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Proposed Rule

Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates

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Start Preamble Start Printed Page 24680

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

We are proposing to revise 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 certain provisions made by the Deficit Reduction Act of 2005 (Pub. L. 109-171), the Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief and Health Care Act of 2006 (Pub. L. 109-432), and the Pandemic and All-Hazards Preparedness Act (Pub. L. 109-417). In addition, in the Addendum to this proposed rule, we describe the proposed 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 proposed rate-of-increase limits for certain 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 or that have a portion of a prospective payment system payment based on reasonable cost principles. These proposed changes would be applicable to discharges occurring on or after October 1, 2007.

In this proposed rule, we discuss our proposals to further refine the diagnosis-related group (DRG) system under the IPPS to better recognize severity of illness among patients—for FY 2008, we are proposing to adopt a Medicare Severity DRG (MS-DRG) classification system for the IPPS. We are also proposing to use the structure of the proposed MS-DRG system for the LTCH prospective payment system (referred to as MS-LTC-DRGs) for FY 2008.

Among the other policy changes that we are proposing to make are changes related to: Limited revisions of the reclassification of cases to proposed MS-DRGs, the proposed relative weights for the proposed MS-LTC-DRGs; 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 indirect costs of graduate medical education; submission of hospital quality data; provisions governing application of sanctions relating to the Emergency Medical Treatment and Labor Act of 1986 (EMTALA); provisions governing disclosure of physician ownership in hospitals and patient safety measures; and provisions relating to services furnished to beneficiaries in custody of penal authorities.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 12, 2007.

ADDRESSES:

In commenting, please refer to file code CMS-1533-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of three 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-1533-P, P.O. Box 8011, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1533-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to 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 Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain 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.

Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the “Collection of Information Requirements” section in this document.

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, New Medical Services and Technology Add-On Payments, and Hospital Geographic Reclassifications Issues

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Graduate Medical Education, Critical Access Hospitals, and Long-Term Care (LTC)-DRG 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

Jacqueline Proctor, (410) 786-8852, Disclosure of Physician Ownership in Hospitals and Patient Safety Measures Issues

Fred Grabau, (410) 786-0206, Services to Beneficiaries in Custody of Penal Authorities Issues

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

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-1533-P Start Printed Page 24681and 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 the following Web site as soon as possible after they have been received: http://www.cms.hhs.gov/​eRulemaking. Click 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

AHRQ 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

CAH Critical access hospital

CART CMS Abstraction & Reporting Tool

CBSAs Core-based statistical areas

CC Complication or comorbidity

CCR Cost-to-charge ratio

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

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

HSRV Hospital-specific relative value

HSRVcc Hospital-specific relative value cost center

HQA Hospital Quality Alliance

HQI Hospital Quality Initiative

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

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

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

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

MAC Medicare Administrative Contractor

MCC  Major complication or comorbidity

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

MIEA-TRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Pub. L. 109-432

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

MPN Medicare provider number

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

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 Start Printed Page 24682

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

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

UHDDS Uniform hospital discharge data set

VBP Value-based purchasing

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. Provisions of the Medicare Improvements and Extension Act Under Division B of the Tax Relief and Health Care Act of 2006

D. Provisions of the Pandemic and All-Hazards Preparedness Act

E. Major Contents of this Proposed Rule

1. Proposed DRG Reclassifications and Recalibrations of Relative Weights

2. Proposed Changes to the Hospital Wage Index

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

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

5. Proposed Changes to the Payment Rate for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages

6. Services Furnished to Beneficiaries in Custody of Penal Authorities

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

8. Impact Analysis

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

10. Discussion of Medicare Payment Advisory Commission Recommendations

II. Proposed Changes to DRG Classifications and Relative Weights

A. Background

B. DRG Reclassifications

1. General

2. Yearly Review for Making DRG Changes

C. MedPAC Recommendations for Revisions to the IPPS DRG System

D. Refinement of DRGs Based on Severity of Illness

1. Evaluation of Alternative Severity-Adjusted DRG Systems

a. Overview of Alternative DRG Classification Systems

b. Comparative Performance in Explaining Variation in Resource Use

c. Payment Accuracy and Case-Mix Impact

d. Issues for Future Consideration

2. Development of Proposed Medicare Severity DRGs (MS-DRGs)

a. Comprehensive Review of the CC List

b. Chronic Diagnosis Codes

c. Acute Diagnosis Codes

d. Prior Research on Subdivisions of CCs Into Multiple Categories

e. Proposed Medicare Severity DRGs (MS-DRGs)

3. Dividing Proposed MS-DRGs on the Basis of the CCs and MCCs

4. Conclusion

5. Impact of the Proposed MS-DRGs

6. Changes to Case-Mix Index (CMI) from the Proposed MS-DRGs

7. Effect of the Proposed MS-DRGs on the Outlier Threshold

8. Effect of the Proposed MS-DRGs on the Postacute Care Transfer Policy

E. Refinement of the Relative Weight Calculation

1. Summary of RTI's Report on Charge Compression

2. RTI Recommendations

a. Short-Term Recommendations

b. Medium-Term Recommendations

c. Long-Term Recommendations

F. Hospital-Acquired Conditions, Including Infections

1. General

2. Legislative Requirements

3. Public Input

4. Collaborative Effort

5. Criteria for Selection of the Hospital-Acquired Conditions

6. Proposed Selection of Hospital-Acquired Conditions

7. Other Issues

G. Proposed Changes to the Specific DRG Classifications

1. Pre-MDC: Intestinal Transplantations

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

a. Implantable Neurostimulators

b. Intracranial Stents

3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat)—Cochler Implants

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

a. Hip and Knee Replacements

b. Spinal Fusions

c. Spinal Disc Devices

d. Other Spinal DRGs

5. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasm): Endoscopic Procedures

6. Medicare Code Editor (MCE) Changes

a. Non-Covered Procedure Edit: Code 00.62 (Percutaneous Angioplasty or Atherectomy of Intracranial Vessel(s))

b. Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R. Procedures Edit 10

c. Limited Coverage Edit 17

7. Surgical Hierarchies

8. CC Exclusion List Proposed for FY 2008

a. Background

b. Proposed CC Exclusions List for FY 2008

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

a. Moving Procedure Codes From CMS DRG 468 (Proposed MS-DRGs 981 Through 983) or CMS DRG 477 (Proposed MS-DRGs 987 Through 989) to MDCs

b. Reassignment of Procedures Among CMS DRGs 468, 476, and 477 (Proposed MS-DRG 981 Through 983, 984 Through 986, and 987 Through 989)

c. Adding Diagnosis or Procedure Codes to MDCs

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

11. Other Issues

a. Seizures and Headaches

b. Devices That Are Replaced Without Cost or Where Credit for a Replaced Device Is Furnished to the Hospital

