospitals to allocate capital to profitable services such as cardiology and stimulates the formation of specialty hospitals that often focus on providing profitable services and tend to care for low-severity patients.” [3] The information we obtained from the cost reports on the differing level of charge markups occurring between routine and ancillary hospital departments supports MedPAC's conclusions that the most profitable DRGs that are leading to the development of cardiac specialty hospitals are those that require a lot of ancillary services with high markups and low CCRs. We note that the proposed rule showed that these hospitals are almost exclusively affected by changes to the relative weight methodology providing further evidence of bias and distortion in the relative weights by setting them using hospital charges. To the extent that charge markups vary significantly between the various routine and ancillary hospital departments, we believe that there is a need to adjust charges to cost prior to setting the relative weights. Although it suggested refinements to CMS' proposal (all of which we have adopted in this final rule), we note that MedPAC found that the CMS proposals made great strides toward achieving the goal of improvements in payment accuracy.[4] Therefore, as discussed in section II. C., we are using the national average CCRs to adjust the cost center charges for each DRG to cost prior to setting the relative weights. While we acknowledge that no payment methodology can be perfect because DRG-specific costs cannot be determined, we believe the cost-based methodology we are finalizing in this rule represents a significant Start Printed Page 47895improvement over the current charge-based methodology for all of the reasons we specified above. Under the cost-based methodology in this final rule, we will increase payment for relatively underpaid cases and reduce payment for relatively overpaid cases. We believe this reform is badly needed to reduce the bias in the weights and make more appropriate payments for both medical and surgical DRGs.

In order to mitigate the impact of the changes in the relative weights, we are implementing the new cost-based weight methodology in a 3-year transition, where the weights in the first year will be set based on 33 percent of the cost-based weight and 67 percent of the charge based weight. We will continue to study the HSRVcc methodology, the potential effects of charge compression and ways in which we can better account for severity of illness within the DRG system in the coming year.

With respect to the changes in the new patient classification system, the proposed rule noted that we modeled the CS DRGs and observed a 12-percent increase in the explanatory power (or R-quare statistic) of the DRG system to explain hospital charges. That is, we found more uniformity among hospital total charges within the CS DRGs than we did with Medicare's current DRG system (71 FR 24027). Thus, we believe that there is clear evidence that improvements can be made to the current DRG system that will reduce heterogeneity among patients within a given DRG. While this statistic indicates that the current CMS DRG system can be refined to improve payment accuracy, we agree that it does not necessarily mean we should adopt the system we proposed. For a variety of reasons explained further below, we believe that a number of factors must be considered in deciding how to revise the DRG system to better recognize severity of illness.

Comment: One commenter asserted that CMS published incorrect and deficient information about the HSRVcc methodology, its impact on hospitals, and the underlying data utilized in developing the proposed rule. Specifically, the commenter believed the HSRVcc methodology was flawed and therefore stated that the published impacts were inaccurate. The commenter believed that we failed to comply with the Federal Data Quality Act, and OMB, HHS, and CMS Guidelines which address the quality of the data used for policy development, in particular, meeting standards of utility, objectivity, integrity, and transparency and reproducibility. Because the commenter believed that we have violated these data quality standards, the public was deprived of the opportunity to submit meaningful comments, as required by the Administrative Procedure Act (APA). The commenter urged CMS to take the appropriate steps that would result in the withdrawal of the FY 2007 IPPS proposed rule and the publication of a new proposed rule.

Response: We disagree with the commenter's claims that the data utilized in the development of the FY 2007 IPPS proposed rule were materially flawed, did not comply with the Federal Data Quality Act, and did not meet established OMB, Department and CMS guidelines for data quality. The data sources used in estimating the payment impacts from policy changes proposed in the FY 2007 IPPS proposed rule were the HCRIS files that contain Medicare cost report data, the MedPAR files that contain Medicare claims data, the OSCAR database, and the PSF (which is maintained by the fiscal intermediaries and used in paying Medicare claims). These are the best and most reliable data sources available to CMS for modeling the impacts of policy changes. We note that these same databases are used in modeling payment impacts under the LTCH PPS, the OPPS, the IRF PPS, and the IPF PPS, as well as other payment systems. We also note that the comment period to the FY 2007 IPPS proposed rule provided commenters with an opportunity to bring to our attention specific examples of incorrect or inaccurate data. In addition to our posting the impact files from the FY 2007 IPPS proposed rule on the CMS Web site, as always, commenters had access to the same CMS data files that we utilized through communication with our Office of Information Services (OIS).

The fact that the data we used in the development of the FY 2007 IPPS proposed rule were available and transparent to the public was attested by the detailed data analyses included with a significant number of the public comments we received on the FY 2007 IPPS proposed rule. Therefore, for the reasons stated above, we disagree with the commenter's assertion that the data used by CMS in the FY 2007 IPPS proposed rule does not meet the transparency and reproducibility standards. As is the case with any change in policy, we do not base policy decisions on mere assumptions, but rather we analyze the relevant data and any comments submitted in response to a proposed rule.

Comment: One commenter stated that it was unclear whether the weights published for CS DRGs included using the transfer-adjusted charges prior to calculating weights.

Response: We used the hospital's charge on the claim in the HSRVcc methodology. We presume the commenter is asking whether we adjusted the number of cases in setting the relative weights to reflect early transfer to either a post-acute or other acute care setting. We did use transfer-adjusted case counts when we applied the HSRVcc methodology for the relative weights that were shown in Table 5 of the IPPS proposed rule (71 FR 24272) and the “Consolidated severity adjusted DRG HSRVcc relative weights” provided on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​FFD/​list.asp#TopOfPage. The case mix index that we use to iterate the proposed FY 2007 HSRVcc weights did not reflect a transfer-adjusted case count. That is, we used the sum of all the case weights divided by the total number of cases unadjusted for transfers to post-acute or other acute care settings.

Comment: Many commenters stated that once a cost-based system is implemented, CMS should provide at least a three-year transition. They stated that a three-year transition is consistent with MedPAC's recommendation to implement the changes to the weights and DRG system over a transitional period. Commenters recommended that payments be made based on a blend of charge and cost-based weights culminating with full cost-based weights at the completion of the transition period.

Response: We have in the past provided for transition periods when adopting changes that have significant payment implications. Given the significant payment impacts upon some hospitals because of these changes to the DRG weighting methodology, we considered options to transition to cost-based weights. We believe the potential payment effects from the changes to the DRG relative weights can be mitigated by adopting a 3-year transition of the relative weights. During the first year of the transition, the relative weights will be based on a blend of 33 percent of the cost-based weights and 67 percent of the charge weights. In the second year of the transition, the relative weights will be based on a blend of 33 percent of the charge weights and 67 percent of the cost-based weights. In the third year of the transition, the relative weights will be based on 100 percent of the cost-based weights.

Comment: One commenter asserted that the proposed changes to improve Start Printed Page 47896payment accuracy and to provide payment equity between specialty and general hospitals do not address many of the differences between specialty and full-service hospitals. The commenter stated that hospitals should be reimbursed for the additional services that are required to operate a full-service hospital which are often unnecessary in a specialty hospital setting. The commenter acknowledged that CMS already provides some support to hospitals that serve a high percentage of Medicaid patients through disproportionate share payments. However, the commenter suggested that CMS also make add-on payments to the base DRG payment for expenses such as: operation of a full-service, 24-hour emergency department; operation of a trauma service, a burn unit, or other high cost medically necessary services; sponsoring ground and helicopter ambulance services; operation of 24-hour diagnostic services; provision of round the clock nursing services; and provision of other support services such as clinical pharmacists, nutritionists, case managers, and medical social workers. The commenter believed these add-on payments will encourage hospitals to maintain these services rather than promote specialty hospitals that may be able to operate at a lesser cost without some or all of these services.

Response: Medicare does pay for all of these services through either the IPPS or OPPS payment. We disagree that add-on payments are necessary for services that are commonly provided at many hospitals. The costs of these services will be incorporated in the IPPS or OPPS relative weights. Rather, we continue to believe that Medicare's IPPS payment system needs to be changed to make more equitable payment across all hospitals and decrease the incentive to profit from patient and DRG selection.

Comment: A few commenters stated that although the DRG payment changes proposed by CMS seek to address the proliferation of physician-owned, limited service hospitals in response to recommendations by MedPAC, they do not believe that these payment changes alone will remove the inappropriate incentives created by physician self-referral to limited-service hospitals. They stated that physicians will still have the ability and incentive to refer financially attractive patients to facilities they own, avoid serving low-income patients, and encourage utilization of profitable services. The commenters urged CMS to examine the investment structures of physician-owned, limited service hospitals and to continue the moratorium on issuing new provider numbers to physician-owned, limited service hospitals until the agency's strategic plan has been developed and the Congress has had the opportunity to consider the agency's final report on the topic.

Response: We are in the process of completing the Final Report to Congress and the Strategic and Implementing Plan on Specialty Hospitals, as required by section 5006 of the DRA. Section 5006 of the DRA requires us to consider, among other things, issues of bona fide investment and proportionality of investment with respect to physician investment in specialty (that is, cardiac, orthopedic or surgical) hospitals. Section 5006 of the DRA also provides that the suspension on enrollment of new specialty hospitals that we administratively instituted on June 9, 2005, shall expire upon the date we issue the final report, or, if the report is issued after August 8, 2006, it shall expire on October 8, 2006. We note that Congress has provided for a date certain for the end of the suspension on enrollment of new specialty hospitals. Furthermore, we have not identified a need at this time to continue the suspension beyond that date.

Comment: Many commenters stated that CMS's proposed HSRVcc methodology presented in the FY 2007 IPPS proposed rule failed to address issues of “charge compression.” The commenters explained that “charge compression” describes the common billing practice of hospitals applying higher percentage markups on lower cost items and lower percentage markups on higher cost items. The commenters noted that MedPAC explained that hospitals may reduce the mark-ups for higher-cost items to avoid “sticker shock.” [5] As discussed below, many commenters believed that, to the extent “charge compression” exists, the proposed HSRVcc methodology would lead to systematic differences between estimates of costs and Medicare's payments. Therefore, the commenters believed that the proposal failed to accomplish CMS's stated goal of setting the DRG weights based on accurate cost determinations. If the proposed methodology is implemented, several commenters believed hospitals that perform a large volume of procedures requiring relatively costly supplies/procedures would be severely and unfairly penalized through inappropriately reduced Medicare DRG payments. The treatments they provide would be less likely to be provided, and consequently, Medicare beneficiaries’ access to care may be diminished. Therefore, the commenters stated that if CMS adopts a cost-based DRG weighting methodology, a more accurate measure of determining hospitals’ actual costs must be developed.

Many commenters believed that “charge compression” is a concern because the proposed HSRVcc methodology uses a single CCR for a variety of items and services in a department. Specifically, under the proposed HSRVcc methodology, we proposed to aggregate hospital-level departmental charges into 10 cost centers for each DRG, and then apply national average cost-center level CCRs to determine estimated costs. The commenters asserted that because most hospitals do not apply the same uniform percentage mark-up when setting the charges of each item in the department, the proposed HSRVcc methodology underestimates the cost of relatively more expensive items (particularly devices and implants) and overestimates the cost of relatively less expensive items. The commenters believed that the use of a single CCR for a variety of different items results in a systematic distortion of the estimated costs, and consequently the DRG relative weights that are used in determining the IPPS payment rates. Specifically, many commenters stated that the HSRVcc methodology has a disproportionate adverse impact on DRGs that include implantable technologies and devices, and in some cases would result in Medicare reimbursement that is less than the actual cost of the device.

Some commenters discussed cost data research that has been performed since the implementation of the OPPS to determine the causes and effects of “charge compression.” The commenters asserted that OPPS payment rates are also affected by charge compression. Specifically, one commenter recently commissioned research to investigate whether Medicare claims data provided statistical evidence of “charge compression.” (This research was summarized in an executive summary by Christopher Hogan of Direct Research, LLC. entitled “A Proposed Solution for Charge Compression.”) Many other commenters cited this recent research in their own comments, and recommended that the results of this research be used to develop an adjustment under the proposed HSRVcc methodology to account for “charge compression.” This analysis utilized the detailed coding of charges for supplies by revenue center on the Medicare claims data in the Standard Analytical Files (SAF) to divide the single cost-Start Printed Page 47897center CCR for “supplies and equipment” used under the proposed HSRVcc methodology into separate cost-center CCRs for 5 supplies subcategories (general supplies; implantables; sterile supplies; pacemakers and defibrillators; and all other supplies) based on a “strong statistical association between mix of charges for supplies (by revenue center) in a hospital and the [overall] supplies CCR in a hospital.” Using these data from all hospitals, a regression analysis yielded a single “set of CCR adjustments reflecting national average CCRs for [each of] the [five supplies] sub-categories.” This national-average set of adjustments is applied to each hospital (and combined with each hospital's actual supplies CCR) to determine an adjusted estimate of cost on each hospital's claim in the MedPAR file. The results of this research showed that this variation in CCRs across the supplies subcategories would result in weights for some DRGs being significantly different than under the HSRVcc methodology. In particular, the methodology advocated by Hogan would increase the relative weights “for DRGs with substantial charges in the implantable devices and pacemaker/defibrillator revenue centers.”

The commenters pointed out that the results of this research are consistent with previous analyses demonstrating “charge compression” in hospitals’ billing patterns. The commenters also noted that this research was conducted exclusively on Medicare claims data, without supplementation with any external data. The commenters believed that this research demonstrates that an adjustment for “charge compression” is possible. They further asserted that the research provides a solid analytical basis for a specific adjustment. The commenters advocated that we use the coefficients from this regression analysis to develop a “data-driven” adjustment to the CCRs for the supplies and equipment to address the distortion caused by “charge compression.”

Another commenter supported the idea of a “charge compression” adjustment but suggested that CMS should ensure appropriate stakeholder involvement before applying such a policy. Other commenters also advocated for the use of data from the SAF to analyze the relationship between costs and charges for non-implantable supplies and equipment to determine whether an adjustment to the medical-surgical supplies cost center on the MedPAR files to account for “charge compression” is also warranted.

As a result of the concerns discussed above, many commenters stated that any change toward a cost-based DRG weighting methodology under the IPPS must address the distortion caused by “charge compression” and must ensure that the methodology utilizes accurate cost determinations. Consequently, some commenters requested a delay in the implementation of the cost-based DRG weighting methodology until an adjustment for “charge compression” can be incorporated. In addition, some commenters stated that such an adjustment should also be used to address “charge compression” under the OPPS. Several commenters recommended that, in addition to including an adjustment for “charge compression,” the methodology for determining the cost-based DRG relative weights be developed without employing the HSRV methodology. However, a few other commenters endorsed the proposed HSRVcc methodology, stating that the “HSRVcc methodology more closely represents the cost of providing services than the current charge-based system.”

Several commenters referenced various research studies on this issue undertaken over the past 5 to 6 years. These commenters asserted that the research supports the existence of “charge compression” and its systemic distortion in payment rates. The commenters also stated that “although evidence of the effect of charge compression is not new,” research that could support an adjustment to offset charge compression was not available. However, according to the commenters, “research just completed now presents a solution.”

Response: We appreciate the commenters’ concerns regarding charge compression and its impact on the relative weight calculations under the proposed HSRVcc methodology. We are interested in further studying the analytic technique suggested in the comments of using a regression analysis to identify adjustments that could be made to the CCRs to account for charge compression. We note that the Hogan study's regression model was only applied to expensive medical supplies and devices and was not applied uniformly to develop potential adjustments that could be made to costs and charges across all revenue and cost centers that could potentially be subject to charge compression. If such a model were to be applied, we believe further analysis would have to be undertaken to determine whether it should apply to all costs and revenue centers. At this time, we intend to research whether a rigorous model should allow an adjustment for “charge compression” to the extent it exists. Accordingly, we have engaged a contractor to undertake a study on charge compression and review the statistical models provided to us by the commenters. To the extent that we find “charge compression” exists, we will further study potential models that could adjust for it so we can develop more accurate systems of cost-based weights to better reflect the relative costs of the different types of services provided under the IPPS. As suggested in the comments, we plan to fully involve appropriate stakeholders in future analysis of this issue to the extent feasible. Before implementing such an adjustment, we would fully describe our analysis and a potential proposed adjustment as part of the IPPS proposed rule for FY 2008.

Further, we intend to use the charge compression study that we will conduct over the next year as an opportunity to better understand the costs of medical devices. The United States faces a dilemna in health care. Although the rate-of-increase in health care spending slowed last year, costs are still growing at an unsustainable rate. One reason health care costs are rising so quickly is that most consumers of health care are frequently not aware of the actual cost of their care due to lack of transparency. We believe that cost, quality, and patient satisfaction information should be available across the spectrum of care.

Transparency of device pricing is a key aspect of consumer understanding of the cost of health care. We believe that the enhanced understanding of device pricing that will be brought about as part of our charge compression study will help accelerate the public release, in a consumer friendly fashion, of pricing information of medical devices. The public release of device pricing will help augment our overall efforts to empower consumers with better information on the health care they require.

In addition, we note that in order to mitigate the impact of adopting a revised methodology for calculating DRG weights, we are standardizing charges for MedPAR claims using the same methodology we have used in past years, rather than using the HSRV methodology. However, as discussed in detail in section II.E. of this preamble to the final rule, we are adopting our proposal to adjust charges to account for costs prior to establishing DRG weights. However, we anticipate undertaking further analysis of the hospital-specific methodology over the next year in conjunction with the research we are doing on charge compression. If our analysis suggests that an adjustment for charge compression should be applied and/or that the hospital-specific methodology will result in relative Start Printed Page 47898weights that more closely approximate the relative costs of care, we will propose further changes for FY 2008. In the interim, we are further mitigating the potential payment effects from the changes to the DRG relative weights by adopting a 3-year transition of the relative weights. During the first year of the transition, the relative weights will be based on a blend of 33 percent of the cost-based weights and 67 percent of the charge weights. In the second year of the transition, the relative weights will be based on a blend of 33 percent of the charge weights and 67 percent of the cost-based weights. In the third year of the transition, the relative weights will be based on 100 percent of the cost-based weights.

3. Refinement of DRGs Based on Severity of Illness

For purposes of the following discussions, the term “CMS DRGs” means the DRG system we currently use under the IPPS; the term “APR DRGs” means the severity DRG system designed by 3M Health Information Systems that currently is used by the State of Maryland; and the term “consolidated severity-adjusted DRGs (CS DRGs)” means the DRG system based on a consolidated version of the APR DRGs (as described in detail below). We discussed the CS DRGs in the FY 2007 IPPS proposed rule and solicited public comments on whether there are alternative DRG systems that could result in better recognition of severity than the CS DRGs we were proposing. As we made clear in the proposed rule, there are still further changes that are important to make to the CS DRG system before it is ready for adoption. In the remainder of this final rule, “CS DRGs” refers to the DRG system we analyzed and proposed for adoption in FY 2008. However, as we indicate below, we received a number of public comments about the proposed CS DRGs, potential alternatives, and a number of other issues related to our proposal. Below we summarize those comments, respond to the comments, and present our plans for adopting a severity-adjusted DRG system for FY 2008.

In the FY 2006 IPPS final rule (70 FR 47474), we stated that we would consider making changes to the CMS DRGs to better reflect severity of illness among patients. We indicated that we would conduct a comprehensive review of the CC list as well as consider the possibility of using the APR DRGs for FY 2007. We did not adopt APR DRGs for FY 2006 because such an adoption would represent a significant undertaking that could have a substantial effect on all hospitals. There was insufficient time between the release of the MedPAC report in March 2005 and the publication of the FY 2006 IPPS final rule for us to analyze fully a change of this magnitude. Instead, we adopted a more limited policy by implementing severity-adjusted cardiac DRGs.

After publication of the FY 2006 IPPS final rule, CMS contracted with 3M Health Information Systems to further analyze the MedPAC recommendations in support of our consideration of possible changes to the IPPS for FY 2007. Under one task of this contract, 3M Health Information Systems analyzed the feasibility of using a revised DRG system under the IPPS that is modeled on the APR DRGs Version 23 to better recognize severity of illness. The APR DRGs have been used successfully as the basis of Belgium's hospital prospective global budgeting system since 2002. The State of Maryland began using APR DRGs as the basis of its all-payer hospital payment system in July 2005. More than a third of the hospitals in the United States are already using APR DRG software to analyze comparative hospital performance. Many major health information system vendors have integrated this system into their products. Several State agencies utilize the APR DRGs for the public dissemination of comparative hospital performance reports. APR DRGs have been widely applied in policy and health services research. In addition to being used in research by MedPAC, the APR DRGs also contain a separate measure of risk of mortality that is used in the Quality Indicators of the Agency for Healthcare Research and Quality, the Premier Hospital Quality Incentive Demonstration discussed in section IV.B. of this preamble, and the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) hospital accreditation survey process (Shared Visions-New Pathways).

Below we present a comparison of the CMS DRG system and the APR DRG system.

a. Comparison of the CMS DRG System and the APR DRG System

The CMS DRG and APR DRG systems have a similar basic structure. There are 25 MDCs in both systems. The DRG assignments for both systems are based on the reporting of ICD-9-CM diagnosis and procedure codes. Both DRG systems are composed of a base DRG that describes the reason for hospital admission and a subdivision of the base DRG based on other patient attributes that affect the care of the patient. For surgical patients, the base DRG is defined based on the type of procedure performed. For medical patients, the base DRG is defined based on the principal diagnosis. In Version 23.0 of the CMS DRG system, there are 367 base DRGs and 526 total DRGs. In Version 23 of the APR DRG system, there are 314 base DRGs and 1,258 total APR DRGs. Some of the base DRGs in the two systems are virtually identical. For example, there is no significant difference between the base DRG under both systems for medical treatment of congestive heart failure. For other base DRGs, there are substantial differences. For example, in the CMS DRG system, there are two base DRGs for appendectomy (simple and complex); in the APR DRG system, there is only one base DRG for appendectomy (the relative complexity of the patient is addressed in the subsequent subdivision of the base DRG into severity of illness subclasses).

The focus of the CMS DRGs is on complexity. Complexity is defined as the relative volume and types of diagnostic, therapeutic, and bed services required for the treatment of a particular illness. Thus, the focus of payment in the CMS DRG system reflects the relative resource use needed by the patient in one DRG group compared to another. Resource use is generally correlated with severity of illness but intensive resource use does not necessarily indicate a high level of severity in every case. It is possible that some patients will be resource-intensive and require high-cost services even though they are less severely ill than other patients. The CMS DRG system subdivides the base DRGs using age and the presence of a secondary diagnosis that represents a CC. The age subdivisions primarily relate to pediatric patients (those who are less than 18 years of age). Patients are assigned to the CC subgroup if they have at least one secondary diagnosis that is considered a CC. The diagnoses that are designated as CCs are the same across all base DRGs. The subdivisions of the base CMS DRGs are not uniform: Some base DRGs have no subdivision; some base DRGs have a two-way subdivision based on the presence of a CC; and other base DRGs have a three-way subdivision based on a pediatric subdivision followed by a CC subdivision of the adult patients. In addition, some base DRGs in MDC 5 (Diseases and Disorders of the Circulatory System) have a subdivision based on the presence of a major cardiovascular condition or complex diagnosis.

The APR DRG system subdivides the base DRGs by adding four severity of Start Printed Page 47899illness subclasses to each DRG. Under the APR DRG system, severity of illness is defined as the extent of physiologic decompensation or organ system loss of function. The underlying clinical principle of APR DRGs is that the severity of illness of a patient is highly dependent on the patient's underlying problem and that patients with high severity of illness are usually characterized by multiple serious diseases or illnesses. The assessment of the severity of illness of a patient is specific to the base APR DRG to which a patient is assigned. In other words, the determination of the severity of illness is disease-specific. High severity of illness is primarily determined by the interaction of multiple diseases. Patients with multiple comorbid conditions involving multiple organ systems are assigned to the higher severity of illness subclasses. The four severity of illness subclasses under the APR DRG system are numbered sequentially from 1 to 4, indicating minor (1), moderate (2), major (3), and extreme (4) severity of illness.

The APR DRG system does not subdivide base DRGs based on the age of the patient. Instead, patient age is used in the determination of the severity of illness subclass. In the CMS DRG system, the CC list is generally the same across all base DRGs. However, there are CC list exclusions for secondary diagnoses that are related to the principal diagnosis. In the APR DRG system, the significance of a secondary diagnosis is dependent on the base DRG. For example, an infection is considered more significant for an immune-suppressed patient than for a patient with a broken arm. The logic of the CC subdivision in the CMS DRG system is a simple binary split for the presence or absence of a CC. In the APR DRG system, the determination of the severity subclass is based on an 18-step process that takes into account secondary diagnoses, principal diagnosis, age, and procedures. The 18 steps are divided into three phases. There are six steps in Phase I, three steps in Phase II, and nine steps in Phase III.

The diagram below illustrates the three-phase process for determining patient severity of illness subclass.

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Under the CMS DRG system, a patient is assigned to the DRG with CC if there is at least one secondary diagnosis present that is a CC. There is no recognition of the impact of multiple CCs. Under the APR DRG system, high severity of illness is primarily determined by the interaction of multiple diseases. Under the CMS DRG Start Printed Page 47901system, patients are assigned to an MDC based on their principal diagnosis. While the principal diagnosis is generally used to assign the patient to an MDC in the APR DRG system, there is a rerouting step that assigns some patients to another MDC. For example, lower leg amputations can be performed for circulatory, endocrine, or musculoskeletal principal diagnoses. Instead of having three separate amputation base DRGs in different MDCs as is done in the CMS DRG system, the APR DRG system reroutes all of these amputation patients into a single base APR DRG in the musculoskeletal MDC. The CMS DRG system uses death as a variable in the DRG definitions but the APR DRG system does not. Both DRG systems are based on the information contained in the Medicare Uniform Bill. The APR DRG system requires the same information used by the current CMS DRG system. No changes to the claims form or the data reported would be necessary if CMS were to adopt APR DRGs or a variant of them.

The CMS DRG structure makes some DRG modifications difficult to accommodate. For example, high severity diseases that occur in low volume are difficult to accommodate because the only choice is to form a separate base DRG with relatively few patients. Such an approach could lead to a proliferation of low-volume DRGs. Alternatively, these cases may be included in DRGs with other patients that are dissimilar clinically or in costs. Requests for new base DRGs formed on the use of a specific technology may also be difficult to accommodate. Base DRGs formed based on the use of a specific technology would result in the payment weight for the DRG being dominated by the price set by the manufacturer for the technology.

The structure of the APR DRGs provides a means of addressing high severity cases that occur in low volume through assignment of the case to a severity of illness subclass. However, the APR DRG structure does not currently accommodate distinctions based on complexity. Technologies that represent increased complexity, but not necessarily greater severity of illness, are not explicitly recognized in the APR DRG system. For example, in the CMS DRGs, there are separate DRGs for coronary angioplasty with or without insertion of stents. The APR DRGs do not make such a differentiation. The insertion of the stent makes the patient's case more complex but does not mean the patient is more severely ill. However, the inability to insert a stent may be indicative of a patient's more advanced coronary artery disease. Although such conflicts are relatively few in number, they do represent an underlying difference between the two systems. If Medicare were to adopt a severity DRG system based on the APR DRG logic but assign cases based on complexity as well as severity as we do under the current Medicare DRG system, such a distinction would represent a departure from the exclusive focus on severity of illness that currently forms the basis of assigning cases in the APR DRG system.

Section 1886(d)(4) of the Act specifies that the Secretary must adjust the classifications and weighting factors at least annually to reflect changes in treatment patterns, technology, and other factors that may change the relative use of hospital resources. Therefore, we believe a method of recognizing technologies that represent increased complexity, but not necessarily greater severity of illness, should be included in the system. We plan to develop criteria for determining when it is appropriate to recognize increased complexity in the structure of the DRG system and how these criteria interact with the existing statutory provisions for new technology add-on payments. In the FY 2007 IPPS proposed rule, we invited public comments on this particular issue.

Another difference between the CMS DRG system and the APR DRG system is the assignment of diagnosis codes in category 996 (Complications peculiar to certain specified procedures). The CMS DRG system treats virtually all of these codes as CCs. With the exceptions of complications of organ transplant and limb reattachments, these complication codes do not contribute to the severity of illness subclass in the APR DRG system. While these codes could be added to the severity logic, the appropriateness of recognizing codes such as code 998.4 (Foreign body accidentally left during a procedure) as a factor in payment calculation could create the appearance of incentives for less than optimal quality. Although there is no direct recognition of the codes under the 996 category, the precise complication, in general, can be coded separately and could contribute to the severity of illness subclass assignment.

Comment: Some commenters strongly supported including the complication codes (996.00-999.9) when assigning a patient to a severity-adjusted DRG because the codes represent pre-existing or predictably higher risks upon admission for difficult patients who are typically referred to regional centers. The commenters stated that failure to do so will create new incentives for adverse admission selection and underpay hospitals that treat difficult patients. The commenters stated that the 996 codes include some complications that should never be paid (for example, wrong site surgery and instruments left in the patient). However, the commenters indicated that these kinds of complications likely constitute less than one-half of one percent of all complications and revising the DRG system so that all 996 codes are not paid will provide incentives to hospitals to avoid admitting patients that are at high risk because of a pre-existing condition or other circumstance. Another commenter stated that all infections should be removed as complicating conditions under the DRG system.

Response: The discussion in this section of the proposed rule noted that 996 codes are used in assigning a patient to a CMS DRG but not to an APR DRG. Although the discussion in this section of the proposed rule did indicate that using these codes to assign a patient to a DRG may raise questions about incentives for less than optimal quality, the discussion was only intended to note the differences that currently exist between the CMS and the APR DRGs. The commenters raised issues that require further study. We will consider quality of care issues and payment incentives as we consider how to implement section 5001(c) of Pub. L. 109-171 with respect to hospital acquired conditions, including infections. There is a more detailed discussion of this provision of the law in a later section of this final rule.

Table B below summarizes the differences between the two DRG systems:

Table B.—Comparison of the CMS DRG System and the APR DRG System

ElementCMS DRG SystemAPR DRG System
Number of base DRGs367314
Total number of DRGs5261,258
Number of CC (severity) subclasses24
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Multiple CCs recognizedNoYes.
CC assignment specific to base DRGNoYes.
Logic of CC subdivisionPresence or absence18-step process.
Logic of MDC assignmentPrincipal diagnosisPrincipal diagnosis with rerouting.
Death used in DRG definitionsYesNo.
Data requirementsHospital claimsHospital claims.

To illustrate the differences between the two DRG systems, we compare in Table C below four cases that have been assigned to CMS DRGs and APR DRGs. In all four cases, the patient is a 67-year-old who is admitted for diverticulitis of the colon and who has a multiple segmental resection of the large intestine performed. ICD-9-CM diagnosis code 562.11 (Diverticulitis of colon (without mention of hemorrhage)) and ICD-9-CM procedure code 45.71 (Multiple segmental resection of large intestine) would be reported to capture this case. In both DRG systems, the patient would be assigned to the base DRG for major small and large bowel procedures. These four cases would fall into two different CMS DRGs and four different APR DRGs. We include Medicare average charges in the table to illustrate the differences in hospital resource use.

Case 1: The patient receives only a secondary diagnosis of an ulcer of anus and rectum (ICD-9-CM diagnosis code 569.41). Under the CMS DRG system, the patient is assigned to base DRG 149 (Major Small and Large Bowel Procedures Without CC). Under the APR DRG system, the patient is assigned to base DRG 221 (Major Small and Large Bowel Procedures) with a severity of illness subclass of 1 (minor).

Case 2: The patient receives a secondary diagnosis of an ulcer of anus and rectum and an additional secondary diagnosis of unspecified intestinal obstruction (ICD-9-CM diagnosis code 560.9). Under the CMS DRG system, the patient is assigned to DRG 148 (Major Small and Large Bowel Procedures With CC). Under the APR DRG system, the patient is assigned to base DRG 221 and the severity of illness subclass increases to 2 (moderate).

Case 3: The patient receives multiple secondary diagnoses of an ulcer of anus and rectum, unspecified intestinal obstruction, acute myocarditis (ICD-9-CM diagnosis code 422.99), and atrioventricular block, complete (ICD-9-CM diagnosis code 426.0). Under the CMS DRG system, the patient is assigned to DRG 148. Under the APR DRG system, the patient is assigned to base DRG 221 and the severity of illness subclass increases to 3 (major).

Case 4: The patient receives multiple secondary diagnoses of an ulcer of anus and rectum, unspecified intestinal obstruction, acute myocarditis, atrioventricular block, complete, and the additional diagnosis of acute renal failure, unspecified (ICD-9-CM diagnosis code 584.9). Under the CMS DRG system, the patient is assigned to DRG 148. Under the APR DRG system, the patient is assigned to base DRG 221 and the severity of illness subclass increases to 4 (extreme).

Table C.—Example of Sample Cases Assigned Under the CMS DRG System and Under the APR DRG System

Principal diagnosis code: 562.11 Procedure code: 45.71CMS DRG SystemAPR DRG System
DRG assignedAverage chargeDRG assignedAverage charge
Case 1—Secondary Diagnosis: 569.41149 without CC$25,147221 with severity of illness subclass 1$25,988
Case 2—Secondary Diagnoses: 569.41, 560.9148 with CC59,519221 with severity of illness subclass 238,209
Case 3—Secondary Diagnoses: 569.41, 560.9, 422.99, 426.0148 with CC59,519221 with severity of illness subclass 366,597
Case 4—Secondary Diagnoses: 569.41, 560.9, 422.99, 426.0, 584.9148 with CC59,519221 with severity of illness subclass 4130,750

The largest significant difference in average charges is seen in case 4 where the average charge under the APR DRG assigned to the patient ($130,750) is more than double the average charge under the CMS DRG assigned to the patient ($59,519).

b. CS DRGs for Use in the IPPS

APR DRGs were developed to encompass all-payer patient populations. As a result, we found that, for the Medicare population, some of the APR DRGs have very low volume. MedPAC noted that the larger number of DRGs under a severity-weighted system might mean that CMS would be faced with establishing weights in many categories that have few cases and, thus, potentially creating unstable estimates. While volume is an important consideration in evaluating any potential consolidation of APR DRGs for use under the IPPS, we believe that hospital resource use and clinical interpretability also need to be taken into consideration. For example, any consolidation of severity of illness subclasses within a base DRG should be restricted to contiguous severity of illness subclasses. Thus, it would not be reasonable clinically to combine severity of illness subclasses 1 and 4 solely because both consist of low-volume cases. We analyzed consolidating APR DRGs by either combining the base DRGs or the severity of illness subclasses within a base DRG. For consolidation across base APR DRGs, we considered patient volume, similarity of hospital charges across all four severity of illness subclasses and Start Printed Page 47903clinical similarity of the base APR DRGs. For consolidations of severity of illness subclasses within a base DRG, we considered patient volume and the similarity of hospital charges between severity of illness subclasses. In considering how to consolidate severity of illness subclasses, we believed it was important to use uniform criteria across all DRGs to avoid creating confusing and difficult to interpret results. That is, we were concerned about inconsistencies in the number of severity levels across different DRGs.

The objective to simultaneously take into consideration patient volume and average charges often produced conflict. Table D below contains the overall patient volume and average charge by APR DRG severity of illness subclass. While severity of illness subclass 4 (extreme) has the lowest patient volume of 5.80 percent, we found that the dramatically different average charges between severity of illness subclass 3 (major) and subclass 4 (extreme) patients of approximately $32,426 and $81,952, respectively, would make it difficult to consolidate severity of illness subclass 3 and 4 patients. Conversely, we found that, while the average charge difference between severity of illness subclass 1 (minor) and 2 (moderate) patients was much smaller, of approximately $17,649 and $20,021, respectively, the majority of patient volume (68.08 percent) is in these two subclasses. Thus, low patient volume and small average charge differences rarely coincided.

Table D.—Overall Average Charges and Patient Volume by APR DRG Severity of Illness Subclass

All casesAPR DRG Severity of illness Subclass 1APR DRG Severity of illness Subclass 2APR DRG Severity of illness Subclass 3APR DRG Severity of illness Subclass 4
Number of Cases11,142,65121.47%46.61%26.12%5.80%
Average Charges$26,342$17,649$20,021$32,426$81,952

There were also few opportunities to consolidate base DRGs. For base DRGs in which there was a clinical basis for considering a consolidation, there were usually significant differences in average charges for one or more of the severity of illness subclasses. APR DRGs already represented a considerable consolidation of base DRGs (314) compared to CMS DRGs (367). Thus, we expected that further base DRG consolidation would be difficult.

We reviewed the patient volume and average charges across APR DRGs and found that medical cases assigned severity of illness subclass 4 within an MDC have similar average charges. We observed the same pattern in average charges across severity of illness subclass 4 surgical patients within an MDC. The data suggest that, in cases with a severity of illness of subclass 4, the severity of the cases had more impact on hospital resource use than the reason for admission (that is, the base APR DRG within an MDC). Thus, we believe that, within each MDC, the severity of illness subclass 4 medical and surgical patients, respectively, could be consolidated into a single group.

In some MDCs, it was not possible to consolidate into a single medical and a single surgical severity of illness subclass 4 group. In these MDCs, more than one group was necessary. For instance, Table E below contains the patient volume and average charges for severity of illness subclass 4 cases in MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract). Taking into consideration volume and average charges, except for APR DRG 440 (Kidney Transplant), surgical cases assigned severity of illness subclass 4 in MDC 11 could be consolidated into a single group having 5,492 patients and an average charge of $107,258. However, we decided not to include kidney transplant patients in this severity of illness subclass 4 due to their very high average charges (approximately $203,732 or more than $100,000 greater than other patients in MDC 11 having a severity of illness subclass 4). Average charges within the consolidated severity of illness subclass 4 surgical DRG in MDC 11 show some variation but are much higher than the corresponding average charges for the severity of illness subgroup 3 patients of $48,863. Thus, our analysis suggests that the data support maintaining three severity of illness levels for each base DRG in MDC 11; a separate severity of illness subclass 4 for all patients other than those having kidney transplant; and a separate DRG for kidney transplants.