H. Recalibration of DRG Weights

I. Proposed MS-LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2008

1. Background

2. Proposed Changes in the LTC-DRG Classifications

a. Background

b. Patient Classifications Into DRGs

3. Development of the Proposed FY 2008 MS-LTC-DRG Relative Weights

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

b. Data

c. Hospital-Specific Relative Value Methodology

d. Proposed Treatment of Severity Levels in Developing Relative Weights

e. Proposed Low-Volume MS-LTC-DRGs

4. Steps for Determining the Proposed FY 2008 MS-LTC-DRG Relative Weights

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

1. Background

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

3. FY 2008 Status of Technologies Approved for FY 2007 Add-On Payments

a. Endovascular Graft Repair of the Thoracic Aorta

b. Restore® Rechargeable Implantable Neurostimulators

c. X STOP Interspinous Process Decompression System

4. FY 2008 Application for New Technology Add-On Payments

5. Technical Correction

III. Proposed Changes to the Hospital Wage Index

A. Background

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

C. Proposed Occupational Mix Adjustment to the Proposed FY 2008 Wage Index

1. Development of Data for the Proposed FY 2008 Occupational Mix Adjustment

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

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2008

4. Proposed 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index

D. Worksheet S-3 Wage Data for the Proposed FY 2008 Wage Index

1. Included Categories of Costs Start Printed Page 24683

2. Contract Labor for Indirect Patient Care Services

3. Excluded Categories of Costs

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

E. Verification of Worksheet S-3 Wage Data

F. Wage Index for Multicampus Hospitals

G. Computation of the Proposed FY 2008 Unadjusted Wage Index

1. Method for Computing the Proposed FY 2008 Unadjusted Wage Index

2. Expiration of the Imputed Floor

3. CAHs Reverting Back to IPPS Hospitals and Raising the Rural Floor

4. Application of Rural Floor Budget Neutrality

H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2008 Occupational Mix Adjusted Wage Index

I. Revisions to the Proposed Wage Index Based on Hospital Redesignations

1. General

2. Effects of Reclassification/Redesignation

3. FY 2008 MGCRB Reclassifications

4. Hospitals That Applied for Reclassification Effective in FY 2008 and Reinstating Reclassifications in FY 2008

5. Clarification of Policy on Reinstating Reclassifications

6. “Fallback” Reclassifications

7. Geographic Reclassification Issues for Multicampus Hospitals

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

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

10. New England Deemed Counties

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

12. Other Issues

J. Proposed FY 2008 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

K. Process for Requests for Wage Index Data Corrections

L. Labor-Related Share for the Proposed Wage Index for FY 2008

M. Wage Index Study Required Under Pub. L. 109-432

N. Proxy for the Hospital Market Basket

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

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

1. Background

2. FY 2008 Quality Measures

3. New Quality Measures and Data Submission Requirements for FY 2009 and Subsequent Years

a. Proposed New Quality Measures for FY 2009 and Subsequent Years

b. Data Submission

4. Retiring or Modifying RHQDAPU Program Quality Measures

5. Procedures for the RHQDAPU Program for FY 2008 and FY 2009

a. Procedures for Participating in the RHQDAPU Program

b. Chart Validation Requirements

c. Data Validation and Attestation

d. Public Display

e. Reconsideration and Appeal Procedures

f. RHQDAPU Program Withdrawal Requirements

6. Electronic Medical Records

7. New Hospitals

B. Development of the Medicare Hospital Value-Based Purchasing Plan

C. Rural Referral Centers (RRCs)

1. Proposed Annual Update of RRC Status Criteria

a. Case-Mix Index

b. Discharges

2. Acquired Rural Status of RRCs

D. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2008

3. Time Spent by Residents on Vacation or Sick Leave and in Orientation

a. Background

b. Vacation and Sick Leave Time

c. Orientation Activities

d. Proposed Regulation Changes

E. Hospital Emergency Services Under EMTALA

1. Background

2. Recent Legislation Affecting EMTALA Implementation

a. Secretary's Authority to Waive Requirements During National Emergencies

b. Provisions of the Pandemic and All-Hazards Preparedness Act

c. Proposed Revisions to the EMTALA Regulations

F. Disclosure of Physician Ownership in Hospitals and Patient Safety Measures

1. Disclosure of Physician Ownership in Hospitals

2. Patient Safety Measures

G. Rural Community Hospital Demonstration Program

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

A. Background

B. Proposed Policy Change

VI. Proposed Changes for Hospitals and Hospital Units Excluded From the IPPS

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

B. Separate PPS for IRFs

C. Separate PPS for LTCHs

D. Separate PPS for IPFs

E. Determining Proposed LTCH Cost-to-Charge Ratios (CCRs) Under the LTCH PPS

VII. Services Furnished to Beneficiaries in Custody of Penal Authorities

VIII. MedPAC Recommendations

IX. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

C. Response to Public Comments

Regulation Text

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning On or After October 1, 2007

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2008

A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

2. Computing the Proposed Average Standardized Amount

3. Updating the Proposed Average Standardized Amount

4. Other Adjustments to the Average Standardized Amount

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

b. Reclassified Hospitals—Budget Neutrality Adjustment

c. Case-Mix Budget Neutrality Adjustment

d. Outliers

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

5. Proposed FY 2008 Standardized Amount

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

1. Proposed Adjustment for Area Wage Levels

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

C. Proposed DRG Relative Weights

D. Calculation of the Proposed Prospective Payment Rates for FY 2008

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 2008

3. General Formula for Calculation of Proposed Prospective Payment Rates for Hospitals Located in Puerto Rico Beginning On or After October 1, 2007 and Before October 1, 2008

a. Puerto Rico Rate

b. National Rate

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2008

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

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

b. Comparison of CMS and MedPAC Update Recommendation

2. Proposed Outlier Payment Adjustment Factor

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

4. Proposed Exceptions Payment Adjustment Factor

5. Proposed Capital Standard Federal Rate for FY 2008

6. Proposed Special Capital Rate for Puerto Rico Hospitals

B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2008

C. Capital Input Price Index

1. Background

2. Forecast of the CIPI for FY 2008

IV. Proposed Changes to 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 Start Printed Page 24684

V. Tables

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

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

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

Table 1D—Capital Standard Federal Payment Rate

Table 2—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2006; Hospital Wage Indexes for Federal Fiscal Year 2008; Hospital Average Hourly Wages for Federal Fiscal Years 2006 (2002 Wage Data), 2007 (2003 Wage Data), and 2008 (2004 Wage Data); and 3-Year Average of Hospital Average Hourly Wages

Table 3A—FY 2008 and 3-Year Average Hourly Wage for Urban Areas by CBSA

Table 3B—FY 2008 and 3-Year Average Hourly Wage for Rural Areas by CBSA

Table 4A—Wage Index and Capital Geographic Adjustment Factor (GAF) for Urban Areas by CBSA—FY 2008

Table 4B—Wage Index and Capital Geographic Adjustment Factor (GAF) for Rural Areas by CBSA—FY 2008

Table 4C—Wage Index and Capital Geographic Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA—FY 2008

Table 4F—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) by CBSA—FY 2008

Table 4J—Out-Migration Wage Adjustment—FY 2008

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

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 Exclusion List (Available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

Table 6H—Deletions from the CC Exclusion List (Available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

Table 6I—Complete List of Complication and Comorbidity (CC) Exclusions (Available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

Table 6J—Major Complication and Comorbidity (MCC) List

Table 6K—Complications and Comorbidity (CC) List

Table 7A—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2006 MedPAR Update—December 2006 GROUPER V24.0 CMS-DRGs

Table 7B—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2006 MedPAR Update—December 2006 GROUPER V25.0 CMS DRGs

Table 8A—Proposed Statewide Average Operating Cost-to-Charge Ratios—March 2007

Table 8B—Proposed Statewide Average Capital Cost-to-Charge Ratios—March 2007

Table 8C—Proposed Statewide Average Total Cost-to-Charge Ratios for LTCHs—March 2007

Table 9A—Hospital Reclassifications and Redesignations—FY 2008

Table 9C—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2008

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 Proposed Medicare Severity Diagnosis-Related Groups (MS-DRGs)—March 2007

Table 11—Proposed FY 2008 MS-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 Proposed Policy Changes Under the IPPS for Operating Costs

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects of the Proposed Changes to the DRG Reclassifications and Relative Cost-Based Weights (Column 2)

D. Effects of Proposed Wage Index Changes (Column 3)

E. Combined Effects of Proposed DRG and Wage Index Changes (Column 4)

F. Effects of the Expiration 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 5)

G. Effects of MGCRB Reclassifications (Column 6)

H. Effects of the Adjustment to the Application of the Rural Floor (Column 7)

I. Effects of Expiration of the Imputed Rural Floor (Column 8)

J. Effects of the Expiration of Section 508 of Pub. L. 108-173 (Column 9)

K. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 10)

L. Effects of All Proposed Changes With CMI Adjustment Prior to Assumed Growth (Column 11)

M. Effects of All Proposed Changes With CMI Adjustment and Assumed Growth (Column 12)

N. Effects of Proposed Policy on Payment Adjustment for Low-Volume Hospitals

O. Impact Analysis of Table II

VII. Effects of Other Proposed Policy Changes

A. Effects of Proposed Policy on Hospital-Acquired Conditions, Including Infections

B. Effects of Proposed MS-LTC-DRG Reclassifications and Relative Weights for LTCHs

C. Effects of Proposed New Technology Add-On Payments

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

E. Effects of Proposed Policy on Cancellation of Classification of Acquired Rural Status and Rural Referral Centers

F. Effects of Proposed Policy Change on Payment for Indirect Graduate Medical Education

G. Effects of Proposed Policy Changes Relating to Emergency Services Under EMTALA

H. Effects of Proposed Policy on Disclosure of Physician Ownership in Hospitals and Patient Safety Measures

I. Effects of Implementation of Rural Community Hospital Demonstration Program

J. Effects of Proposed Policy Changes on Services Furnished to Beneficiaries in Custody of Penal Authorities

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

B. Results

IX. Alternatives Considered

X. Overall Conclusion

XI. Accounting Statement

XII. Executive Order 12866

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

I. Background

II. Inpatient Hospital Update for FY 2008

III. Secretary's Recommendation

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

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 24685predetermined, 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 this special payment protection in order to maintain access to services for beneficiaries. (Until FY 2007, an MDH has received 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 does not have the option of using FY 1996 as the base year for its 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 IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

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

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (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, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. 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, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of “new” under § 412.23(e)(4) are paid, during a 5-year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of “new” could 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, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.

c. Inpatient Psychiatric Facilities (IPFs)

Under the authority of sections 124(a) and (c) of Pub. L. 106-113, inpatient Start Printed Page 24686psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) 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 and a Federal per diem payment rate, effective for cost reporting periods beginning on or after January 1, 2005. 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)

The Deficit Reduction Act of 2005 (DRA), 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 proposed rule would implement amendments made by (1) section 5001(a), which, effective for FY 2007 and subsequent years, expands the requirements for hospital quality data reporting; and (2) section 5001(c), which requires the Secretary to select, by October 1, 2007, at least two hospital-acquired conditions that meet certain specified criteria that will be subject to a quality adjustment in DRG payments during FY 2008.

In this proposed rule, we also discuss our development of a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals, in accordance with the requirements of section 5001(b) of Pub. L. 109-171.

C. Provisions of the Medicare Improvements and Extension Act Under Division B of the Tax Relief and Health Care Act of 2006

In this proposed rule, we discuss the provisions of section 106(b)(1) of the Medicare Improvements and Extensions Act under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA), Pub. L. 109-432, which requires MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare wage index classification system applied under the Medicare Prospective Payment System. Section 106(b) of the MIEA-TRHCA requires the report to include any alternatives that MedPAC recommends to the method to compute the wage index under section 1886(d)(3)(E) of the Act.

In addition, we discuss the provisions of section 106(b)(2) of the MIEA-TRHCA, which instructs the Secretary of Health and Human Services, taking into account MedPAC's recommendations on the Medicare wage index classification system, to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS.

We note that we published a notice in the Federal Register on March 23, 2007 (72 FR 13799) that addressed the provisions of section 106(a) of the MIEA-TRHCA relating to the extension of geographic reclassifications of hospitals under section 508 of Pub. L. 108-173 (that expired on March 31, 2007) through September 30, 2007.