Table E.—Summary Statistics for Surgical Cases With Severity of Illness Subclass 4 in MDC 11

APR DRGNumber of casesAverage length of stayAverage total charges
440 (Kidney Transplant)37818.0$203,732
441 (Major Bladder Procedures)52821.5128,729
442 (Kidney & Urinary Tract Procedure for Malignancy)83316.6101,501
443 (Kidney & Urinary Tract Procedure for Non-Malignancy)96618.4103,905
444 (Renal Dialysis Access Device Procedure Only—Severity of Illness Subclass 4)93518.3104,249
445 (Other Bladder Procedures)18615.280,197
446 (Urethral & Transurethral Procedure—Severity of Illness Subclass 4)49213.473,110
447 (Other Kidney, Urinary Tract & Related Procedures)1,55219.3121,011

The consolidation of severity of illness subclass 4 APR DRG into fewer groups was done for all MDCs except MDC 15 (Newborn and Other Neonates With Conditions Originating in the Perinatal Period), MDC 19 (Mental Diseases and Disorders), and MDC 20 (Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders). In the 22 MDCs in which the severity of illness subclass 4 consolidation was applied, the number of separate severity Start Printed Page 47904of illness subclass 4 groups was reduced from 262 to 69.

For MDC 14 (Pregnancy, Childbirth, and Puerperium), the base APR DRGs were consolidated from 12 to 6. Severity of illness subclass 1 through 3 were retained, and severity of illness subclass 4 was consolidated into a single APR DRG, except for cesarean section and vaginal deliveries, which were maintained as separate APR DRGs. This consolidation reduced the total number of obstetric APR DRGs from 48 to 22.

The Medicare patient volume in MDC 15 was very low, allowing for a more aggressive consolidation. For MDC 15, we consolidated 28 base APR DRGs into 7 base CS DRGs. For each of the 7 consolidated base MDC 15 DRGs, we combined severity of illness subclasses 1 and 2 into one DRG and severity of illness subclass 3 and 4 into another DRG. This consolidation reduced the total number of MDC 15 DRGs from 112 in the APR DRG system to 14 CS DRGs.

In MDC 19, we consolidated 12 base DRGs into 4 base DRGs. We retained the 4 severity of illness subclasses in MDC 19 for each of the 4 base DRGs. In MDC 20, the base APR DRG for patients who left against medical advice has severity of illness subclass 1 and 2 consolidated and severity of illness subclass 3 and 4 consolidated. The remaining 4 base DRGs were consolidated into 1 base DRG with 4 severity of illness subclasses.

We did not consolidate any of the pre-MDC subclass 4 APR DRGs such as Heart Transplant. As explained earlier, pre-MDC DRGs are DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These DRGs are for liver and/or intestinal transplants, heart and/or lung transplants, bone marrow transplants, pancreas transplants, and tracheotomies. For the pre-MDC DRGs, except for Bone Marrow Transplant, we consolidated severity of illness subclasses 1 and 2 into one DRG. In addition, the three base APR DRGs for Human Immunodeficiency Virus (HIV) with multiple or major HIV-related conditions had severity of illness subclasses 1 and 2 consolidated.

In total, we reduced 1,258 APR DRGs to 861 CS DRGs. In Appendix C of this proposed rule, we present the 861 unique combinations of CS DRGs.

Table F below includes a description of the consolidations that we did within each individual MDC and includes information about the total number of DRGs that were eliminated from the APR DRGs to develop the CS DRGs.

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Appendix D of the FY 2007 IPPS proposed rule (71 FR 24433) showed the crosswalk of each CS DRG to its respective APR DRG. We numbered the DRGs sequentially and incorporated the severity of illness subclass into the DRG Start Printed Page 47906description. However, within the range of sequential numbers used for an MDC, we retained some unused numbers to allow for future DRG expansion. By using a three-digit number for the CS DRGs, we also avoid the need for reprogramming of computer systems that would be necessary to accommodate a change from the current three-digit DRG number to separate fields for the base CS DRG number and the severity of illness subclass.

Severity DRGs represent a significant change from our current DRG system. In addition to changing the way claims are grouped, severity DRGs introduce other issues requiring additional analysis, including possible increases in reported case-mix and changes to the outlier threshold. Our analysis of these issues is outlined further in the next section.

Comment: A number of commenters suggested further refinements that need to be made to the CS DRGs to account for complexity as well as severity. Commenters recommended that CMS create a “task force” to analyze situations in which the complexity of the patients is not always appropriately recognized by the proposed CS DRGs. One commenter stated that the severity system is flawed because it does not capture resource utilization or the utility of technologies that would be more appropriate for beneficiaries.

The commenters also provided examples of base DRG assignments under the current CMS DRGs that are different than those under the CS DRG. For instance, one commenter indicated that high dose interleukin-2 (HD IL2) is used to treat otherwise terminal cancer patients with metastatic renal cell cancer and melanoma. HD IL2 can evoke an immune response that eradicates the tumor and provides a potential opportunity for recovery. In the FY 2004 IPPS final rule, CMS created a new procedure code for HD IL2 therapy and assigned these patients to DRG 492. The commenter reported improved access to HD IL2 therapy as a result of these changes. However, the commenter was concerned that these patients could potentially be assigned to a number of different DRGs under the CS DRGs with a weighted average reduction in the relative weight of 58 percent. The commenter suggested revising the CS DRG to take into account the complexity associated with providing HD IL2 therapy. Other commenters noted:

  • Some patients in need of ventricular assist devices (VAD) are currently paid in the same group as heart transplant patients using the CMS DRGs. Other heart assist devices are assigned to DRG 525 (Other Heart Assist Implant). These patients will be paid in the same group as implantable cardiac defibrillator patients under the CS DRGs. The commenters noted that it is possible that payment for these kinds of cases could decline by more than 70 percent under the proposed rule. The commenter believed that the assignment under the CS DRGs will not recognize higher resources associated with treating VAD patients relative to those in need of implantable cardiac defibrillators.
  • Bare metal and drug-eluting coronary stents would be assigned to the same CS DRG eliminating the distinction currently made for these two different kinds of stents in the CMS DRGs. The commenters noted that CMS created separate DRGs for drug eluting and bare metal stents to recognize the higher costs of drug eluting stents.
  • Defibrillator device replacement cases are currently assigned to DRG 551 (Permanent Cardiac Pacemaker Implant With Major Cardiovascular Diagnoses or AICD Lead or Generator). The commenters were concerned that these cases would be assigned to the DRGs for Permanent Cardiac Pacemaker Implant With & W/O AMI, Heart Failure or Shock and the cases would revert back to classification based on presence or absence of heart failure, AMI, or shock, rather than an MCV.
  • Patients receiving tPA thrombolytic therapy for stroke are currently assigned to DRG 559 (Acute Ischemic Stroke With Use of a Thrombolytic Agent). CMS revised the DRGs in FY 2006 to provide a separate DRG for stroke patients being treated with a reperfusion agent. According to the commenter, these patients will be paid in the same group with all stroke cases under CS DRGs undoing the change that CMS made in FY 2006 according to the commenter.
  • In FY 2006, CMS created separate DRGs for the revision of hip or knee replacement (DRG 545, Revision of Hip or Knee Replacement) to distinguish the higher resources associated with revisions from original replacements. Under CS DRGs, these cases would be assigned to the same group as the original replacement (bilateral or single) of the specific joint. The commenters were concerned that CMS' proposal to adopt cCS DRGs will undo a proposal that it adopted just 1 year ago.
  • Combined anterior/posterior spinal fusion cases are currently assigned to DRG 496 (Combined Anterior/Posterior Spinal Fusion). This procedure requires two separate incisions and turning the patient over during surgery. The commenter expressed concern that under the CS DRG system, these cases would be paid in the same group as all spinal fusions and the new DRGs would not recognize higher costs associated with treating these patients.
  • The APR DRG and CS DRG systems do not have DRGs for lung transplants alone or combined kidney/pancreas transplants. The commenter suggested that there should be separate DRGs for these transplants in addition to liver/intestinal transplants. The commenter indicated that lung transplants alone have lower costs and should not be in the same DRG as combined transplants.

Response: In the vast majority of clinical situations, severity of illness and treatment complexity are directly related and are therefore addressed in the CS DRGs. As discussed in the proposed rule, there are a number of clinical situations, primarily related to the use of specific technologies, in which low severity patients receive care with high treatment complexity and cost. We acknowledge that further refinements are needed to the proposed CS DRG system before it will be ready for adoption. In the FY 2007 IPPS proposed rule, we noted a number of concerns we had with adopting the CS DRGs in FY 2007 (71 FR 24027). Among them was our concern that we might need additional time to refine the CS DRGs to better account for complexity as well as severity. The commenters have brought some important issues to our attention that we believe should be carefully considered before we adopt the CS DRGs. We will consider these issues if we were to make further modifications to the CS DRGs and propose adopting them for FY 2008. However, as we indicate elsewhere in this final rule, we have engaged a contractor to assist us with completing an evaluation of alternative DRG systems that may better recognize severity than the current CMS DRGs and meet other criteria that would make them suitable to adopt for purposes of payment under the IPPS. We expect to complete this evaluation of alternative DRG systems quickly this fall as part of moving forward on adopting a revised DRG system that better recognizes severity in the IPPS rulemaking for FY 2008. It is possible that some of the alternatives that we evaluate for better recognizing severity in the DRGs will be based on the current CMS DRGs. If we were to develop a clinical severity concept that uses the current CMS DRGs as the starting point, it is possible that the issues raised by the commenters will no longer be a concern. If, however, we were to propose adopting the CS DRGs for FY 2008, we would consider the issues raised by the commenters as we make further refinements to this DRG Start Printed Page 47907system so it accounts for complexity as well as severity as a proxy for relative resource use.

Comment: One commenter suggested a way of accounting for therapeutic complexity when assigning a patient under the CS DRGs. The commenter indicated that the patient should be assigned to a severity of illness subclass based on whether they received a separately identifiable technology that provides a clinical benefit and results in significantly higher case costs independent of severity level relative to the base DRG. The commenter also recommended that complexity levels be superimposed on the proposed severity of illness levels, such that either severity or complexity, or a combination of the two, would increase the classification of a case. The classifications would be defined as severity of illness or complexity (1-4).

Response: We will further consider how to incorporate complexity into the assignment of a patient to a severity of illness subclass under either the CS DRGs if we propose to adopt them in FY 2008 or the alternative DRG system that we will consider once we complete our evaluation of potential DRG systems. It may be possible to assign a case to a severity of illness subclass under either the CS DRGs, the alternative system we plan to evaluate or even underrefined CMS DRGs by using the procedures or services that are provided to the patient as a measure of resource use (that is, complexity). We agree that the use of a separately identifiable procedure or technology may be useful in determining the assignment of a patient to a specific subclass of a base DRG much like what occurs today under the CMS DRGs when assigning patients with placement of a bare metal or drug-eluting stent to separate DRGs.

Comment: Some commenters were concerned that CMS did not propose to adopt the already widely used APR DRGs endorsed by MedPAC, but rather proposed to adopt CMS'-developed CS DRGs. Some commenters stated that the CMS analysis that resulted in the CS DRGs is skewed because Medicare uses a truncated list of diagnosis and procedure codes. The commenter noted that CMS does not use comparable data to what 3M uses for the complete APR DRGs. Another commenter stated that the APR DRGs are the most advanced DRG classification system available yielding the most clinically homogenous groupings and the greatest predictive power. This commenter believed that it provides a sound basis for developing CS DRGs.

Response: MedPAC did not endorse using the APR DRGs.[6] However, MedPAC's analysis that led to their recommendation to refine the current DRGs to more fully account for difference in severity of illness among patients was based on the APR DRGs. Even though MedPAC's analysis was based on the APR DRGs, it recognized that CMS would have to consider a number of different factors when making decisions in the design of a DRG system. For instance, MedPAC noted that the large number of DRGs might mean that CMS would be faced with establishing weights in many categories that have few cases and thus potentially creating unstable estimates. To avoid creating refined DRGs with unstable relative weights, MedPAC recommended that the Secretary should be selective in adopting fine clinical distinctions similar to those reflected in the APR DRGs. Refining the DRGs will require carefully weighing the benefits of more accurate and economic distinctions against the potential for instability in relative weights based on a small number of cases.[7] We do not believe that MedPAC expected that we would adopt the APR DRGs without any changes.

Comment: Some commenters stated concerns with merging of dissimilar patient groups in the CS DRG system. Combining clinically dissimilar groups across the severity dimension has the potential to render the groups far less clinically meaningful. It is anticipated that such groups would have to be restructured frequently as treatment patterns change for primarily very ill patients. Some commenters stated that it seems that more categories may have been consolidated than necessary, giving up clinical and statistical homogeneity unnecessarily. It was noted that this is especially important if the CS DRGs are envisioned as part of the basis for evolving efforts towards value-based purchasing where such measures as post-admission complications and readmissions need to be evaluated on a risk-adjusted basis. An alternative approach was suggested to keep the patient groups separate from a classification perspective, but merge from a payment analysis perspective.

Response: As discussed above, the CS DRGs are based on the APR DRG system. The APR DRG system is comprised of 314 base DRGs, which are divided into four severity of illness subclasses. We believe that the APR DRG greatly improve recognition of resource use and clinical similarity of patients. However, in our analysis of the APR DRG system, we observed that cases assigned severity of illness subclass 4 within an MDC have similar average charges. Furthermore, our clinical consultants frequently considered the severity of illness subclass 4 patients across DRGs within an MDC to have a closer clinical resemblance than to lower severity patients in their respective DRGs because, in severely ill patients, comorbidities have a greater impact on severity than the reason for admisssion. Treatment patterns will evolve for these multiple comorbidities leading to severity level 4 (sepsis, shock, acute renal failure, among others). However, to the extent that these multiple comorbidities will change (for example, better treatment of septic shock so that this occurs less frequently) they should do so equally across all patients within an MDC. With respect to the comment about maintaining more DRG groups for purposes other than payment under the IPPS, we proposed to adopt the CS DRGs only for Medicare inpatient hospital payment. We chose to consolidate the APR DRGs to increase administrative simplicity, minimize the impact on existing claim processing systems, and avoid having multiple DRGs with low case volumes and similar weights. The commenter's suggestion would essentially result in many more DRGs having exactly the same weight. Therefore, we do not see a need to adopt the commenter's suggestion. However, a hospital or any other entity can use an alternative patient classification system for the other purposes suggested in the comment.

Comment: Some commenters stated that the CS DRGs are problematic because they were not designed to accommodate non-Medicare populations. The commenters indicated that many hospitals use DRGs for quality and other outcome measurements and that the proposed CS DRGs may not be clinically appropriate for these purposes.

In addition, another commenter stated that private health insurance company contracts use the CMS DRG relative weights as the payment basis for inpatient services delivered to members under private health insurance plans. The commenter stated that because these contracts are typically negotiated based on a fairly static assumption of CMS DRGs (including classification and weights), the proposed redistribution will disrupt virtually every contract because of the varying services Start Printed Page 47908consumed by members covered under private health insurance. The commenter urged CMS to provide a greater lead time in implementing changes to the DRG system and relative weight methodology to allow health insurers more time to model the impact of the methodological changes to their hospital contracts.

Response: We acknowledge that Medicare DRGs are sometimes used by non-Medicare payers for their own purposes. However, CMS' primary focus of updates to the Medicare DRG classification system is on changes relating to payment for services furnished to Medicare beneficiaries, not the obstetric, pediatric, or neonatal population. Cases involving these patients are found far less frequently among Medicare beneficiaries than in the general population. In fact, we applied consolidations to the APR DRGs to develop the CS DRGs to recognize that the APR DRGs were developed to accommodate all patient populations and there would be many DRGs with few Medicare cases or insufficient differences in the relative weights to warrant us maintaining a separate DRG. We encourage other payers that use Medicare's DRG system for payment to make appropriate modifications for patient populations that are found infrequently among Medicare beneficiaries such as neonates and children. Again, as we stated above, a hospital or any other entity can use an alternative patient classification system for purposes other than Medicare payment.

In response to the commenter's concern with regard to the impact on private health insurance plans, we are improving our relative weight methodology to make Medicare payments more accurate. We utilize Medicare specific data to calculate the relative weights designed to pay Medicare costs. We have a fiduciary responsibility to administer the trust fund in order to provide quality care for our beneficiaries and that, not private payer contracts, is our foremost concern. However, as we noted earlier in this section, we are postponing the implementation of the HSRV methodology while we study its impact on charge compression. Instead, we are using a more similar approach to calculating the IPPS relative weights that is used in the OPPS. That is, rather than using a hospital-specific relative weighting methodology, we are standardizing charges to remove relevant payment factor adjustments and then adjusting those charges to costs using national cost center CCRs.

In addition, we are adopting a 3-year transition of the relative weights. We believe this transition may also mitigate any potential impacts to private payer contracts from the changes to the DRG relative weights. During the first year of the transition, the relative weights will be based on a blend of 33 percent of the cost-based weights and 67 percent of the charge weights. In the second year of the transition, the relative weights will be based on a blend of 33 percent of the charge weights and 67 percent of the cost-based weights. In the third year of the transition, the relative weights will be based on 100 percent of the cost-based weights.

Comment: One commenter suggested that CMS seek further refinements to the DRGs for mental services. The commenter suggested that these DRGs have been underpaid for many years.

Response: We will consider whether the psychiatric DRGs need further refinements as we proceed to refine the DRG system to better recognize severity for FY 2008. We note that the application of cost-based weights will increase Medicare's payments for the psychiatric DRGs in FY 2007.

Comment: Some commenters inquired how other prospective payment systems such as the IPF PPS and LTCH PPS that rely upon the IPPS DRG classifications would be affected by the changes to adopt CS DRGs.

Response: We did not propose any changes to the DRG classifications systems used under the IPF PPS or the LTCH PPS in the IPPS proposed rule. However, we acknowledge that these PPSs use the IPPS DRG classifications to make payment determinations. Furthermore, we note that the refinements we are adopting to the current CMS DRG system to better recognize severity (which are discussed in detail in section II.C.7. of this final rule) will be applicable under the IPF PPS and LTCH PPS, just as past annual updates to the IPPS DRG classifications). We will need to consider whether corresponding changes need to be made to these other payment systems once final decisions are made about how DRG classification will occur under the IPPS in the future. Payment rate and policy changes to the IPF PPS and LTCH PPS went into effect for RY 2007 on July 1, 2006. These PPSs are using the Version 23 IPPS GROUPER for the first 3 months of RY 2007 (July 2006 through September 2006). Consistent with the IPPS, the IPF PPS will use Version 24 of the IPPS GROUPER, effective October 1, 2006. No further changes will be made to the IPF PPS until next July. Under the LTCH PPS, changes to the LTC-DRGs were proposed for FY 2007, based on the proposed Version 24 IPPS GROUPER (71 FR 24049 through 24068), and changes to the LTC-DRGs that will be effective October 1, 2006, based on the finalized Version 24 IPPS GROUPER (presented in this final rule) are discussed in section II.F. of the preamble of this final rule. Any changes to the DRG classification systems for these prospective payment systems would be undertaken through notice and comment rulemaking in their respective proposed rules.

Comment: One commenter stated that it was not clear how the judgment was made for the MDC 11 severity subclass 4 example shown that these average charge values were sufficiently similar to consolidate. The commenter suggested that CMS provide further information about the criteria and considerations it used to judge categories as low volume and potentially unstable and to judge the mean charges (or costs) as sufficiently similar to warrant consolidation. One commenter expressed concern about the consolidations related to obstetrics and psychiatric care services.

Response: As discussed above, the CS DRGs are based on APR DRGs that are divided into severity subclasses 2 through 4 subclasses which greatly increase the resource and clinical similarity of the patients. Furthermore, as discussed above, our clinical consultants frequently considered the level 4 severity patients across DRGs within an MDC to have a closer clinical resemblance than to lower severity patients in their respective DRGs. In consolidating the severity level 4 patients in an MDC, volume was a primary consideration along with the extent of clinical difference. For example, in MDC 11 severity level 4, kidney transplants were kept in a separate group and not consolidated with the other MDC 11 surgical DRGs because of the clinical distinctiveness of patients having a major organ transplant.

Comment: One commenter expressed concern that patients may need to suffer adverse consequences in order for the case to be assigned to a higher severity level. The commenter believed that the severity grouping should reflect complexity and patient benefit as well and should allow for an increased severity/complexity level even without adverse patient consequences.

Response: The current DRG system assigns a CC status to most patients with a complication or adverse event that occurs after admission. Although in the CS DRGs post admission complications can result in an increase in a patient's Start Printed Page 47909severity level, patients are primarily assigned to the higher severity levels (levels 3 and 4) based on the presence of multiple serious comorbidities in multiple organ systems rather than a single adverse event. Thus, unlike the current DRGs in which a single post admission complication can place the patient in a higher paying DRG, the CS DRGs in general require multiple significant problems to be present in order for a higher severity level to be assigned. In general, these patients will be more costly to treat. The system does not reward “adverse” consequences as suggested by the commenter but instead recognizes severity of illness will also be associated, at least in part, with resource use.

Patients are increasingly admitted to the hospital at high severity of illness. Adverse consequences can and do occur within the hospital. However, some of those consequences are unavoidable (particularly for patients who are admitted at a high severity of illness). Section 5001(c) of Pub. L. 109-171 requires that, beginning in FY 2009, we select diagnosis codes associated with at least two conditions that result in assignment of a higher weighted DRG and that reasonably could be prevented through the application of evidence-based guidelines. Beginning with discharges in FY 2009, section 5001(c) requires that we not assign cases to higher weighted DRGs based on the presence of these preventable conditions. Section 5001(c) also mandates that, for discharges on or after October 1, 2007, we require a hospital to include the secondary diagnosis of a patient at admission as part of the information required to be reported by a hospital for payment purposes. We believe that the concerns of the commenter will be addressed when we implement section 5001(c) of Pub. L. 109-171.

Comment: A number of comments supported CMS' goal of improving payment accuracy. However, the commenters stated that the need for and best approach to changing the patient classification system has not been objectively demonstrated. One commenter provided a sophisticated statistical analysis that it asserted confirms MedPAC's conclusion that changes are needed to improve payment accuracy. However, this commenter suggested the greatest improvement in cost-margin consistency resulted from switching the basis for the DRG weights from charges to cost and neither the HSRVcc methodology nor the CS DRGs improved payment accuracy. Other commenters indicated that more careful analysis is needed, along with greater access to the details of the CS DRG methodology. The commenters identified the following concerns:

  • Validation. The commenters indicated that it is unclear whether there is a need for a new patient classification system. The commenters stated that the implication of moving from a resource-based system to a severity-based payment system must be more fully explored and understood. They indicated that CMS provided no analysis that shows that the proposed changes result in an improved hospital payment system compared to the existing DRG system or APR DRGs.
  • Budget neutrality adjustment. The commenter indicated that the proposed rule did not address an adjustment for improved documentation and coding or even a methodology for determining one. The commenter suggested that CMS not apply an adjustment for more comprehensive documentation and coding that increases perceived but not real case mix until there is evidence that one is needed. The commenter requested that CMS monitor actual changes in coding and documentation practices associated with implementation of inpatient payment reforms to determine if any base payment adjustments are needed rather than adjust payments in anticipation of such changes.
  • Availability of the GROUPER. Many commenters stated that the proprietary nature and lack of transparency of the proposed CS DRG GROUPER are concerns. The current DRG GROUPER logic has been in the public domain since the inception of IPPS. Without the new GROUPER logic, the commenters believed that it is virtually impossible for anyone to thoroughly analyze the system and comment. The commenters urged that CMS make any new classification system widely available to the public on the same terms as the current DRG system. Some commenters stated that CMS should provide the GROUPER for the CS DRGs and open a new public comment period. Several commenters were concerned about the cost of the GROUPER if the CS DRGs were implemented.
  • Too few diagnoses and procedures considered. The commenters are concerned that the current CMS GROUPER does not use all diagnosis and procedures that affect a patient's severity of illness and/or the resources utilized. The commenters believed that the number of secondary diagnoses may be an important factor in determining differences in patient characteristics.

Response: With respect to the comment about the need for a new patient classification system, the proposed rule noted that we modeled the CS DRGs and observed a 12-percent increase in the explanatory power (or R-square statistic) of the DRG system to explain hospital charges. That is, we found more uniformity among hospital total charges within the CS DRGs than we did with Medicare's current DRG system (71 FR 24027). Thus, we believe that there is clear evidence that improvements can be made to the current DRG system that will reduce heterogeneity among patients within a given DRG. While this statistic indicates that the current CMS DRG system can be refined to improve payment accuracy, we agree that it does not necessarily mean we should adopt the system we proposed. As suggested by the commenters, there are a number of other evaluation criteria that we need to consider before deciding whether to adopt the CS DRGs or a potential alternative. We describe these criteria in more detail below. With respect to the comments about a budget neutrality adjustment to account for potential improvements in documentation and coding, we discuss the comments and our responses on this issue more fully in the next section of this final rule. The comment about the availability of the GROUPER is related to a number of detailed comments we received about the potential for Medicare to adopt a proprietary DRG system. We have provided a more detailed description of these comments and our responses below. With respect to the comment about fully utilizing all of the diagnosis and procedure codes submitted on the claim, we note that CMS does not process codes submitted electronically on the 837i electronic format beyond the first 9 diagnosis codes and the 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 may be value in retaining additional data on patient conditions that would result from expanding Medicare's data system so it can accommodate additional diagnosis and procedure codes. We will consider this issue while we contemplate refinements to our DRG system to better recognize patient severity. However, extensive lead time is required to allow for modifications to our internal and contractors' electronic systems in order to process and store this additional information. We are unable to move forward with this recommendation without carefully evaluating implementation issues. One Start Printed Page 47910issue that we expect to consider in deciding whether to adopt such a major systems change is how frequently information beyond the ninth diagnosis code and sixth procedure code affects DRG assignment. Given the cost of an infrastructure change to accommodate this request, we want to be certain that there are sufficient benefits to justify the costs. Again, we will continue to carefully evaluate this request to expand the process capacity of our systems.

Comment: Some commenters stated that the CS DRG grouping methodology based on average charges is inconsistent with the proposed changes to adopt cost relative weights. The commenters recommended using the HSRVcc methodology to determine cost-based weights for consolidating the APR DRGs into CS DRGs.

Response: As explained above, we are not adopting the HSRVcc methodology for FY 2007 because of our concerns about the interaction of charge compression with the hospital-specific portion of the cost weight methodology. Instead, we are setting relative weights based on the estimated cost of the DRGs where cost is determined by applying the national average CCRs to the standardized charges for each DRG in each of the 13 cost centers. In general, when we consider whether to further distinguish types of cases within a DRG in order to create a new DRG or to reassign these cases to a different DRG, we are comparing cases that are clinically similar. Therefore, it is possible or even likely that these cases will be using the same mix of routine and ancillary services and the results of the analysis will be similar whether the cases are compared based on average costs or charges. That is, the cases will be using services that have comparable charge markups over costs and the analysis will produce the same conclusion whether the comparison between cases is based on costs or charges. The major differences between cost and charge weights will occur when comparing across clinically dissimilar services that use a different mix of routine and ancillary services with variable markups. For this reason, we believe that we can continue to do our initial evaluation of potential DRG changes using average charges. Given the complexity associated with developing cost-based weights, we believe our preliminary analysis for evaluating whether to make a DRG change should use charges as a proxy for costs. However, we will consider the commenters' suggestion and, to the extent feasible, consider whether it is possible to evaluate potential DRG changes using costs as well as charges.

Comment: Numerous comments expressed concerns about the use of a proprietary DRG classification system. The commenters indicated that the current DRG GROUPER logic has been in the public domain since the inception of the IPPS. Many commenters noted that the source code, logic and documentation for the current DRG system can be purchased through the National Technical Information Service. The commenters stressed the importance of maintaining transparency within the DRG system (that is, any new DRG system should be available to the public on the same terms as the current one). The commenters stated that any methodology used for the Medicare GROUPER must not be based on a proprietary system. One commenter questioned how future DRG refinements would be made if the underlying system is owned by 3M.

A number of commenters were concerned that it was not possible to thoroughly analyze the proposed CS DRGs and provide comments without the GROUPER logic. Other commenters stated that limited information on the proposed CS DRGs hampered their ability to conduct modeling of the new system. Some commenters raised serious concerns allowing CMS to assign the CS DRG without hospitals having the ability to group the case themselves. According to the commenters, without the CS DRG information, revenue and patient receivables cannot be recorded accurately. The commenters stated that hospitals must have the ability to accurately estimate payments in evaluating strategic initiatives, business plans, budgets, marketing, staffing, and other critical decisions. Commenters noted that CMS provided a link to a web tool on the 3M Web site that allowed hospitals to conduct their own analyses of the impact of moving to CS DRGs. However, these commenters stated that the reality was that if a hospital does not have its own APR DRG GROUPER software, it can only obtain CS DRG information one case at a time by entering specific diagnostic and procedure codes.

Several commenters stated that if CS DRGs are adopted and the GROUPER remains proprietary, they would be limited in their ability to educate and assist hospitals in use of the new system. One commenter indicated that the current 3M product is proprietary and not available in the public domain for hospitals or their software vendors who develop and support their patient account billing and case management software. The commenter also stated that it does not have any access to the underlying codes, conditions and edits utilized by 3M with its product and as a result could not accurately comment on the interaction between severity and complexity associated with individual claims in contrast to resource consumption. The commenter stated that, although hospitals are not required to have a GROUPER, hospitals that hold compliance as a top priority rely on a grouper/encoder to ensure that claims meet all edits prior to submission.

Several commenters stated that a single company's monopoly over the DRG system would be costly to hospitals. The commenters indicated that it would be more difficult to obtain the system to integrate it into hospitals' existing systems. The commenters reported that Maryland hospitals report a GROUPER price of $20,000 per hospital with the ultimate price varying based on criteria such as whether it is used on a mainframe or personal computer. Another commenter expressed concerns that only 3M would be providing access to the GROUPER. The commenter stated that with over 4,000 hospitals requiring a new severity-adjusted DRG GROUPER, it is not feasible or reasonable to expect that one vendor could service all the hospitals nationally in the few months between the posting of the final IPPS rule and an October 1, 2006 implementation. The commenter stated that having 3M maintain control of the GROUPER software limits access by other software vendors to begin reprogramming of the many computer systems that would need to be loaded with the CS DRGs that is currently incompatible with the CMS DRGs. The commenter stated that there will need to be sufficient time between making the GROUPER available and implementation so that hospitals can test their systems, and study the impact on their facilities.

Another commenter stated that it offered software that hospitals and health plans utilize in managing the billing, coding, and payment for inpatient hospital services under the DRGs. The development of software related to Medicare's DRG system by private companies is possible only because the current DRG methodology is available in the public domain. The commenter also noted that the public can obtain full access to the details underlying the CMS DRG system by purchasing information and software from the National Technical Information Service for a nominal charge in a timely manner well in advance of the implementation of changes. The commenter noted the information was available to all of the public simultaneously and no company Start Printed Page 47911currently has a competitive advantage in producing DRG products. The commenter added that CMS currently engages in an open and comprehensive discussion about the structure of the DRG methodology through a variety of mechanisms including notices published in the Federal Register. CMS releases sufficient detail about its methodology in electronic formats to enable providers, health plans, and vendors to develop and validate their own computer programs. The commenter expressed concern that unfettered access to the underpinnings of the DRG system would not continue to be available under the CMS proposal to adopt CS DRGs. The commenter suggested the following criteria that a new DRG system should meet in order to be adopted by Medicare:

  • Software distribution comparable to what is currently made available, which includes:
  • GROUPER source code which produces all pertinent return information;
  • All underlying tables that drive the GROUPER with documentation;
  • A complete set of test cases to validate the functioning of the software;
  • Complete system and user documentation;
  • Contact people who can and will respond to questions in a timely fashion;
  • The right to redistribute the methodology to business partners and consultants;
  • The right to translate source code to other technology environments and to integrate it into other systems;
  • Pre-releases of software and documentation well in advance of planned implementations; and
  • An open inclusive process for considering future enhancements.

The commenter indicated that the agency must also ensure that whatever refinement methodology is adopted is open to public discussion and scrutiny, now and on an ongoing basis. The commenter stated that transparency is critical to advancing affordability in our health care system.

Response: With respect to making information available for the public to analyze the proposed DRGs, we were cognizant of this issue and attempted to provide as much information as possible that would allow the public an opportunity to comment meaningfully on the proposed CS DRGs. We provided the following data files on the CMS Web site at no cost to the public to assist with understanding our proposed rule:

  • Provider Specific File.
  • Impact file for IPPS FY 2007 Proposed Rule.
  • CCRs and Weighting Factors.
  • DRG Relative Weights.
  • CS DRG HSRVcc relative weights.
  • CAH List for FY 2007 Proposed Rule.

In addition to this information, we made available for purchase both the FY 2004 and FY 2005 MedPAR data that were used in simulating the policies in the IPPS proposed rule. We also discussed the proposed rule in at least two national teleconferences that were open to the public. One of these calls was a Special Hospital Open Door call that was scheduled for 1 and 1/2 hours and was completely devoted to explaining the IPPS proposed rule and answering questions from the public. There were over 1,100 calls into this national teleconference. Finally, we were able to provide access to a Web tool on 3M's Web site that would allow an end user to build case examples using the proposed CS DRGs. While the commenters are correct that these case examples could only be analyzed one at a time, the tool did provide a detailed explanation of how the severity of illness was assigned and the demographic and diagnostic information that went into that determination. Further, other information about the CS DRGs and APR DRGs were available at that Web site, including access to the APR DRG definitions manual.

We acknowledge the many comments suggesting that the logic of Medicare's DRG system should continue to remain in the public domain as it has since the inception of PPS. We also acknowledge the commenters' concern about the impact of moving to a proprietary system and the potential for limiting public access to the underlying GROUPER logic relative to the current CMS DRGs. We note that the issues associated with using a proprietary DRG system were well illustrated in a public comment that we received from the Maryland Health Services Cost Review Commission (HSCRC). Maryland adopted the APR DRGs in June 2004. The commenter noted that “despite the advance notice, a number of hospitals had not acquired the APR DRG GROUPER until near the time for full implementation to begin. In addition to acquiring the GROUPER, hospitals had to deal with issues of integrating the GROUPER with other hospital systems, which was at times difficult with proprietary systems.” The commenter further noted that Maryland has 47 acute care hospitals and “moving the nation's entire hospital industry to a new system in a short period is likely to be much more difficult.” The commenter indicated that “CMS has the opportunity to avoid some of the transition issues the HSCRC faced by placing the CS DRG logic in the public domain or by requiring open licensing of the GROUPER at reasonable rates.” The commenter noted that consultants and vendors to hospitals have struggled to obtain access to the GROUPER as they advised their clients.

The public comments and Maryland's experience with APR DRGs have led to many commenters recommending that Medicare should adopt a new DRG system that is in the public domain. As we evaluate alternative severity classification systems, we will use public access to the system as an important element in evaluating whether each system can be adopted by Medicare. We will continue to strive to promote transparency in our decision making as well as in future payment and classification systems, as we have done in the past.

Comment: A number of commenters suggested that a more straightforward approach to achieving the same or similar objective would be for CMS to refine the current DRG classification system by retaining the current base DRGs (eliminating the current paired DRGs with and without CC) and adding 3-4 levels of severity, rather than using APR DRGs. This option would preserve the many policy decisions that CMS has made over the last 20 years that are already incorporated into the DRG system and yet adjust hospital payments to reflect the cost of care based on patient needs and conditions. Other commenters suggested designating certain DRGs as device-dependent to ensure that device costs are appropriately reflected in the claims file data. Some commenters suggested that CMS retain the current DRG system but revise the CC list as an alternative approach to better recognizing severity of illness in the DRG system.

Several commenters stated that CMS did not conduct an objective study of the CS DRGs although alternatives for the APR DRG system are readily available. These commenters asked whether CMS considered adopting an alternative DRG system that could also better recognize severity.

Two commenters proposed alternative severity of illness systems to the APR DRG system. One commenter suggested that we use the Refined DRG (RDRG) severity of illness system which is supported by Health Systems Consultants, Inc, that contains 1,274 groups with 350 base DRGs. The commenter explained that each of the medical base DRGs is divided into three severity classes and each of the surgical base DRGs is divided into four severity Start Printed Page 47912classes. In addition, there are neonate groups based on birth weight, seven DRGs that do not have severity classes and an early death group in each MDC created to remove low outliers according to the commenter. The commenter noted that the research for the RDRG system was undertaken between 1986 and 1989 under a Health Care Financing Administration (now CMS) cooperative agreement. The commenter indicated that the RDRG system has been updated annually using the current CMS complications and comorbidities list since 1989. Solucient, LLC has also used the previous HCFA DRG severity work to develop a risk adjusted DRG system which they refer to as Refined Diagnosis Related Group (R-DRG). Solucient also reports that they have updated their system annually with ICD-9-CM code changes. Another commenter noted that HSS/Ingenix has developed an all-payer severity-adjusted DRG system (APS-DRGs) which contains 1,130 case-mix cells with 376 consolidated DRGs plus 2 error categories. The commenter indicated that, outside of MDC 15, all consolidated DRGs are divided uniformly into three severity levels. The commenter also indicated that the number of severity levels within MDC 15 depends upon the consolidated DRG in the APS-DRG system.

One commenter stated that based on their analysis none of the off-the-shelf Version 23 DRG systems is the best alternative. Rather, it was recommended that a hybrid system be created which would combine the best features of each system. The commenter stated that the proposed CS DRG system or the current CMS DRG system would be the preferred systems to modify. One commenter stated that the use of objective, physiologic data on admission to enhance claims data significantly improves the accuracy of any severity stratification. The commenter suggested that CMS conduct one or more demonstration projects studying claims data enhanced with objective, time-stamped electronically captured laboratory results as an alternative approach for severity adjustment for payment and quality assessment purposes.

Response: The approach suggested in the comments to incorporating severity measures into the current CMS DRG system may be a viable option that we will evaluate in the coming year. With respect to the comment that we undertake demonstration projects to study alternative ways of better recognizing severity in the DRG system, we are concerned that such an endeavor could not be completed in time for FY 2008 implementation. We believe it is very important to make improvements to the DRG system to better recognize severity rapidly and there are a number of different ways that improvements in payment accuracy can be achieved without undertaking a lengthy demonstration project. As suggested by the commenters, much research has already been completed on alternative DRG systems. We believe it is likely that at least one of these systems (or potentially a system that we develop ourselves based on our own prior research) will be suitable to achieve our goal of improvements in payment accuracy by FY2008. We are currently in the process of engaging a research contractor to evaluate the 3M Severity of Illness DRG products along with the other DRG severity systems that have come to our attention during the comment process.

As indicated above, we will use public access to the system as an important element in evaluating whether each system can be adopted by Medicare. With respect to the CS DRGs and potentially the other systems described in the public comments, there may be licensing issues. We proposed to use the CS DRGs beginning in FY 2008. While they were developed under a contract with the Federal government, the CS DRGs are essentially a variant of the APR DRGs that are copyrighted by 3M. The APS-DRGs are a proprietary product owned by HSS/Ingenix, a division of United Health Care. However, HSS/Ingenix has indicated that, should we decide to adopt their product, it would make its DRG system available to the public under the same terms as the current CMS DRGs (that is, the source code, logic and documentation can be purchased through the National Technical Information Service). The RDRG system is supported by Health Systems Consultants.

There are other issues of note with respect to the DRG systems mentioned in the comments and Medicare's efforts to adopt a DRG system that better recognizes severity. In the late 1980's, CMS (then HCFA) funded a Yale University contract for the development of refined severity DRGs. The severity DRGs developed under this contract formed the basis for most of the severity DRG systems available today, including the Ingenix APS-DRGs, the 3M APR DRGs, the Health Systems Consultants RDRGs and the Australian government's AR-DRGs. In the mid-1990's, CMS (then HCFA) also adapted the Yale system and developed a potential severity DRG system, which was described in the Health Care Financing Review.[8] Although the APR DRGs have departed from the Yale approach to a greater extent than have the other systems, both the 3M product and the APS-DRGs were derived from the 1989 Yale severity system that is in the public domain. Given that the Yale system is in the public domain and CMS considered adopting a severity DRG system based on it in the mid 1990's, we will also consider updating our prior work part of our initiative to identify and implement a severity DRG system for use by Medicare in FY 2008. Consistent with the sentiment expressed in the public comments, this option would have the advantage of using the current DRGs as a starting point and retaining the benefit of the many DRG decisions we have made in recent years. The DRG system we considered in the mid-1990's used a base DRG with 3 levels of severity depending upon whether the patient had no CC, a CC, or a major CC. During this past winter, CMS began a comprehensive review of over 13,000 diagnosis codes to determine whether they should be classified as CCs when present as a secondary diagnosis. Under this option, we could continue this review of the CC list, classifying them into one of the three categories described above in conjunction with updating the severity DRG system that we considered in mid-1990's.

c. Changes to CMI From a New DRG System

After the 1983 implementation of the IPPS DRG classification system, CMS observed unanticipated growth in inpatient hospital case-mix (the average relative weight of all inpatient hospital cases) that is used as proxy measurement for severity of illness.

There are three factors that determine changes in a hospital's CMI:

(1) Admitting and treating a more resource intensive patient-mix (due, for example, to technical changes that allow treatment of previously untreatable conditions and/or an aging population);

(2) Providing services (such as higher cost surgical treatments, medical devices, and imaging services) on an inpatient basis that previously were more commonly furnished in an outpatient setting; and

(3) Changes in documentation (more complete medical records) and coding practice (more accurate and complete coding of the information contained in the medical record). Start Printed Page 47913

Changes in CMI as a result of improved documentation and coding do not represent real increases in underlying resource demands. For the implementation of the IPPS in 1983, improved documentation and coding were found to be the primary cause in the underprojection of CMI increases, accounting for as much as 2 percent in the annual rate of CMI growth observed post-PPS.[9]

We believe that adoption of CS DRGs would create a risk of increased aggregate levels of payment as a result of increased documentation and coding. MedPAC notes that “refinements in DRG definitions have sometimes led to substantial unwarranted increases in payments to hospitals, reflecting more complete reporting of patients' diagnoses and procedures.” MedPAC further notes that “refinements to the DRG definitions and weights would substantially strengthen providers' incentives to accurately report patients' comorbidities and complications.” To address this issue, MedPAC recommended that the Secretary “project the likely effect of reporting improvements on total payments and make an offsetting adjustment to the national average base payment amounts.” [10]

The Secretary has broad discretion under section 1886(d)(3)(A)(vi) of the Act to adjust the standardized amount so as to eliminate the effect of changes in coding or classification of discharges that do not reflect real changes in case-mix. While we modeled the changes to the DRG system and relative weights for the proposed rule to ensure budget neutrality, we are concerned that the large increase in the number of DRGs will provide opportunities for hospitals to do more accurate documentation and coding of information contained in the medical record. Coding that has no effect on payment under the current DRG system may result in a case being assigned to a higher paid DRG under a system that better recognizes severity. Thus, more accurate and complete documentation and coding may occur under a DRG system that better recognizes severity because it will result in higher payments than the current CMS DRGs. In the FY2007 IPPS proposed rule, we solicited comments on this issue.

Comment: One commenter suggested that CMS should delay implementation of the proposed changes to the DRG system until it conducts nationwide coding and documentation education, particularly to physicians. The commenter also suggested that CMS should find a method to provide physicians who practice in hospitals with web-based documentation training and incentives document correctly.

Response: The proposed CS DRG system is based on the reporting of current ICD-9-CM diagnosis and procedure codes. The proposed changes do not require any changes for hospitals or physicians in how they code or document information in the medical record. For this reason, we do not believe there is a need for any changes to education and training that occurs with respect to documentation and coding.

Comment: Several commenters expressed concern that the proposed rule did not provide any type of analysis to justify or support the need for an adjustment to the IPPS rates for anticipated changes in case mix from a new DRG system. These commenters noted that CMS did not provide a specific adjustment amount in the proposed rule. The commenters stated their view that it is the responsibility of CMS to provide adequate notice and the opportunity for meaningful public comments in response to such a specific proposal before any adjustment can be applied. One commenter recognized that CMS is authorized to make adjustments for changes in coding that are likely to occur. However, absent strong evidence, they urged CMS to avoid making negative adjustments to the standardized amount for anticipated increases in case mix. Another commenter provided two suggestions to CMS. The first suggestion was for CMS to share its thought process on how the standardized amount would be adjusted and allow the public an opportunity to provide comments on this basic set of criteria. The second suggestion was that CMS should make a commitment to adjust future base payment levels if it is determined that the initial adjustment projections are inaccurate. Another commenter stated that any adjustment to the standardized amount in an attempt to account for increased documentation and coding is unnecessary and unwarranted. The commenter asserted that it is virtually impossible to objectively distinguish real changes in case mix from those that occur due to improved coding and documentation. This commenter stated claims are coded using the official coding guidelines that are the same regardless of the DRG system being used. Another commenter requested that CMS not overestimate the growth in CMI as a result of improved coding. This commenter asserted there are many needs for accurate data collection in a hospital setting and coders do not stop reviewing a medical record after locating the first CC that assigns the patient to a higher weighted DRG. The commenter maintained that several hospitals ask coders to assign codes to many of the non-invasive procedures that do not affect DRG assignment. This same commenter also stated they believe the increase in CMI will not be as significant as CMS anticipates.

One commenter representing the State of Maryland shared the state's experience with case mix index changes after adoption of the APR DRG system. The commenter stated correct coding resulting in maximum reimbursement under the CMS DRGs could understate a hospital's case mix under the APR DRGs. Facilities that have tried to improve their coding productivity by seeking to maximize reimbursement under Medicare may not obtain an accurate representation of its patient's severity of illness under APR DRGs. According to the commenter, hospitals have a financial incentive to improve their clinical documentation and to code more completely when APR DRGs (or CS DRGs which are based on APR DRGs) are used for reimbursement.

The commenter also indicated that case mix growth exceeded four percent for the State's hospitals on average, as they began to prepare for the full transition to APR DRGs. Case mix growth in this current fiscal year is about the same. As such, the State has established a policy for FY 2006, limiting the amount of case mix growth experienced for each hospital until the coding patterns become stable. In addition, an appeals process for hospitals with services that generate rising case mix growth due to complexity has also been established.

Response: We appreciate the commenters' concerns and feedback regarding potential adjustments to the national standardized amount to account for improvements in documentation and coding that may cause the case-mix index to increase absent real case-mix growth. The commenters are correct that we did not propose a specific adjustment for improved documentation and coding. As stated in the proposed rule, we were soliciting comments on the possibility of changes in the case mix index as a result of the increase in the number of DRGs within the proposed CS DRGs. We will continue to analyze this issue as we evaluate alternative DRG systems that may better recognize severity of illness for implementation in FY 2008. We Start Printed Page 47914acknowledge the commenters' request to provide an opportunity for public comment before CMS adopts a specific adjustment to the standardized amounts for improved documentation and coding. As stated earlier, we intend to propose further changes to better recognize severity in the DRG system for FY 2008. If we decide to make an adjustment to the standardized amount to account for improvements in documentation and coding, we will provide the specific level adjustment and the data and analysis underlying it in a proposed rule that will allow for an opportunity for public comment.

We disagree with the commenters that suggested there is no need for an adjustment to the IPPS standardized amounts to account for improvements in documentation that increase case mix and, therefore, payments. As presented above and in the proposed rule, Medicare's experience since the original inception of the IPPS and long-standing research provide substantiation that improvements in documentation and coding that increase case-mix and payment will occur when the opportunity arises through the expansion of the DRG system. Further, the comment representing the State of Maryland made clear that when CS DRGs “are used for reimbursement, hospitals have the financial incentive to improve their clinical documentation and to code administrative records more completely.” [11] MedPAC also noted that “adopting our recommended refinements to the DRG definitions and weights would substantially strengthen providers' incentives to accurately report patients' comorbidities and complications.” [12]

Comment: One commenter stated that, in its experience, a change to the severity of illness grouping logic will result in an increase to the rate of change in case-mix. Because any effect will not be revenue neutral, the commenter questioned if and how CMS intends to address the change in case-mix, for example, regulating the change or setting a cap for hospitals. The commenter indicated that case-mix could rapidly decline as well as rapidly increase at the hospital-specific level and asked if CMS had a mechanism to address that issue, as well. The commenter also recommended that hospitals with improved case mix due to improved coding accuracy and internal documentation should be entitled to the full CMI benefit.

Response: We appreciate the commenter's concern and agree that the severity of illness grouping logic will affect case-mix. Also, we have known since the development of a PPS for capital payments that changes in case-mix affect capital payments to certain hospitals as much, or more than, operating payments. However, we do not know, at this point, the extent and direction of the impact to case-mix that the severity of illness grouping logic would have, or how rapidly the changes to case-mix would occur. When a decision is made regarding implementing the severity logic, we will be carefully scrutinizing the data and a myriad of variables to ascertain its effect and whether or not adjustments or interventions are necessary.

4. Effect of CS DRGs on the Outlier Threshold

In its March 2005 Report to Congress on Physician-Owned Specialty Hospitals, MedPAC recommended that Congress amend the law to give the Secretary authority to adjust the DRG relative weights to account for the differences in the prevalence of high-cost outlier cases. MedPAC recommended DRG-specific outlier thresholds that would be financed by each DRG rather than through an across-the-board adjustment to the standardized amounts. Furthermore, in comments that MedPAC submitted during the comment period for the FY 2006 IPPS proposed rule, MedPAC stated its belief that the current policy makes DRGs with a high prevalence of outliers profitable for two reasons: 1) These DRGs receive more in outlier payments than the 5.1 percent that is removed from the national standardized amount; and 2) the relative weight calculation results in these DRGs being overvalued because of the high standardized charges of outlier cases. MedPAC also noted that, under its recommendations, outlier thresholds in each DRG would reduce the distortion in the relative weights that comes from including the outlier cases in the calculation of the weight and would correct the differences in profitability that stem from using a uniform outlier offset for all cases. MedPAC added that its recommendation would help make relative profitability more uniform across all DRGs.

In the FY 2006 IPPS final rule (70 FR 47481), we responded to MedPAC's recommendation on outliers by noting that a change in policy to replace the 5.1 percent offset to the standardized amount would require a change in law. However, because the Secretary has broad discretion to consider all factors that change the relative use of hospital resources in the calculation of the DRG relative weights, we stated we would consider changes that would reduce or eliminate the effect of high-cost outliers on the DRG relative weights. At this time, we have not completed a detailed analysis of MedPAC's outlier recommendation because we do not have the authority to adopt such a change under current law. Instead, we have focused our resources on analyzing MedPAC's recommendations with respect to adopting severity DRGs and calculating cost-based HSRV weights that can be adopted without a change in law. While we intend to study MedPAC's recommendation in more detail at a future date, we note that changes to the DRG system that better recognize severity would have important implications for the outlier threshold. In the proposed rule, we analyzed how the outlier threshold would be affected by adopting the CS DRGs.

Using FY 2004 Medicare charge data, 3M Health Information Systems simulated the effect of adopting CS DRGs in conjunction with HSRVcc weights (described) on the FY 2006 outlier threshold using the same estimation parameters used by CMS in the FY 2006 final rule (that is, the charge inflation factor of 14.94 percent) (70 FR 47494). Under these assumptions, 3M Health Information Systems estimated that the outlier threshold would be reduced from $23,600 under the current system to $18,758 under the CS DRGs with HSRVcc weights. By increasing the number of DRGs to better recognize severity, the DRG system itself would provide better recognition for cases that are currently paid as outliers. That is, many cases that are high-cost outlier cases under the current DRG system would be paid using a severity of illness subclass 3 or 4 under the CS DRGs and could potentially be paid as nonoutlier cases.

Comment: Some commenters noted that there was only a limited discussion of the CS DRGs' effect on the outlier threshold and no information about application of the postacute care transfer payment policy. Some commenters inquired how policy areas such as outliers and new technology will be affected by the proposed DRG changes.

Response: We will consider further the application of the postacute care transfer payment policy as we make changes to the DRG system. With respect to outliers, we discussed this issue in the proposed rule. We noted that better recognition of severity in the Start Printed Page 47915DRG system will result in some cases that are currently paid as outliers becoming nonoutliers. Under current law, we are required to establish an estimated outlier threshold so that between 5 and 6 percent of estimated IPPS payments are made as outlier payments. Our longstanding policy has been to set the outlier threshold so that estimated outlier payments equal 5.1 percent of estimated IPPS payments. If we were to continue this longstanding policy, we would expect DRG refinements that better recognize severity to lead to a reduction in the outlier threshold. In the proposed rule, using the same data and assumptions used for the FY 2006 final rule, we estimated that adoption of the CS DRGs would reduce the outlier threshold from $23,600 to $18,758.

Comment: One commenter recommended that CMS continue to provide the additional payment for blood clotting factor administered to hemophiliac inpatients in the future even if severity-adjusted DRGs are implemented.

Response: Section 1886(a)(4) of the Act excludes the costs of administering blood clotting factors to inpatients with hemophilia from the definition of “operating costs of inpatient hospital services.” Therefore, under the statute, payment for blood clotting factor provided to hemophiliac inpatients is not included in Medicare's IPPS payment and is paid separately. For this reason, we will continue to apply Medicare's policy of paying separately for blood clotting factor provided to hemophiliac inpatients.

5. Impact of Refinement of DRG System on Payments

In the FY 2007 IPPS proposed rule (71 FR 24020), using the FY 2004 MedPAR claims data, we simulated the payment impacts of moving to the CS DRG GROUPER and the alternative HSRVcc method for developing HSRV weights. These payment simulations did not make any adjustments for changes in coding or case-mix. For purposes of this analysis, estimated payments were held budget neutral to estimated FY 2006 payments because we have a statutory requirement to make any changes to the weights or GROUPER budget neutral. Based on the results of this impact analysis, in the FY 2007 IPPS proposed rule, we proposed to adopt both the HSRVcc weighting methodology for FY 2007 and the CS DRGs for FY 2008. Later in the proposed rule (71 FR 24028) and in the Appendix A—Regulatory Impact Analysis (71 FR 24404), we modeled the effect of only adopting HSRVcc relative weights using the FY 2005 MedPAR claims data applying the traditional statutory budget neutrality requirements.

For reasons described in more detail above, we are adopting cost-based weights in this final rule. However, we are not adopting our proposal to standardize charges on MedPAR claims using HSRVs until we further research issues related to charge compression. Further, as described in more detail above, we are modifying our proposed plan to adopt the CS DRG system for FY 2008. Rather, we will evaluate the CS DRGs along with the other DRG severity systems that have come to our attention during the comment process and consider updating the work we did to develop a severity DRG system in the mid-1990's before adopting a system that better recognizes severity for FY 2008.

In the proposed rule, we presented the impact of the proposed changes on specific high volume DRGs. For comparison purposes, in the following table we are showing the percent changes in weight for these DRGs presented in the proposed rule and the percent changes in weights for these DRGs under the policies we are finalizing in this rule:

DRGTitleProposed rule (percent)Final rule (w/o transition) (percent)Final rule (with transition) (percent)
14INTRACRANIAL HEMORRHAGE OR CEREBRAL INFARCTION3.81.80.6
75MAJOR CHEST PROCEDURES1.40.00.0
76OTHER RESP SYSTEM O.R. PROCEDURES W CC−3.4−1.7−0.6
79RESPIRATORY INFECTIONS & INFLAMMATIONS AGE >17 W CC7.62.00.7
87PULMONARY EDEMA & RESPIRATORY FAILURE10.90.00.0
88CHRONIC OBSTRUCTIVE PULMONARY DISEASE8.31.80.6
89SIMPLE PNEUMONIA & PLEURISY AGE >17 W CC9.72.10.7
104CARDIAC VALVE & OTH MAJOR CARDIOTHORACIC PROC W CARD CATH−11.0−3.1−1.0
105CARDIAC VALVE & OTH MAJOR CARDIOTHORACIC PROC W/O CARD CATH−7.2−2.3−0.8
110MAJOR CARDIOVASCULAR PROCEDURES W CC−5.4−3.3−1.1
113AMPUTATION FOR CIRC SYSTEM DISORDERS EXCEPT UPPER LIMB & TOE5.03.41.1
121CIRCULATORY DISORDERS W AMI & MAJOR COMP, DISCHARGED ALIVE4.70.70.2
124CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH & COMPLEX DIAG−19.7−9.3−3.1
125CIRCULATORY DISORDERS EXCEPT AMI, W CARD CATH W/O COMPLEX DIAG−28.9−14.6−4.9
127HEART FAILURE & SHOCK2.83.71.2
138CARDIAC ARRHYTHMIA & CONDUCTION DISORDERS W CC2.72.50.8
143CHEST PAIN−10.5−6.2−2.1
144OTHER CIRCULATORY SYSTEM DIAGNOSES W CC4.22.20.7
174G.I. HEMORRHAGE W CC11.22.91.0
182ESOPHAGITIS, GASTROENT & MISC DIGEST DISORDERS AGE >17 W CC5.6−1.1−0.4
188OTHER DIGESTIVE SYSTEM DIAGNOSES AGE >17 W CC5.71.00.3
210HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT AGE >17 W CC3.82.20.7
277CELLULITIS AGE >17 W CC15.29.13.0
296NUTRITIONAL & MISC METABOLIC DISORDERS AGE >17 W CC10.65.31.8
316RENAL FAILURE8.33.71.2
320KIDNEY & URINARY TRACT INFECTIONS AGE >17 W CC10.95.31.8
493LAPAROSCOPIC CHOLECYSTECTOMY W/O C.D.E. W CC−4.0−4.6−1.5
497SPINAL FUSION EXCEPT CERVICAL W CC−13.40.50.2
515CARDIAC DEFIBRILLATOR IMPLANT W/O CARDIAC CATH−20.60.30.1
541ECMO OR TRACH W MV 96+HRS OR PDX EXC FACE, MOUTH & NECK W MAJ O.R.3.6−2.9−1.0
542TRACH W MV 96+HRS OR PDX EXC FACE, MOUTH & NECK W/O MAJ O.R.8.4−0.8−0.3
544MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY−3.72.60.9
545REVISION OF HIP OR KNEE REPLACEMENT−5.81.80.6
Start Printed Page 47916
547CORONARY BYPASS W CARDIAC CATH W MAJOR CV DX−8.9−5.5−1.8
548CORONARY BYPASS W CARDIAC CATH W/O MAJOR CV DX−11.9−6.2−2.1
550CORONARY BYPASS W/O CARDIAC CATH W/O MAJOR CV DX−5.8−3.8−1.3
551PERMANENT CARDIAC PACEMAKER IMPL W MAJ CV DX OR AICD LEAD OR GNRTR−13.01.30.4
552OTHER PERMANENT CARDIAC PACEMAKER IMPLANT W/O MAJOR CV DX−15.01.00.3
553OTHER VASCULAR PROCEDURES W CC W MAJOR CV DX−5.8−0.5−0.2
554OTHER VASCULAR PROCEDURES W CC W/O MAJOR CV DX−6.5−1.4−0.5
556PERCUTANEOUS CARDIOVASC PROC W NON-DRUG-ELUTING STENT W/O MAJ CV DX−34.9−16.2−5.4
557PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W MAJOR CV DX−25.5−10.4−3.5
558PERCUTANEOUS CARDIOVASCULAR PROC W DRUG-ELUTING STENT W/O MAJ CV DX−34.5−13.8−4.6

We received a number of comments, which we discuss below, expressing concern over the magnitude of the changes we proposed to the relative weight methodology and the effects on the DRG weights. As shown in this table above, the impact of the transitional cost based weights computed without using the HSRVcc method of standardization is significantly less than the impacts projected in the proposed rule. As a further demonstration of the manner in which our final policy mitigates the impacts of the proposed rule, we are presenting the following two tables showing the number of DRGs experiencing percent gains and losses in their relative weights in the proposed and final rules. We also are showing the number of providers experiencing percent gains and losses in case mix due to the proposed and final changes. As shown in the tables, the more extreme percent changes are greatly reduced with our final policies.

Comparison of the Number of DRGs Experiencing Percent Gains/Losses in Relative Weights in the Proposed Rule Relative to the Final Rule Transition

Percent change in DRG weightProposed ruleFinal rule (with transition)
More than −10%320
Between −5 and −10%421
Between −1 and −5%4978
Between −1 and +1%42308
Between 1% and 5%111130
Between 5% and 10%9712
More than +10%1537

Comparison of the Number of Hospitals Experiencing Percent Gains/Losses in Case-Mix Index in the Proposed Rule Relative to the Final Rule Transition

Percent change in case-mix indexProposed ruleFinal rule (with transition)
More than −10%400
Between −5 and −10%1030
Between −1 and −5%59730
Between −1 and +1%4162,067
Between 1% and 5%14931,450
Between 5% and 10%79428
More than +10%7920

For additional comparison purposes between the proposed and final rule relative weights and DRG changes, the following table shows the estimated payment impacts on case mix change by hospital group that we projected for the proposed rule and also shows the estimated payment impacts that we are finalizing in this rule.

Proposed rule Column 1Severity changes in DRGsSeverity DRG changes & cost weights (with transition)
All hospitals0.00.00.0
By Geographic Location:
Urban hospitals−0.30.00.0
Start Printed Page 47917
Large urban areas (populations over 1 million)0.10.00.1
Other urban areas (populations of 1 million or fewer)−0.90.0−0.2
Rural hospitals2.7−0.10.2
Bed Size (Urban):
0-99 beds0.50.30.1
100-199 beds1.80.00.3
200-299 beds0.0−0.1−0.1
300-499 beds−1.10.00.1
500 or more beds−1.50.0−0.2
Bed Size (Rural):
0-49 beds5.5−0.10.3
50-99 beds4.3−0.20.3
100-149 beds2.8-0.20.2
150-199 beds1.00.10.1
200 or more beds−0.2−0.2−0.2
Urban by Region:
New England0.30.30.1
Middle Atlantic0.10.00.2
South Atlantic−0.7−0.1−0.2
East North Central−0.40.00.0
East South Central−0.8−0.2−0.3
West North Central−1.40.1−0.2
West South Central−0.70.0−0.1
Mountain−1.40.2−0.1
Pacific0.6−0.10.2
Puerto Rico3.3−0.40.1
Rural by Region:
New England1.80.10.5
Middle Atlantic2.80.00.4
South Atlantic3.4−0.30.2
East North Central1.9−0.10.1
East South Central2.90.00.0
West North Central1.7−0.10.1
West South Central3.5−0.20.1
Mountain2.4−0.10.2
Pacific3.5−0.40.3
By Payment Classification:
Urban hospitals−0.30.00.0
Large urban areas (populations over 1 million)0.10.00.1
Other urban areas (populations of 1 million or fewer)−0.90.0−0.2
Rural areas2.6−0.10.2
Teaching Status:
Non-teaching1.10.00.2
Fewer than 100 Residents−0.8−0.1−0.1
100 or more Residents−0.80.0−0.2
Urban DSH:
Non-DSH−1.10.10.0
100 or more beds−0.2−0.10.0
Less than 100 beds3.50.10.4
Rural DSH:
SCH4.2—0.20.2
RRC1.3−0.10.0
Other Rural:
100 or more beds4.20.10.3
Less than 100 beds5.5−0.10.2
Urban teaching and DSH:
Both teaching and DSH−0.60.0−0.1
Teaching and no DSH−1.70.1−0.1
No teaching and DSH1.10.00.2
No teaching and no DSH−1.00.10.0
Rural Hospital Types:
RRC4.80.10.3
SCH0.90.00.0
MDH3.9−0.30.2
SCH and RRC5.1−0.10.4
MDH and RRC1.0−0.30.0
Type of Ownership:
Voluntary−0.30.00.0
Proprietary0.20.00.1
Government1.30.00.0
Start Printed Page 47918
Medicare Utilization as a Percent of Inpatient Days:
0-252.70.20.3
25-50−0.50.00.0
50-650.3−0.10.0
Over 650.30.0−0.1
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY 2005 Reclassifications:
Urban Hospitals Reclassified by the Medicare Geographic Classification Review Board: First Half FY 2007 Reclassifications−0.50.10.0
Urban Nonreclassified, First Half FY 2007−0.30.00.0
All Urban Hospitals Reclassified Second Half FY 2007−0.30.00.0
Urban Nonreclassified Hospitals Second Half FY 2007−0.30.00.0
All Rural Hospitals Reclassified Second Half FY 20071.6−0.10.1
Rural Nonreclassified Hospitals Second Half FY 20074.5−0.10.3
All Section 401 Reclassified Hospitals2.9−0.10.2
Other Reclassified Hospitals (Section 1886(d)(8)(B))4.6−0.20.4
Section 508 Hospitals−0.5−0.10.0
Cardic Specialty Hospitals−11.20.0−2.3

We are discussing specific comments and responses relevant to our impact analysis below. The changes that we are adopting in this final rule are illustrated in our regulatory impact analysis.

Comment: Some commenters expressed concern that the proposed rule discusses the impact of moving to CS DRGs using FY 2004 inpatient claims rather than FY 2005 claims to estimate impact. Some commenters stated that using 2 separate years of claims data to show the impact of major changes made it impossible to assess the overall impact of the changes with any reasonable level of confidence.

Response: Because of the long lead time to develop the methodology and our proposed rule, we used the FY 2004 MedPAR data to calculate HSRVcc weights and model the CS DRGs for purposes of the analysis shown on pages 24007-24011, 24020-24026 of the FY 2007 IPPS proposed rule (71 FR24007-24011, 24020-24026). At the time we were developing provisions of the proposed rule, FY 2005 MedPAR data were unavailable to us. Given the public interest in prompt publication of the rule, we decided not to replicate all of the analysis that we provided in section II.C. of the proposed rule based on the FY 2004 data once the new FY 2005 data became available to us. We believed delaying publication of the proposed rule to revise our analysis so all of the payment impacts were shown based on FY 2005 data was not in the public interest. Once we developed the methodology and the analysis for the proposed rule, we calculated the relative weights using the HSRVcc methodology that we were proposing to adopt for FY 2007 using the FY 2005 MedPAR. We modeled the HSRVcc relative weights using the FY 2005 MedPAR because we would be using these data to calculate actual relative weights that would be used to determine FY 2007 hospital payments. We believed it was important to model our FY 2007 proposal as closely to how payments would be determined to provide the most meaningful opportunity for public comment. For purposes of providing the payment impacts shown on pages 24028-24030 and the Appendix A—Regulatory Impact Analysis (71 FR24404) and the methodological description shown on pages 24044-24049 of the proposed rule, we used FY 2005 MedPAR data. We disagree with the commenters that providing separate analyses using 2 years of data makes it more difficult to understand and assess the payment impacts. Rather, we believe that providing these analyses makes it easier to understand how relative weights will change solely as a result of updating the data.

Comment: MedPAC was pleased that CMS proposed three of MedPAC's four recommended changes to the IPPS system. However, the MedPAC expressed concern the proposal not to implement the severity changes until FY 2008. They stated that it is important to correct for differences in patients' severity concurrently with the corrections for charging distortions. MedPAC believed that all of the proposed policy changes to the IPPS should happen concurrently. MedPAC stated that failure to adopt all of the changes would leave some payment distortions in place, thereby continuing to favor some kinds of patients over others. According to MedPAC, adopting all of the policies would create the most accurate payments and prevent hospitals from facing unjustified shifts in their payments that may occur under partial adoption of the payment reforms. MedPAC stated that concerns about giving hospitals time to adapt to the changes may be better managed by implementing all changes in FY 2007 and then giving hospitals a transition period. Another commenter asked that CMS implement both of these proposed changes in FY 2007 for the following reasons:

  • MedPAC's analysis revealed significant inaccuracy in the current payment system and recommended implementation of both the new severity-refined DRGs and a revised method for the weights at the same time.
  • It is inequitable to remove the subsidy provided by the overpayments for cardiac and orthopedic surgery prior to correcting the underpayments for the most severely ill patients.
  • It is not reasonable to ask that some hospitals experience financial losses from implementing the new weights this year if implementing severity would offset some or all of these losses. To stagger implementation will cause providers to experience unnecessary payment fluctuation between FY 2007 and FY 2008.

The commenter further added that a delay is not beneficial to taxpayers as hospitals will have more time to up-code and increase their Medicare payments. Many commenters agreed with MedPAC that the cost weights and severity-adjusted DRGs should be implemented simultaneously. However, these commenters suggested implementation no sooner than FY 2008 to limit sharp fluctuations in payments Start Printed Page 47919to hospitals from year to year. Many commenters opposed a two-step implementation, whereby CMS would implement cost-based weights in one year and a new DRG system to better account for patient severity in a subsequent year. They noted that each of these two major reforms significantly redistributes payments, often in off-setting directions. They stated that large swings in payments between the two reforms would create unnecessary volatility and have a profound impact on hospitals' ability to plan effectively, especially for necessary major medical equipment purchases and other capital expenditures. Therefore, they recommended that CMS implement both cost-based weights and severity-adjusted DRGs concurrently. While some commenters urged CMS to implement both payment reforms concurrently in FY 2007, other commenters advised delaying until at least FY 2008 to allow enough time to improve the proposed methodologies and underlying cost data to ensure accuracy of payments. Some commenters stated that the cost-based weights methodology should be implemented after the severity adjusted DRG methodology.

Response: Although we are not adopting the CS DRGs this year, we agree that it is important to smooth the transition for our current DRG system to a more accurate payment system. As indicated above, we have decided to adopt traditional cost-based weights for FY 2007 without the HSRV part of the methodology and we are making refinements that will create 20 new CMS DRGs, modify 32 others across 13 different clinical areas involving 1,666,476 cases that would improve the CMS DRG system's recognition of severity of illness for FY 2007. We believe it is appropriate to take steps toward transitioning the IPPS to a severity based DRG system for FY 2007 by applying some of the severity logic from our proposal to the CMS DRGs where appropriate. By revising the CMS DRGs, we are offering hospitals an interim step toward severity DRGs. Hospitals would be able to take advantage of the improved recognition of severity within the context of the more familiar CMS DRGs. This interim step affords us the opportunity to adopt some of the more basic components of a severity DRG system, such as specific splits in DRGs that lead to groups with greater resource utilization.

Comment: Some commenters were concerned that CMS has not taken into account all of MedPAC's recommendations for reforming the IPPS.

Response: We believe the commenters were expressing concern that we did not analyze MedPAC's recommendation to adjust the relative weights to account for differences in the prevalence of outlier cases. As explained above, we placed most of our attention and resources on the recommendations related to refinement of the current DRGs to more fully account for differences in severity of illness among patients as we do not have the statutory authority to make the specific changes to our outlier policy that MedPAC recommended. While we have not made MedPAC's recommendation regarding outliers a central focus of our analysis, we do intend to examine this issue in more detail over the next year.

Comment: One commenter stated that the annual impact of the changes to the proposed CS DRG system will reduce payments for its institution by an additional $2.7 million per year. The commenter suggested that community, not for profit hospitals be exempt from these proposed changes as this is not the group of hospitals that were the intended target of these changes. One commenter stated that the efforts to address issues identified in the MedPAC report should begin and end with the specialty hospital subset and should not occur in conjunction with payment systems at large for all other hospital facilities.

A few commenters urged CMS to further analyze and evaluate the impact of the proposed HSRVcc methodology on access to Centers of Excellence. They noted that the proposed changes are particularly significant for large volume hospitals and may have a negative impact on the Centers of Excellence. Any negative impact to these Centers could impede beneficiary access to high quality services. Several commenters stated that although CMS' intent may have been to eliminate reimbursement incentives for specialty hospitals to select the most profitable cases, the proposed methodology appears to negatively affect all hospitals serving the most prevalent diagnoses (cardiology, orthopedic joint replacement, and neurosurgery) within the Medicare population. The commenters stated that efforts to address issues identified in the MedPAC report should be limited to specialty hospitals. The payment systems at large that affect all other hospital facilities should not be changed. These commenters suggested that CMS address the reimbursement incentives of specialty hospitals by implementing a separate payment system for specialty hospitals, rather than implement a proposed policy that could negatively impact all hospitals. Several commenters suggested implementing the proposal only for specialty hospitals while deferring the proposed payment reforms for full-service hospitals to afford more time to study the implications of the HSRVcc as a method of general applicability. Another commenter stated that care for Medicare beneficiaries in rural areas will be adversely affected by the proposed adoption of HSRVcc weights because of the dramatic impact on specialized services provided by rural referral centers that are not available at other smaller hospitals in rural communities. The commenter suggested that the future viability of these specialized services may be at risk. Therefore, the commenter recommended that CMS recognize the unique impact of the proposed changes on rural referral centers by excluding these hospitals from the change.

Response: Payments under a prospective payment system are predicated on averages. Therefore, we do not believe it would be appropriate to exclude certain hospital groups from implementation of the changes we are adopting to use cost-based weights or better recognize severity in the DRG system. While these changes are expected to reduce incentives for hospitals to “cherry pick” or treat only the most profitable patients, the objective of these proposed revisions is to improve the accuracy of payments, leading to better incentives for hospital quality and efficiency and ensure that payment rates relate more closely to patient resource needs. Even though few hospitals will have a large increase or decrease in overall Medicare payments, there may be a significant increase or decrease in payment for individual cases within a hospital. Under certain circumstances, the current DRG system benefits hospitals that focus on treating less severely ill patients. Adjusting payment for the severity of the patient will remove the incentives to systematically choose one patient over another. Currently, the DRGs overpay for some types of cases and underpay for others because the relative weight system is based on charges and the DRG system does not sufficiently distinguish more or less resource intensive patients based on severity of illness. The changes we are making to account for costs in the DRG relative weights and improve recognition of severity within the DRG system will significantly increase payment accuracy at both the patient and hospital level.

For these reasons, we believe these changes should apply to all hospitals paid using the IPPS, regardless of Start Printed Page 47920whether a hospital is a specialty hospital or a rural referral center. We have made significant changes to our proposal and the impacts shown in this final rule may be very different for an individual hospital than those we showed in the proposed rule. The impact on any specific hospital will depend on the types of cases it treats.

Comment: Several commenters stated that in order to analyze and comment, a crosswalk between the current DRGs and the severity DRGs should be made available.

Response: As indicated earlier, we provided a number of resources during the comment period to assist commenters in analyzing our proposal. We provided a number of data files listed earlier on the CMS Web site at no cost to the public. In addition to this information, we made available for purchase both the FY 2004 and FY 2005 MedPAR data that were used in simulating the policies in the FY 2007 IPPS proposed rule. We also provided access to a Web tool on 3M's Web site that would allow an end user to build case examples using the proposed CS DRGs.

Comment: One commenter stated that the best estimates on a hospital specific basis, of the incremental effects on payment of CMS' changes to the DRG system should be published in the FY 2007 IPPS final rule. The commenter also suggested that CMS release impact files by hospitals far in advance of any implementation.