D. Provisions of the Pandemic and All-Hazards Preparedness Act

On December 19, 2006, Congress enacted the Pandemic and All-Hazards Preparedness Act, Pub. L. 109-417. Section 302(b) of Pub. L. 109-417 makes two specific changes that affect EMTALA implementation in emergency areas during an emergency period. Specifically section 302(b)(1)(A) of Pub. L. 109-417 amended section 1135(b)(3)(B) of the Act to state that sanctions may be waived for the direction or relocation of an individual for screening where, in the case of a public health emergency that involves a pandemic infections disease, that direction or relocation occurs pursuant to a State pandemic preparedness plan. In addition, sections 302(b)(1)(B) and (b)(1)(C) of Pub. L. 109-417 amended section 1135(b)(3)(B) of the Act to state that, if a public health emergency involves a pandemic infectious disease (such as pandemic influenza), the duration of a waiver or modification under section 1135(b)(3) of the Act (relating to EMTALA) shall be determined in accordance with section 1135(e) of the Act as that subsection applies to public health emergencies.

In this proposed rule, we are proposing to make changes to the EMTALA regulations to conform them to the sanction waiver provisions of section 302(b) of Pub. L. 109-417.

E. Major Contents of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2008. We also are setting forth proposed changes relating to payments for IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis. The changes being proposed would be effective for discharges occurring on or after October 1, 2007, unless otherwise noted.

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

1. Proposed DRG Reclassifications and Recalibrations of Relative Weights

We are proposing to adopt a Medicare Severity DRG (MS-DRG) classification system for the IPPS to better recognize severity of illness. We present the methodology we used to establish the proposed MS-DRGs and discuss our efforts to further analyze alternative severity-adjusted DRG systems and to refine the relative weight calculations for DRGs.

We present a proposed listing and discussion of hospital-acquired conditions, including infections, which we have evaluated and are considering for selection to be subject to the statutorily required quality adjustment in DRG payments for FY 2008.

We are proposing limited annual revisions to the DRG classification system in the following areas: intestinal transplants, neurostimulators, intracranial stents, cochlear implants, knee and hip replacements, spinal fusions and spinal disc devices, and endoscopic procedures.

We are presenting our reevaluation of certain FY 2007 applicants for add-on payments for high-cost new medical services and technologies, and our analysis of the FY 2008 applicant Start Printed Page 24687(including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

We are proposing 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 2008. We are proposing that the LTC-DRGs would be revised to mirror the proposed MS-DRGs for the IPPS.

2. Proposed Changes to the Hospital Wage Index

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

  • The FY 2008 wage index update, using wage data from cost reporting periods that began during FY 2004.
  • Analysis and implementation of the proposed FY 2008 occupational mix adjustment to the wage index.
  • Proposed changes relating to expiration of the imputed floor for the wage index and application of budget neutrality for the rural floor.
  • Proposed changes in determining the wage index for multicampus hospitals.
  • The proposed revisions to the wage index based on hospital redesignations and reclassifications, including reclassifications for multicampus hospitals.
  • The proposed adjustment to the wage index for FY 2008 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 2008 wage index.
  • The labor-related share for the FY 2008 wage index, including the labor-related share for Puerto Rico.

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

In section IV. of the preamble to this proposed rule, we discuss a number of provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:

  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Development of the Medicare value-based purchasing plan and scheduled “listening sessions.”
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status and a proposed policy change relating to the acquired rural status of RRCs.
  • The statutorily-required IME adjustment factor for FY 2008 and a proposed policy change relating to determining counts of residents on vacation or sick leave and in orientation for IME and direct GME purposes.
  • Proposed changes relating to waiver of sanctions for requirements for emergency services for hospitals under EMTALA during national emergency.
  • Proposed policy changes relating to disclosure to patients of physician ownership of hospitals and patient safety measures.
  • Discussion of the fourth year of implementation of the Rural Community Hospital Demonstration Program.

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

In section V. of the preamble to this proposed rule, we discuss the payment policy requirements for capital-related costs and capital payments to hospitals and propose changes relating to adjustments to the Federal capital rate to address continuous large positive margins.

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

In section VI. of the preamble to this proposed rule, we discuss payments to excluded hospitals and hospital units, and proposed changes for determining LTCH CCRs under the LTCH PPS.

6. Services Furnished to Beneficiaries in Custody of Penal Authorities

In section VII. of the preamble to this proposed rule, we clarify when individuals are considered to be in “custody” for purposes of Medicare payment for services furnished to beneficiaries who are under penal authorities.

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

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2008 prospective payment rates for operating costs and capital-related costs. We also establish the proposed threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2008 for hospitals and hospital units excluded from the PPS.

8. Impact Analysis

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

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

In Appendix B of this 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 2008 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.

10. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2007 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 is addressed in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2007 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.

II. Proposed Changes to DRG Classifications and Relative Weights

(If you choose to comment on issues in this section, please include the caption “DRG Reclassifications” at the beginning of your comment.)

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 Start Printed Page 24688which 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 the preamble to the FY 2007 IPPS final rule (71 FR 47881 through 47971), we are focusing our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its “Report to the Congress, Physician-Owned Specialty Hospitals” in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking into account severity of illness and applying hospital-specific relative value (HSRV) weights to DRGs.[1] We began this reform process by adopting cost-based weights over a 3-year transition period beginning in FY 2007 and making interim changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and modifying 32 others across 13 different clinical areas involving nearly 1.7 million cases. As described below in more detail, these refinements are intermediate steps towards comprehensive reform of both the relative weights and the DRG system that is occurring as we undertake further study.

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 2007, cases are assigned to one of 538 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.
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 2007, there are 9 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 Start Printed Page 24689for 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 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 diagnosis class 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 entered 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 FY 2000 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date 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 this IPPS proposed rule for FY 2008, we are proposing to adopt significant changes to the current DRGs. As described in detail below, we are proposing significant improvement in the DRG system to recognize severity of illness and resource usage by proposing to adopt Medicare Severity DRGs (MS-DRGs). The changes we are proposing in this proposed rule would be reflected in the FY 2008 GROUPER, Version 25.0, and would be effective for discharges occurring on or after October 1, 2007. Unless otherwise noted in this proposed rule, our DRG analysis is based on data from the December 2006 update of the FY 2006 MedPAR file, which contains hospital bills received through December 31, 2006, for discharges occurring in FY 2006.

2. Yearly Review for Making DRG Changes

Many of the changes to the DRG classifications we make annually 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 and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in Start Printed Page 24690the 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 will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. We describe in detail below the process we used to develop the proposed MS-DRGs. In addition, in deciding whether to make further modification to the proposed MS-DRGs for particular circumstances brought to our attention, we would 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 proposed MS-DRG. We would 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 MS-DRG. In evaluating resource costs, we would consider both the absolute and percentage differences in average charges between the cases we would select for review and the remainder of cases in the MS-DRG. We also would consider variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we also would consider the number of patients who will have a given set of characteristics and generally would prefer not to create a new DRG unless it would include a substantial number of cases.

C. MedPAC Recommendations for Revisions to the IPPS DRG System

In the FY 2006 and FY 2007 IPPS final rules, we discussed a number of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482 and 71 FR 47881 through 47939).

In Recommendations 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.
  • 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.

For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). However, based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. Rather, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contain 1,666,476 cases and represent a number of body systems. In creating these 20 new DRGs, we deleted 8 and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008. In the FY 2007 IPPS final rule, we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes 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. We describe in detail below the progress we have made on these two initiatives, our proposed actions for FY 2008, and our plans for continued analysis of reform of the DRG system for FY 2009. We note that revising the DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, 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.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology beginning with the FY 2007 IPPS proposed rule. Although we proposed to adopt HSRV weights for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the hospital-specific portion of the methodology. The cost weights are being adopted over a 3-year transition period in 1/3 increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the hospital-specific methodology as well as other issues brought to our attention with respect to the cost weights. There was significant concern in the public comments that we account for charge compression or the practice of applying a higher charge markup over costs to lower cost than higher cost items and services, if we are to develop relative weights based on cost. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost report to determine departmental level cost-to-charge ratios (CCRs) to apply to charges on the Medicare claims to determine the cost weights. The commenters were concerned about potential distortions to the cost weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International to study both charge compression and to what extent our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost report and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the Start Printed Page 24691RAND Corporation is analyzing the HSRV cost-weighting methodology.

As we present below, we believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution 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 the changes we have adopted and the continuing reforms we are proposing to adopt for FY 2008 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

D. Refinement of DRGs Based on Severity of Illness

(If you choose to comment on issues in this section, please include the caption “DRG Reform and Proposed MS-DRGs” at the beginning of your comment.)

For purposes of the following discussions, the term “CMS DRGs” means the DRG system we currently use under the IPPS; the term “Medicare-Severity DRGs (MS-DRGs)” means the revisions that we are proposing to make to the current CMS DRGs to better recognize severity of illness and resource use based on case complexity. Although we have found the terms “CMS DRGs” and “MS-DRGs” useful to distinguish the current DRG system from the DRGs that we are proposing to adopt for FY 2008, we are interested in public comments on how to best refer to both the current DRGs and the proposed DRGs to avoid confusion and improve clarity.

1. Evaluation of Alternative Severity-Adjusted DRG Systems

In the FY 2007 IPPS final rule, we stated our intent to engage a contractor to assist us with an evaluation of alternative DRG systems that may better recognize severity than the current CMS DRGs. We noted it was possible that some of the alternative systems would better recognize severity of illness and are based on the current CMS DRGs. We further stated that if we were to develop a clinical severity concept using the current CMS DRGs as the starting point, it was possible that several of the issues raised by commenters (in response to the CS DRGs, which, in the FY 2007 IPPS proposed rule, we proposed to adopt for FY 2008 or earlier) would no longer be a concern. We noted that if we were to propose adoption of severity DRGs for FY 2008, we would consider the issues raised by commenters on last year's proposed rule as we continued to make further refinements to account for complexity as well as severity to better reflect relative resource use. We stated that we believed it was likely that at least one of several alternative severity-adjusted DRG systems suggested for review (or potentially a system we would develop ourselves) would be suitable to achieve our goal of improving payment accuracy beginning in FY 2008.

On September 1, 2006, we awarded a contract to the RAND Corporation to perform an evaluation of alternative severity-adjusted DRG classification systems. RAND is evaluating several alternative DRG systems based on how well they are suited to classifying and making payments for inpatient hospital services provided to Medicare patients. Each system is being assessed on its ability to differentiate among severity of illness. A final report is due on or before September 1, 2007.

RAND's draft interim report focused on the following criteria:

  • Severity-adjusted DRG classification systems: —How well does each classification system explain variation in resource use? —How would the classification system affect a hospital's patient mix? —Are the groupings manageable, administratively feasible and understandable?
  • Payment accuracy—What are the payment implications of selected models?

In response to our request, several vendors of DRG systems submitted their products for evaluation. The following products are currently being evaluated by RAND:

3M/Health Information Systems (HIS)

  • CMS DRGs modified for AP-DRG Logic (CMS + AP-DRGs)
  • Consolidated Severity-Adjusted DRGs (CS DRGs)

Health Systems Consultants (HSC)

  • Refined DRGs (HSC-DRGs)

HSS/Ingenix

  • All-Payer Severity DRGs with Medicare modifications (MM-APS-DRGs)

Solucient

  • Solucient Refined DRGs (Sol-DRGs)

Vendors submitted their commercial (off-the-shelf) software to RAND in late September 2006. The five systems were compared to the CMS DRGs that were in effect as of October 1, 2006 (FY 2007). RAND assigned FY 2004 and FY 2005 Medicare discharges from acute care hospitals to the FY 2007 CMS DRGs and to each of the alternative severity-adjusted DRG systems. RAND's initial analysis provided an overview of each alternative DRG classification system, their comparative performance in explaining variation in resource use, differences in DRG grouping logic, and case-mix change.

A Technical Expert Panel comprised of individuals representing academic institutions, hospital associations, and MedPAC was formed in October 2006. The members received the preliminary draft report of RAND's alternative severity-adjusted DRG systems evaluation in early January 2007. The panel met with RAND and CMS on January 18, 2007, to discuss the preliminary draft report and to provide additional comments. RAND incorporated items raised by the panel into its preliminary draft report and submitted a revised interim report to CMS in mid-March 2007. CMS posted RAND's interim report on the CMS Web site in late March 2007. Interested individuals can view RAND's interim report on the CMS Web site at: http://www.cms.hhs.gov/​Reports/​downloads/​Wynn0307.pdf.

At this time, RAND has not completed its final evaluation. RAND's interim report reflects its preliminary evaluation of the alternative DRG systems using the criteria described above. In the project's second phase, RAND will continue to evaluate alternative DRG systems as well as to compare performance using HSRVs. As RAND has not completed its evaluation of alternative DRG systems, we are not ready at this time to propose use of one of the alternative DRG systems being evaluated for Medicare in FY 2008. Further, even if RAND had completed its evaluation, we would need to explore whether any transition issues would need to be resolved before we are ready to propose adopting an alternative DRG system. Among other issues, we would need to evaluate the legal and contractual issues associated with adopting a proprietary DRG product. Although vendors for four of the five systems have indicated a willingness to make their products available in the public domain, we believe it is likely there would need to be some discussion as to whether there would be any limitations (such as the source code as well as the DRG logic) on the availability of the DRG systems to hospitals or competing vendors. Further, we would need to resolve contractual issues for updates and maintenance of an alternative DRG system and consider how they interact with our current ongoing contract to maintain the CMS DRGs. There may be further system conversion issues that we have not yet considered. The RAND Start Printed Page 24692contract will be complete by September 1, 2007. Once RAND completes its work, we believe we will be in a better position to evaluate whether it would be appropriate to propose to adopt one of the five alternative DRG systems for purposes of the IPPS.