Response: Information to determine hospital-specific impacts is available on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​FFD/​list.asp#TopOfPage. Click on: “Acute Inpatient—Files for Download http://www.cms.hhs.gov/​AcuteInpatientPPS/​FFD/​list.asp.” For the proposed rule impact file, click on “Impact file for IPPS FY 2007 Proposed Rule http://www.cms.hhs.gov/​AcuteInpatientPPS/​FFD/​itemdetail.asp?​filterType=​none&​filterByDID=​-99&​sortByDID=​2>&​sortOrder=​ascending&​itemID=​CMS061736.” Similar information for the final rule will also be available on the CMS Web site shortly after the publication of this final rule. We note that some level of familiarity with data concepts and Medicare payment variables will be necessary for hospitals to use these files and simulate a payment analysis for their own facility. Using the latest data available at the time this final rule was prepared, we estimated impacts by category of hospital, and the tables displaying these impacts are published in the impact section of this final rule. Space limitations preclude us from being able to provide hospital-level impacts. In addition, to the extent that adjustments for providers such as the IME adjustment, DSH adjustment, and/or operating and capital CCRs may be updated for FY 2007 subsequent to the publication of this final rule, the actual impacts on individual providers may differ slightly from those we estimated. We believe that by providing the payment variables and other information electronically on the CMS Web site, hospitals have the flexibility to simulate and develop their own impact analyses that may be better suited to their needs than any analysis CMS would do at the hospital level.

Comment: Some commenters stated that CMS needs to extend the comment period to allow hospitals additional time to evaluate the effects of these proposed changes.

Response: One of the reasons that we proposed adopting the CS DRGs for FY 2008 was to give hospitals more than the 60-day public comment period and the additional 60-day delay between the publication of the final rule and implementation on October 1, 2006, to fully understand and plan for the change to the CS DRG system. As indicated earlier, we are not adopting CS DRGs for FY 2007. Therefore, we do not see a need to extend the 60-day public comment period. Although we are not extending the 60-day public comment period, we will involve hospitals and other stakeholders in our plans for moving to a severity DRG system for FY 2008. We are interested in public input on the types of criteria that we should consider and how to evaluate improved payment accuracy as we consider changes to the DRG system to better recognize severity of illness.

Comment: Some commenters encouraged CMS to review the cost/benefit of implementing the cost-based weight methodology and a severity-adjusted DRG system in conjunction with changes to the CMS UB04 claim form and the adoption of ICD-10-CM. The commenters suggested that implementing these changes simultaneously could help alleviate the additional cost of multiple system upgrades both for the hospital and the fiscal intermediaries. Some commenters stated that CMS should conduct a single independent study to determine the impact that implementation of this methodology will have on coding and billing productivity or hospital cash flow. Some commenters stated that implementing the significant DRG changes proposed by CMS is only a temporary solution until a more refined DRG system can be adopted with more specific clinical classification systems such as ICD-10-CM and ICD-10-PCS that will be capable of fully recognizing a patient's severity of illness and the services provided to treat that condition.

Response: We believe that it is important to improve the payment accuracy in the hospital IPPS by implementing these changes when appropriate. The IPPS payment reforms that we have proposed do not require information system changes for hospitals similar to those that will be required for adoption of ICD-10 or a new HIPAA compliant transaction system. The relative weights are merely one component in a payment formula for calculating Medicare's IPPS payment rate. Although there will be increases and decreases in the relative weights that are used in the payment formula for different DRGs, this payment change does not require hospitals to make any computer system changes. Similarly, the changes to adopt a severity DRG system will also not necessarily require hospitals to make any upgrades to their computer systems. The proposed DRG system or any alternative that we consider would use the same ICD-9-CM diagnosis and procedures codes as the current CMS DRGs. Although it seems likely that hospitals will want to acquire the DRG system that Medicare will use, we do not expect that substituting one DRG GROUPER for another should be burdensome and require upgrades to hospital information systems. With regard to the comment that a more refined DRG system can only be adopted with more specific classification systems such as ICD-10-CM and ICD-10-PCS, the Secretary is evaluating whether we should adopt ICD-10.

Comment: One commenter supported the decision to use the CS DRGs, noting that use of a 3-digit DRG number would avoid the undue health programming costs that move limited financial resources away from initiatives focused on improving quality care and access to health care. However, the commenter also indicated that the number of digits in the DRG number should not be a factor in choosing the best severity classification system.

Response: We appreciate the commenter's support for our proposal as well as the comment that the DRG classification system used by Medicare should not be dependent upon the number of digits in the DRG number. We will consider any information system infrastructure issues as we evaluate alternative DRG systems.

Comment: Several commenters stated that the reasons CMS gave in the proposed rule for not implementing CS DRGs for FY 2007 are valid. The commenters stated that they are all the Start Printed Page 47921more valid because hospitals now would have less time to prepare if CMS were to implement its proposed severity adjusted DRGs this October 1.

Response: We agree. The proposed change to adopt CS DRGs represents a major change to how hospitals are paid for Medicare inpatient services. We will not be implementing the CS DRGs for FY 2007. However, we do plan to evaluate potential alternative DRG systems that better recognize severity than the current CMS DRGs for FY 2008.

Comment: One commenter suggested that the CS DRG system's reliance on 3M's proprietary APR DRG grouping logic and software may not be in compliance with Pub. L. 104-113, the National Technology Transfer and Advancement Act of 1995. The commenter recommended that we participate in the formation of expert committees with a proven consensus standards body to develop a standardized DRG classification and severity-adjustment system for the IPPS.

Response: We appreciate the commenter's support for the use of a consensus standards body to develop a severity-adjusted DRG system. The National Technology Transfer and Advancement Act of 1995 directs Federal agencies to use voluntary consensus standards in lieu of government-unique standards, except where inconsistent with law or otherwise impractical. As we move toward implementing a severity-adjusted DRG system, we will carefully consider whether it would be appropriate to involve a voluntary consensus standards body in the process.

Comment: Some commenters stated a transition (blended) period with stop loss protections should be provided over a period of one to three years. Other commenters suggested a longer transition period given the magnitude of payment distribution across DRGs and hospitals. The commenters believe that the transition approach would be consistent with many other major changes that have been implemented gradually over the years, including the capital prospective payment system. The commenters suggested that a minimum of 1 year should be allowed for the development of software systems to handle these changes.

Response: We agree that these changes should be implemented over a transitional period. As we indicated earlier, we are revising the current DRG system to better recognize severity (which is discussed in detail in section II.C.7. of the preamble of this final rule) and are also adopting cost-based weights for FY 2007. We are providing for a transition period of 3 years with the relative weights becoming an increasing blend of costs weights as the transition proceeds. We also believe that the 20 new DRGs we are adopting for 2007 will improve the transition from our current system to a more sophisticated severity DRG system in FY 2008.

Comment: One commenter noted that MedPAC recommended excluding statistical and high cost outliers from the computation of the DRG weights in order that the weights reflect the average cost of the inlier case only. MedPAC further recommended shifting the financing of the outlier pool from all cases to cases in the DRGs with the highest prevalence of outliers. The commenter noted that outlier cases occur most frequently in high-weighted DRGs. Therefore, MedPAC's proposal of accounting for the high prevalence of outliers in the DRGs would compound the weight compression caused by the HSRV methodology. The commenter believed that each proposal by MedPAC (to exclude statistical and high cost outliers from the computation of the DRGs) would exacerbate payment inaccuracies, and the two proposals combined would be deleterious. The commenter stated that it would further analyze MedPAC's proposal to test their theory empirically.

Another commenter was also concerned about MedPAC's recommendation to adjust the DRGs to account for the prevalence of high-cost cases. The commenter explained that reducing the relative weights to finance the outlier pool will adversely affect payment for hospitals specializing in the most complex patients. Hospitals may be discouraged from developing the capacity to treat high cost outliers and responding to the needs of their community according to the commenter. Meanwhile, the commenter suggested that hospitals that have the capacity to treat the highest cost and most complex cases may abandon such an infrastructure because it will be too costly to maintain.

One commenter supported MedPAC's proposal and believed that implementing MedPAC's proposal would support the goal of achieving payment accuracy. The commenter explained that the current system provides double reward for DRGs with a high prevalence of outliers. The commenter recommended that CMS seek legislative authority to implement MedPAC's proposal of DRG specific outlier thresholds.

Another commenter was supportive of MedPAC's recommendation and noted that MedPAC stated in a letter to CMS that “failure to adopt any of (MedPAC's) recommendations would leave some payment distortions in place, thereby continuing to favor some patients over others.” Therefore, the commenter recommended that CMS implement all of MedPAC's recommendations simultaneously when Congress has granted CMS authority to adopt MedPAC's outlier recommendation.

One commenter was concerned that CMS provided only “minimal” analysis of the effect of the DRG refinements on the outlier threshold. Noting that the 5.1 percent set aside for outlier payments could be significantly reduced with the adoption of severity DRG refinements, the commenter believed that implementation of severity DRGs is premature until the Secretary determines whether statutory changes are needed to determine the percentage of total IPPS payments that should be made as outliers.

One commenter recommended that, even though CMS does not have the authority to change the outlier policy, it should review creating DRG-specific or day outliers under a severity DRG system. Another commenter recommended that CMS reduce payments for outliers and eventually eliminate them upon implementing severity DRGs.

Response: We thank the commenters for taking the time to comment on MedPAC's recommendation. As noted above, we do not have the statutory authority to implement MedPAC's recommendation, and, therefore, we placed most of our attention and resources on the recommendations related to refinement of the current DRGs to more fully capture differences in severity of illness among patients. However, we intend to examine MedPAC's recommendation regarding outliers in more detail in the future and will consider the comments we received on the FY 2007 IPPS proposed rule.

6. Conclusions

As we describe in more detail below, we believe that adopting cost-based weights and making improvements to the DRG system to better recognize severity has the potential to result in significant improvements to Medicare's IPPS payments. This final rule implements a cost weight methodology effective for FY 2007. Further, we are creating 20 new CMS DRGs and modifying 32 others across 13 different clinical areas involving 1,666,476 cases that would improve the CMS DRG system's recognition of severity of illness for FY 2007. Further, as suggested by MedPAC and others, we are adopting these changes over a Start Printed Page 47922transition period while we plan further improvements to the IPPS for FY 2008.

In developing our proposed and final policies, we considered a range of alternatives outlined below, and we solicited comments on both the proposal and the alternatives. We asked commenters to consider both the CS DRGs and alternative severity adjustment methods for accounting for severity more comprehensively in the DRG payment system. For example, under one alternative in the proposed rule, we would implement the CS DRGs in FY 2007 along with the HSRVcc weighting methodology. In this event, as discussed above, to maintain budget neutrality, we would also implement in FY 2007 an adjustment to the standardized amounts to eliminate the effect of changes in coding or classification of discharges that do not reflect real changes in case-mix. Although we did receive comments in support of this idea, many commenters requested that we not adopt the CS DRGs and the HSRVcc weights for FY 2007. Many of these commenters suggested delaying implementation of both proposals until at least FY 2008. Under another alternative, we would have adopted and implemented CS DRGs in FY 2008. Although we did receive comments in support of this idea, we also received many comments raising important concerns about licensing and proprietary issues potentially associated with use of the CS DRGs. The commenters asked us not to adopt the CS DRGs unless we could make them available on the same terms as the current CMS DRGs. Yet other commenters objected to our proposed implementation of the CS DRGs unless we evaluated alternatives and better justified why there is a need to adopt a revised DRG system. Under yet another alternative, we would consider partially implementing the CS DRGs in FY 2007 and complete implementation in FY 2008. However, we noted that there were practical difficulties associated with partial implementation of CS DRGs because cases in a single DRG under the current CMS DRG system may group to multiple DRGs and MDCs under the CS DRG system. Conversely, cases that group to multiple MDCs and DRGs under the current system may group to a single MDC and DRG under the current CS DRG system. We did not receive any comments supporting the idea of partial adoption of the CS DRGs.

In the FY 2007 IPPS proposed rule, we discussed in some detail an alternative to partially adopting CS DRGs that would apply a clinical severity concept to an expanded set of DRGs in FY 2007. For example, we have received correspondence that raised the concern that hospitals may have incentives under the current DRG system to avoid severely ill, resource-intensive back and spine surgical cases (as discussed in section II.D.3.b. of the proposed rule; the correspondence specifically requested that we apply a clinical severity concept to DRG 546). In the proposed rule, we noted that other surgical DRGs may not accurately recognize case severity. Because of the frequency of DRG use and the potential for risk selection, we pointed out that certain DRGs may be particularly important in creating a financial incentive for hospitals to select a less severely ill patient whose case would be assigned to the same DRG as a more severely ill patient.

Therefore, while we proposed to adopt the CS DRGs in FY 2008, we were considering whether to make more limited changes to the current DRG system to better recognize severity of illness in FY 2007. In the FY 2006 IPPS final rule (70 FR 47474 through 47478), we took steps to better recognize severity of illness among cardiovascular patients. For all DRGs except cardiac DRGs, we currently distinguish between more and less complex cases based on the presence or absence of a CC. However, the diagnoses that we designate as CCs are the same across all base DRGs. Because the CC list is not dependent on the patient's underlying condition, CCs may not accurately recognize severity in a given case. The changes we made in FY 2006 to the cardiac DRGs significantly improved recognition of severity between patients by distinguishing between more and less severe cases based on the presence or absence of a MCV. In the proposed rule, we indicated that we were considering whether a similar approach applied to other DRGs would improve payment.

Much like the approach we took last year to identify MCV conditions that represented higher severity in cardiovascular patients, in the proposed rule, we indicated that we planned to examine which conditions identified more severely ill cases in selected MDCs and DRGs. We solicited comments as to whether it would be appropriate to adopt these types of limited changes in FY 2007 as an intermediate step to adopting CS DRGs in FY 2008. There were a number of comments that suggested we should make improvements to our current DRG system rather than adopting the CS DRGs. A number of comments expressed support for using the current DRG system as the starting point for revising the DRG system to better recognize severity to avoid losing the many positive changes that have been made over the years to the CMS DRGs. We also encouraged commenters to send us suggestions regarding potential changes that could be made to the current DRG system to better recognize severity of illness. As indicated below, some commenters did provide us with specific suggestions for how we could revise the current DRGs.

In the FY 2007 IPPS proposed rule, we also discussed an additional alternative under which we would implement the CS DRGs in FY 2007 and the HSRVcc methodology in FY 2008. We did receive one comment supporting this idea. However, as we have discussed elsewhere, we believe that we should not adopt CS DRGs in FY 2007, but rather evaluate severity DRG systems for adoption in FY 2008.

With respect to the relative weight calculations, we believe that adopting HSRVcc weights has the potential to significantly improve payment equity between DRGs. As MedPAC notes, a “survey of hospitals' charging practices suggests that hospitals use diverse strategies for setting service charges and raising them over time.” MedPAC found that data from the Medicare cost reports indicate that hospital markups for ancillary services (for example, operating room, radiology, and laboratory) are generally higher than for routine services (for example, intensive care unit and room and board).[13] Thus, MedPAC has concluded that the relative weights for DRGs that use more ancillary services may be too high compared to other DRGs where the routine costs account for a higher proportion of hospital costs. Although we agree with MedPAC's conclusion, the public comments raised important issues about the effect of charge compression on the relative weights using the HSRVcc methodology. These commenters argued that the HSRV calculation exacerbates the effect of charge compression or the practice of hospitals applying higher percentage markups on lower cost items and lower percentage markups on higher cost items. As we indicated above, we have engaged a contractor to assist us with studying whether charge compression is an actual phenomenon and how it affects the HSRV methodology. As part of this analysis, we will study an adjustment for charge compression suggested in the public comments and will consider adopting HSRV weights in the future. Nevertheless, in the interim, we believe it is important to adopt a methodology for calculation of DRG Start Printed Page 47923relative weights that takes costs into account. We have revised the CCRs that we used to develop cost-based weights based on the public comments. Although they do not show the same differentials indicated in the proposed rule, they continue to support MedPAC's conclusion that a system based on charges pays too much for some types of cases and pays too little for others. As indicated above, we summarized hospital-level cost and charge information to 2 routine and 11 ancillary departmental cost centers and found that national average routine cost center CCRs ranged from 50 percent (intensive care unit days) to 56 percent (routine days), while ancillary cost center CCRs ranged from 16 percent (anesthesiology) to 46 percent (labor and delivery room).

MedPAC also found that relative profitability ratios were higher among cardiovascular surgical DRGs than the medical DRGs.[14] We believe the relative profitability of the surgical cardiovascular DRGs has been an important factor in the development of specialty heart hospitals. Our payment impact analysis indicates that this issue will be addressed by adopting cost-based weights. Moving from the current system of charge-based weights to cost-based weights increases payment in the medical DRGs relative to the surgical DRGs. We expected this result, given that routine costs will generally account for a higher proportion of total costs in the medical DRGs than in the surgical DRGs. In the proposed rule, we estimated that all of our combined changes would, on average, increase the medical DRG weights by approximately 7.3 percent while reducing the surgical DRG weights by approximately 6.9 percent. Implementing the cost-based weights without utilizing the HSRV standardization method under the 3-year transition period where the weights for FY 2007 will be based on 33 percent of the cost-based weight and 67 percent of the charge weight will lessen the effects of redistribution between medical and surgical DRGs. In this final rule, we estimate that the increase in the average medical DRG weight will be 0.9 percent and that the decrease in the average surgical DRG weight will be 1.2 percent. The pattern of increasing medical weights and decreasing surgical weights still holds true. However, by adopting the cost based weights in a transition period, we are mitigating the larger swings in payments that our proposed policies adopted in full would have caused.

Although adopting HSRVcc weights would result in the most significant improvement in hospital payment-to-cost ratios among the changes to the IPPS recommended by MedPAC,[15] we have concerns about implementing this methodology until we can further study whether the relative weights might be affected by charge compression. For this reason, we are adopting cost-based weights without HSRV for FY 2007. However, we will consider applying the HSRV methodology in subsequent years if our analysis of charge compression suggests the issue is not a concern or, if appropriate, we can apply an adjustment that would account for its effects.

Based on our analysis, we concur with MedPAC that the CS DRGs would account more completely for differences in severity of illness and associated costs among hospitals. MedPAC observed some modest improvements in hospitals' payment-to-cost ratios from adopting APR DRGs.[16] We modeled the CS DRGs discussed above and observed a 12-percent increase in the explanatory power (or R-square statistic) of the DRG system to explain total hospital charges. That is, we found more uniformity among hospital total charges within the CS DRG system than we did with Medicare's current DRG system. While we believe the CS DRG system that we described above has the potential to improve the IPPS, we have the following concerns about adopting it for FY 2007:

  • Further adjustments are needed to the proposed DRG system. In the proposed rule, we indicated that further adjustments need to be made to the proposed CS DRGs to account for situations where less severely ill patients may be more resource-intensive because they need expensive medical technology. The CS DRGs assign a patient to a DRG based on severity of illness but do not recognize increased complexity due to the types of services/technology provided. In addition, the CS DRGs do not incorporate many of the changes to the base DRG assignments that have been made over the years to the CMS DRGs. There was significant interest in the public comments in either revising the CS DRGs to reflect these changes or use the CMS DRGs at the starting point to better recognize severity. The public comments provided a number of examples where we need to consider whether further changes are needed to the CS DRGs before they are ready for implementation.
  • Use of a proprietary DRG system. The commenters raised valid points about adopting a proprietary DRG system, including concerns about the availability, price and transparency of logic of the APR DRGs that are currently in use in Maryland. The CS DRGs are a variant of the APR DRG system. As we evaluate alternative severity classification systems, we will use public access to the system as an important element in evaluating whether each system can be adopted for Medicare. We will continue to strive to promote transparency in our decisionmaking as well as in future payment and classification systems as we have done in the past.
  • No alternatives have been evaluated. We have not evaluated alternative DRG systems that could also better recognize severity. We have received comments suggesting that alternative DRG systems can better recognize severity than the CS DRGs. It appears that all of the DRG systems that were raised in the public comments as potential alternatives to the CS DRGs are proprietary systems. However, it is possible that we could use one of these systems if it were made available in the public domain on the same terms as the current CMS DRGs. Further, as discussed above, CMS (then HCFA) did work on developing a severity DRG system in the mid-1990's. It is possible that we could update this work and adopt a system that better recognizes severity based on the current CMS DRGs for FY 2008 that does not raise the licensing issues that are involved with using prioprietary systems.

Therefore, for the reasons indicated above, we are not adopting the CS DRGs for FY 2007. However, we are creating 20 new CMS DRGs and modifying 32 others across 13 different clinical areas involving 1,666,476 cases that would improve the CMS DRG system's recognition of severity of illness for FY 2007. Furthermore, as discussed earlier, we have engaged a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the 3M Severity of Illness DRG products in the public comments. Finally, we will consider the review that we have undertaken of the 13,000 codes on the CC list as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's to adopt severity DRGs. Again, we expect to complete this work in time for proposing changes to the DRG system to better recognize severity of illness by FY 2008. Start Printed Page 47924

7. Severity Refinements to CMS DRGs

In response to the FY 2007 IPPS proposed rule, we received a number of public comments that supported the refinement of the current CMS DRGs so that they better capture severity. Several commenters supported the expanded use of a clinical severity concept similar to the approach used in FY 2006 to refine the cardiac DRGs. One commenter urged CMS to expand the set of DRGs to which this clinical severity concept would apply, including the DRGs that capture the implanting of defibrillators. Another commenter expressed support for additional modifications to the current DRGs to better capture severity and complexity of patients. Another commenter recommended that CMS start with the current DRG system and provide overlays for severity, complexity and patient benefit. One commenter suggested that CMS develop severity levels within all of the existing DRGs (or pairs of DRGs, in the cases where CC or MCV splits now exist), or identify specific DRGs that may be most appropriate for severity adjustments. Several commenters recommended specific adjustments to better capture severity for septicemia, headache, and mechanical ventilation patients. (The DRG recommendations are discussed below under the specific DRG topic.)

We recognize the importance of having a classification system that recognizes cases that utilize greater resources and have higher levels of severity of illness. While we discussed moving to a new DRG system such as the CS DRGs for FY 2007, we stated that we were also interested in improving the current DRGs so that they better capture patients with greater severity of illness as early as FY 2007. We solicited comments in the proposed rule on whether it would be appropriate in FY 2007 to apply a clinical severity concept to an expanded set of DRGs, similar to the approach we used in FY 2006 to refine cardiac DRGs based on the presence or absence of an MCV.

We believe it is appropriate to move in a direction toward a DRG system that better recognizes severity. Our strategy involves following recommendations received as part of public comments and implementing some of the severity logic in the proposed CS DRGs in the CMS DRGs where appropriate. By doing so, we would be taking an interim step toward better recognizing severity in the DRG system. Hospitals would be able to take advantage of a portion of improved severity logic in the proposed CS DRGs within the context of the more familiar CMS DRGs. This interim step would also afford hospitals a more detailed understanding of some of the basic types of DRG logic used in the proposed CS DRG system. Obviously, we were not able to adopt some of the more sophisticated logic involved in the 18 steps included in the proposed CS DRG system. However, we were able to adopt some of the more basic components such as specific splits in DRGs that lead to groups with greater resource utilization.

We began our process of adopting some of the severity logic within the proposed CS DRGs by first comparing the current CMS DRGs to the base DRGs in the proposed CS DRGs to identify areas where improvements could be made to better account for severity of illness and resource utilization. We used two general approaches to evaluate potential DRG changes. First, we analyzed where the assignment of a case to a DRG differed under the CMS DRGs and the proposed base CS DRGs. Second, we analyzed whether there was a list of “major conditions” that could be used to revise any DRGs to better recognize severity, similar to the changes to the cardiovascular DRGs involving MCVs we established in last year's final rule. We used the diagnoses listed as “major” or “extreme” under the proposed CS DRGs for this review. The changes described below will result in better recognition of severity in the current DRG system and, like the changes we made last year to reform the cardiovascular DRGs based on MCVs, represent an excellent next step in refining the Medicare inpatient hospital payment system so our payments are better targeted to specific patients based on their costs of care.

We began our review by focusing on the cardiac and orthopedic DRGs because of our concerns that cardiac, orthopedic, and surgical hospitals have taken advantage of opportunities in the DRG system to specialize in the least complex and most profitable inpatient cases. However, with respect to orthopedic and surgical specialty hospitals, we considered that they have very small inpatient volume and the issues that are leading to their creation are generally unrelated to profit opportunities in the IPPS. Although we did review the orthopedic DRGs, we generally did not find opportunities within the current DRG system to make further refinements for severity of illness. We were also unable to find a strong basis to subdivide further most of the cardiovascular DRGs. In last year's IPPS rule, we already made significant changes to the DRG system to better account for severity of illness in the DRGs frequently performed by cardiac hospitals. As mentioned earlier, this DRG change involved splitting some cardiac DRGs based on the presence or absence of an MCV. We then conducted a comparison of the base DRGs in the CMS DRG system and proposed CS DRGs. We analyzed data to identify specific CMS DRGs with wide ranges in charges that had been subdivided or in other ways modified under the proposed CS DRGs. As stated earlier, this process did not allow CMS to use the more sophisticated logic involved in the proposed CS DRGs to differentiate groups with greater severity. However, we were able to identify a group of DRGs that could be created to better align our payments based on severity of illness. We used our own analysis along with specific recommendations received during the comment period to develop further severity refinements to the current DRGs.

We identified 20 new CMS DRGs involving 13 different clinical areas that would improve the CMS DRG system's recognition of severity of illness. Twelve of the new DRGs are medical and 8 are surgical. The 20 new DRGs are constructed through a combination of approaches used in the proposed CS DRGs to refine the base DRGs such as:

  • Subdividing existing DRGs through the use of diagnosis codes.
  • Subdividing DRGs based on specific surgical procedures.
  • Selecting cases with specific diagnosis and/or procedure codes and assigning them to a new DRG which better accounts for their resource use and severity.

We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 current DRGs which contain 1,666,476 cases and represent a number of body systems. In creating these 20 new DRGs, we are deleting 8 existing DRGs and modifying 32 existing DRGs. The specific DRG changes are described below:

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

(1) Nervous System Infection Except Viral Meningitis

Under our current DRG system, all nervous system infections except viral meningitis are assigned to CMS DRG 20 (Nervous System Infection Except Viral Meningitis). By combining all nervous system infections except viral meningitis into one DRG, we are grouping together patients with wide ranges of severity. Under our proposed CS DRGs, there are separate DRGs that distinguish bacterial infection and tuberculosis from other infections of the Start Printed Page 47925nervous system. The CS DRGs divided these cases in order to better recognize severity. The codes which describe bacterial infection and tuberculosis are listed below.

We then divided the cases within CMS DRG 20 based on the presence or absence of bacterial infections and tuberculosis of the nervous system. Our medical advisors support dividing these cases in this manner to better recognize severity of illness. The data indicated that these are two distinctly different groups with significant differences in severity. The bacterial and tuberculosis infection group had average charges of $47,034 compared to the $36,507 average charges for cases with other types of infection of the nervous system. Clearly these charge data support the fact that the bacterial and tuberculous infection group has a significantly greater degree of severity. The chart below illustrates these data:

DRGNumber of casesAverage length of stayAverage charges
CMS DRG 206,1309.88$42,191.76
DRG 20 with Bacterial & TB Infections of Nervous System3,31010.147,034.42
DRG 20 w/o Bacterial & TB Infections of Nervous System2,820 9.5436,507.64

The data support the creation of two separate DRGs for these two groups of patients. Therefore, we are deleting DRG 20 and creating the following two new DRGs:

  • DRG 560 (Bacterial & Tuberculosis Infections of Nervous System).
  • DRG 561 (Non-Bacterial Infections of Nervous System Except Viral Meningitis).

The ICD-9-CM diagnosis codes assigned to each new DRG are as follows.

The new DRG 560 will have principal diagnosis codes listed in the following table.

Diagnosis codeDRG 560 diagnosis code titles
003.21Salmonella meningitis.
013.00Tuberculous meningitis, unspecified examination.
013.01Tuberculous meningitis, bacteriological or histological examination not done.
013.02Tuberculous meningitis, bacteriological or histological examination results unknown (at present).
013.03Tuberculous meningitis, tubercle bacilli found (in sputum) by microscopy.
013.04Tuberculous meningitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.05Tuberculous meningitis, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.06Tuberculous meningitis, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.10Tuberculoma of meninges, unspecified examination.
013.11Tuberculoma of meninges, bacteriological or histological examination not done.
013.12Tuberculoma of meninges, bacteriological or histological examination results unknown (at present).
013.13Tuberculoma of meninges, tubercle bacilli found (in sputum) by microscopy.
013.14Tuberculoma of meninges, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.15Tuberculoma of meninges, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.16Tuberculoma of meninges, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.20Tuberculoma of brain, unspecified examination.
013.21Tuberculoma of brain, bacteriological or histological examination not done.
013.22Tuberculoma of brain, bacteriological or histological examination results unknown (at present).
013.23Tuberculoma of brain, tubercle bacilli found (in sputum) by microscopy.
013.24Tuberculoma of brain, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.25Tuberculoma of brain, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.26Tuberculoma of brain, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.30Tuberculous abscess of brain, unspecified examination.
013.31Tuberculous abscess of brain, bacteriological or histological examination not done.
013.32Tuberculous abscess of brain, bacteriological or histological examination results unknown (at present).
013.33Tuberculous abscess of brain, tubercle bacilli found (in sputum) by microscopy.
013.34Tuberculous abscess of brain, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.35Tuberculous abscess of brain, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.36Tuberculous abscess of brain, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.40Tuberculoma of spinal cord, unspecified examination.
013.41Tuberculoma of spinal cord, bacteriological or histological examination not done.
013.42Tuberculoma of spinal cord, bacteriological or histological examination results unknown (at present).
013.43Tuberculoma of spinal cord, tubercle bacilli found (in sputum) by microscopy.
013.44Tuberculoma of spinal cord, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.45Tuberculoma of spinal cord, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.46Tuberculoma of spinal cord, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.50Tuberculous abscess of spinal cord, unspecified examination.
013.51Tuberculous abscess of spinal cord, bacteriological or histological examination not done.
013.52Tuberculous abscess of spinal cord, bacteriological or histological examination results unknown (at present).
013.53Tuberculous abscess of spinal cord, tubercle bacilli found (in sputum) by microscopy.
013.54Tuberculous abscess of spinal cord, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
Start Printed Page 47926
013.55Tuberculous abscess of spinal cord, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.56Tuberculous abscess of spinal cord, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.60Tuberculous encephalitis or myelitis, unspecified examination.
013.61Tuberculous encephalitis or myelitis, bacteriological or histological examination not done.
013.62Tuberculous encephalitis or myelitis, bacteriological or histological examination results unknown (at present).
013.63Tuberculous encephalitis or myelitis, tubercle bacilli found (in sputum) by microscopy.
013.64Tuberculous encephalitis or myelitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.65Tuberculous encephalitis or myelitis, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.66Tuberculous encephalitis or myelitis, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.80Other specified tuberculosis of central nervous system, unspecified examination.
013.81Other specified tuberculosis of central nervous system, bacteriological or histological examination not done.
013.82Other specified tuberculosis of central nervous system, bacteriological or histological examination results unknown (at present).
013.83Other specified tuberculosis of central nervous system, tubercle bacilli found (in sputum) by microscopy.
013.84Other specified tuberculosis of central nervous system, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.85Other specified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.86Other specified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
013.90Unspecified tuberculosis of central nervous system, unspecified examination.
013.91Unspecified tuberculosis of central nervous system, bacteriological or histological examination not done.
013.92Unspecified tuberculosis of central nervous system, bacteriological or histological examination results unknown (at present).
013.93Unspecified tuberculosis of central nervous system, tubercle bacilli found (in sputum) by microscopy.
013.94Unspecified tuberculosis of central nervous system, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
013.95Unspecified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
013.96Unspecified tuberculosis of central nervous system, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
036.0Meningococcal meningitis.
036.1Meningococcal encephalitis.
098.82Gonococcal meningitis.
320.0Hemophilus meningitis.
320.1Pneumococcal meningitis.
320.2Streptococcal meningitis.
320.3Staphylococcal meningitis.
320.7Meningitis in other bacterial diseases classified elsewhere.
320.81Anaerobic meningitis.
320.82Meningitis due to gram-negative bacteria, not elsewhere classified.
320.89Meningitis due to other specified bacteria.
320.9Meningitis due to unspecified bacterium.
324.0Intracranial abscess.
324.1Intraspinal abscess.
324.9Intracranial and intraspinal abscess of unspecified site.
357.0Acute infective polyneuritis.

The new DRG 561 will have principal diagnosis codes listed in the following table.

Diagnosis codeDRG 561 diagnosis code titles
006.5Amebic brain abscess.
045.00Acute paralytic poliomyelitis specified as bulbar, unspecified type of poliovirus.
045.01Acute paralytic poliomyelitis specified as bulbar, poliovirus type i.
045.02Acute paralytic poliomyelitis specified as bulbar, poliovirus type ii.
045.03Acute paralytic poliomyelitis specified as bulbar, poliovirus type iii.
045.10Acute poliomyelitis with other paralysis, unspecified type of poliovirus.
045.11Acute poliomyelitis with other paralysis, poliovirus type i.
045.12Acute poliomyelitis with other paralysis, poliovirus type ii.
045.13Acute poliomyelitis with other paralysis, poliovirus type iii.
045.90Unspecified acute poliomyelitis, unspecified type poliovirus.
045.91Unspecified acute poliomyelitis, poliovirus type i.
045.92Unspecified acute poliomyelitis, poliovirus type ii.
045.93Unspecified acute poliomyelitis, poliovirus type iii.
049.8Other specified non-arthropod-borne viral diseases of central nervous system.
Start Printed Page 47927
049.9Unspecified non-arthropod-borne viral diseases of central nervous system.
052.0Postvaricella encephalitis.
052.2Postvaricella myelitis.
053.14Herpes zoster myelitis.
054.3Herpetic meningoencephalitis.
054.74Herpes simplex myelitis.
055.0Postmeasles encephalitis.
056.01Encephalomyelitis due to rubella.
056.09Rubella with other neurological complications.
062.0Japanese encephalitis.
062.1Western equine encephalitis.
062.2Eastern equine encephalitis.
062.3St. Louis encephalitis.
062.4Australian encephalitis.
062.5California virus encephalitis.
062.8Other specified mosquito-borne viral encephalitis.
062.9Mosquito-borne viral encephalitis, unspecified.
063.0Russian spring-summer (taiga) encephalitis.
063.1Louping ill.
063.2Central European encephalitis.
063.8Other specified tick-borne viral encephalitis.
063.9Tick-borne viral encephalitis, unspecified.
064Viral encephalitis transmitted by other and unspecified arthropods.
066.2Venezuelan equine fever.
071Rabies.
072.2Mumps encephalitis.
090.40Juvenile neurosyphilis, unspecified.
090.41Congenital syphilitic encephalitis.
090.42Congenital syphilitic meningitis.
090.49Other juvenile neurosyphilis.
091.81Acute syphilitic meningitis (secondary).
094.2Syphilitic meningitis.
094.3Asymptomatic neurosyphilis.
094.81Syphilitic encephalitis.
100.81Leptospiral meningitis (aseptic).
100.89Other specified leptospiral infections.
112.83Candidal meningitis.
114.2Coccidioidal meningitis.
115.01Histoplasma capsulatum meningitis.
115.11Histoplasma duboisii meningitis.
115.91Histoplasmosis meningitis, unspecified.
130.0Meningoencephalitis due to toxoplasmosis.
321.0Cryptococcal meningitis.
321.1Meningitis in other fungal diseases.
321.2Meningitis due to viruses not elsewhere classified.
321.3Meningitis due to trypanosomiasis.
321.4Meningitis in sarcoidosis.
321.8Meningitis due to other nonbacterial organisms classified elsewhere.
322.0Nonpyogenic meningitis.
322.1Eosinophilic meningitis.
322.2Chronic meningitis.
322.9Meningitis, unspecified.
323.01Encephalitis and encephalomyelitis in viral diseases classified elsewhere.
323.02Myelitis in viral diseases classified elsewhere.
323.1Encephalitis, myelitis, and encephalomyelitis in rickettsial diseases classified elsewhere.
323.2Encephalitis, myelitis, and encephalomyelitis in protozoal diseases classified elsewhere.
323.41Other encephalitis and encephalomyelitis due to infection classified elsewhere.
323.42Other myelitis due to infection classified elsewhere.
323.51Encephalitis and encephalomyelitis following immunization procedures.
323.52Myelitis following immunization procedures.
323.61Infectious acute disseminated encephalomyelitis (ADEM).
323.62Other postinfectious encephalitis and encephalomyelitis.
323.63Postinfectious myelitis.
323.81Other causes of encephalitis and encephalomyelitis.
323.82Other causes of myelitis.
323.9Unspecified causes of encephalitis, myelitis, and encephalomyelitis.
341.20Acute (transverse) myelitis NOS.
341.21Acute (transverse) myelitis in conditions classified elsewhere.
341.22Idiopathic transverse myelitis.
Start Printed Page 47928

(2) Seizure and Headache

Comment: One commenter stated that the current DRGs do not adequately capture the severity of patients with more severe types of headaches. The commenter further noted that seizures and headaches represent distinctly different levels of severity, yet they are grouped together in the CMS DRGs:

  • CMS DRG 24 (Seizure & Headache Age >17 with CC).
  • CMS DRG 25 (Seizure & Headache Age >17 without CC).
  • CMS DRG 26 (Seizure & Headache Age 0-17).

The commenter stated that more severely ill patients, such as those with intense migraine headaches, should be differentiated from other patients in the DRG. The commenter suggested splitting these DRGs into two or more new DRGs to better capture severity. Alternatively, the commenter suggested that CMS examine how the APR DRG system handles these types of cases.

Response: Under both the APR DRGs and our proposed CS DRGs, seizure and headache cases are assigned to separate DRGs while these cases are grouped together in the CMS DRGs. Both severity DRG systems recognize different levels of severity for these two groups of patients. Our medical advisors found that seizure and headache patients are clinically different, with seizure patients having a higher level of severity. We also analyzed data for patients with seizures versus those who are admitted with headaches and found that seizure cases have higher average charges than headaches. We did not have enough cases to analyze potential DRG changes for DRG 26. As the chart below shows, seizure patients age greater than 17 have average charges of $17,125 with CC and $10,540 without CC. Headache patients greater than 17 years of age have average charges of $11,618. The data did not support creating a split for headache patients greater than 17 years with and without CC. The difference in average charges for these groups was only $2,596 ($12,591 with CC as compared to $9,995 for those without a CC).

DRGs 24, 25, and 26

DRGNumber of casesAverage length of stayAverage charges
2460,1864.67$16,403.55
2525,8163.1310,419.00
26214.0517,396.43

Seizures Age >17 With and Without CC

DRGNumber of casesAverage length of stayAverage charges
With CC50,6054.8$17,125.19
Without CC20,0653.110,540.27

Headaches > 17

DRGAverage length of stayAverage charges
15,3323.4$11,618.15

Headaches >17 With and Without CC

DRGNumber of casesAverage length of stayAverage charges
With CC9,5813.7$12,591,92
Without CC5,7512.99,995.85

The data also support creating separate DRGs for seizure and headache patients greater than 17 years of age. The data further support an additional split for seizure patients based on the presence of a complication or comorbidity (CC). Seizure cases with a CC have $6,585 greater average charges compared to cases without a CC. The data are less compelling for creating a split based on the presence of a CC for headache cases, since the difference in average charges is only $2,596.

The clinical data and our medical advisors support the creation of separate DRGs for these two groups of patients. Therefore, we are deleting the following DRGs:

  • DRG 24 (Seizure & Headache Age >17 with CC).
  • DRG 25 (Seizure & Headache Age >17 without CC).

We are creating the following three new DRGs:

  • DRG 562 (Seizure Age >17 with CC).
  • DRG 563 (Seizure Age >17 without CC).
  • DRG 564 (Headaches Age >17).

The ICD-9-CM codes and DRG logic for cases assigned to these new DRGs will be as follows.

New DRG 562 will have the following principal diagnosis codes and age greater than 17 years with a CC. Start Printed Page 47929

Diagnosis codeDiagnosis code title
345.00Generalized nonconvulsive epilepsy, without mention of intractable epilepsy.
345.01Generalized nonconvulsive epilepsy, with intractable epilepsy.
345.10Generalized convulsive epilepsy, without mention of intractable epilepsy.
345.11Generalized convulsive epilepsy, with intractable epilepsy.
345.2Petit mal status, epileptic.
345.3Grand mal status, epileptic.
345.40Localization-related (focal) (partial) epilepsy and epileptic syndromes with complex partial seizures, without mention of intractable epilepsy.
345.41Localization-related (focal) (partial) epilepsy and epileptic syndromes with complex partial seizures, with intractable epilepsy.
345.50Localization-related (focal) (partial) epilepsy and epileptic syndromes with simple partial seizures, without mention of intractable epilepsy.
345.51Localization-related (focal) (partial) epilepsy and epileptic syndromes with simple partial seizures, with intractable epilepsy.
345.60Infantile spasms, without mention of intractable epilepsy.
345.61Infantile spasms, with intractable epilepsy.
345.70Epilepsia partialis continua, without mention of intractable epilepsy.
345.71Epilepsia partialis continua, with intractable epilepsy.
345.80Other forms of epilepsy and recurrent seizures, without mention of intractable epilepsy.
345.81Other forms of epilepsy and recurrent seizures, with intractable epilepsy.
345.90Epilepsy, unspecified, without mention of intractable epilepsy.
345.91Epilepsy, unspecified, with intractable epilepsy.
780.31Febrile convulsions (simple), unspecified.
780.32Complex febrile convulsions.
780.39Other convulsions.

New DRG 563 will have the principal diagnosis codes listed above for DRG 562, age greater than 17 years, but no complication/comorbidity.

New DRG 564 will have the principal diagnosis codes listed as follows and an age greater than 17 years.

Diagnosis codeDiagnosis code title
307.81Tension headache.
310.2Postconcussion syndrome.
346.00Classical migraine without mention of intractable migraine.
346.01Classical migraine with intractable migraine, so stated.
346.10Common migraine without mention of intractable migraine.
346.11Common migraine with intractable migraine, so stated.
346.20Variants of migraine without mention of intractable migraine.
346.21Variants of migraine with intractable migraine, so stated.
346.80Other forms of migraine without mention of intractable migraine.
346.81Other forms of migraine with intractable migraine, so stated.
346.90Migraine, unspecified without mention of intractable migraine.
346.91Migraine, unspecified with intractable migraine, so stated.
348.2Benign intracranial hypertension.
349.0Reaction to spinal or lumbar puncture.
437.4Cerebral arteritis.
784.0Headache.

b. MDC 4 (Diseases and Disorders of the Respiratory System): Respiratory System Diagnosis With Ventilator Support

Medical patients who are treated with mechanical ventilation for respiratory failure are currently assigned to DRG 475 (Respiratory System Diagnosis with Ventilator Support). This DRG includes patients who are on a mechanical ventilator for only a few hours as well as patients who are on mechanical ventilation for several days. The proposed CS DRGs divide these patients into two groups, those on ventilator support for 96 or more hours and those on ventilator support for less than 96 hours. The CS DRGs recognize the difference in severity between these two groups of patients. Our medical advisors agree that medical patients who are treated with mechanical ventilation for respiratory failure for 96 or more hours in most cases are more severely ill than patients who are treated with mechanical ventilation for fewer than 96 hours. A review of these cases illustrates a significant difference in average charges for patients on ventilator support for 96 or more hours which supports the greater severity of these patients. The chart below shows that patients on ventilator support for 96 or more hours have average charges of $83,058 compared to $38,300 for patients on ventilator support for less than 96 hours, a difference of $44,758 in charges. The following chart summarizes these data. Start Printed Page 47930

DRG 475 Respiratory System Diagnosis With Ventilator Support

DRGNumber of casesAverage length of stayAverage charges
DRG 475114,19910.64$55,873.15
DRG 475 with Ventilator Support 96+ Hours44,83615.3083,058.24
DRG 475 with Ventilator Support <96 Hours69,3637.6438,300.81

The proposed CS DRGs do a much better job of identifying patients on ventilator support who have higher levels of severity and utilize significantly more resources. Therefore, we will adopt the approach used under the CS DRG system and split these patients based on whether or not the patients are on mechanical ventilation for 96 hours. We are deleting DRG 475 and creating the following two new DRGs:

  • DRG 565 (Respiratory System Diagnosis with Ventilator Support 96+ Hours).
  • DRG 566 (Respiratory System Diagnosis with Ventilator Support < 96 Hours).

The DRG logic for these two new DRGs is as follows.

New DRG 565 will have a respiratory system diagnosis and procedure code 96.72 (Continuous mechanical ventilation for 96 consecutive hours or more).

New DRG 566 will have a respiratory system diagnosis and the following procedure codes:

96.70 (Continuous mechanical ventilation of unspecified duration).

96.71 (Continuous mechanical ventilation for less than 96 consecutive hours).

c. MDC 6 (Diseases and Disorders of the Digestive System)

(1) Major Esophageal Disorders and Major Gastrointestinal and Peritoneal Infections

The proposed CS DRGs assign major esophageal disorders to a single DRG because these disorders have been shown to have a higher level of severity than do other types of esophageal disorders. Under the current CMS DRGs these disorders are dispersed throughout 8 separate DRGs. The conditions included in the list of major esophageal disorders are described in the table below. The proposed CS DRGs also assign specific gastrointestinal and peritoneal infections that represent a high level of severity into a single DRG. These conditions are assigned to the same group of eight CMS DRGs mentioned above within CMS' current DRGS. The conditions considered gastrointestinal and peritoneal infections are described in the table below.

Our data show that the two groups of cases assigned to major esophageal disorders and to the gastrointestinal and peritoneal infections represent significantly greater severity levels and have higher average charges than do other cases in the eight CMS DRGs. The eight current CMS DRGs to which these two groups of higher severity cases as assigned are as follows:

  • CMS DRG 174 (G.I. Hemorrhage with CC).
  • CMS DRG 175 (G.I. Hemorrhage without CC).
  • CMS DRG 182 (Esophagitis, Gastroenteritis & Miscellaneous Digestive Disorders Age >17 with CC).
  • CMS DRG 183 (Esophagitis, Gastroenteritis & Miscellaneous Digestive Disorders Age >17 without CC).
  • CMS DRG 184 (Esophagitis, Gastroenteritis & Miscellaneous Digestive Disorders Age 0-17).
  • CMS DRG 188 (Digestive System Diagnoses Age >17 with CC).
  • CMS DRG 189 (Digestive System Diagnoses Age >17 without CC).
  • CMS DRG 190 (Digestive System Diagnoses Age 0-17).

DRGs 174, 175, 182, 183, 184, 188, 189, and 190

DRGNumber of casesAverage length of stayAverage charges
DRG 174249,3594.69$16,987.26
DRG 174 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections241,5084.6916,934.86
DRG 17528,4852.869,573.73
DRG 175 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections27,8162.879,934.86
DRG 182282,6194.4814,269.01
DRG 182 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections243,5634.0713,124.03
DRG 18377,5822.899,933.62
DRG 183 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections74,8992.849,845.81
DRG 184664.3812,116.67
DRG 184 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections603.8810,053.38
DRG 18888,9705.4518,278.19
DRG 189 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections87,2105.4318,194.27
DRG 18912,4543.069,963.90
DRG 190 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections12,1233.029,855.31
DRG 190585.0214,156.52
DRG 190 w/o Major Esophageal Disorders or Gastrointestinal and Peritoneal Infections455.1314,829.47
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Major Esophageal Disorders

Number of casesAverage length of stayAverage charges
10,6334.7$18,410.30

Major Gastrointestinal and Peritoneal Infections

Number of casesAverage length of stayAverage charges
41,7366.9$20,861.06

As can be seen from the tables above, cases assigned to these eight DRGs without a major esophageal disorder or a major gastrointestinal disorder and peritoneal infection have average charges ranging from $9,845 to $18,194. The average charges for major esophageal disorders are $18,410, while average charges for major gastrointestinal disorders and peritoneal infections are $20,861. Removing these higher severity cases from the eight DRGs does not have a significant impact on the DRG weights for the remaining cases. Most of the higher severity cases are being removed from DRG 182. There were 282,619 cases in this DRG. By removing the two new groups of cases, the DRG has 243,563 cases remaining. The average charge for DRG 182 with the remaining cases decreases from $14,269 to $13,124. Therefore, the impact on the remaining cases is not that significant. However, reassigning cases with major esophageal and gastrointestinal disorders and peritoneal infections to two new DRGs has the effect of creating two groups which have higher levels of severity and use significantly greater resources. Our medical advisors agree that these two groups represent higher levels of severity and that it is appropriate to move these two groups of cases out of their existing assignments and into the following two new DRGs:

  • DRG 571 (Major Esophageal Disorders)
  • DRG 572 (Major Gastrointestinal Disorders and Peritoneal Infections)

We are creating new DRG 571 with the following ICD-9-CM diagnosis codes (removing them from DRGs 174, 175, 182, 183, 184, 188, 189, and 190):

Diagnosis codeMajor esophageal disorders diagnosis code titles
017.80Tuberculosis of esophagus, unspecified examination.
017.81Tuberculosis of esophagus, bacteriological or histological examination not done.
017.82Tuberculosis of esophagus, bacteriological or histological examination results unknown (at present).
017.83Tuberculosis of esophagus, tubercle bacilli found (in sputum) by microscopy.
017.84Tuberculosis of esophagus, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
017.85Tuberculosis of esophagus, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
017.86Tuberculosis of esophagus, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
112.84Candidal esophagitis.
456.0Esophageal varices with bleeding.
456.1Esophageal varices without mention of bleeding.
456.20Esophageal varices in diseases classified elsewhere, with bleeding.
530.4Perforation of esophagus.
530.7Gastroesophageal laceration-hemorrhage syndrome.
530.82Esophageal hemorrhage.
530.84Tracheoesophageal fistula.
750.3Congenital tracheoesophageal fistula, esophageal atresia and stenosis.
750.4Other specified congenital anomalies of esophagus.
862.22Injury to esophagus without mention of open wound into cavity.
947.2Burn of esophagus.

We are creating new DRG 572 with the following ICD-9-CM diagnosis codes (removing them from DRGs 182, 183, 184, 188, 189, and 190):

Diagnosis codeMajor esophageal disorders diagnosis code titles
001.0Cholera due to vibrio cholerae.
001.1Cholera due to vibrio cholerae el tor.
001.9Cholera, unspecified.
003.0Salmonella gastroenteritis.
004.0Shigella dysenteriae.
004.1Shigella flexneri.
004.2Shigella boydii.
004.3Shigella sonnei.
004.8Other specified shigella infections.
004.9Shigellosis, unspecified.
005.0Staphylococcal food poisoning.
005.2Food poisoning due to clostridium perfringens (c. welchii).
005.3Food poisoning due to other clostridia.
005.4Food poisoning due to vibrio parahaemolyticus.
005.81Food poisoning due to vibrio vulnificus.
005.89Other bacterial food poisoning.
006.0Acute amebic dysentery without mention of abscess.
006.1Chronic intestinal amebiasis without mention of abscess.
006.2Amebic nondysenteric colitis.
007.0Balantidiasis.
007.1Giardiasis.
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007.2Coccidiosis.
007.3Intestinal trichomoniasis.
007.4Cryptosporidiosis.
007.5Cyclosporiasis.
007.8Other specified protozoal intestinal diseases.
007.9Unspecified protozoal intestinal disease.
008.00Intestinal infection due to e. coli, unspecified.
008.01Intestinal infection due to enteropathogenic e. coli.
008.02Intestinal infection due to enterotoxigenic e. coli.
008.03Intestinal infection due to enteroinvasive e. coli.
008.04Intestinal infection due to enterohemorrhagic e. coli.
008.09Intestinal infection due to other intestinal e. coli infections.
008.1Intestinal infection due to arizona group of paracolon bacilli.
008.2Intestinal infection due to aerobacter aerogenes.
008.3Intestinal infection due to proteus (mirabilis) (morganii).
008.41Intestinal infection due to staphylococcus.
008.42Intestinal infection due to pseudomonas.
008.43Intestinal infection due to campylobacter.
008.44Intestinal infection due to yersinia enterocolitica.
008.45Intestinal infection due to clostridium difficile.
008.46Intestinal infection due to other anaerobes.
008.47Intestinal infection due to other gram-negative bacteria.
008.49Intestinal infection due to other organisms.
008.5Bacterial enteritis, unspecified.
4.00Tuberculous peritonitis, unspecified examination.
014.01Tuberculous peritonitis, bacteriological or histological examination not done.
014.02Tuberculous peritonitis, bacteriological or histological examination results unknown (at present).
014.03Tuberculous peritonitis, tubercle bacilli found (in sputum) by microscopy.
014.04Tuberculous peritonitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
014.05Tuberculous peritonitis, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
014.06Tuberculous peritonitis, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
014.80Other tuberculosis of intestines and mesenteric glands, unspecified examination.
014.81Other tuberculosis of intestines and mesenteric glands, bacteriological or histological examination not done.
014.82Other tuberculosis of intestines and mesenteric glands, bacteriological or histological examination results unknown (at present).
014.83Other tuberculosis of intestines and mesenteric glands, tubercle bacilli found (in sputum) by microscopy.
014.84Other tuberculosis of intestines and mesenteric glands, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
014.85Other tuberculosis of intestines and mesenteric glands, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically.
014.86Other tuberculosis of intestines and mesenteric glands, tubercle bacilli not found by bacteriological or histological examination, but tuberculosis confirmed by other methods (inoculation of animals).
021.1Enteric tularemia.
022.2Gastrointestinal anthrax.
032.83Diphtheritic peritonitis.
039.2Abdominal actinomycotic infection.
095.2Syphilitic peritonitis.
098.86Gonococcal peritonitis.
123.1Cysticercosis.
123.5Sparganosis (larval diphyllobothriasis).
123.6Hymenolepiasis.
123.8Other specified cestode infection.
123.9Cestode infection, unspecified.
126.0Ancylostomiasis due to ancylostoma duodenale.
126.1Necatoriasis due to necator americanus.
126.2Ancylostomiasis due to ancylostoma braziliense.
126.3Ancylostomiasis due to ancylostoma ceylanicum.
126.8Other specified ancylostoma.
126.9Ancylostomiasis and necatoriasis, unspecified.
540.0Acute appendicitis with generalized peritonitis.
540.1Acute appendicitis with peritoneal abscess.
567.0Peritonitis in infectious diseases classified elsewhere.
567.1Pneumococcal peritonitis.
567.21Peritonitis (acute) generalized.
567.22Peritoneal abscess.
567.23Spontaneous bacterial peritonitis.
567.29Other suppurative peritonitis.
567.31Psoas muscle abscess.
567.38Other retroperitoneal abscess.
7.39Other retroperitoneal infections.
567.89Other specified peritonitis.
567.9Unspecified peritonitis.
569.5Abscess of intestine.
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(2) Principal or Secondary Diagnosis of Major Gastrointestinal Diagnosis

We examined the diagnosis codes assigned to MDC 6 for severity using the proposed CS DRGs and created a list of diagnosis codes that are identified as major or extreme in the APR DRGs or the consolidated severity DRGs. We refer to this set of higher severity diagnosis codes as Major Gastrointestinal Diagnoses. The list of higher severity diagnosis codes considered to be a Major Gastrointestinal Diagnosis is provided in the table below showing new DRG 569.

We then examined DRGs 148 and 149 (Major Small & Large Bowel Procedures with and without CC, respectively) and DRGs 154 through 156 (Stomach, Esophageal & Duodenal Procedures Age >17 with and without CC and Age 0-17, respectively) when these Major Gastrointestinal Diagnoses were present as either a principal or secondary diagnosis. In general, these Major Gastrointestinal Diagnoses represent or are associated with the reason for performing the surgical procedure in DRGs 148 and 149 and DRGs 154 through 156 and are the most serious diagnoses that necessitate surgery. As the following tables illustrate, the presence of these Major Gastrointestinal Diagnoses identifies patients with a higher level of severity. The presence of these Major Gastrointestinal Diagnoses leads to significantly higher average charges for these two groups of surgical patients, particularly for cases currently assigned to DRGs 148 and 154 which are the surgical procedures that include the presence of a CC. The surgical patients with Major Gastrointestinal Diagnoses would not only be considered to have a greater level of severity and be more expensive, they would also be assigned to the surgical DRG that includes a CC. The tables below show that patients in DRG 148 with a Major Gastrointestinal Diagnosis have average charges of $70,001.16 compared to average charges of $43,809.03 when a Major Gastrointestinal Diagnosis is not present. The difference in charges for cases in DRG 149 was not as great. The difference in average charges was $29,103.84 for DRG 149 when a Major Gastrointestinal Diagnosis was present and $23,077.84 when it was not. The number of cases with a Major Gastrointestinal Diagnosis was significantly larger for DRG 148 (58,153 cases compared to only 1,822 in DRG 149). Similar findings occur for DRGs 154, 155, and 156. Cases with a Major Gastrointestinal Diagnosis occur with significantly greater numbers in DRG 154 (9,924 compared to only 357 in DRG 155 and none in DRG 156). The average charges for cases with a Major Gastrointestinal Diagnosis were $84,270.92 for DRG 154, and only $29,193.81 for DRG 155.

DRGs 148, 149, 154, 155, and 156

DRGNumber of casesAverage length of stayAverage charges
DRG 148126,15611.92$55,882.59
DRG 148 with PDX/SDX of Major GI Diagnoses58,15314.2470,001.16
DRG 148 w/o PDX/SDX Major GI Diagnoses68,0039.9443,809.03
DRG 14918,4715.6623,672.25
DRG 149 with PDX/SDX of Major GI Diagnoses1,8227.6629,103.84
DRG 149 w/o PDX/SDX Major GI Diagnoses16,6495.4423,077.84
DRG 15425,61712.9566,257.17
DRG 154 with PDX/SDX of Major GI Diagnoses9,92415.5984,270.92
DRG 154 w/o PDX/SDX Major GI Diagnoses15,69311.2854,865.56
DRG 1555,6793.9621,543.88
DRG 155 with PDX/SDX of Major GI Diagnoses3577.1029,193.81
DRG 155 w/o PDX/SDX Major GI Diagnoses5,3223.7521,030.50
DRG 15649.2548,015.50
DRG 156 with PDX/SDX of Major GI Diagnoses000
DRG 156 w/o PDX/SDX Major GI Diagnoses49.2548,015.50

Our medical advisors agree that these gastrointestinal surgical patients with a Major Gastrointestinal Diagnosis are more severely ill and represent patients with a higher level of severity. They support subdividing cases in DRG 148 and 154 based on the presence of a Major Gastrointestinal Diagnosis to better capture patients with higher level of severity. A summary of these changes is provided below.

We are deleting DRG 148 and creating the following two new DRGs:

  • DRG 569 (Major Small & Large Bowel Procedures with CC with Major Gastrointestinal Diagnosis)
  • DRG 570 (Major Small & Large Bowel Procedures with CC without Major Gastrointestinal Diagnosis)

The DRG logic for new DRGs 569 and 570 is as follows.

New DRG 569 will have a principal diagnosis from MDC 6 and one of the following codes as either the principal or secondary diagnosis. This DRG will also have an operating room procedure from current DRG 148 and a Complication/Comorbidity (as defined in CMS DRG GROUPER Version 24.0).

Diagnosis codePrincipal or secondary diagnosis—major gastrointestinal diagnosis diagnosis code title
008.41Intestinal infection due to staphylococcus.
008.42Intestinal infection due to pseudomonas.
008.43Intestinal infection due to campylobacter.
008.45Intestinal infection due to clostridium difficile.
008.46Intestinal infection due to other anaerobes.
008.49Intestinal infection due to other organisms.
014.04Tuberculous peritonitis, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture.
098.86Gonococcal peritonitis.
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456.0Esophageal varices with bleeding.
456.20Esophageal varices in diseases classified elsewhere, with bleeding.
530.21Ulcer of esophagus with bleeding.
530.4Perforation of esophagus.
530.7Gastroesophageal laceration-hemorrhage syndrome.
530.84Tracheoesophageal fistula.
531.00Acute gastric ulcer with hemorrhage, without mention of obstruction.
531.21Acute gastric ulcer with hemorrhage and perforation, with obstruction.
531.40Chronic or unspecified gastric ulcer with hemorrhage, without mention of obstruction.
531.41Chronic or unspecified gastric ulcer with hemorrhage, with obstruction.
531.50Chronic or unspecified gastric ulcer with perforation, without mention of obstruction.
531.60Chronic or unspecified gastric ulcer with hemorrhage and perforation, without mention of obstruction.
531.91Gastric ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction.
532.00Acute duodenal ulcer with hemorrhage, without mention of obstruction.
532.10Acute duodenal ulcer with perforation, without mention of obstruction.
532.11Acute duodenal ulcer with perforation, with obstruction.
532.20Acute duodenal ulcer with hemorrhage and perforation, without mention of obstruction.
532.31Acute duodenal ulcer without mention of hemorrhage or perforation, with obstruction.
532.40Chronic or unspecified duodenal ulcer with hemorrhage, without mention of obstruction.
532.41Chronic or unspecified duodenal ulcer with hemorrhage, with obstruction.
532.50Chronic or unspecified duodenal ulcer with perforation, without mention of obstruction.
532.60Chronic or unspecified duodenal ulcer with hemorrhage and perforation, without mention of obstruction.
533.00Acute peptic ulcer of unspecified site with hemorrhage, without mention of obstruction.
533.10Acute peptic ulcer of unspecified site with perforation, without mention of obstruction.
533.21Acute peptic ulcer of unspecified site with hemorrhage and perforation, with obstruction.
533.40Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, without mention of obstruction.
533.41Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, with obstruction.
533.50Chronic or unspecified peptic ulcer of unspecified site with perforation, without mention of obstruction.
533.51Chronic or unspecified peptic ulcer of unspecified site with perforation, with obstruction.
533.60Chronic or unspecified peptic ulcer of unspecified site with hemorrhage and perforation, without mention of obstruction.
533.91Peptic ulcer of unspecified site, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction.
534.00Acute gastrojejunal ulcer with hemorrhage, without mention of obstruction.
534.40Chronic or unspecified gastrojejunal ulcer with hemorrhage, without mention of obstruction.
534.41Chronic or unspecified gastrojejunal ulcer, with hemorrhage, with obstruction.
534.50Chronic or unspecified gastrojejunal ulcer with perforation, without mention of obstruction.
534.51Chronic or unspecified gastrojejunal ulcer with perforation, with obstruction.
534.91Gastrojejunal ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction.
535.01Acute gastritis with hemorrhage.
535.11Atrophic gastritis with hemorrhage.
535.21Gastric mucosal hypertrophy with hemorrhage.
535.31Alcoholic gastritis with hemorrhage.
535.41Other specified gastritis with hemorrhage.
535.51Unspecified gastritis and gastroduodenitis with hemorrhage.
535.61Duodenitis with hemorrhage.
537.3Other obstruction of duodenum.
537.83Angiodysplasia of stomach and duodenum with hemorrhage.
540.0Acute appendicitis with generalized peritonitis.
540.1Acute appendicitis with peritoneal abscess.
550.00Unilateral or unspecified inguinal hernia, with gangrene.
550.01Recurrent unilateral or unspecified inguinal hernia, with gangrene.
550.02Bilateral inguinal hernia, with gangrene.
551.00Unilateral or unspecified femoral hernia with gangrene.
551.1Umbilical hernia with gangrene.
551.20Unspecified ventral hernia with gangrene.
551.21Incisional ventral hernia, with gangrene.
551.29Other ventral hernia with gangrene.
551.3Diaphragmatic hernia with gangrene.
551.8Hernia of other specified sites, with gangrene.
551.9Hernia of unspecified site, with gangrene.
557.0Acute vascular insufficiency of intestine.
557.1Chronic vascular insufficiency of intestine.
557.9Unspecified vascular insufficiency of intestine.
560.0Intussusception.
560.2Volvulus.
560.31Gallstone ileus.
560.81Intestinal or peritoneal adhesions with obstruction (postoperative) (postinfection).
560.89Other specified intestinal obstruction.
560.9Unspecified intestinal obstruction.
562.02Diverticulosis of small intestine with hemorrhage.
562.03Diverticulitis of small intestine with hemorrhage.
562.12Diverticulosis of colon with hemorrhage.
562.13Diverticulitis of colon with hemorrhage.
564.7Megacolon, other than hirschsprung's.
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567.0Peritonitis in infectious diseases classified elsewhere.
567.1Pneumococcal peritonitis.
567.21Peritonitis (acute) generalized.
567.22Peritoneal abscess.
567.23Spontaneous bacterial peritonitis.
567.29Other suppurative peritonitis.
567.31Psoas muscle abscess.
567.38Other retroperitoneal abscess.
567.39Other retroperitoneal infections.
567.81Choleperitonitis.
567.9Unspecified peritonitis.
568.81Hemoperitoneum (nontraumatic).
569.5Abscess of intestine.
569.83Perforation of intestine.
569.85Angiodysplasia of intestine with hemorrhage.
578.0Hematemesis.
750.3Congenital tracheoesophageal fistula, esophageal atresia and stenosis.
863.30Injury to small intestine, unspecified site, with open wound into cavity.
863.31Injury to duodenum with open wound into cavity.
863.39Other injury to small intestine with open wound into cavity.
863.50Injury to colon, unspecified site, with open wound into cavity.
863.51Injury to ascending (right) colon with open wound into cavity.
863.52Injury to transverse colon with open wound into cavity.
863.53Injury to descending (left) colon with open wound into cavity.
863.54Injury to sigmoid colon with open wound into cavity.
863.55Injury to rectum with open wound into cavity.
863.59Other injury to colon and rectum with open wound into cavity.
863.90Injury to gastrointestinal tract, unspecified site, with open wound into cavity.
863.95Injury to appendix with open wound into cavity.
863.99Injury to other and unspecified gastrointestinal sites with open wound into cavity.
868.13Injury to peritoneum with open wound into cavity.
947.3Burn of gastrointestinal tract.

New DRG 570 will have an operating room procedure code from current CMS DRG 148 and a principal diagnosis from MDC 6, except for a principal or secondary diagnosis listed above in the Major Gastrointestinal Diagnosis list and will have a Complication/Comorbidity.

We also are deleting DRG 154 and creating two new DRGs as follows:

  • DRG 567 (Stomach, Esophageal & Duodenal Procedures Age >17 with Complication/Comorbidity with Major Gastrointestinal Diagnosis)
  • DRG 568 (Stomach, Esophageal & Duodenal Procedures Age >17 with Complication/Comorbidity without Major Gastrointestinal Diagnosis)

New DRG 567 will have a principal diagnosis from MDC 6 with either a principal or secondary diagnosis of a Major Gastrointestinal Diagnosis (see list of Major Gastrointestinal Diagnoses listed above). New DRG 567 will also have an operating room procedure from current CMS DRG 154 and a CC. New DRG 568 will have a principal diagnosis from MDC 6, except it will not have a principal or secondary diagnosis from the list of Major Gastrointestinal Diagnoses. It will also have an operating room procedure from current CMS DRG 154 and a CC.

d. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract): Major Bladder Procedures

Under our proposed CS DRGs, cases with a major bladder procedure were found to have a higher level of severity than were cases with other types of bladder procedures. Therfore, cases with a major bladder procedure are assigned to a single DRG in the CS DRGs. The procedures classified as a major bladder procedure are as follows:

Major Bladder Procedures

Procedure codeDescription
57.6Partial cystectomy.
57.71Radical cystectomy.
57.79Other total cystectomy.
57.83Repair of fistula involving bladder and intestine.
57.84Repair of other fistula of bladder.
57.85Cystourethroplasty and plastic repair of bladder neck.
57.86Repair of bladder exstrophy.
57.87Reconstruction of urinary bladder.
57.88Other anastomosis of bladder.
57.89Other repair of bladder.
Start Printed Page 47936

The CMS DRGs assign these cases to one of the five following DRGs:

  • DRG 303 (Kidney, Ureter & Major Bladder Procedures for Neoplasm).
  • DRG 304 (Kidney, Ureter & Major Bladder Procedures for Non-Neoplasm with CC)
  • DRG 305 (Kidney, Ureter & Major Bladder Procedures for Non-Neoplasm without CC)
  • DRG 308 (Minor Bladder Procedures with CC)
  • DRG 309 (Minor Bladder Procedures without CC)

Our medical advisors support creating a new DRG for major bladder procedures because they represent cases with higher levels of severity, are clinically different, and use greater resources. We examined data on cases containing a major bladder procedure and determined they represent cases with a higher level of severity and utilize significantly more resources than other cases within the DRGs where they are currently assigned. Cases with a major bladder procedure had average charges of $53,434 compared to $14,976 to $38,119 for other cases within the five DRGs where the patient did not have a major bladder procedure. The tables below illustrate these data.

DRGsNumber of casesAverage length of stayAverage charges
DRG 30323,3287.28$37,510.79
DRG 303 Without Major Bladder Procedures18,9096.3332,867.55
DRG 30413,2578.3538,800.38
DRG 304 Without Major Bladder Procedures12,8358.1938,119.74
DRG 3052,8273.1019,528.35
DRG 305 Without Major Bladder Procedures2,7763.0219,295.59
DRG 3086,3586.1527,982.54
DRG 308 Without Major Bladder Procedures5,1805.3024,017.30
DRG 3093,1041.9815,446.61
DRG 309 Without Major Bladder Procedures2,8201.7214,976.79

Major Bladder Procedures

Number of casesAverage length of stayAverage charges
6,35410.8$53,434.93

Therefore, we are moving these procedures out of their current DRGs (DRG 303, 304, 305, 308, and 309) and into new DRG 573 (Major Bladder Procedures). A summary of these changes is as follows:

We are renaming the following three DRGs:

  • DRG 303—“ Kidney and Ureter Procedures for Neoplasm”
  • DRG 304—“ Kidney and Ureter Procedures for Non-Neoplasm With CC”
  • DRG 305—“ Kidney and Ureter Procedures for Non-Neoplasm Without CC”

We are removing the following procedure codes from DRG 303-305, 308, and 309 and assigning them to new DRG 573. New DRG 573 will contain the following procedure codes.

Major Bladder Procedures

Procedure codeDescription
57.6Partial cystectomy.
57.71Radical cystectomy.
57.79Other total cystectomy.
57.83Repair of fistula involving bladder and intestine.
57.84Repair of other fistula of bladder.
57.85Cystourethroplasty and plastic repair of bladder neck.
57.86Repair of bladder exstrophy.
57.87Reconstruction of urinary bladder.
57.88Other anastomosis of bladder.
57.89Other repair of bladder.

e. MDC 16 (Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders): Major Hematological and Immunological Diagnoses

Under our proposed CS DRGs, major hematological and immunological diagnoses were found to identify cases with a higher level of severity. They are assigned to a single DRG under the CS DRGs. The diagnoses considered to be major hematological and immunological diagnoses include the following conditions:

Diagnosis codeMajor hematological and immunological code titles
279.11Digeorge's syndrome.
279.12Wiskott-aldrich syndrome.
279.13Nezelof's syndrome.
279.19Other deficiency of cell-mediated immunity.
279.2Combined immunity deficiency.
283.0Autoimmune hemolytic anemias.
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283.10Non-autoimmune hemolytic anemia, unspecified.
283.19Other non-autoimmune hemolytic anemias.
283.2Hemoglobinuria due to hemolysis from external causes.
283.9Acquired hemolytic anemia, unspecified.
284.8Other specified aplastic anemias.
284.9Aplastic anemia, unspecified.
288.1Functional disorders of polymorphonuclear neutrophils.
288.2Genetic anomalies of leukocytes.
996.85Complications of transplanted bone marrow.

These conditions are currently assigned to the following four CMS DRGs:

  • DRG 395 (Red Blood Cell Disorders Age >17)
  • DRG 396 (Red Blood Cell Disorders Age 0-17)
  • DRG 398 (Reticuloendothelial & Immunity Disorders with CC)
  • DRG 399 (Reticuloendothelial & Immunity Disorders without CC)

Our medical advisors agree that major hematological and immunological disorders are found in patients with significantly greater levels of severity and are different from other conditions in the four DRGs where they are assigned. Our data analysis shows that major hematological and immunological diseases identify patients with significantly greater levels of severity. They are more resource intensive than other conditions assigned to these four DRGs. Cases with major hematological and immunological conditions had average charges of $21,276 compared to $11,066 to $18,791 for the other conditions where these cases are currently assigned. Most of the nonhematological and immunological cases (96,557) are assigned to DRG 395 and have an average charge of $12,977.

DRGs 395, 396, 398, and 399

DRGNumber of casesAverage length of stayAverage charges
DRG 395109,8744.28$14,078.78
DRG 395 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Disorders96,5574.1012,977.20
DRG 396192.9510,406.05
DRG 396 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Disorders173.0611,066.94
DRG 39817,6085.7119,902.21
DRG 398 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Disorders6,3813.2818,791.32
DRG 3991,5523.3811,277.35
DRG 399 Without Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Disorders1,0113.2811,207.22

Major Hematological Diagnosis excluding Sickle Cell Crisis & Coagulation Disorders

Number of casesAverage length of stayAverage charges
25,0875.6$21,276.25

We are creating a new CMS DRG 574 (Major Hematologic/Immunologic Diagnoses Except Sickle Cell Crisis and Coagulation Disorders). We are removing the codes mentioned in the table above from DRGs 395, 396, 398, and 399 and assigning them to new DRG 574. We also are assigning the new diagnosis codes indicated by an asterisk (*) to new DRG 574. These new codes also capture major hematological and immunological conditions and were created to provide more detail than the current codes in this section of ICD-9-CM. The DRG assignments for these new codes are also shown in Table 6A of the Addendum to this final rule.

Diagnosis codeMajor hematological and immunological code titles
279.11Digeorge's syndrome.
279.12Wiskott-aldrich syndrome.
279.13Nezelof's syndrome.
279.19Other deficiency of cell-mediated immunity.
279.2Combined immunity deficiency.
283.0Autoimmune hemolytic anemias.
283.10Non-autoimmune hemolytic anemia, unspecified.
283.19Other non-autoimmune hemolytic anemias.
283.2Hemoglobinuria due to hemolysis from external causes.
283.9Acquired hemolytic anemia, unspecified.
284.01 *Constitutional red blood cell aplasia.
284.09 *Other constitutional aplastic anemia.
284.8Other specified aplastic anemias.
284.9Aplastic anemia, unspecified.
288.00 *Neutropenia, unspecified.
Start Printed Page 47938
288.01 *Congenital neutropenia.
288.02 *Cyclic neutropenia.
288.03 *Drug induced neutropenia.
288.04 *Neutropenia due to infection.
288.09 *Other neutropenia.
288.1Functional disorders of polymorphonuclear neutrophils.
288.2Genetic anomalies of leukocytes.
996.85Complications of transplanted bone marrow.

f. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified Sites)): O.R. Procedure for Patients With Infectious and Parasitic Diseases

Under the APR DRG system, cases in DRG 415 (O.R. Procedure for Infectious and Parasitic Diseases) are subdivided based on the presence or absence of one of the following principal diagnosis codes, which we are referring to as Postoperative or Post-Traumatic Infection:

  • 958.3, Posttraumatic wound infection, not elsewhere classified
  • 998.51, Infected postoperative seroma
  • 998.59, Other postoperative infection
  • 999.3, Infection complicating medical care, not elsewhere classified

The APR DRG system found cases with one of the above infection codes to represent a higher level of severity. Our medical advisors examined cases in the current CMS DRG system in DRG 415 and found that the presence of one of these infection codes as a principal diagnosis led to significantly higher levels of severity. Charge data also support this conclusion. The following table illustrates our findings.