As discussed later in this proposed rule, we are proposing to adopt MS-DRGs beginning with FY 2008. The MS-DRGs are the result of modifications to the CMS DRGs to better account for severity. While we are proposing to implement the MS-DRGs on October 1, 2007, we believe the MS-DRGs should be evaluated by RAND. We have instructed RAND to evaluate the proposed MS-DRGs using the same criteria that it is applying to the other DRG systems. As described below, we believe the proposed MS-DRGs represent a substantial improvement in the recognition of severity of illness and resource consumption. For this reason, we are proposing to adopt MS-DRGs for FY 2008.

As stated earlier, a final report is expected from RAND by September 1, 2007. This report will include further analysis of the five alternative DRG systems and the additional evaluation of the MS-DRGs. We look forward to reviewing RAND's final report that will provide a comprehensive evaluation of each severity DRG system that has been examined. We anticipate that after this process is completed, we will have the necessary information to decide our next steps in the reform of the IPPS. Meanwhile, we are proposing to adopt the MS-DRGs for FY 2008 and are providing the following update on RAND's progress in evaluating alternative DRG systems.

We invite public comment regarding RAND's preliminary analysis of each vendor-supplied alternative severity-adjusted DRG system described below.

a. Overview of Alternative DRG Classification Systems

Analysis of how each of the five severity-adjusted DRG systems performs began by using the current CMS DRGs as a baseline. Two of the five systems (CS DRGs and MM-APS-DRGs) are derivatives of all-patient severity-adjusted DRG systems that have been modified by their developers for the Medicare population and two of the systems (HSC-DRGs and Sol-DRGs) are all-patient systems that incorporate severity levels into the CMS DRGs. The CMS-AP-DRGs are a combination of CMS DRGs and a modification for the Medicare population of the major CC severity groupings used in the AP-DRG system. (The AP-DRG system was developed by 3M/HIS specifically for the State of New York to capture the non-Medicare population.)

Table A below shows how each of the five alternative severity-adjusted systems classifies patients into base DRGs and their corresponding severity levels.

Table A.—Logic of CMS and Alternative DRG Systems

Classification elementCMS DRGCMS+AP-DRGHSC-DRGSol--DRGMM-APS-DRGCon-APR-DRG
Number of MDCs252525252525
Number of Pre-MDC base DRGs999997
Number of base DRGs379379215 ADRGs248 ADRGs361379
Total number of Pre-MDC DRGs993027279
Total number of DRGs5386021,2741,261915859
Number of CC (severity) subclasses233 (medical) or 4 (surgical)3 (medical) or 4 (surgical)34
CC subclassesWith CC without CC for selected base DRGsWithout CC With CC for selected base DRGs and With MCC across DRGs within MDCNo CC, Class C CC, Class B CC, Class A CC (surgical only)Minor/no substantial CCs, moderate CCs, MCCs, catastrophic CCs (surgical only)Without CC, with CC with MCC with some collapsing at base DRG levelMinor, moderate, major, severe with some collapsing at DRG level.
Multiple CCs recognizedNoNoNoNoYes (in computation of weightsYes.
CC assignment specific to base DRGMostly noMostly noMostly noMostly noNoYes.
Logic of CC subdivisionPresence/absencePresence/absencePresence/absencePresence/absencePresence/absence18-step process.
Logic of MDC assignmentPrincipal diagnosisPrincipal diagnosisPrincipal diagnosisPrincipal diagnosisPrincipal diagnosisPrincipal diagnosis with rerouting.
Death used in DRG assignmentYes (in selected DRGs)Yes (in selected DRGs)Yes (includes “early death” DRGs)Yes (includes “early death” DRGs)Yes (in selected DRGs)No.
Complications of care are CCsYesYesYesYesYes, when recognized as a CC No, when CC represents “poor medical care”Few.

RAND's preliminary evaluation of the logic for each system demonstrated the following:

  • Four systems add severity levels to the base CMS DRGs; the CS DRGs add severity levels to base APR-DRGs, which are comparable but not identical to the base CMS DRGs. Both the CS DRGs and MM-APS-DRGs collapse some base DRGs with low Medicare volume. Start Printed Page 24693
  • The HSC-DRGs and the Sol-DRGs use uniform severity levels for each base DRG (three for medical and four for surgical). The general structure of the MM-APS-DRG logic includes three severity levels for each base DRG, but some severity levels for the same base DRG are consolidated to address Medicare low-volume DRGs and monotonicity issues. Monotonicity is when the average costs for a severity group consistently rise as the severity level of the group increases. For example, in a monotonic system, if within a base DRG there are three severity groups and level 1 severity is less than level 2 severity and level 2 severity is less than level 3 severity, the average costs for a level 3 case would be greater than the average costs for a level 2 case, which would be greater than the average costs for a level 1 case. The general structure of the CS DRGs includes four severity levels for each base DRG. However, severity level consolidations occur to address Medicare low-volume DRGs and monotonicity. The CS DRGs consolidate both adjacent severity levels for the same base DRG and the same severity level across multiple base DRGs (especially for severity level 4).
  • Under the CMS+AP-DRGs and MM-APS-DRGs, each diagnosis is assigned a uniform CC-severity level across all base DRGs (other than CCs on the exclusion list for specific principal diagnoses). The remaining systems assign diagnoses to CC-severity level classifications by groups of DRGs.
  • Under the grouping logic used by all systems other than the CS DRGs, each discharge is assigned to the highest severity level of any secondary diagnosis. The CS DRGs adjust the initial severity level assignment based on other factors, including the presence of additional CCs. None of the other systems adjust the severity level classification for additional factors or CCs. However, the MM-APS-DRG system handles additional CCs through an enhanced relative weight.
  • The HSC-DRGs and the Sol-DRGs have a medical “early death” DRG within each MDC.
  • The CS DRGs do not use death in the grouping logic. In addition, most complications of care do not affect the DRG assignment.

b. Comparative Performance in Explaining Variation in Resource Use

In evaluating the comparative performance of each alternative DRG system, RAND used MedPAR data from FY 2004 and FY 2005. RAND excluded data from CAHs, Indian Health Service (IHS) hospitals, and hospitals that have all-inclusive rate charging practices. Consistent with CMS practice, RAND did not exclude data from Maryland hospitals, which operate under an IPPS waiver. Records that failed edits for data consistency or that had missing variables that were needed to determine standardized costs were also excluded.