DRGRedefinition of DRG 415Number of casesAverage length of stayAverage charges
415O.R. Procedure for Infectious & Parasitic Diseases52,45814.03$63,211.99
AO.R. Procedure with Principal Diagnosis Except Postoperative or Post-Traumatic Infection33,07715.9074,964.28
BO.R. Procedure with Principal Diagnosis of Postoperative or Post-Traumatic Infection19,38110.843,154.68

As can be seen from the above table, cases in DRG 415 with a principal diagnosis except for postoperative or post-traumatic infection have average charges of $74,964.28. Cases with a principal diagnosis of postoperative or postπtraumatic infection have average charges of $43,154.68, or $31,809.60 less. Therefore, cases without one of the four infection codes, 958.3, 998.51, 998.59, and 999.3, have significantly higher severity levels than do cases that contain one of the four infection codes.

Accordingly, we are deleting DRG 415 and divide the cases into two new DRGs as follows:

  • DRG 578, Infectious and Parasitic Diseases with O.R. Procedure
  • DRG 579, Postoperative or Post-traumatic Infection with O.R. Procedure

Cases will be assigned to new DRG 578 if they were previously in DRG 415, but do not contain one of the following principal diagnosis codes:

  • 958.3, Posttraumatic wound infection, not elsewhere classified
  • 998.51, Infected postoperative seroma
  • 998.59, Other postoperative infection
  • 999.3, Infection complicating medical care, not elsewhere classified

Cases will be assigned to DRG 579 if they were previously assigned to DRG 415 and contain one of the four principal diagnosis codes listed above.

g. Severe Sepsis

Comment: As an alternative to the proposed CS DRGs, commenters recommended a new DRG to identify patients with severe sepsis associated with respiratory failure requiring mechanical ventilation. One commenter suggested using an approach to better recognize severity of illness that is similar to the change CMS implemented in the FYa2006 final rule for major cardiovascular conditions (MCVs). This approach involved examining the MCVs which could be present as either a principal or secondary diagnosis leading to greater severity of illness and resource consumption. Another option suggested by two commenters involved modifying DRGa416 (Septicemia Age >17) so that it would be split based on mechanical ventilation greater than 96 hours (code 96.72). The commenter stated that patients on mechanical ventilation for greater than 96 hours have a greater severity of illness than do those who are not on mechanical ventilation for 96 or more hours. Another commenter recommended considering mechanical ventilation as a pre-MDC DRG on the basis of the mechanical ventilation greater than 96 hours procedure code (96.72) to better recognize patients with a greater severity level. This commenter also provided an option to add systemic infections (038.x) as an acceptable principal diagnosis for DRG 475 when reported in conjunction with mechanical ventilation or tracheostomy. One commenter maintained that the clinical reason to address a new DRG for severe sepsis is related to proper recognition and treatment for this group of patients with a greater degree of severity. This commenter stated clinicians are getting better at understanding the importance of early recognition and treatment. As sepsis presents with organ dysfunction, treatments must be prompt or mortality rapidly increases according to the commenter.

Response: We analyzed data for patients in DRG 416 and 417 who are on mechanical ventilation for 96 or more hours. The following table shows our findings. Start Printed Page 47939

DRGsNumber of casesAverage length of stayAverage charges
DRG 416272,6037.45$28,344.81
DRG 416 With Mechanical Ventilation 96 Hours (96.72)10.36915.5594,994.49
DRG 416 Without Mechanical Ventilation 96 + Hours262,2347.1325,709.42
DRG 417316.3527,131.58
DRG 417 With Mechanical Ventilation 96 + Hours000
DRG 417 Without Mechanical Ventilation 96 + Hours316.3527,131.58

The data clearly show that DRG 416 septicemia patients who are on mechanical ventilation for 96 or more hours have a significantly greater severity of illness level and use greater resources than do other patients in DRG 416. Those patients on mechanical ventilation for 96 or more hours had average charges of $94,994 compared to $25,709 for other patients in DRG 416. We found no cases in DRG 417 with patients who reported mechanical ventilation for 96 or more hours. Therefore, we agree with the commenters that patients in DRG 416 who are on long term mechanical ventilation of 96 or more hours have greater severity of illness and use significantly greater resources. These patients should be assigned to a separate DRG to better reflect their higher severity level. Because we have no data on patients in DRG 417, we are not modifying that DRG at this time. Because the data on DRG 416 are compelling, we are deleting DRG 416 and splitting these cases into two new DRGs based on whether or not the patient is on mechanical ventilation for 96 or more hours. These two new DRGs are as follows:

  • DRG 575 (Septicemia with Mechanical Ventilation 96 + Hours Age >17)
  • DRG 576 (Septicemia without Mechanical Ventilation 96 + Hours Age >17)

Cases will be assigned to DRG 575 when they have a principal diagnosis from current DRG 416 and code 96.72 (Continuous mechanical ventilation for 96 consecutive hours or more). Cases will be assigned to DRG 576 when they have a principal diagnosis from current DRG 416 and do not have code 96.72.

We note that this DRG split is similar to the change we are making in MDC 4, for DRG 475 which was discussed earlier. The creation of these two new DRGs is distinct from the request to create a separate DRG for severe sepsis, which is discussed in section II.D.7. of this final rule.

D. Changes to Specific DRG Classifications

1. Pre-MDCs

a. Heart Transplant or Implant of Heart Assist System: Addition of Procedure to DRG 103

Based on public comments, we are assigning an additional procedure code to DRG 103 (Heart Transplant or Implant of Heart Assist System) under the pre-MDCs. In the FY 2006 IPPS final rule (70 FR 47297), we addressed suggestions concerning the placement of codes for external heart assist systems in DRG 103. Although we found that charges associated with code 37.65 (Implant of external heart assist system) were more than $100,000 lower than the average charges for all cases in DRG 103, we found that there was a subgroup of patients who were comparable in resource use and length of stay to other cases included in DRG 103. Those patients received both the external heart assist device (code 37.65) and later had the device removed (code 37.64, Removal of heart assist system) after a lengthy period of rest and recovery of their native hearts. We note that commenters provided external data 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. These 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 information considered 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 were in our FY 2004 data.

Given the newness of this procedure and the latest generation of this device, 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 patients in DRG 103 than DRG 525 (Other Heart Assist System Implant). Accordingly, in FY 2006, we revised DRG 103 so that both implantation and removal of an external heart assist device in the same hospitalization would group to DRG 103.

However, we did not consider those cases where an external heart assist system is switched during a hospitalization, and replaced with another external heart assist system, that is subsequently removed. The ICD-9-CM coding structure specifies that the replacement of the system be coded to 37.63 (Repair of heart assist system), and not to 37.65. These cases are assigned to DRG 525 not DRG 103 even though the cases are comparable in resources expended, length of stay, etc., to other patients where the device is implanted and explanted during the same hospital stay.

Based on public comments, we believe that DRG 103 should be revised to take this situation into account. Therefore, we are reconfiguring DRG 103 in the following manner: Those patients who have both the replacement of an external heart assist system (code 37.63) and the explantation of that system (code 37.64) prior to the hospital discharge will be assigned to DRG 103.

By making this change, Medicare will be making higher payments for patients who receive both a replacement and an explant of an external heart assist system during a single hospital stay. Our intent in making this change 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 Start Printed Page 47940episode will continue to be assigned to DRG 103.

b. Pancreas Transplants

On July 1, 1999, we issued coverage policy that specified that pancreas transplants were only covered when performed simultaneously with or after a Medicare covered kidney transplant. A noncoverage policy for pancreas transplant remained in effect for patients who had not experienced end stage renal failure secondary to diabetes. On July 29, 2005, we opened a national coverage determination (NCD) to determine whether pancreas transplant alone, that is, without a kidney transplant, is a reasonable and necessary service for Medicare beneficiaries. On April 26, 2006, we published the NCD for pancreas transplants on our Web site at: http://www.cms.hhs.gov/​mcd/​viewncd.asp?​ncd_​id=​260.3&​_​version=​3&​basket=​ncd%3A260%2E3% 3A3%3APancreas+Transplants. The NCD specifies the limited circumstances where the evidence is adequate to conclude that pancreas transplant alone is reasonable and necessary for Medicare beneficiaries.

Medicare coverage of pancreas transplants alone is limited to transplants in those facilities that are Medicare-approved for kidney transplantation. A listing of approved transplant centers can be found at: http://www.cms.hhs.gov/​ESRDGeneralInformation/​02_​Data.asp#TopOfPage. The CMS NCD includes several criteria for the coverage of pancreas transplants alone, including having a diagnosis of Type I diabetes. (We refer readers to section 260.3 of the Medicare National Coverage Manual for the entire language of the NCD.)

Because we had issued a proposed NCD and a final NCD was not expected to be completed until late April 2006 (after completion of the proposed rule), we used the FY 2007 IPPS proposed rule to indicate the coding changes that we would make to DRG 513 (Pancreas Transplant) in FY 2007 if Medicare's final decision memorandum would have continued the program's national noncoverage of pancreas transplants (71 FR 24030). In addition, we also indicated the conforming changes that we would make to the MCE “NonCovered Procedure” edit if Medicare coverage was established for pancreas transplants alone. That discussion was included in section II.D.6. of the preamble of the proposed rule (71 FR 24039), which described proposed changes to the MCE.

Because the April 2006 Medicare final decision memorandum stated that the performance of pancreas transplants alone is reasonable and necessary for Medicare beneficiaries in limited circumstances, the logic for the determination of patient case assignment to DRG 513 in the FY 2006 GROUPER program needs to be modified to remove the requirement that patients also have kidney disease. Therefore, because the NCD was finalized, we are modifying DRG 513 to consist of the following logic: List A (the diabetes codes) of the required principal or secondary diagnosis codes remains the same, as does the required operating room procedures (codes 52.80 (Pancreatic transplant NOS), and 52.82, (Homotransplant of pancreas)). List B is removed from the logic; the following codes will no longer be required as a principal or secondary diagnosis:

  • 403.01, Hypertensive kidney disease, malignant, with chronic kidney disease
  • 403.11, Hypertensive kidney disease, benign, with chronic kidney disease
  • 403.91, Hypertensive kidney disease, unspecified, with chronic kidney disease
  • 404.02, Hypertensive heart and kidney disease, malignant, with chronic kidney disease
  • 404.03, Hypertensive heart and kidney disease, malignant, with heart failure and chronic kidney disease
  • 404.12, Hypertensive heart and kidney disease, benign, with chronic kidney disease
  • 404.13, Hypertensive heart and kidney disease, benign, with heart failure and chronic kidney disease
  • 404.92, Hypertensive heart and kidney disease, unspecified, with chronic kidney disease
  • 404.93, Hypertensive heart and kidney disease, unspecified, with heart failure and chronic kidney disease
  • 585.1, Chronic kidney disease, Stage I
  • 585.2, Chronic kidney disease, Stage II (mild)
  • 585.3, Chronic kidney disease, Stage III (moderate)
  • 585.4, Chronic kidney disease, Stage IV (severe)
  • 585.5, Chronic kidney disease, Stage V
  • 585.6, End stage renal disease
  • 585.9, Chronic kidney disease, unspecified
  • V42.0, Organ or tissue replaced by transplant, kidney
  • V43.89, Organ or tissue replaced by other means, other organ or tissue, other

We note that DRG 513 remains in the pre-MDC hierarchy.

Comment: Five commenters supported the proposed coding changes to DRG 513 and the MCE.

Response: We appreciate the support of the commenters. Accordingly, as the NCD for pancreas transplants alone was approved, in this final rule, we are adopting the changes as described above to DRG 513 and the MCE logic.

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

a. Implantation of Intracranial Neurostimulator System for Deep Brain Stimulation (DBS)

Deep-brain stimulation (DBS) is designed to deliver electrical stimulation to the subthalamic nucleus or internal globus pallidus to ameliorate symptoms caused by abnormal neurotransmitter levels that lead to abnormal cell-to-cell electrical impulses in Parkinson's disease and essential tremor. DBS implants for essential tremor are unilateral, with neurostimulation leads on one side of the brain. DBS implants for Parkinson's disease are bilateral, requiring implantation of neurostimulation leads in both the left and right sides of the brain.

The implantation of a full DBS system requires two types of procedures. First, surgeons implant leads containing electrodes into the targeted sections of the brain where neurostimulation therapy is to be delivered. Second, a neurostimulator pulse generator is implanted in the pectoral region and extensions from the neurostimulator pulse generator are then tunneled under the skin along the neck and connected with the proximal ends of the leads implanted in the brain. Hospitals stage the two procedures required for a full-system DBS implant.

In FY 2005, to better account for these two types of procedures, we revised procedure code 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)) for the lead placement and created three new procedures codes for the pulse generator: 86.94 (Insertion or replacement of single array neurostimulator pulse generator); 86.95 (Insertion or replacement of dual array neurostimulator pulse generator); and 86.96 (Insertion or replacement of other neurostimulator pulse generator). We published the new procedure codes and revised procedure code titles in Tables 6B and 6F of the FY 2005 IPPS final rule (69 FR 49627 and 49641).

In FY 2006, we made further refinements to the pulse generator codes to identify rechargeable pulse generators. We published the new procedure codes and revised procedure code titles in Tables 6B and 6F of the FY 2006 IPPS final rule (70 FR 47637 Start Printed Page 47941and 47639). The current list of pulse generators codes are:

  • 86.94 (Insertion or replacement of single array neurostimulator pulse generator, not specified as rechargeable);
  • 86.95 (Insertion or replacement of dual array neurostimulator pulse generator, not specified as rechargeable);
  • 86.96 (Insertion or replacement of other neurostimulator pulse generator);
  • 86.97 (Insertion or replacement of single array neurostimulator rechargeable generator); and
  • 86.98 (Insertion or replacement of dual array neurostimulator rechargeable generator).

Kinetra® is an implantable dual array neurostimulator pulse generator that is approved for a new technology add-on payment through FYA2006. For more information about the new technology add-on payment, please refer to section II.G.3.a. of this preamble.

Medtronic, the manufacturer of Kinetra®, argues that the new technology add-on payment provision is designed to recognize the higher costs of new medical innovations for the initial period the technology is available on the market, and until the associated costs and charges related to the technology are available in the MedPAR database and can be used to recalibrate the DRG weights. Medtronic also argues that, once a technology is no longer eligible for new technology add-on payments, the new technology add-on payment provision is designed to support the reclassification of the technology to other clinically coherent DRGs with comparable resource costs.

With the conclusion of the new technology add-on payment, Medtronic is concerned that Kinetra® will be inadequately paid in DRG 1 (Craniotomy Age >17 With CC) or DRG 2 (Craniotomy Age >17 Without CC) under MDC 1. Medtronic recommended that CMS reassign the full-system Kinetra® implants to DRG 543 (Craniotomy with Implant of Chemo Agent or Acute Complex CNS Principal Diagnosis) under MDC 1. To accommodate this recommendation, procedure codes 02.93 and 86.95 would have to be reassigned to DRG 543 and the title for DRG 543 would have to be revised to “Craniotomy with Implantation of Major Device or Acute Complex CNS Principal Diagnosis.” Medtronic argued that DRG 543 would be a “clinically-consistent DRG that more appropriately reflects the resource utilization associated with full-system [deep brain stimulation] procedures.” Medtronic also emphasized that its proposal would only apply to full-system Kinetra® implants when both the leads and generators are implanted during a single inpatient stay and procedure codes 02.93 and 86.95 both appear on the claim. Medtronic believes the current DRG assignment is appropriate for partial system implants.

Medtronic provided an analysis of FY 2004 MedPAR data. Procedure code 86.95 was not created until FY 2005 so Medtronic used procedure codes 02.93 and 86.09 (Other incision of skin and subcutaneous tissue) to identify the full system. It identified 193 cases assigned to DRG 1 with average charges of approximately $69,155, and 532 cases assigned to DRG 2 with average charges of approximately $56,113.

In the FY 2007 IPPS proposed rule we indicated that we have reviewed the latest data for the full-system DBS implants assigned to DRG 1 or DRG 2 in the FY 2005 MedPAR file. We identified cases with procedure codes 02.93 and 86.95 for full-system dual array cases. We also identified cases with reported codes 02.93 and 86.96 for those full-system cases where the type of pulse generator was not specified. The following table displays our results:

DRGNumber of casesAverage length of stayAverage charges
DRG 1—All Cases23,0379.61$55,494
DRG 1—Cases with 02.93 and 86.95 (Kinetra®)515.1873,020
DRG 1—Cases with 02.93 and 86.96 (Unspecified)1014.8653,356
DRG 2—All Cases9,7074.4132,791
DRG 2—Cases with 02.93 and 86.95 (Kinetra®)1462.4059,414
DRG 2—Cases with 02.93 and 86.96 (Unspecified)2492.1247,047
DRG 543—All cases5,19211.7171,138

These data showed that approximately one-quarter of the full-system dual array neurostimulator pulse generator cases are assigned to DRG 1 and approximately three-quarters of these cases are assigned to DRG 2. In both DRGs, the average length of stay was shorter for the full-system array neurostimulator pulse generator cases than for all other cases. However, the average charges for the full-system dual array neurostimulator pulse generator cases are approximately $18,000 and $27,000 higher than the average charges for DRGs 1 and 2, respectively. The average charges for these cases in DRG 1 are comparable to those for DRG 543. However, the more commonly occurring cases in DRG 2 have average charges that are less than those in DRG 543 by nearly $12,000. We reviewed all of the procedures that will result in a case being assigned to DRGs 1 and 2. Unlike the full-system DBS implants, we believe for most of the cases assigned to these DRGs, there will be no device cost to the hospital. For this reason, we believe the higher average charges and lower length of stay for cases involving full-system dual array neurostimulator pulse generators are likely accounted for by the cost of the device. While it is possible that the cost of the device itself will make the full-system DBS implants more expensive than other cases in the DRG, the hospital's charge markup may also explain the higher charges but lower average length of stay. As indicated in section II.G.3.a. of this final rule, the national average CCR for medical equipment and supplies is approximately 34 percent. Thus, the actual cost to the hospital of the case including the full-system dual array neurostimulator pulse generator may be much lower than the charges would suggest.

With respect to whether the cost of the technology itself, absent a charge markup, makes the case more expensive, in the FY 2007 IPPS proposed rule, we stated that we intended to address this issue as we make further refinements to the DRG system to address severity of illness as discussed in section II.C. of this preamble.

Comment: Several commenters opposed CMS’ proposed decision to retain the current assignment of implantable dual array neurostimulator pulse generator cases in DRGs 1 and 2. Several commenters stated that CMS should recognize the higher resources associated with this technology and reassign implantable dual array neurostimulator pulse generator cases to DRG 543. Two commenters disagreed Start Printed Page 47942with CMS’ statements that markups associated with Kinetra® may overstate the total charges of the implant procedure. Medtronic submitted information on charge compression in which the company contends that it conclusively finds the hospital charge markups for implantable devices are in fact significantly lower than for other, lower cost supplies and equipment. Medtronic and one other commenter argued that the total charges found in the FY 2005 MedPAR data associated with implantable dual array neurostimulator pulse generator procedures may be understated relative to other procedures in DRG 1, DRG 2 and DRG 543 and that reassignment of this technology to DRG 543 is fully warranted. The commenters stated that the implementation of the CS DRGs should be deferred to at least FY 2008 and not be a factor in CMS’ decision to make DRG reassignments this year.

Response: With regard to the issue of charge compression, we are studying this issue in our effort to improve payment accuracy in the IPPS. The average charges for the 51 cases in DRG 1 where the patient received a dual array neurostimulator are $17,426 or 31 percent higher than the rest of the cases in DRG 1. The average charges are comparable to those for DRG 543 ($73,020 for dual array neurostimulator cases and $71,138 for DRG 543).

The average charges for the 146 cases in DRG 2 are $26,623 or 81 percent higher than the rest of the cases in DRG 2 and only $12,000 less than the average charges for DRG 543. Based on these data, we believe that the dual array neurostimulator cases will be more accurately paid in DRG 543 than DRGs 1 and 2. We will be implementing this change to the DRG assignment for the full-system dual array neurostimulator cases for FY 2007. Implantable dual array neurostimulator pulse generator procedure cases reported with ICD-9-CM procedure codes 02.93 and 86.95 will be reassigned to DRG 543. We are changing the DRG title for DRG 543 to “Craniotomy With Major Device Implant or Acute Complex CNS Principal Diagnosis.”

b. Carotid Artery Stents

Background: 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 the plaque breaking free and lodging in the brain or other arteries leading 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 covered 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, was considered to be a reasonable and necessary service only when provided in the context of such clinical trials and, therefore, was considered a covered service for the purposes of those trials. Performance of PTA in the carotid artery when used to treat obstructive lesions outside of approved protocols governing Category B IDE clinical trials remained noncovered until the release of the October 12, 2004 NCD for PTA of the carotid artery in post-approval studies. This decision extended coverage of PTA in the carotid artery concurrent with placement of an FDA-approved carotid stent for an FDA-approved indication when furnished in accordance with the FDA-approved protocols governing post-approval studies. On March 17, 2005, CMS released an NCD that extended coverage to patients at high risk for carotid endarterectomy (CEA) who also have symptomatic carotid artery stenosis ≥70 percent. Procedures must be performed in CMS-approved facilities and with FDA-approved carotid artery stent(s) with distal embolic protection. (Section 20.7 of the NCD manual which discusses this decision may be viewed at the Web site: http://www.cms.hhs.gov/​manuals/​downloads/​ncd103c1_​Part1.pdf.

Placement of a carotid artery stent in patients who have had a disabling stroke (modified Rankin scale ≥3) is excluded from coverage.

We established codes for carotid artery stent procedures for use with discharges occurring on or after October 1, 2004, for inpatients who were enrolled in an FDA-approved clinical trial and who were 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 clinical 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). Code 00.63 is not considered a procedure code itself and should be used in combination with code 00.61.

Based on the results of evaluation of PTA and carotid stents for our FY 2006 final rule (70 FR 47300, August 12, 2005), we did not find sufficient evidence to warrant a DRG change at that time.

We again reviewed the PTA and insertion of a carotid stent(s) for the FY 2007 proposed rule, as manufacturer representatives suggested that we assign all carotid stenting cases to DRG 533 only, bypassing DRG 534. As we indicated in the FY 2007 IPPS proposed rule (71 FR 24032), we reviewed the FY 2005 MedPAR data on all cases in DRGs 533 and 534 and on those cases containing code 00.61 in combination with 00.63. The following table displays those results:

DRGNumber of casesAverage length of stay (Days)Average charges
DRG 533—All cases44,0313.65$26,376
DRG 533 with codes 00.61 and 00.63 reported2,4002.9433,344
DRG 533 with code 00.61 and without 00.63995.9546,591
DRG 534—All cases40,3811.7217,196
DRG 534 with codes 00.61 and 00.63 reported2,0561.5225,000
Start Printed Page 47943
DRG 534 with code 00.61 and without 00.63552.3127,895

We found that 5.5 and 5.1 percent of the cases in DRGs 533 and 534, respectively, involved placement of a carotid artery stent. In DRG 533, the average length of stay was 19.4 percent shorter for the carotid stenting cases than for all other cases. In DRG 534, the average length of stay was 11.6 percent shorter for the carotid stenting cases than for all other cases. However, the average charges for the carotid stent cases were higher by $6,968 in DRG 533 and $7,804 in DRG 534. We reviewed all of the procedures that would result in a case being assigned to DRGs 533 and 534. Unlike the carotid artery stent placements, we believe that, for most of the other cases assigned to these DRGs, there will be no device cost to the hospital. For this reason, we believe the higher average charges and lower length of stay for the cases involving carotid artery stents could be accounted for by the cost of the device. We discussed the possibility that the cost of the device itself makes the stent cases more expensive than other cases in the DRG, and that the hospital's charge markup may also explain the higher charges but lower average length of stay. We also suggested that we intended to address this issue as we make further refinements to the CS DRG system previously described. The use of a carotid stent or stents may increase complexity and resource use even though the patient is not necessarily more severely ill. We indicated that we believed that the CS DRG system we proposed would need to be further refined to assign cases based on complexity as well as severity to account for technologies such as carotid stents that increase costs. For this reason, we did not propose a change to the current DRG assignment for these cases.

Comment: More than a dozen commenters addressed this topic. State hospital associations, in particular, were unanimous in their recommendation that all carotid stenting cases should immediately be assigned only to DRG 533, bypassing DRG 534 entirely. The commenters suggested this solution to increase payments to hospitals in order that the higher costs associated with carotid stents are recognized within the existing DRG system.

Response: We are opposed to this suggestion. The DRGs comprise a native structure of the types of patients within each DRG category. Further, this structure is based on an organizing principle. For example, cases in DRGs 533 and 534 are organized on the principle of surgical approach (extracranial procedures) as well as the presence or absence of CCs. To ignore the structure of the DRG solely for the purpose of increasing payment would set an unwelcome precedent for defining all of the other DRGs in the system.

Comment: Several commenters mentioned that, while CMS suggested that the higher average charges and lower lengths of stay for cases involving carotid artery stents are likely accounted for by the cost of the device, CMS provided no evidence to support this assertion.

Response: The average length of stay for patients in DRGs 533 and 534 with the placement of carotid stent(s) are 19.4 and 11.6 percent shorter than the other patients assigned to DRGs 533 and 534, respectively. Therefore, a long length of stay is not the reason for the higher average charges. We based our assertion on the contribution of the cost of the device to the total cost of the patients in these DRGs compared to other cases in the DRG with longer lengths of stay. We note that the next comment suggests that our analysis is correct that the higher charges for the carotid artery stent cases relative to other cases in the DRG are, in part, associated with higher supply costs.

Comment: One commenter suggested that CMS create a new pair of DRGs with and without MCVs until the adequacy of payment under the severity adjustment methodology is fully assessed. This commenter noted that, while length of stay and operating room costs are lower for carotid stenting, supply and radiology charges associated with the stent and the angiography are higher, resulting in higher overall costs for carotid stenting.

Response: While we recognize the creativity of this approach, we note that the MCVs are applicable to cases in MDC 5 (Diseases and Disorders of the Circulatory System), while DRGs 533 and 534 are in MDC 1 (Diseases and Disorders of the Nervous System). Such an approach for MDC 1 might have merit, but we would want to evaluate the entire MDC thoroughly before creating such a list of complicating diagnoses. We will further consider this concept as we evaluate severity DRG systems for adoption in FY 2008.

Comment: One commenter, while urging CMS to reconsider our decision not to assign all carotid cases to DRG 533, noted that the current National Coverage Determination on CAS [Carotid Artery Stenting] very clearly states that only those patients who are at high risk for [open] surgery due to the presence of a detailed list of complications or comorbidities are eligible for carotid artery stenting. Therefore, by CMS’ own characterization, all patients undergoing carotid artery stenting have complications and comorbidities and should be assigned to DRG 533.

Response: This assumption is theoretically correct. However, the detailed list of comorbidities or anatomical risk factors that are required to support the surgeon's decision to perform carotid stenting instead of a carotid endarterectomy is not the same as the CMS list of CCs. For example, amaurosis fugax, code 362.34 (Transient arterial occlusion) is recognized as a risk factor which would justify carotid stenting, but is not recognized by the CMS GROUPER as a diagnosis defined as a CC.

Comment: Several commenters suggested that CMS create two new DRGs for the carotid stent cases.

Response: We note that the number of procedures has increased from the data reported in the FY 2006 IPPS final rule (70 FR 47300), thus indicating acceptance of this procedure by the medical community as a main-stream surgical alternative. In FY 2006, as the specific codes for carotid stenting had only been in use since October 1, 2004, we used the existing codes 39.50 (Angioplasty or atherectomy of other noncoronary vessel(s)) and 39.90 (Insertion of non-drug-eluting peripheral vessel stent(s)), in combination with principal diagnosis code 433.10 (Occlusion and stenosis of carotid artery, without mention of cerebral infarction) as a proxy for the number of cases involved in clinical trials. In DRG 533, we had 1,586 cases with the proxy codes reported, and in DRG 534, there were 1,397 cases. In FY 2005, the patients represented 3.5 percent and 3.3 percent of all cases in DRGs 533 and 534, respectively. That figure has now climbed to 2,400 cases Start Printed Page 47944and 2,056 cases, and 5.5 percent and 5.1 percent, respectively.

In addition, the difference in the average charges are 26 percent higher for carotid artery stent cases in DRG 533 than for the average charges in all cases in that DRG, and 45 percent higher using the same parameters for DRG 534. We believe these data are compelling enough to warrant creation of a new DRG.

Accordingly, we are creating DRG 583 (Carotid Artery Stent Procedure). This DRG will be located in MDC 1, and will be hierarchically ordered above DRGs 533 and 534. DRG 583 will contain two procedure codes. Code 00.61 will determine the DRG, and will be combined with code 00.63. Both codes must be reported in order for cases to be assigned to this DRG.

We are not splitting this DRG based on the presence or absence of a CC as suggested by the commenters. One criterion for splitting a DRG based on the presence or the absence of a CC is that it must have an impact of at least $40 million. In this situation, the overall average of the charges for all cases in DRGs 533 and 534 is $30,193. We then subtracted the actual average charges for only the carotid stent cases in both DRGs 533 and 534, and multiplied that figure by the actual number of cases. For DRG 533 and DRG 534, we estimate an impact of approximately $10 million each. Added together, the total impact would be $20 million, falling short of our threshold of a $40 million impact to create a CC/non-CC split. Therefore, we are not creating a CC/non-CC split in the DRG for carotid artery stenting at this time.

We reiterate that coverage of the carotid artery stent procedure is limited to patients at risk of developing a stroke due to narrowing or stenosis of the carotid artery. Diagnosis code 433.10 (Occlusion and stenosis of carotid artery without mention of cerebral infarction) should be used to identify the site of the procedure in the carotid artery. If it is necessary to identify bilateral occlusion or stenosis, diagnosis code 433.30 (Occlusion and stenosis of multiple and bilateral arteries without mention of cerebral infarction) may also be used. These codes should be used together, as code 433.30 contains arterial sites that are not currently covered for Medicare patients. Reporting of code 433.30 alone will cause the case to fail the editing system at the fiscal intermediary, and the case could be denied.

Inclusion of the fifth digit of “1” (with cerebral infarction) with either 433.1x or 433.3x will cause the claim to be rejected.

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

a. Insertion of Epicardial Leads for Defibrillator Devices

As we indicated in the FY 2007 IPPS proposed rule (71 FR 24033), we received a comment indicating that a change in coding advice for the insertion of epicardial leads for CRT-D defibrillator devices affects DRG assignment. The commenter noted that the Third Quarter 2005 issue of the American Hospital Association's publication Coding Clinic for ICD-9-CM instructs coders to assign code 37.74 (Insertion or replacement of epicardial lead [electrode] into atrium) for pacemaker or defibrillator leads inserted through use of a thoracotomy into the epicardium. While the use of code 37.74 is standard coding practice for pacemakers, the advice is new for defibrillators. This coding advice was discussed at the ICD-9-CM Coordination and Maintenance Committee meeting held on September 29 and 30, 2005. Participants at the Committee meeting proposed modifications for the code category 37.7 (insertion, revision, replacement, and removal of pacemaker leads; insertion of temporary pacemaker system; and revision of cardiac device pocket). These modifications involved expanding the category so that the codes for leads would no longer be restricted to pacemakers. This change would guide coders to use code 37.74 for the insertion of epicardial leads for both defibrillators and pacemakers for the ICD-9-CM and will become effective on October 1, 2006.

The commenter indicated that this coding advice would restrict some defibrillator cases from being assigned to the defibrillator DRGs. Specifically, the commenter expressed concerns about the DRG logic for the following DRGs:

  • DRG 515 (Cardiac Defibrillator Implant without Cardiac Catheter)
  • DRG 535 (Cardiac Defibrillator Implant with Cardiac Catheter with AMI/Heart Failure/Shock)
  • DRG 536 (Cardiac Defibrillator Implant with Cardiac Catheter without AMI/Heart Failure/Shock)

Cases are assigned to one of these three DRGs when a total defibrillator system, including both the device and one or more leads, is implanted. The implant could be represented by the ICD-9-CM codes for the total system, that is, code 00.51 (Implantation of cardiac resynchronization defibrillator, total system [CRT-D]) or code 37.94 (Implantation or replacement of automatic cardioverter/defibrillator, total system [AICD]). Cases can also be assigned to DRGs 515, 535, and 536 when a combination of a device and a lead code is reported. The following combinations of defibrillator device and lead codes are present in the current DRG logic:

  • 00.52 (Implantation or replacement of transvenous lead [electrode] into left ventricular coronary venous system) and 00.54 (Implantation or replacement of cardiac resynchronization defibrillator, pulse generator device only [CRT-D])
  • 37.95 (Implantation of automatic cardioverter/defibrillator lead(s) only) and 00.54 (Implantation or replacement of cardiac resynchronization defibrillator, pulse generator device only [CRT-D])
  • 37.95 (Implantation of automatic cardioverter/defibrillator lead(s) only) and 37.96 (Implantation of automatic cardioverter/defibrillator pulse generator only)
  • 37.97 (Replacement of automatic cardioverter/defibrillator lead(s) only) and 00.54 (Implantation or replacement of cardiac resynchronization defibrillator, pulse generator device only [CRT-D])
  • 37.97 (Replacement of automatic cardioverter/defibrillator lead(s) only) and 37.98 (Replacement of automatic cardioverter/defibrillator pulse generator only)

A DRG logic issue has arisen concerning the instruction to use code 37.74 for epicardial leads inserted with CRT-D defibrillators. The new combination of a defibrillator device with an epicardial lead (code 37.74) is not included in DRGs 515, 535, and 536. The commenter recommended that the following combinations be added to DRGs 515, 535, and 536 so that all types of defibrillator device and lead combinations would be included: code 37.74 and code 00.54; code 37.74 and code 37.96; and code 37.74 and code 37.98.

We agree that these three combinations should be added to the list of combination codes included in DRGs 515, 535, and 536. This change would result in all combinations of defibrillator devices and leads being assigned to one of the defibrillator DRGs. Therefore, in the FY 2007 IPPS proposed rule, we proposed to add these three combinations to the list of procedure combinations under DRGs 515, 535, and 536.

Comment: A number of commenters supported adding the new combinations of defibrillator devices with the epicardial leads to DRGs 515, 535, and 536. One commenter stated that this change would bring the DRGs into Start Printed Page 47945alignment with the change in coding advice to assign code 37.74 in conjunction with implantation of CRT-D defibrillators.

Response: We appreciate the support of commenters and agree that this change would bring the DRGs into alignment with the change in coding advice.

In this final rule, we are adding the following combinations of device and lead codes to DRGs 515, 535, and 536: code 37.74 and code 00.54; code 37.74 and code 37.96; and code 37.74 and code 37.98.

b. Application of Major Cardiovascular Diagnoses (MCVs) List to Defibrillator DRGs

In the FY 2006 IPPS final rule (70 FR 47289 and 47474 through 47479), we addressed a comment we had received in response to the FY 2006 proposed rule which 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 have high relative profitability ratios.” While the commenter acknowledged 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 refinement as part of the IPPS final rule effective for FY 2006.

In response to this comment, we performed an extensive review of the cardiovascular DRGs in MDC 5, particularly those DRGs that were commonly billed by specialty hospitals. We observed that there was some overlap between the lists of cardiovascular complications and complex diagnoses and that these lists were already used to segregate patients into DRGs that used greater resources. Because the hospital industry already was familiar with the major complication and complex diagnosis lists used within the cardiovascular DRGs, we began our analysis with these two overlapping lists.

The two lists were originally developed for the current DRG system because they contained conditions that could have an impact on the resources needed to treat a patient with cardiovascular complications. Many of the conditions were cardiovascular diagnoses and, therefore, would be classified to MDC 5. However, we determined that some of the diagnoses were not cardiovascular, but would still have an impact on a patient with cardiovascular complications. The conditions that were not cardiovascular diagnoses were not assigned to MDC 5 if they were the principal diagnosis.

We reviewed the conditions on the two overlapping lists and identified conditions that we believed would lead to a more complicated patient stay requiring greater resource use. We referred to these conditions as “major cardiovascular conditions (MCVs).” The MCVs could be present as either a principal diagnosis or a secondary diagnosis and lead to greater resource consumption. The complete list of MCVs was published in the FY 2006 IPPS final rule (70 FR 47477 and 47478).

In the FY 2006 IPPS final rule, we also adopted new DRGs 547 through 558, effective October 1, 2005 (70 FR 47475 and 47476). However, we emphasized that the refinements to the DRGs were being taken as an interim step to better recognize severity in the DRG system for FY 2006 until we could complete a more comprehensive analysis of the APR DRG system and the CC list as part of a complete analysis of the MedPAC recommendations that we planned to perform for FY 2007 (and which was addressed in section II.C. of the preamble of the FY 2007 proposed rule).

Since publication of the FY 2006 IPPS final rule, we have received a question from a commenter as to why we did not apply the MCV list to the following defibrillator DRGs: 515, 535, and 536. The commenter noted that the pacemaker DRGs were revised using the MCV list, but the defibrillator DRGs were not.

As noted above, for FY 2006, we created new DRGs 546 through 558 to identify cases with more costly and severely ill patients as an interim step to evaluating severity DRGs. We analyzed for the first time last year data on cases within MDC 5 and presented data that showed significant difference for patients in certain DRGs based on the presence or absence of an MCV. This split did not work for the defibrillator DRGs, as we could not identify groups with significantly different resource use. For instance, splitting DRG 515 based on the presence of an MCV would lead to two groups with differences in charges of only $3,430 ($89,341 for those with an MCV and $85,911 for those without an MCV). In the data we displayed in the FY 2006 IPPS final rule, the differences for DRGs selected for an MCV split ranged from $10,319 to $21,035. Splitting DRG 515 based on an MCV would produce a difference in charges of only 10.1 percent as compared to differences of 28.7 to 47.7 percent for DRGs 547 through 558. Therefore, the data did not support including DRG 515 among those split based on the presence or absence of an MCV. Similar results were found when DRG 536 was split by an MCV. There was only an 8.1 percent difference in charges between the two groups. We also identified other problems with splitting DRG 535 based on the presence or absence of an MCV. Some of the codes a claim must include for the case to be grouped to DRG 535 under our current system are also codes on the MCV list. Therefore, applying the MCV list to DRG 535 would result in all cases being assigned to the DRG with an MCV and none to the DRG without an MCV. For these reasons, we did not subdivide DRGs 515, 535, and 536 based on the presence or absence of an MCV.