RAND reported that evaluation of each alternative severity-adjusted DRG system is a complex process due to differences in how each of the severity levels are applied, the number of severity-adjusted DRGs in each system, and the average number of discharges assigned to each DRG. In addition, the manner in which the DRGs for patients 0-17 years of age are assigned in the severity-adjusted systems affects the number of low-volume DRGs using Medicare discharges.

Low-volume, severity-adjusted DRGs can affect the relative performance of a classification system. However, the percentage of Medicare discharges assigned to these DRGs is small—approximately 0.7 percent in the HSC-DRG and Sol-DRG systems compared to 0.1 percent in the CMS DRGs.

In determining how much within-DRG variation exists for each alternative severity-adjusted DRG system, RAND calculated the mean standardized cost, standard deviation, and coefficient of variation for each DRG among the systems. The coefficient of variation (CV) is the standard deviation divided by the mean. The CV allowed RAND to compare the variation of populations that contain significantly different mean values. Preliminary results of the comparison demonstrate that all five severity-adjusted systems reduce the amount of variation within DRGs. The HSC-DRGs and Sol-DRGs have a slightly higher proportion of patients assigned to DRGs with a CV<76 percent but also have a higher proportion of patients assigned to DRGs with a CV≥100 percent. The CS DRGs had a slightly lower percentage of patients assigned to DRGs with a CV<76 percent than the other severity-adjusted systems. The MM-APS-DRGs, CS DRGs, and CMS+AP-DRGs all have fewer than 2 percent of patients assigned to DRGs with a CV≥100 percent.

RAND utilized a general linear regression model to evaluate how well each severity-adjusted DRG system explains variation in costs per case. The initial results demonstrate that all five severity-adjusted DRG systems predict cost better than the CMS DRGs. The CS DRGs have higher adjusted R2 values (explanatory power) than the other severity-adjusted systems in nearly every MDC. In general, the adjusted R2 value for the CS DRGs is 0.4458, a 13-percent improvement over the adjusted R2 value for the CMS DRGs. The HSC-DRGs demonstrate an 11-percent improvement, while the adjusted R2 values for the MM-APS-DRGs and Sol-DRGs are 10.0 percent and 9.7 percent higher respectively, than the CMS DRG R2 value. The CMS+AP-DRGs show the smallest improvement, nearly 8 percent.

Another aspect of RAND's evaluation was to identify the validity of each alternative DRG system as a measurement for resource costs. For a base DRG, the severity levels should be monotonic; that is, the mean cost per discharge should increase simultaneously with an increase in the severity level. A distinction between patient groups and varying treatment costs should be accomplished by the severity levels. RAND studied the percentage differences and absolute differences in cost between the severity levels within the base DRGs for each system under evaluation. For the two systems (CMS+AP-DRGs and CS DRGs) that include several base DRGs, RAND assigned those discharges to the lower severity level base DRG. Following that methodology, RAND was able to calculate how much more costly the discharges assigned to the consolidated or lower severity levels were than the discharges in the base DRG assigned to the next higher severity level. Preliminary results demonstrate that, overall, monotonicity is not a factor across the alternative DRG systems. There are only a small percentage of discharges that are assigned to nonmonotonic DRGs. When a DRG is nonmonotonic, the mean cost in the higher severity level is less than the mean cost in the lower severity level.

Using the data from severity of illness levels 1 through 3 (except for the MM-APS-DRGs, which do not have a severity of illness level 3), RAND calculated the discharge-weighted mean cost difference between severity levels and the mean ratio of the cost per discharge for the higher severity level to the adjacent lower severity level. The greatest cost discrimination was present in the higher severity levels versus the lower severity levels across all the systems. The mean cost difference between severity of illness level 1 and severity of illness level 0 was reported to be less than $2,000 for all the severity-adjusted systems. The CMS+AP DRGs have the least amount of cost discrimination between severity levels ($2,117), while the MM-APS-DRG system has the highest mean cost difference ($2,385). The remaining systems demonstrated equivalent percentage cost differences between the Start Printed Page 24694severity levels as shown in Table B below.

In examining whether each of the alternative DRG systems provided stability in the relative weights from year to year, RAND compared the relative weights derived from the MedPAR data in FY 2004 to the relative weights data from FY 2005. RAND's preliminary results demonstrate that generally, across all the systems, only a small percentage of DRGs had greater than a 5 percent change in relative weights. The HSC-DRGs and Sol-DRGs had a higher proportion of DRGs with a greater than 5 percent change in relative weights than the other systems. Fewer than 10 percent of the DRGs in the remaining systems had relative weight changes greater than 10 percent. In addition to differences in the number of DRGs and the methodology of assigning the severity levels, RAND noted additional factors that may affect the comparative performance of each alternative severity-adjusted DRG system. For further details and discussion, we encourage readers to view RAND's full interim report on the CMS Web site at: http://www.cms.hhs.gov/​Reports/​downloads/​Wynn0307.pdf.

c. Payment Accuracy and Case-Mix Impact

Similar to how CMS established the relative weights in the FY 2007 IPPS final rule, RAND used standardized costs as determined by the national CCR and the FY 2005 MedPAR data to construct relative weights for each of the DRG systems being evaluated. RAND analyzed the effect of variations in the Start Printed Page 24695explanatory power on the distribution of Medicare payments for each system under evaluation. The preliminary findings indicate payment accuracy is improved by each severity-adjusted system by redistributing payment from lower-cost discharges to higher-cost discharges. However, the total payment redistribution across systems differs and reflects the payment impact of improved explanatory power. Although these findings are estimates, the percent of total payment redistributed was the least under the CMS+AP-DRGs (7.1 percent) and the most under the CS DRGs (11.9 percent).

Table C shows changes in case-mix index (CMI) by hospital category across alternative severity-adjusted DRG systems. Preliminary results demonstrate that under the severity-adjusted systems, urban hospitals have a higher average CMI than under the CMS DRGs, and rural hospitals have a lower CMI. The analysis suggests that any system adopted to better recognize severity of illness with a budget neutrality constraint will result in payment redistribution that can be expected to benefit urban hospitals at the expense of rural hospitals. This impact occurs because patients treated in urban hospitals are generally more severely ill than patients in rural hospitals and the CMS DRGs are not currently recognizing the full extent of these differences. For purposes of the study, RAND assumed no behavioral changes in coding practice or the types of patients treated.