In the FY 2007 IPPS proposed rule, we indicated that we had decided not to propose additional refinements of the DRGs based on MCVs for FY 2007 because of our efforts to propose a broader refinement of the DRG system, as discussed in detail in section II.C. of the proposed rule. However, as discussed further in section II.C. of the preamble of the proposed rule, we solicited comments on whether it would be appropriate in FY 2007 to apply a clinical severity concept to an expanded set of DRGs, similar to the approach we used in FY 2006 to refine cardiac DRGs based on the presence or absence of an MCV.

Comment: Commenters agreed with the recommendation that we not subdivide DRGs 515, 535, and 536 based on MCV. However, one commenter expressed concerns about how the current DRGs were achieving their goal of identifying patients with greater severity of illness. Other commenters opposed the proposal to delay refining defibrillator DRGs based on MCVs. These commenters believed it was appropriate for CMS to apply a clinical severity concept similar to the approach used in FY 2006 to refine cardiac DRGs to an expanded set of DRGS (for example, defibrillator DRGs) based on the presence or absence of an MCV.

Response: We agree with the commenters who suggested that our goal should be to reform the Medicare DRG system to develop a better means of capturing severity of illness and complexity. As discussed in section II.C. of the preamble of the proposed rule, we solicited comments on whether it would be appropriate in FY 2007 to apply a clinical severity concept to an expanded set of DRGs, similar to the approach we used in FY 2006 to refine cardiac DRGs based on the presence or absence of an MCV. As discussed in section II.C.7., we are implementing revisions to the Start Printed Page 47946current DRGs to better recognize severity of illness. However, the analysis we have performed to this point does not support splitting defibrillator DRGs based on the presence or absence of an MCV. As stated earlier, simply applying the MCVs to the defibrillator DRGs in DRGs 515, 535, and 536 would not lead to significant improvements for DRG 515. Applying the MCV list to DRG 535 would result in all cases being assigned to the DRG with an MCV and none to the DRG without an MCV. For these reasons, we did not subdivide DRGs 515, 535, and 536 based on the presence or absence of an MCV.

While we did not find additional severity improvements for defibrillator cases, we will continue to study this area and look for further improvements.

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

a. Hip and Knee Replacements

In the FY 2006 final rule (70 FR 47303), we deleted DRG 209 (Major Joint and Limb Reattachment Procedures of Lower Extremity) and created new DRGs 544 (Major Joint Replacement or Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee Replacement) to help resolve payment issues for hospitals that perform revisions of joint replacements because we found revisions of joint replacements to be significantly more resource intensive than original hip and knee replacements. 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 or ankle reattachment
  • 84.28, Thigh reattachment

DRG 545 includes the following procedure 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

In the FY 2006 IPPS final rule (70 FR 47305), we indicated that the American Association of Orthopaedic Surgeons had requested that, once we receive claims data using the two DRG procedure code assignments, we closely examine data from the use of the codes under the two DRGs to determine if future additional DRG modifications are needed.

After publication of the FY 2006 IPPS final rule, a number of hospitals and coding personnel advised us that the DRG logic for DRG 471 (Bilateral or Multiple Major Joint Procedures of Lower Extremity), which utilizes the new and revised hip and knee procedure codes under DRGs 544 and 545, also includes codes that describe procedures that are not bilateral or that do not involve multiple major joints. DRG 471 was developed to include cases where major joint procedures such as revisions or replacements were performed either bilaterally or on two joints of one lower extremity. We changed the logic for DRG 471 last year for the first time when we added the new and revised codes. The commenters indicated that, by adding the more detailed codes that do not include total revisions or replacements to the list of major joint procedures to DRG 471, we are assigning cases to DRG 471 that do not have bilateral or multiple joint procedures. For example, when a hospital reports a code for revision of the tibial component (code 00.81) and patellar component of the right knee (code 00.83), the current DRG logic assigns the case to DRG 471. The commenters indicated that this code assignment is incorrect because only one joint has undergone surgery, but two components were used. One commenter indicated that ICD-9-CM does not identify left/right laterality. Therefore, it is difficult to use the current coding structure to determine if procedures are performed on the same leg or on both legs. The commenters raised a concern about whether CMS intended to pay hospitals using DRG 471 for procedures performed on one joint. The commenters indicated that the DRG assignments for these codes would also make future data analysis misleading. The commenters recommended removing codes from DRG 471 that do not specifically identify bilateral or multiple joint procedures.

We agree that the new and revised joint procedure codes should not be assigned to DRG 471 unless they include bilateral and multiple joints. Therefore, in the FY 2007 IPPS proposed rule (71 FR 24035), we proposed to remove the following codes from DRG 471:

  • 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
  • 00.81, 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 total knee replacement, tibial insert (liner)
  • 81.53, Revision of hip replacement, not otherwise specified
  • 81.55, Revision of knee replacement, not otherwise specified

The proposed revised DRG 471 would then contain only the following codes:

  • 00.70, Revision of hip replacement, both acetabular and femoral components
  • 00.80, Revision of knee replacement, total (all components)
  • 81.51, Total hip replacement
  • 81.52, Partial hip replacement
  • 81.54, Total knee replacement
  • 81.56, Total ankle replacement

We proposed to assign the codes removed from DRG 471 (codes 00.71, 00.72, 00.73, 00.81, 00.82, 00.83, 00.84, 81.53, and 81.55) to DRG 545 when used either alone or in combination. This list of codes removed from DRG 471 and added to DRG 545 includes partial revisions of the knee and hip as well as unspecified joint procedures such as code 81.55 where it is not clear if the revision is total or partial.

Comment: Several comments supported our proposals to remove codes 00.71, 00.72, 00.73, 00.81, 00.82, 00.83, 00.84, 81.53, and 81.55 from the combinations assigned to DRG 471 and assign cases with these codes to DRG 545. The commenters agreed that these codes should be removed from DRG 471 because they do not represent bilateral and multiple joint revisions or replacements.

Response: We appreciate the commenters support to remove codes 00.71, 00.72, 00.73, 00.81, 00.82, 00.83, 00.84, 81.53, and 81.55 from the combinations assigned to DRG 471. These cases will be assigned to DRG 545.

We are finalizing the changes to DRG 471 and DRG 545 that we proposed. Start Printed Page 47947Further, as we indicated in the proposed rule, we plan to perform extensive data analysis on the new and revised joint procedure codes as we receive billing data to determine if future refinements of these DRGs are needed. In addition, as indicated in section II.C. of the preamble of the proposed rule, we are planning in the future to adopt a revised DRG system for the IPPS that addresses severity of illness. We encouraged commenters to evaluate how the new and revised joint procedures should be addressed in such a revised system. We received comments indicating that the CS DRGs that we proposed do not distinguish between patients receiving an original joint replacement from a revision. As we indicate elsewhere in this final rule, we will evaluate these issues as we develop our plans for adopting a revised DRG system that addresses severity of illness.

b. Spinal Fusion

In the FY 2006 IPPS final rule (70 FR 47307), we created new DRG 546 (Spinal Fusions Except Cervical with Curvature of the Spine or Malignancy). DRG 546 is composed of all noncervical spinal fusions previously assigned to DRGs 497 (Spinal Fusion Except Cervical with CC) and 498 (Spinal Fusion Except Cervical without CC) that have a principal or secondary diagnosis of curvature of the spine or a principal diagnosis of a malignancy. The principal diagnosis codes that lead to DRG 546 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 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

After publication of the FY 2006 IPPS final rule, we received a comment stating that creating new DRG 546 was insufficient to address clinical severity and resource differences among spinal fusion cases that involve fusing multiple levels of the spine. Specifically, the commenter suggested that the spinal fusion DRGs be further modified to incorporate Bone Morphogenic Protein (BMP), code 84.52 (Insertion of recombinant bone morphogenetic protein). The commenter also suggested that CMS apply a clinical severity concept to all back and spine surgical cases similar to the approach that we used for the MCVs to refine the cardiac DRGs in the final rule for FY 2006. The commenter recommended recognizing additional conditions that reflect higher resource needs, regardless of whether they are principal or secondary diagnoses. The commenter also suggested that the spine DRGs be further subdivided based on the use of specific spinal devices such as artificial discs. These changes would entail the creation of 10 new spine DRGs in addition to other changes requested.

Response: We agree that it is important to recognize severity when classifying patients into specific DRGs. In response to recommendations made by MedPAC last year that are discussed in section II.C. of this final rule, we are conducting a comprehensive analysis of the entire DRG system to determine whether to undertake significant reform to better recognize severity of illness. At this time, we believe it is premature to develop a severity adjustment for spine surgeries while we are considering a more systematic approach to capturing severity of illness across all DRGs. We also believe it would be premature to make revisions to DRG 546 because this DRG was created on October 1, 2005, and we do not yet have data to analyze its impact. Given the number of innovations occurring in spinal surgery over the last several years (for example, artificial spinal disc prostheses, kyphoplasty, and vertebroplasty), we agree that additional analysis of the spine DRGs would be warranted if we were to continue with the current DRG system and not adopt CS DRGs. However, as discussed above, in the FY 2007 IPPS proposed rule, we proposed to develop a severity-adjusted DRG system. For this reason, we are not further researching this issue for FY 2007. However, in the proposed rule, we encouraged commenters to examine the proposed CS DRG system described in section II.C. of the preamble of the proposed rule to determine whether there is a better recognition of severity of illness and resource use in that system.

Comment: One commenter stated that it was premature to consider splitting the spinal fusion DRGs into potentially up to 10 new DRGs at this time. The commenter stated there is a need for additional data analysis prior to recommending new DRGs.

Response: We agree with the commenter that it is premature to consider splitting the spinal fusion DRGs into as many as 10 new DRGs. We will continue to study this area. In the meantime, we will not modify the spinal fusion DRGs for October 1, 2006.

c. CHARITETM Spinal Disc Replacement Device

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. On October 1, 2004, we created new procedure codes for the insertion of spinal disc prostheses (codes 84.60 through 84.69). We provided the DRG assignments for these new codes in Table 6B of the FY 2005 IPPS proposed rule (69 FR 28673). We received comments on the FY 2005 proposed rule recommending that we change the assignments for these codes from DRG 499 (Back and Neck Procedures Except Spinal Fusion With CC) and DRG 500 (Back and Neck Procedures Except Spinal Fusion Without CC) to the DRGs for spinal fusion, DRG 497 (Spinal Fusion Except Cervical With CC) and DRG 498 (Spinal Fusion Except Cervical Without CC) for procedures on the lumbar spine and to Start Printed Page 47948DRGs 519 and 520 for procedures on the cervical spine. In the FY 2005 IPPS final rule (69 FR 48938, August 11, 2004), we indicated that DRGs 497 and 498 are limited to spinal fusion procedures. Because the surgery involving the CHARITETM Artificial Disc 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.

In the FY 2006 final rule (70 FR 47353, August 12, 2005), we noted that, if a product meets all of the criteria for Medicare to pay for the product as a new technology under section 1886(d)(5)(K) of the Act, 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 or costs. However, for FY 2006, we did not find that the CHARITETM Artificial Disc met the substantial clinical improvement criterion and, thus, did not qualify as a new technology. Consequently, we did not address the DRG classification request made under the authority of this provision of the Act.

However, we did evaluate whether to reassign the CHARITETM Artificial Disc to different DRGs using the Secretary's authority under section 1886(d)(4) of the Act (70 FR 47308, August 12, 2005). We indicated that we did not have Medicare charge information to evaluate DRG changes for cases involving an implant of a prosthetic intervertebral disc like the CHARITETM and did not make a change in its DRG assignments. We stated that we would consider whether changes to the DRG assignments for the CHARITETM Artificial Disc were warranted for FY 2007, once we had information from Medicare's data system that would assist us in evaluating the costs of these patients.

As we discussed in the FY 2007 IPPS proposed rule (71 FR 24036), we received correspondence regarding the DRG assignments for the CHARITETM Artificial Disc, code 84.65 (Insertion of total spinal disc prosthesis, lumbosacral). The commenter had previously submitted an application for the CHARITETM Artificial Disc for new technology add-on payments for FY 2006 and had requested a reassignment of cases involving CHARITETM implantation to DRGs 497 and 498. The commenter asked that we examine claims data for FY 2005 and reassign procedure code 84.65 from DRGs 499 and 500 into DRGs 497 and 498. The commenter again stated the view that cases with the CHARITETM Artificial Disc reflect comparable resource use and similar clinical indications as do those in DRGs 497 and 498. If CMS were to reject reassignment of the CHARITETM Artificial Disc to DRGs 497 and 498, the commenter suggested creating two separate DRGs for lumbar disc replacements.

On February 15, 2006, we posted a proposed national coverage determination (NCD) on the CMS Web site seeking public comment on our proposed finding that the evidence is not adequate to conclude that lumbar artificial disc replacement with the CHARITETM Artificial Disc is reasonable and necessary. The proposed NCD stated that lumbar artificial disc replacement with the CHARITETM Artificial Disc is generally not indicated in patients over 60 years old. Further, it stated that there is insufficient evidence among either the aged or disabled Medicare population to make a reasonable and necessary determination for coverage. With an NCD pending to make spinal arthroplasty with the CHARITETM Artificial Disc noncovered, we indicated in the FY 2007 IPPS proposed rule that we did not believe it was appropriate at that time to reassign procedure code 84.65 from DRGs 499 and 500 to DRGs 497 and 498.

After considering the public comments and additional evidence received, we made a final NCD on May 16, 2006, that Medicare would not cover the CHARITETM Artificial Disc for the Medicare population over 60 years of age. For Medicare beneficiaries 60 years of age and under, local Medicare contractors have the discretion to determine coverage for lumbar artificial disc replacement procedures involving the CHARITETM Artificial Disc. The final NCD can be found at: http://www.cms.hhs.gov/​mcd/​viewncd.asp:ncd_​;​id-150.10&​ncd_​version1&​basket=​ncd%3A150%2E10%3A1%3ALumbar+​Artificial+​Disc+​Replacement%280ADR%29.

Comment: Some commenters agreed with our proposed decision not to reassign CHARITETM Artificial Disc at this time to the spinal fusion DRGs. Other commenters disagreed with our proposal not to move code 84.65 (CHARITETM) from DRGs 499 and 500 to DRGs 497 and 498. One commenter noted that the national noncoverage determination for the CHARITETM Artificial Disc only applies to patients over 60 years of age. The commenter further noted that local Medicare carriers have the discretion to make coverage decisions for Medicare beneficiaries who are under 60 years of age. The commenter stated that patients who receive the CHARITETM Artificial Disc are candidates for a fusion procedure involving an anterior surgical approach. The commenter goes on to state that the CHARITETM Artificial Disc is an alternative therapy to spinal fusion for patients with similar diagnoses. The commenter supplied data from FY 2005 MedPAR file in support of its request for a DRG change. These data included 54 cases that were assigned to DRGs 499 and 500. The 23 cases in DRG 499 had mean charges of $61,750, while the 31 cases assigned to DRG 500 had mean charges of $53,802. These data compare to mean charges of $26,974 for all cases in DRG 499 and $17,731 for all cases in DRG 500. The commenter reported mean charges of $71,581 for DRG 497 and $55,489 for DRG 498. The commenter stated that the 54 CHARITETM cases are more similar in average charges to all cases in DRGs 497 and 498 than to DRGs 499 and 500.

Response: We agree with the commenter that it is not appropriate to consider a DRG revision at this time for the CHARITETM Artificial Disc, given the recent decision to limit coverage for surgical procedures involving this device. Although we have reviewed the Medicare charge data, we are concerned that there are a very small number of cases for patients under 60 years of age who have received the CHARITETM Artificial Disc. We believe it appropriate to base the decision on a DRG change on charge data only on the population for which the procedure is covered. We have an extremely small number of cases for patients under 60 on which to base such a decision. For this reason, we do not believe it is appropriate to modify the DRGs at this time for CHARITETM cases.

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

In FYs 2005 and 2006, we considered requests for the creation of a separate DRG for the diagnosis of severe sepsis. 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. In both FY 2005 and FY 2006 (69 FR 48975 and 70 FR 47309), we did not believe the current clinical definition of Start Printed Page 47949severe sepsis was 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, in the past we have not found 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 create a new DRG for severe sepsis for FY 2005 or FY 2006. We indicated that we would continue to work with National Center for Health Statistics (NCHS) to improve the codes so that our data on these patients improve. We also indicated that we would continue to examine data on these patients as we consider future modifications.

For the FY 2007 IPPS proposed rule, we again received a request to consider creating a separate DRG for patients diagnosed with severe sepsis (71 FR 24037). The information and data available to us from hospital bills with respect to identifying patients with severe sepsis have not changed since last year. However, the NCHS discussed modifications to the current ICD-9-CM diagnosis codes for systemic inflammatory response syndrome (SIRS), codes 995.91 through 995.94 (which include severe sepsis) at the September 29-30, 2005 ICD-9-CM Coordination and Maintenance Committee meeting. During the meeting, it became clear that there is still confusion surrounding the use of these codes. As a result of the meeting and the comments received, the Committee made modifications to the set of SIRS codes. These modifications are reflected in Table 6E, Revised Diagnosis Code Titles, of the Addendum to this final rule.

We believe that implementation of the modified SIRS diagnosis codes and the updated coding guidelines over the next year could begin the process of improving data for this group of patients. The desired outcome is to be able to better evaluate Medicare beneficiaries with severe sepsis with regard to their clinical coherence, resource utilization, and charges. Therefore, in the FY 2007 IPPS proposed rule, we did not propose to create a new DRG for severe sepsis for FY 2007.

Comment: Numerous commenters asked for changes to the current sepsis classification. The commenters agreed that coding of systemic inflammatory response syndrome (SIRS), sepsis, septicemia, severe sepsis, and septic shock has been confusing to the provider community in the last few years. Specifically, one commenter stated coding guidelines have been revised based on clinical definitions, which in turn has affected the DRG classification for sepsis. Another commenter referenced the ICD-9-CM Code Book tabular section and the American Hospital Association's (AHA) fourth quarter (4Q) 2003 Coding Clinic, “for patients with severe sepsis, the code for the systemic infection (038.x) or trauma should be sequenced first, followed by either code 995.92 (Systemic Inflammatory Response Syndrome due to infectious process with organ dysfunction) or code 995.94 (Systemic inflammatory response syndrome due to noninfectious process with organ dysfunction). Codes for the specific organ dysfunction should also be assigned.” The commenter stated that as a result of this coding guideline, respiratory failure cannot be sequenced as the principal diagnosis because it is considered an organ dysfunction of the patient's sepsis. However, reverting sequencing instructions would be confusing and again disrupt the data according to some of the commenters. As a result, many commenters stated that a new DRG for severe sepsis is not appropriate due to the inconsistent data.

Response: We agree that there has been a great deal of confusion in the coding and sequencing of cases with severe sepsis and SIRS. The commenters are correct that the coding directives lead cases with severe sepsis that are on mechanical ventilation for respiratory failure to be assigned to DRG 416 (Septicemia Age >17) and DRG 417 (Septicemia Age 0 >17) instead of DRG 475 (Respiratory System Diagnosis with Ventilator Support). As stated in the proposed rule, we have continued to work with NCHS to improve the codes so that our data on these patients improve. We believe that implementation of the modified SIRS diagnosis codes and the updated coding guidelines over the next year will further improve the coding of this subset of patients.

Comment: One commenter presented its analysis of the MedPAR data and again requested the creation of two new DRGS for severe sepsis, one medical and one surgical. The other option suggested by the commenter was to split DRGs 415 and 416 into DRGs with and without severe sepsis cases. The commenter expressed concern that, while there has been some confusion over the use of the SIRS family of codes (995.90-995.94) over the past three years, the confusion has been mainly associated with the other codes and not the severe sepsis code (995.92). The commenter provided information concerning the definition of severe sepsis and its adoption following a 1992 consensus panel of the American College of Chest Physicians and the Society of Critical Care Medicine. According to the commenter, the panel defined severe sepsis as a systemic inflammatory response to infection that leads to acute organ dysfunction. The commenter noted this definition has been used successfully to identify thousands of patients with severe sepsis and in more than 30 large-scale clinical trials. The commenter also stated severe sepsis cases are clinically coherent with a common underlying problem (SIRS) leading to complications (acute organ dysfunction) and are managed similarly, receiving advanced life support in intensive care units. The commenter also provided examples to demonstrate how clinical coherence leads to resource use coherence.

Response: We appreciate the commenter's analysis of the data. As stated above, there has been significant confusion over the use of the sepsis codes. While the definition may be well understood among the individuals involved with the clinical trials, there has been uncertainty in the application of the codes as evidenced by repeated discussions at the ICD-9-CM Coordination and Maintenance Committee meetings and comments received in response to the proposed rule. We note that the National Center for Health Statistics has revised the sepsis and systemic inflammatory response syndrome codes in response to suggestions made at the Committee meetings. These revisions are shown in Table 6E of the Addendum to this final rule and will go into effect on October 1, 2006 (codes 995.91 through 995.94). We did not propose a new DRG for severe sepsis for FY 2007 in the proposed rule due to the data inconsistencies and difficulty expressed with properly assigning the sepsis codes, among other reasons cited previously.

In the FY 2007 IPPS proposed rule, we also solicited comments on the proposal we were considering to adopt a CS DRG system. We noted it is possible that the proposed system would better recognize the extensive resources that hospitals use to treat patients with severe sepsis. We encouraged commenters to examine the proposed system and provide comments. The comments and responses on this proposal are discussed in section II.C of this final rule. Start Printed Page 47950

Therefore, in this FY 2007 final rule we are not creating new DRGs for medical or surgical severe sepsis cases as requested by the commenter.

6. 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.

For FY 2007, we proposed to make several changes to the MCE edits (71 FR 24038 and 24039). We received one comment on this topic. As a result of new and modified codes approved after the annual spring ICD-9-CM Coordination and Maintenance meeting, we make changes to the MCE. In the past, in both the IPPS proposed and final rules, we only provided the list of changes to the MCE in the IPPS that were brought to our attention after the prior year's final rule. We historically have not listed the changes we have made to the MCE as a result of the new and modified codes approved after the annual spring ICD-9-CM Coordination and Maintenance meeting. These changes are approved too late in the rulemaking schedule for inclusion in the proposed rule. Furthermore, although our MCE policies have been described in our proposed and final rules, we have not provided the detail of each new or modified diagnosis and procedure code edit in the final rule. However, in response to a public comment and in the interest of making the IPPS more transparent, we are including in this final rule a comprehensive list of all the changes to the MCE edits for the next fiscal year as a result of coding changes.

a. Edit: Newborn Diagnoses

We proposed to add code 780.92 (Excessive crying of infant (baby)) to the “Newborn Diagnoses” edit in the MCE. This edit is structured for patients with an age of “0”. In the Tabular portion of the ICD-9-CM diagnosis codes, the “excludes” note at code 780.92 states that this code “excludes excessive crying of child, adolescent or adult” and sends the coder to code 780.95 (Other excessive crying. (The new title of this code, shown on Table 6E of the Addendum to this final rule is “Excessive crying of child, adolescent, or adult”.) To make a conforming change, we also proposed that code 780.92 be removed from the “Pediatric Diagnoses—Age 0 Through 17” edit.

We did not receive any public comments on the proposed edit and, therefore, are adopting it as final.

In addition, there were diagnosis codes discussed at the March 2006 ICD-9-CM Coordination and Maintenance meeting that were approved too late in the rulemaking schedule for inclusion in the proposed rule. Therefore, the following ICD-9-CM diagnosis codes are added to the “Newborn Diagnosis” MCE edit for FY 2007:

  • 768.7, Hypoxic-ischemic encephalopathy (HIE)
  • 770.87, Respiratory arrest of newborn
  • 770.88, Hypoxemia of newborn
  • 775.81, Other acidosis of newborn
  • 775.89, Other neonatal endocrine and metabolic disturbances
  • 779.85, Cardiac arrest of newborn

Because diagnosis code 775.8 (Other transitory neonatal endocrine and metabolic disturbances) was expanded to the fifth-digit level, this code is being deleted from the Newborn Diagnosis edit.

b. Edit: Diagnoses for Pediatric—Age 0-17 Years Old

We are adding the following new diagnosis codes to the edit for diagnosis for pediatrics—age 0-17 years old:

  • V85.51, Body Mass Index, pediatric, less than 5th percentile for age
  • V85.52, Body Mass Index, pediatric, 5th percentile to less than 85th percentile for age
  • V85.53, Body Mass Index, pediatric, 85th percentile to less than 95th percentile for age
  • V85.54, Body Mass Index, pediatric, greater than or equal to 95th percentile for age

c. Edit: Maternity Diagnoses—Age 12 through 55

We are adding the following new codes to the edit for maternity diagnoses—age 12 through 55:

  • 649.00, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.01, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.02, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.03, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.04, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.10, Obesity complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.11, Obesity complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.12, Obesity complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.13, Obesity complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.14, Obesity complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.20, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.21, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.22, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.23, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.24, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.30, Coagulation defects complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.31, Coagulation defects complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.32, Coagulation defects complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.33, Coagulation defects complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.34, Coagulation defects complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.40, Epilepsy complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable Start Printed Page 47951
  • 649.41, Epilepsy complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.42, Epilepsy complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.43, Epilepsy complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.44, Epilepsy complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.50, Spotting complicating pregnancy unspecified as to episode of care or not applicable
  • 649.51, Spotting complicating pregnancy delivered, with or without mention of antepartum condition
  • 649.53, Spotting complicating pregnancy antepartum condition or complication
  • 649.60, Uterine size date discrepancy, unspecified as to episode of care or not applicable
  • 649.61, Uterine size date discrepancy, delivered, with or without mention of antepartum condition
  • 649.62, Uterine size date discrepancy, delivered, with mention of postpartum complication
  • 649.63, Uterine size date discrepancy, antepartum condition or complication
  • 649.64, Uterine size date discrepancy, postpartum condition or complication

d. Edit: Diagnoses Allowed for Females Only

The following codes are now invalid codes, as shown in Table 6C of the Addendum to the FY 2007 IPPS proposed rule and this final rule. In the FY 2007 IPPS proposed rule, we proposed to remove them from the “Diagnosis Allowed for Females Only” edit in the MCE.

  • 616.8, Other specified inflammatory diseases of cervix, vagina, and vulva
  • 629.8, Other specified disorders of female genital organs

Codes 616.8 and 629.8 have been expanded to the fifth-digit level. Therefore, we proposed to place the following expanded codes in the “Diagnoses Allowed for Females Only” edit.

  • 616.81, Mucositis (ulcerative) of cervix, vagina, and vulva
  • 616.89, Other inflammatory disease of cervix, vagina, and vulva
  • 629.81, Habitual aborter without current pregnancy
  • 629.89, Other specified disorders of female genital organs

The following two codes have revised descriptions (as shown in Table 6E of the Addendum to this final rule) which specify gender. Therefore, we proposed to add them to “Diagnoses Allowed for Females Only” edit.

  • V26.31, Testing of female for genetic disease carrier status
  • V26.32, Other genetic testing of female

We did not receive any public comments on the proposed changes to this edit. Therefore, we are adopting the changes as final.

In addition, we are adding the following new ICD-9-CM codes to this edit:

  • 618.84, Cervical stump prolapse
  • 629.29, Other female genital mutilation status
  • 649.00, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.01, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.02, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.03, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.04, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.10, Obesity complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.11, Obesity complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.12, Obesity complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.13, Obesity complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.14, Obesity complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.20, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.21, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.22, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.23, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.24, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.30, Coagulation defects complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.31, Coagulation defects complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.32, Coagulation defects complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.33, Coagulation defects complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.34, Coagulation defects complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.40, Epilepsy complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.41, Epilepsy complicating pregnancy, childbirth, or the puerperium, delivered, with or without mention of antepartum condition
  • 649.42, Epilepsy complicating pregnancy, childbirth, or the puerperium, delivered, with mention of postpartum complication
  • 649.43, Epilepsy complicating pregnancy, childbirth, or the puerperium, antepartum condition or complication
  • 649.44, Epilepsy complicating pregnancy, childbirth, or the puerperium, postpartum condition or complication
  • 649.50, Spotting complicating pregnancy unspecified as to episode of care or not applicable
  • 649.51, Spotting complicating pregnancy delivered, with or without mention of antepartum condition
  • 649.53, Spotting complicating pregnancy antepartum condition or complication
  • 649.60, Uterine size date discrepancy, unspecified as to episode of care or not applicable
  • 649.61, Uterine size date discrepancy, delivered, with or without mention of antepartum condition Start Printed Page 47952
  • 649.62, Uterine size date discrepancy, delivered, with mention of postpartum complication
  • 649.63, Uterine size date discrepancy, antepartum condition or complication
  • 649.64, Uterine size date discrepancy, postpartum condition or complication
  • 795.06, Papanicolaou smear of cervix with cytologic evidence of malignancy
  • 795.82, Elevated cancer antigen 125 [CA 125]

e. Edit: Diagnoses Allowed for Males Only

Code 608.2 (Torsion of testis) is now an invalid code (as shown in Table 6C of the Addendum to the proposed rule and this final rule). Therefore, we proposed to remove it from the “Diagnoses Allowed for Males Only” edit. This code has been expanded to the fifth-digit level. We proposed to place the following expanded codes in the “Diagnoses Allowed for Males Only” edit:

  • 608.20, Torsion of testis, unspecified
  • 608.21, Extravaginal torsion of spermatic cord
  • 608.22 Intravaginal torsion of spermatic cord
  • 608.23, Torsion of appendix testis
  • 608.24, Torsion of appendix epididymis

The following codes have been created effective for FY 2007 and are gender specific. Therefore, we proposed to add them to the “Diagnosis Allowed for Males Only” edit.

  • V26.34, Testing of male for genetic disease carrier status
  • V26.35, Encounter for testing of male partner of habitual aborter
  • V26.39, Other genetic testing of male

We did not receive any public comments on our proposed changes to this edit. Therefore, we are adopting the changes as final.

f. Edit: Procedures Allowed for Females Only

The following new codes are added to the list of female procedures:

  • 68.41, Laparoscopic total abdominal hysterectomy
  • 68.49, Other and unspecified total abdominal hysterectomy
  • 68.61, Laparoscopic radical abdominal hysterectomy
  • 68.69, Other and unspecified radical abdominal hysterectomy
  • 68.71, Laparoscopic radical vaginal hysterectomy [LRVH]
  • 68.79, Other and unspecified radical vaginal hysterectomy

In addition, the following codes were expanded to the fourth digit and, therefore, are removed from this edit:

  • 68.4, Total abdominal hysterectomy
  • 68.6, Radical abdominal hysterectomy
  • 68.7, Radical vaginal hysterectomy

g. Edit: Manifestations Not Allowed as Principal Diagnosis

We proposed to add the following codes to the “Manifestations Not Allowed as Principal Diagnosis” edit in the MCE:

  • 362.03, Nonproliferative diabetic retinopathy, NOS
  • 362.04, Mild nonproliferative diabetic retinopathy
  • 362.05, Moderate nonproliferative diabetic retinopathy
  • 362.06, Severe nonproliferative diabetic retinopathy
  • 362.07, Diabetic macular edema.

We did not receive any public comments concerning this proposed change. Therefore, we are adopting the above proposed changes as final.

In addition, we are adding the following new codes to this edit:

  • 284.2, Myelophthisis
  • 289.83, Myelofibrosis
  • 323.01, Encephalitis and encephalomyelitis in viral diseases classified elsewhere
  • 323.02, Myelitis in viral diseases classified elsewhere
  • 323.41, Other encephalitis and encephalomyelitis due to infection classified elsewhere
  • 323.42, Other myelitis due to infection classified elsewhere
  • 323.61, Infectious acute disseminated encephalomyelitis (ADEM)
  • 323.62, Other postinfectious encephalitis and encephalomyelitis
  • 323.63, Postinfectious myelitis
  • 323.71, Toxic encephalitis and encephalomyelitis
  • 323.72, Toxic myelitis
  • 341.21, Acute (transverse) myelitis in conditions classified elsewhere

The following codes have been expanded to the fifth-digit level of specificity, which results in making the four-digit code invalid. Therefore, these codes are removed from the manifestation edit:

  • 323.0, Encephalitis in viral diseases classified elsewhere
  • 323.4, Other encephalitis due to infection classified elsewhere
  • 323.6, Postinfectious encephalitis
  • 323.7, Toxic encephalitis

In the proposed rule, we had suggested we would remove code 525.10 (Acquired absence of teeth, unspecified) from this edit in the MCE. However, all codes in subcategory 525.1 (Loss of teeth due to trauma, extraction, or periodontal disease) are considered manifestation codes. Therefore, we are retracting this proposal, and are leaving code 525.10 in this edit.

h. Edit: Nonspecific Principal Diagnosis

We proposed to add the following codes to the “Nonspecific Principal Diagnosis” edit in the MCE:

  • 255.10, Hyperaldosteronism, unspecified
  • 323.9, Unspecified causes of encephalitis, myelitis, and encephalomyelitis
  • 770.10, Fetal and newborn aspiration, unspecified.
  • 780.31, Febrile convulsions (simple), unspecified

Codes 255.10, 323.9, and 780.31 appear on Table 6E, Revised Diagnosis Codes, and are being included in this edit because of their revised descriptions. Code 770.10 was inadvertently left off this list for FY 2006 when the code was created.

We did not receive any public comments on the proposed changes to this edit. Therefore, we are adopting the proposed changes as final. In addition, we are adding the following codes to this edit:

  • 238.75, Myelodysplastic syndrome, unspecified
  • 276.50, Volume depletion NOS
  • 277.30, Amyloidosis, unspecified
  • 288.00, Neutropenia, unspecified
  • 288.50, Leukocytopenia, unspecified
  • 288.60, Leukocytosis, unspecified
  • 341.20, Acute (transverse) myelitis NOS
  • 379.60, Inflammation (infection) of postprocedural bleb, unspecified
  • 523.30, Aggressive periodontitis, unspecified
  • 523.40, Chronic periodontitis, unspecified
  • 525.60, Unspecified unsatisfactory restoration of tooth
  • 528.00, Stomatitis and mucositis, unspecified
  • 608.20, Torsion of testis, unspecified
  • 649.00, Tobacco use disorder complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.10, Obesity complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.20, Bariatric surgery status complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.30, Coagulation defects complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable Start Printed Page 47953
  • 649.40, Epilepsy complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.50, Spotting complicating pregnancy, childbirth, or the puerperium, unspecified as to episode of care or not applicable
  • 649.60, Uterine size date discrepancy, unspecified as to episode of care or not applicable
  • 958.90, Compartment syndrome, unspecified
  • 995.20, Unspecified adverse effect of unspecified drug, medicinal and biological substance
  • 995.22, Unspecified adverse effect of anesthesia
  • 995.23, Unspecified adverse effect of insulin
  • 995.29, Unspecified adverse effect of other drug, medicinal and biological substance

We are removing the following codes from this edit:

  • 362.03, Nonproliferative diabetic retinopathy NOS
  • 525.10, Acquired absence of teeth, unspecified
  • 793.9, Other nonspecific abnormal findings on radiological and other examinations of body structure

Comment: Two commenters suggested that the expanded code (793.99, Other nonspecific abnormal findings on radiological and other examinations of body structure) be added back into this edit.

Response: We will not act on those suggestions at this time, as we believe that code 739.9 should not originally have been in the edit as it is more like an “other” code than a “nonspecific” code.

i. Edit: Unacceptable Principal Diagnosis

Most V-codes describe an individual's health status, but these codes are not usually a current illness or injury. Therefore, most V-codes are included in the “Unacceptable Principal Diagnosis” edit. The following codes became invalid (as shown in Table 6C of the Addendum to the proposed rule and this final rule) for FY 2007, and we proposed to remove them from this edit:

  • V18.5, Family history, digestive disorders
  • V58.3, Attention to surgical dressings and sutures
  • V72.1, Examination of ears and hearing

The following V-codes represent either fifth-digit extensions of the above codes, or new codes that were created effective October 1, 2006 (Table 6A of the Addendum to the proposed rule and this final rule). Therefore, we proposed to add the following codes to the “Unacceptable Principal Diagnosis” edit:

  • V18.51, Family history, colonic polyps
  • V18.59, Family history, other digestive disorders
  • V26.34, Testing of male for genetic disease carrier status
  • V26.35, Encounter for testing of male partner of habitual aborter
  • V26.39, Other genetic testing of male
  • V45.86, Bariatric surgery status
  • V58.30, Encounter for change or removal of nonsurgical wound dressing
  • V58.31, Encounter for change or removal of surgical wound dressing
  • V58.32, Encounter for removal of sutures
  • V72.11, Encounter for hearing examination following failed hearing screening
  • V72.19, Other examination of ears and hearing
  • V82.71, Screening for genetic disease carrier status
  • V82.79, Other genetic screening
  • V85.51, Body mass index, pediatric, less than 5th percentile for age
  • V85.52, Body mass index, pediatric, 5th percentile to less than 85th percentile for age
  • V85.53, Body mass index, pediatric, 85th percentile to less than 95th percentile for age
  • V85.54, Body mass index, pediatric, greater than or equal to 95th percentile for age
  • V86.0, Estrogen receptor positive status [ER+]
  • V86.1, Estrogen receptor negative status [ER−]

We did not receive any public comments on these proposed edits. Therefore, we are adopting the proposed changes as final.

j. Edit: Nonspecific O.R. Procedures

We proposed to remove code 00.29 (Intravascular imaging unspecified vessel(s)) from the “Nonspecific O.R. Procedure” edit in the MCE. This code was erroneously placed in this edit; it is not considered an O.R. procedure.

We did not receive any public comments on these proposed edits. Therefore, we are adopting the proposed changes as final.

In addition, we are removing code 68.39 (Other subtotal abdominal hysterectomy) from this edit. Code 68.39 is not a nonspecific code, it is considered other, and was originally included in this edit in error.

k. Edit: Noncovered Procedures

Under the proposed changes to DRG 513 (Pancreas Transplant) under the Pre-MDCs described in section II.D.1. of the preamble of the FY 2007 IPPS proposed rule, a patient must have a history of medically uncontrollable, insulin-dependent diabetes mellitus, that is, Type I diabetes mellitus. Therefore, to conform the “Noncovered Procedures” Edit in the MCE to these proposed changes, we proposed to revise Diagnosis List 1 in this edit to include only the following codes:

  • 250.01, Diabetes mellitus without mention of complication, type I [juvenile type], not stated as uncontrolled
  • 250.03, Diabetes mellitus without mention of complication, type I [juvenile type], uncontrolled
  • 250.11, Diabetes with ketoacidosis, type I [juvenile type], not stated as uncontrolled
  • 250.13, Diabetes with ketoacidosis, type I [juvenile type], uncontrolled
  • 250.21, Diabetes with hyperosmolarity, type I [juvenile type], not stated as uncontrolled
  • 250.23, Diabetes with hyperosmolarity, type I [juvenile type], uncontrolled
  • 250.31, Diabetes with other coma, type I [juvenile type], not stated as uncontrolled
  • 250.33, Diabetes with other coma, type I [juvenile type], uncontrolled
  • 250.41, Diabetes with renal manifestations, type I [juvenile type], not stated as uncontrolled
  • 250.43, Diabetes with renal manifestations, type I [juvenile type], uncontrolled
  • 250.51, Diabetes with ophthalmic manifestations, type I [juvenile type], not stated as uncontrolled
  • 250.53, Diabetes with ophthalmic manifestations, type I [juvenile type], uncontrolled
  • 250.61, Diabetes with neurological manifestations, type I [juvenile type], not stated as uncontrolled
  • 250.63, Diabetes with neurological manifestations, type I [juvenile type], uncontrolled
  • 250.71, Diabetes with peripheral circulatory disorders, type I [juvenile type], not stated as uncontrolled
  • 250.73, Diabetes with peripheral circulatory disorders, type I [juvenile type], uncontrolled
  • 250.81, Diabetes with other specified manifestations, type I [juvenile type], not stated as uncontrolled
  • 250.83, Diabetes with other specified manifestations, type I [juvenile type], uncontrolled
  • 250.91, Diabetes with unspecified complication, type I [juvenile type], not stated as uncontrolled
  • 250.93, Diabetes with unspecified complication, type I [juvenile type], uncontrolled Start Printed Page 47954

In addition, we proposed to remove Diagnosis List 2 from the “Noncovered Procedures” edit, which is comprised of the following codes:

  • 403.01, Hypertensive kidney disease, malignant, with chronic kidney disease
  • 403.11, Hypertensive kidney disease, benign, with chronic kidney disease
  • 403.91, Hypertensive kidney disease, unspecified, with chronic kidney disease
  • 404.02, Hypertensive heart and kidney disease, malignant, with chronic kidney disease
  • 404.03, Hypertensive heart and kidney disease, malignant, with heart failure and chronic kidney disease
  • 404.12, Hypertensive heart and kidney disease, benign, with chronic kidney disease
  • 404.13, Hypertensive heart and kidney disease, benign, with heart failure and chronic kidney disease
  • 404.92, Hypertensive heart and kidney disease, unspecified, with chronic kidney disease
  • 404.93, Hypertensive heart and kidney disease, unspecified, with heart failure and chronic kidney disease
  • 585.1, Chronic kidney disease, Stage I
  • 585.2, Chronic kidney disease, Stage II (mild)
  • 585.3, Chronic kidney disease, Stage III (moderate)
  • 585.4, Chronic kidney disease, Stage IV (severe)
  • 585.5, Chronic kidney disease, Stage V
  • 585.6, End stage renal disease
  • 585.9, Chronic kidney disease, unspecified
  • V42.0, Organ or tissue replaced by transplant, kidney
  • V43.89, Organ or tissue replaced by other means, other organ or tissue, other

All of the comments we received regarding this proposal were favorable. Therefore, we are adopting the above changes as final.

Lumbar Artificial Disc: CMS has found that lumbar artificial disc replacement (LADR) with the ChariteTM lumbar artificial disc is not reasonable and necessary for the Medicare population over 60 years of age. Therefore, we issued a national noncoverage determination for LADR with the ChariteTM lumbar artificial disc for Medicare patients over 60 years of age. For Medicare beneficiaries 60 years of age and under, there is no national coverage determination, leaving such determinations to be made on a local basis. The coverage decision memo can be viewed on the CMS Web site at http://www.cms.hhs.gov/​mcd/​viewdecisionmemo.asp?​id=​170.

To conform to this decision, procedure code 84.65 (Insertion of total spinal disc prosthesis, lumbosacral) is put on the Non-Covered Procedure edit except when the patient is 60 years of age or less. The logic will be as follows:

84.65, Insertion of total spinal disc prosthesis, lumbosacral

AND

Age <=61

l. Edit: Bilateral Procedure

We proposed to remove the following codes from the Bilateral Procedure edit, as these are adjunct codes. They are not O.R. codes recognized by the GROUPER as procedures, and the edit was created in error last year.

  • 00.74, Hip replacement bearing surface, metal-on-polyethylene
  • 00.75, Hip replacement bearing surface, metal-on-metal
  • 00.76, Hip replacement bearing surface, ceramic-on-ceramic

We did not receive any public comments on these proposed edits. Therefore, we are adopting the proposed changes as final.

In addition, we are deleting the following joint revision codes from this edit, as they should not have been added last year.

  • 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
  • 00.81, 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 total knee replacement, tibial insert (liner)
  • 81.53, Revision of hip replacement not otherwise specified
  • 81.55, Revision of knee replacement not otherwise specified

7. 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 weighting 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 Start Printed Page 47955DRG 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 2007 IPPS proposed rule (71 FR 24039), we proposed to revise the surgical hierarchy for Pre-MDCs, MDC 1 (Diseases and Disorders of the Nervous System), MDC 2 (Diseases and Disorders of the Eye), MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat), MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue), MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders), and MDC 13 (Diseases and Disorders of the Female Reproductive System) as follows:

In Pre-MDCs, we proposed to reorder DRG 481 (Bone Marrow Transplant) above DRG 513 (Pancreas Transplant).

In MDC 1, we proposed to reorder DRGs 531-532 (Spinal Procedures, With CC and Without CC, respectively) above DRGs 529-530 (Ventricular Shunt Procedures, With CC and Without CC, respectively).

In MDC 2, we proposed to reorder DRG 42 (Intraocular Procedures Except Retina, Iris and Lens) above DRG 36 (Retinal Procedures).

In MDC 3, we proposed to reorder DRGs 168-169 (Mouth Procedures, With CC and Without CC, respectively) above DRG 57 (T&A Procedures, Except Tonsillectomy and/or Adenoidectomy Only, Age > 17) and DRG 58 (T&A Procedures, Except Tonsillectomy and/or Adenoidectomy Only, Age 0-17).

In MDC 8, we proposed to reorder DRG 213 (Amputation for Musculoskeletal System and Connective Tissue Disorders) above DRG 216 (Biopsies of Musculoskeletal System and Connective Tissue).

In MDC 10, we proposed to reorder DRG 285 (Amputation of Lower Limb for Endocrine, Nutritional and Metabolic Diseases and Disorders) above DRG 288 (O.R. Procedures for Obesity).

In MDC 13, we proposed to reorder DRG 363 (D&C, Conization and Radio-Implant, for Malignancy) and DRG 364 (D&C, Conization and Radio-Implant, Except for Malignancy) above DRG 360 (Vagina, Cervix, and Vulva Procedures).

We did not receive any public comments on the proposed changes to the surgical hierarchy described above. Based on a test of the proposed revisions using the March 2006 update of the FY 2005 MedPAR file and the revised GROUPER software, we found that the revisions are still supported by the data. Therefore, we are incorporating these proposed revisions to the surgical hierarchy as final for FY 2007. In addition, because, in this final rule, we are deleting 8 DRGs and creating 20 new DRGs as discussed under section II.D.7. of this preamble, we are reordering the following DRGs in MDC 1 (Diseases and disorders of the Nervous System), MDC 6 (Diseases and Disorders of the Digestive System), MDC 11 (Diseases and Disorders of the Kidney and urinary Tract), and MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified Sites)):

  • In MDC 1, we are reordering DRG 577 (Carotid Artery Stent Procedure) above DRG 533 (Extracranial Procedures With CC).
  • In MDC 6, we are reordering DRGs 567 and 568 (Stomach, Esophageal and Duodenal Procedures Age >17 With CC With and Without Major GI Diagnoses, respectively) above DRG 155 (Stomach, Esophageal and Duodenal Procedures Age >17 Without CC);
  • In MDC 6, we are reordering DRGs 569-570 (Major Small and Large Bowel Procedures With CC With and Without Major GI Diagnoses, respectively) above DRG 149 (Major Small and Large Bowel Procedures Without CC).
  • In MDC 11, we are reordering DRG 573 (Major Bladder Procedures) above DRG 303 (Kidney, Ureter and Major Bladder Procedures for Neoplasm).
  • In MDC 18, we are reordering DRG 578 (Infections and Parasite Diseases With O.R. Procedure) above DRG 579 (Postoperative or Post-Traumatic Infections With O.R. Procedure).

8. 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 each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients.

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. Given the long period of time that had elapsed since the original CC list was developed, the incremental nature of changes to it, and changes in the way inpatient care is delivered, and in partial response to recommendations in MedPAC's March 2005 Report to Congress on Physician-Owned Specialty Hospitals, for the FY 2006 IPPS final rule, we reviewed the 121-paired DRGs that were split on the presence or absence of a CC among the 3,285 diagnosis codes on the CC list. We presented the results of that review and summarized public comments that we received in the FY 2006 proposed rule on the review results in the FY 2006 IPPS final rule (70 FR 47313 through 47315). Further analysis of the CC list and refinement to recognize the effects of differences in severity of illness among patients is discussed in section II.C. of the preamble of the proposed rule as part of our efforts to develop a CSDRG system for use in the IPPS.

During this past winter, CMS began a comprehensive review of over 13,000 diagnosis codes to determine whether they should be classified as CCs when present as a secondary diagnosis. Although we did not complete this review because of the work we did to develop the CS DRGs, we are considering whether to continue our analysis of the CC list as part of an effort to develop and adopt a severity DRG system that is in the public domain for FY 2008. As we explained in more detail above, we may update the work we did to develop a severity DRG system in the mid-1990s that classified patients into a base DRG that was further subdivided based on three levels of severity depending upon whether the patient had no CC, a CC, or a major CC in conjunction with continuing our review of the CC list. Start Printed Page 47956

c. CC Exclusions List for FY 2007

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list. We did not propose to delete any of the diagnosis codes on the CC list for FY 2007.

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.17

As we proposed, we are making limited revisions to 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, 2006. (See section II.D.10. 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.

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, 2006. 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, 2006, 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, 2006, 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, 2005, and 2006) and those in Tables 6G and 6H of this final rule for FY 2007 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, 2006. (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 23.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 24.0 of this manual, which will include the final FY 2007 DRG changes, will be available in hard copy for $250.00. Version 24.0 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.

9. 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 Start Printed Page 47957in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:

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

All remaining O.R. procedures are assigned to 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.18

For FY 2007, we did not propose to change the procedures assigned among these DRGs. We did not receive any comments on our proposal and, therefore, are adopting it as final.

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 in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. Based on this year's review, as proposed, we are not removing any procedures from DRG 477 with assignment to one of the surgical DRGs. We did not receive any comments on our proposal, and, therefore, there will be no change to DRG 477.

However, we did receive a comment regarding DRG 468 after the publication of the proposed rule. The comment addressed advances in treatment technology for hypertension and noted that two procedure codes cause cases to be assigned to DRG 468 instead of more appropriately to DRGs in MDC 5. Therefore, we are moving the following two codes into MDC 5, DRG 479 (Other Vascular Procedures without CC), and paired DRGs 553 and 554 (Other Vascular Procedures with CC with and without Major CV Diagnosis, respectively):

  • 04.92, Implantation or replacement of peripheral neurostimulator lead(s)
  • 86.96, Insertion or replacement of other neurostimulator pulse generator

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.

We did not propose to move any procedure codes from DRG 476 to DRGs 468 or 477, or from DRG 477 to DRGs 468 or 476 for FY 2007. We did not receive any public comments on our proposal and; therefore, are adopting it as final.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on our review this year, as we proposed, we are not adding any diagnosis codes to MDCs for FY 2007. We did not receive any public comments on our proposal and, therefore, are adopting it as final.

10. 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 Start Printed Page 47958 Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2007 at a public meeting held on September 29-30, 2005, and finalized the coding changes after consideration of comments received at the meetings and in writing by December 2, 2005. Those coding changes were announced in the FY 2007 IPPS proposed rule and are listed in Tables 6A through 6F in the Addendum to this final rule. The Committee held its 2006 meeting on March 23-24, 2006. Proposed new codes for which there was a consensus of public support and for which complete tabular and indexing changes can be made by May 2006 will be included in the October 1, 2006 update to ICD-9-CM. Code revisions that were discussed at the March 23-24, 2006 Committee meeting could not be finalized in time to include them in the FY 2007 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 September 29-30, 2005 meeting can be obtained from the CMS Web site: http://cms.hhs.gov/​ICD9ProviderDiagnosticCodes/​03_​meetings.asp. The minutes of the diagnosis codes discussions at the September 29-30, 2005 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.brooks2@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2006. 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 proposed 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 2007 IPPS proposed rule, we only solicited comments on the proposed classification of these new codes.

Comment: One commenter expressed concern about the DRG assignment for codes 629.81 (Habitual aborter without current pregnancy) and 629.89 (Other specified disorders of female genital organs). The commenter indicated that CMS proposed to assign both codes to DRG 368 (Infections, Female Reproductive System) within MDC-18. The commenter posited that CMS may have erred in listing the DRG assignment as DRG 368 and instead intended to assign the code to DRG 369 (Menstrual and Other Female Reproductive System Disorders) since these conditions are not infections.

Response: We agree with the commenter that codes 629.81 and 629.89 do not represent infections and should not be assigned to DRG 368 within MDC 18. They should instead be assigned to DRG 369 as the commenter suggested. Therefore, we are changing the DRG assignment for codes 629.81 and 629.89 from DRG 368 to DRG 369. This change is shown in Table 6A of the Addendum to this final rule.

Comment: One commenter asked whether the footnotes for codes 995.20 through 995.29 in Table 6A of the Addendum to the proposed rule was in error. The commenter stated that the predecessor code, 995.2 (Unspecified adverse effect of drug, medicinal and biological substance) is considered a secondary diagnosis of a “major problem” diagnosis that will assign a patient to DRGs 387 (Prematurity with Major Problems) and DRG 389 (Full-Term Neonate with Major Problems) when present only as a secondary diagnosis. However, the commenter added, the footnote on the expanded codes 995.20 through 995.29 lists them as principal or secondary diagnoses that will assign a patient to DRGs 387 and 389 for neonates with major problems. The specific codes are as follows:

  • 995.20 (Unspecified adverse effect of unspecified drug, medicinal and biological substance)
  • 995.21 (Arthus phenomenon)
  • 995.22 (Unspecified adverse effect of anesthesia)
  • 995.23 (Unspecified adverse effect of insulin)
  • 995.27 (Other drug allergy)
  • 995.29 (Unspecified adverse effect of other drug, medicinal and biological substance)

Response: The commenter is correct that we made an error in the footnote. The predecessor code 995.2 when present as a secondary diagnosis, will be a major problem that assigns the patient to DRGs 387 and 389. The footnote should have indicated codes 995.20 through 995.29 will only assign patients DRGs 387 and 389 when present as a secondary diagnosis. We have corrected the footnote in Table 6A of the Addendum to this final rule.

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, 2006. 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, 2006. 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-2007.

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 Start Printed Page 47959would 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 23-24, 2006 Committee meeting that received consensus and that were finalized by May 2006, are included in Tables 6A through 6F of the Addendum to 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 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to 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, is 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.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Pub. L. 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests for an expedited April 1, 2006 implementation of an ICD-9-CM code at the September 29-30, 2005 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2006.

We believe that this process captures the intent of section 1886(d)(5)(K)(vii) of the Act. 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: www.cms.hhs.gov/​icd9ProviderDiagnosticCodes/​01_​overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding Guidelines, can be found on the Web page at: 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. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same 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 1886(d)(5)(K)(vii) of the Act as added 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 Start Printed Page 47960to 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.

Comment: Many commenters recommended that the Secretary use the regulatory process to replace ICD-9-CM with ICD-10-CM and ICD-10-PCS expeditiously. Several commenters indicated that the April 2005 ICD-9-CM Coordination and Maintenance Committee meeting included discussions of limiting the creation of new procedure codes in order to allow the classification system to last at least 2 more years. ICD-9-CM procedure code categories 00 and 17 were created to identify a diverse group of procedures and interventions affecting all body systems. The commenters stressed that the establishment of these code categories represented a deviation from the normal structure of ICD-9-CM and was a stopgap measure to accommodate new technology when there are no other codes available in the corresponding body system chapters (for example, musculoskeletal system and circulatory system). The commenters indicated that category 00 is now full, and the ICD-9-CM Coordination and Maintenance Committee is considering proposals for codes in category 17. The commenters stated that at the April Coordination and Maintenance meeting a proposal was presented that would in effect leave only 80 codes available in the new category 17. The commenters stated that in recent years, as many as 50 new procedure codes have been created in a single year. The commenters strongly recommended that the Secretary use the regulatory process to implement ICD-10-CM and ICD-10-PCS in place of ICD-9-CM expeditiously.

Several commenters indicated that limitations with ICD-9-CM make data collected with these codes less precise. The commenters stated that systems such as the CS DRGs could make use of the more detailed information in ICD-10-CM and ICD-10-PCS to group claims more accurately and better identify differences in severity and complexity. Similar comments were received from a number of other individuals.

Response: We agree that it is important to have an accurate and precise coding system. The Department will continue to study whether to adopt ICD-10-CM. In the interim, we continue to update both ICD-9-CM and ICD-10-PCS.

Comment: A number of commenters expressed concern that only nine diagnosis codes and six procedure codes are processed by Medicare. The commenters recommended that CMS modify its systems so that the number of diagnoses codes processed would increase from 9 to 25 and the number of procedures processed would increase from 6 to 25. The commenters stated 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 CMS does not require its fiscal intermediaries to process codes beyond the first nine diagnosis codes and six procedure codes. The commenters indicated that complex classification systems such as the proposed CS DRGs could make use of the information in these additional codes to better classify the patients.

One commenter stated that an incremental step in working towards a refined DRG system is to have CMS systems process 25 diagnosis and procedure codes.

Response: The commenters are correct that CMS does not process codes submitted electronically on the 837i electronic format beyond 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 result from expanding Medicare's data system so it can accommodate additional diagnosis and procedure codes. We have been considering this issue while we contemplated refinements to our DRG system to better recognize patient severity of illness. However, extensive lead time is required to allow for modifications to our internal and contractors' electronic systems in order to process and store this additional information. We are unable to move forward with this recommendation without carefully evaluating implementation issues. We will continue to carefully evaluate this request to expand the process capacity of our systems.

Comment: One commenter expressed concern about the process involved with updating the ICD-9-CM Coding Guidelines. The guidelines are updated by the cooperating parties of ICD-9-CM, including representatives from the Centers for Disease and Prevention Control (CDC), CMS, the AHA, and the AHIMA. The commenter complimented CMS staff for becoming more “provider friendly” and using such tools as the open door forum to involve providers in policy discussions. The commenter requested that some of the coding guideline discussions be held in an open meeting so that providers could give input.

Response: We agree with the commenter that it is important to involve the provider community in activities involving the updating of ICD-9-CM codes and guidelines. The Department utilizes the ICD-9-CM Coordination and Maintenance Committee to discuss proposed changes to the coding system. At times, this Committee also addresses coding guidelines that affect code selection. The current process of approving new and revised coding guidelines involves approval by all four cooperating parties. It is our understanding that AHA and AHIMA actively seek input from their members on coding issues. AHA and AHIMA use this input when they are voting on coding issue to be published in the AHA's Coding Clinic for ICD-9-CM and on coding guidelines. We will refer these concerns to the cooperating parties so that they may discuss improvements which could be made in obtaining providers' input into coding guidelines. We will also welcome recommendations on specific coding guideline issues that providers wish to be included in future agendas of the ICD-9-CM Coordination and Maintenance Committee. The Committee recently discussed coding guidelines for septicemia. We will continue to work with the provider community to offer a public forum for discussion of ICD-9-CM code revisions and guidelines.

11. Other Issues

a. Chronic Kidney Disease

Comment: Two commenters expressed concern regarding the revised diagnosis codes for chronic kidney disease and their DRG assignments which appeared in Table 6E of the Addendum to the proposed rule. The following codes were identified as being classified to DRGs 331, 332, and 333 (Other kidney and urinary tract diagnoses with and without CC, and age 0-17, respectively) in MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract):

  • 403.00 (Hypertensive chronic kidney disease, malignant, with chronic kidney disease stage I through stage IV, or unspecified)
  • 403.10 (Hypertensive chronic kidney disease, benign, with chronic kidney disease stage I through stage IV, or unspecified) Start Printed Page 47961
  • 403.90 (Hypertensive chronic kidney disease, unspecified, with chronic kidney disease stage I through stage IV, or unspecified)

The commenters stated that revisions made to these three codes will go into effect October 1. These changes would add the concept of chronic kidney disease to the three codes. Therefore, these three codes should be assigned to the same DRGs as other codes for chronic kidney disease. The codes with chronic kidney disease are assigned to DRGs 315 (Other kidney and urinary tract procedures) and 316 (Renal failure) and not to DRGs 331 through 333 where they were proposed.

Response: The commenters are correct. The three codes listed above were modified to include the concept of chronic kidney disease. As such, they should be assigned to DRG 315 (Other Kidney and Urinary Tract Procedures) and DRG 316 (Renal Failure) (and not to DRGs 331 through 333. We have made these changes in Table 6E of the Addendum to this final rule. Therefore, we will assign codes 403.00, 403.10, and 403.90 to DRG 315-316.

b. Bronchial Valve

Comment: Two commenters that manufacture minimally invasive surgical therapies for patients with chronic obstructive pulmonary disease addressed the establishment of a new code for the insertion of a bronchial valve. This topic was discussed at the March 23-24, 2006 meeting of the ICD-9-CM Coordination and Maintenance Committee. (A complete summary report of the meeting including handouts can be found at: http://www.cms.hhs.gov/​ICD9ProviderDiagnosticCodes/​03_​meetings.asp#TopofPage.) CMS created a new code for endoscopic insertion of a bronchial valve: code 33.71 (Endoscopic insertion or replacement of bronchial valve(s)). The new code is listed in Table 6B of the Addendum to this final rule. The predecessor codes that are currently used for this procedure are:

  • 33.22, Fiber-optic bronchoscopy
  • 96.05, Other intubation of respiratory tract

The commenters expressed support for the creation of the new code, but requested that the code not be assigned to the same DRG as its predecessor codes. The predecessor codes are assigned to a medical DRG if the patient is admitted with a respiratory diagnosis. If the patient is admitted with a history of malignancy, the patient would be assigned to DRG 412 (History of Malignancy with Endoscopy). The commenters requested that code 33.71 be assigned to DRG 75 (Major Chest Procedure). Although the commenters acknowledged that CMS has no data on which to evaluate this request, they recommended that CMS use a combination of the diagnosis of air leaks and treatment with scarification as a proxy for cases that receive a bronchial valve. The commenters stated that these patients are clinically similar and can be expected to have similar resource intensity to patients that would receive an endobronchial insertion or replacement of bronchial valves.

The commenters undertook their own data analysis using the FY 2005 MedPAR file. They used the following diagnosis procedure codes to identify the proxy patients:

  • 512.0, Spontaneous tension pneumothorax
  • 512.8, Other spontaneous pneumothorax
  • 34.6, Scarification of the pleura

Using these codes, the companies identified 490 patients which were assigned to DRG 75. These patients had average charges of $56,711 as compared to $49,698 for all patients in DRG 75. The commenters stated that, although the resource utilization for scarification (and by inference, valve implantation) appears to be higher than the average for DRG 75, they believed it would still be reasonable to initially assign code 33.71 to DRG 75 until actual cost data can be gathered using the new procedure code.

Response: We do not agree that the endoscopic insertion of a bronchial valve is clinically similar to scarification of the pleura. The commenters themselves indicate that insertion of the bronchial valve is a minimally invasive procedure. Scarification of the pleura is a significantly invasive procedure. Furthermore, the bronchial valves are inserted into patients admitted with chronic obstructive pulmonary disease, not spontaneous pneumothorax. Therefore, we do not agree with using the pneumothorax diagnoses as a proxy for patients who will receive the bronchial valve.

The bronchial valve code 33.71 will go into effect on October 1, 2006. At this time, we have no information that suggests we should assign this new code to a DRG that is different than the predecessor codes. For this reason, we are classifying code 33.71, Endoscopic insertion or replacement of bronchial valve(s) as a nonoperating room procedure that will be assigned to DRG 412. This classification is listed in Table 6B of the Addendum to this final rule. Once we receive data using the new code, we will evaluate this issue further.

c. Female Reproductive System Reconstruction Procedures

Comment: One commenter recommended that CMS consider revising the current procedure code assignments for DRG 356 (Female Reproductive System Reconstructive Procedures) under MDC 13 (Diseases and Disorders of the Female Reproduction System) to better reflect the clinical coherence of those procedures that are specific to maintaining reproductive health. The proposal suggested by the commenter would distinguish procedures that are intended to ensure the reproductive function of a woman from urinary conditions that cause discomfort and emptying the bladder. The commenter suggested revising DRG 356 to limit it to procedures that are specific to maintaining reproductive health while creating four new DRGs that would be clinically similar for procedures performed to repair pelvic floor defects which cause urinary incontinence. The commenter stated these new DRGs would be timely with the procedure code proposal they are planning to present at the September 28-29, 2006 ICD-9-CM Coordination and Maintenance Committee meeting.

Response: We appreciate the commenter's recommendation to create four new DRGs in order to recognize the clinical coherence of procedures specific to maintaining reproductive health. There are two aspects to the commenter's proposal. The first part of the proposal would limit DRG 356 to procedures that are intended to maintain reproductive health. The second part of the commenter's proposal would create four new DRGs for repairing pelvic floor defects that create urinary incontinence. These four new DRGs would consist of two new DRG pairs (each split based on whether or not the patient has a CC) that would separate patients based on whether or not they had a graft procedure.

The commenter provided no data to support its proposal. Further, two of the four new DRGs being requested by the commenter would be based on new and revised procedure codes that have not yet been proposed or created. Therefore, we are unable to evaluate the request at this time. We may consider this proposal further in the future if the ICD-9-CM Coordination and Maintenance Committee creates the new codes being requested by the commenter and further data are made available for review. Start Printed Page 47962

d. Devices That Are Replaced Without Cost or Where Credit for a Replaced Device Is Furnished to the Hospital

In recent years, there have been several field actions and recalls with regard to failure of implantable cardiac defibrillators (ICDs) and pacemakers. In many of these cases, the manufacturers have offered replacement devices without cost to the hospital or credit for the device being replaced if the patient required a more expensive device. In some circumstances, manufacturers have also offered, through a warranty package, to pay specified amounts for unreimbursed expenses to persons who had replacement devices implanted. In addition, we believe that incidental device failures that are covered by manufacturer warranties occur routinely. While we understand that some device malfunctions may be inevitable as medical technology grows increasingly sophisticated, we believe that early recognition of problems would reduce the number of people with the potential to be adversely affected by these device problems. The medical community needs heightened and early awareness of patterns of device failures, voluntary field actions, and recalls so that it can take appropriate action to care for Medicare beneficiaries. Systematic efforts must be undertaken by all interested and involved parties, including manufacturers, insurers, and the medical community, to ensure that device problems are recognized and addressed as early as possible so that people's health is protected and high quality medical care is provided. We are taking several steps to assist in the early recognition and analysis of patterns of device problems to minimize the potential for harmful device-related effects on the health of Medicare patients and the public in general.

In recent years, CMS has recognized the importance of data collection as a condition of Medicare coverage for selected services. In 2005, CMS issued a National Coverage Determination (NCD) that expanded coverage of ICDs and also required registry participation when the devices were implanted for certain clinical indications. The NCD included this requirement in order to ensure that the care received by Medicare beneficiaries was reasonable and necessary and, therefore, appropriately reimbursed. Presently, the American College of Cardiology—National Cardiovascular Data Registry (ACC-NCDR) collects these data and maintains the registry.

In addition to ensuring appropriate payment of claims, collection, and ongoing analysis of ICD implantation, data can facilitate public health response in the event of future device recalls. The systematic recording of device manufacturer and model number can enhance patient and provider notification. Analysis of registry data may uncover patterns in complication rates (for example, device malfunction, device related infection, or early battery depletion) associated with particular devices that signify the need for a more specific investigation. Patterns found in registry data may identify problems earlier than the currently available mechanisms, which do not systematically collect such detailed information surrounding procedures.

We encourage the medical community to work to develop additional registries for implantable devices, so that timely and comprehensive information is available regarding devices, recipients of those devices, and their health status and outcomes. While participation in an ICD registry is required as a condition of coverage for ICD implantation for certain clinical conditions, we believe that the potential benefits of registries extend well beyond their application in Medicare's specific NCDs. As medical technology continues to advance swiftly, data collection regarding the short and long term outcomes of new technologies, and especially concerning implanted devices that may remain in the bodies of patients for their lifetimes, will be essential to the timely recognition of any specific problems and patterns of complications. This information will facilitate early interventions to mitigate harm and improve the quality and efficiency of health care services.

Moreover, data from registries may help further the development of high quality, evidence-based clinical practice guidelines for the care of patients who may receive device-intensive procedures. In turn, widespread use of evidence-based guidelines may reduce variation in medical practice, leading to improved personal and public health. Registry information may also contribute to the development of more comprehensive and refined quality metrics that may be used to systematically assess and then improve the safety and quality of health care. Such improvements in the quality of care that result in better personal health will require the sustained commitment of industry, payers, health care providers, and others towards that goal, along with excellent and open communication and rapid systemwide responses in a comprehensive effort to protect and enhance the health of the public. We look forward to further discussions with the public about new strategies to recognize device problems early and how to definitively address them, in order to minimize both the harmful health effects and increased health care costs that may result.

In addition, we believe that the routine identification of Medicare claims for certain device implantation procedures in situations where a payment adjustment is appropriate may enhance the medical community's recognition of device problems, potentially leading to more timely improvements in device technologies. This systematic approach, where hospitals identify and then appropriately report selected services when devices are replaced without cost to the hospital or with full credit to the hospital for the cost of the replaced device, should provide comprehensive information regarding the hospital experiences of Medicare patients with certain devices that are being replaced. Because Medicare patients are common recipients of implanted devices, this claims information may be particularly helpful in identifying patterns of device problems early in their natural history so that appropriate strategies to reduce future problems may be developed.

In addition to our concern for the public health, we also have a fiduciary responsibility to the Medicare Trust Fund to ensure that Medicare pays only for covered services. Therefore, we believe that we need to consider whether it is appropriate to reduce the Medicare payment in cases in which an implanted device is replaced without cost to the hospital or with full credit for the removed device. Such a proposal could cover certain devices for which credit for the replaced device is given or which are replaced as a result of or pursuant to a warranty, field action, voluntary recall, involuntary recall, and certain devices which are provided free of charge. It could provide for a reduction in the IPPS payment when we determine that the device is replaced without cost to the provider or beneficiary or when the provider receives full credit for the cost of a replaced device. We will need to develop a methodology to determine the amount of the reduction to the otherwise payable IPPS payment. We believe that this is appropriate because in these cases the full cost of the replaced device is not incurred and, therefore, we believe that an adjustment to the payment is necessary to remove the cost of the device.

E. Recalibration of DRG Weights

In the FY 2007 IPPS proposed rule, we proposed to change the DRG Start Printed Page 47963recalibration process methodology for FY 2007 to move to an HSRV weighting method as discussed in section II.C.2. of the preamble to the proposed rule (71 FR 24044). For FY 2006 and years prior, we have recalibrated the DRG weights based on charge data for Medicare discharges using the most current charge information available (for example, the FY 2005 MedPAR file would have been used for FY 2007). Our thorough analysis of the March 2005 MedPAC recommendations regarding refinement of the DRG system used for the IPPS (see discussion of the MedPAC recommendations in section II.C.2. of this preamble) has shown that using gross charges as a basis for setting the DRG weights has introduced bias into the weighting process. Specifically, hospitals that are systematically more expensive than others (that is, teaching hospitals and specialty hospitals) tend to treat certain cases more commonly than others, causing the weights for these cases to be artificially high. In addition, hospitals may mark up their charges for routine days, intensive care days, and various ancillary services by different percentages. This practice of differential markups among hospital cost centers may also introduce bias into the weights. For instance, we have observed that ancillary service cost centers generally have higher charge markups than routine services. Thus, the charge-based relative weight methodology may result in higher weights for DRGs that use more ancillary services relative to DRGs that use more routine services than would occur under a system where the weights are based on costs.

As discussed in section II.C.2. of the preamble of the proposed rule, based on our study of the MedPAC recommendations, we developed an alternative methodology for recalibrating the DRG weights. This proposed method is discussed in detail beginning on 71 FR 24044. The proposed method involved applying the HSRV methodology at the cost center level (HSRVcc) to remove the bias introduced by hospital characteristics (that is, teaching, disproportionate share, location, and size, among others) and then scaling the weights to costs using national cost center CCRs derived from cost report data. However, in response to comments discussed in section II.C.2 of this final rule, we have postponed the implementation of the HSRV methodology in order to further study its effects and have subsequently revised the methodology for setting relative weights based on cost. Further, we are adopting the cost relative weights under a 3-year transition period such that in FY 2007, year one of the transition, the relative weights will be a blend of 33 percent of the relative cost weight and 67 percent of the relative charge weight. In year two, the relative weights will be based on 67 percent of the relative cost weight and 33 percent of the relative charge weight and in year three, the relative weights will be 100 percent cost based.

In developing the final system of weights, we used two data sources: Claims data and cost report data. As in previous years, the claims data source is the MedPAR file. This file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2005 MedPAR data used in this proposed rule include discharges occurring on October 1, 2004, through September 30, 2005, based on bills received by CMS through March 31, 2006, 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 2005 MedPAR file used in calculating the relative weights includes data for approximately 12,238,146 Medicare discharges. Discharges for Medicare beneficiaries enrolled in a Medicare+Choice managed care plan are excluded from this analysis. The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost relative weight methodology are the FY 2004 Medicare cost report data files from HCRIS, which represents the most recent full set of cost report data available. We used the March 31, 2006 update of the HCRIS cost report files for FY 2004 in setting the final relative cost based weights.

Because we are implementing the relative weights on a transitional basis it is necessary to calculate both charge based and cost based relative weights. The charge-based methodology used to calculate the DRG relative weights from the MedPAR data is the same methodology that was in place for FY 2006 and was applied as follows:

  • To the extent possible, all the claims were regrouped using the FY 2007 DRG classification revisions discussed in section II.D. 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 2005 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 was 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.
  • Total 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 total charges for all cases in the DRG and dividing that amount by the number of cases classified in the DRG. A transfer case was 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 non-transfer cases. That is, a transfer case receiving payment under the transfer methodology equal to half of what the case would receive as a non-transfer would be counted as 0.5 of a total case.
  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the 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 charge-based weights were then normalized by an adjustment factor of 1.49338 so that the average case weight after recalibration was equal to the average case weight before recalibration. This normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS as required by section 1886(d)(4)(C)(iii) of the Act. We note that due to the decision in Bellevue Hosp. Center v. Leavitt, in which the Court of Appeals for the Second Circuit (the Court) ordered CMS to apply the occupational mix adjustment to 100 percent of the wage index effective for FY 2007 (see section III.C. of this final Start Printed Page 47964rule for more details of this Court decision), we are unable to finalize the FY 2007 wage index data at this time. Since we are relying on the wage index data as one of the standardizing factors that we use in calculating both the charge-based and the cost-based relative weights that are blended to set the FY 2007 transitional relative weights, we will recalculate the FY 2007 relative weights when the wage data becomes available and will publish these recalculated relative weights in a subsequent Federal Register notice prior to October 1, 2006.

The methodology we used to calculate the DRG cost-based weights from the FY 2005 MedPAR claims data and FY 2004 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the FY 2007 DRG classification revisions discussed in section II.D. 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 2005 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
  • Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each DRG and before eliminating statistical outliers.
  • Claims with total charges or total length of stay less than or equal to zero were dropped. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges and anesthesia charges were also dropped. At least 94 percent of the providers in the MedPAR file had charges for 10 of the 13 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 13 cost centers were dropped.
  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each DRG.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 13 cost groups for each claim 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. Charges were then summed by DRG for each of the 13 cost groups such that each DRG had 13 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2004 cost report data.

The 13 cost centers that we used in the DRG cost calculation are shown in the following table. In addition, the table shows the lines on the cost report that we used to create the national cost center CCRs that we used to adjust the DRG charges to cost:

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We developed the national average CCRs as follows:

Taking the FY 2004 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland as we are including their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than .01. In response to a comment from MedPAC discussed in section II.C.1. of this preamble, we normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of all of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. In the proposed rule we had used a trim of 1.96 times the standard deviation. However, in response to comments as discussed in section II C. of this preamble, we have subsequently revised our trim to 3 standa