The shift in case-mix (CMI) is greatest with the CS DRGs. The CMI for rural hospitals is 2.4 percent lower than under the CMS DRGs. The CMI for large urban (hospitals located in CBSAs with greater than 1 million population) and other urban hospitals is 0.6 percent and 0.1 percent higher, respectively, for the CS DRGs. The CMI generally increases for larger hospitals and decreases for smaller hospitals. Under the CMS+AP-DRG, HSC-DRG, and Sol-DRG systems, greater than 70 percent of hospitals would experience less than a 2.5 percent change in their CMI. Under the MM-APS-DRG and Con-APR-DRG systems, 65 and 45 percent of hospitals, respectively, would experience less than a 2.5 percent change. The percentage of hospitals experiencing less than a 5 percent change is significant across all of the CMS-based DRG systems.

Teaching hospitals commonly treat a higher number of complex cases. However, depending on the severity-adjusted DRG system being analyzed, the impact will vary. In the CMS+AP-DRG, HSC-DRG, and MM-APS-DRG systems, facilities with large teaching programs (100 or more residents) demonstrated a larger increase than those facilities with smaller teaching programs. Under the Sol-DRG system, facilities with large teaching programs would experience a 0.1 percent increase, while facilities with the smaller teaching programs would experience a 0.2 percent increase. The CS DRGs showed similar results for hospitals with large teaching programs, but hospitals with the smaller teaching programs would experience an increase of 0.7 percent, relative to the CMS DRGs. RAND found that CMI would decline for nonteaching hospitals from severity adjusted DRGs, from a 0.2 percent decrease under the HSC-DRGs and Sol-DRGs compared to a 0.5 percent decrease under the CS DRGs.

Table C.—CMI Change in Alternative DRG Systems Relative to the CMS DRG CMI

N hospitalsN dischargesCMS DRG CMIPercentage change from CMS-DRG-CMI
CMS + AP-DRGHSC-DRGSol-DRGMM-APS-DRGCon-APR-DRG
ALL3,89012,165,7631.000.00.00.00.00.0
By Geographic Location:
Large urban areas (pop>1 million)1,4855,715,3561.020.50.40.30.60.6
Other urban areas (pop<1 million)1,1864,578,4471.04−0.2−0.2−0.1−0.20.1
Rural hospitals1,2191,871,9600.84−1.3−0.9−1.0−1.4−2.4
Bed Size (Urban):
0-99 beds685611,1390.91−1.0−1.1−1.1−1.3−1.6
100-199 beds8752,346,9220.930.00.10.00.10.0
200-299 beds5112,446,7371.000.10.20.30.30.6
300-499 beds4332,965,2161.080.30.30.30.40.8
500 or more beds1671,923,7891.170.60.30.20.40.4
Bed Size (Rural):
0-49 beds543330,2420.73−2.5−2.1−2.2−2.7−5.0
50-99 beds398595,5990.80−1.4−1.0−1.1−1.6−2.7
100-149 beds160415,3670.85−1.1−0.7−0.8−1.2−2.0
150-199 beds69260,9100.91−0.8−0.6−0.7−0.8−1.5
200 or more beds49269,8420.99−0.6−0.1−0.1−0.6−0.5
Urban by Region:
New England129541,4710.990.1−0.2−0.5−0.5−0.6
Middle Atlantic3701,621,4881.000.0−0.4−0.5−0.3−1.5
South Atlantic4322,208,3361.040.50.70.70.71.4
East North Central4101,856,1641.030.60.70.60.81.5
East South Central168696,9431.06−0.2−0.2−0.2−0.2−0.3
West North Central164657,3221.08−0.3−0.30.0−0.30.3
West South Central3691,115,4111.050.10.00.10.30.5
Mountain153465,0931.080.40.20.50.41.0
Pacific4231,016,1351.030.0−0.2−0.1−0.10.2
Puerto Rico53115,4400.87−1.1−1.4−0.1−1.2−5.1
Rural by Region:
New England3449,8420.90−0.6−0.6−0.5−1.1−0.6
Middle Atlantic68139,6390.85−1.1−0.7−0.7−1.3−1.5
South Atlantic191409,1160.82−0.8−0.4−0.5−0.9−1.8
East North Central163290,0690.87−1.1−0.7−0.9−1.3−1.8
East South Central201328,3260.82−1.5−0.9−1.1−1.4−3.2
Start Printed Page 24696
West North Central184240,4490.87−1.6−1.2−1.1−1.8−2.5
West South Central227266,4190.80−2.1−1.8−1.9−2.0−4.3
Mountain9180,2190.85−1.2−1.0−0.4−1.3−1.2
Pacific6067,8810.86−0.9−1.0−1.1−1.4−1.6
Teaching Status:
Non-teaching2,7916,115,1930.92−0.4−0.2−0.2−0.4−0.5
Fewer than 100 Residents8534,061,4511.040.10.20.20.20.7
100 or more Residents2461,989,1191.160.80.30.10.50.0
Urban DSH:
Non-DSH7782,574,6401.02−0.10.00.1−0.20.5
100 or more beds1,5417,378,0951.050.30.20.20.40.4
Less than 100 beds352341,0680.82−0.9−0.8−1.0−1.1−2.0
Rural DSH:
Non-DSH238300,7470.87−1.4−1.0−0.9−1.7−1.9
SCH402599,8230.83−1.3−1.0−1.0−1.4−2.4
RRC132466,3950.92−0.8−0.3−0.5−0.7−1.4
Other Rural:
100 or more beds60135,1460.80−0.9−0.8−1.2−1.3−2.0
Less than 100 beds387369,8490.74−2.1−1.6−1.7−2.2−4.3
Urban teaching and DSH:
Both teaching and DSH8294,705,4761.090.50.30.30.50.5
Teaching and no DSH2041,108,0921.060.00.10.0−0.10.4
No teaching and DSH1,0643,013,6870.95−0.10.10.00.10.1
No teaching and no DSH5741,466,5481.00−0.2−0.10.1−0.30.5
Rural Hospital Types:
RRC145519,8080.92−0.8−0.4−0.5−0.7−1.4
SCH423457,1190.79−1.6−1.2−1.2−1.7−3.0
MDH180164,4530.75−2.1−1.7−1.7−2.3−4.1
SCH and RRC76266,0270.92−0.9−0.7−0.7−1.1−1.3
MDH and RRC819,7460.85−1.4−0.6−0.8−1.6−1.9
Other Rural387444,8070.77−1.6−1.2−1.4−1.8−3.3

RAND also noted that changes in coding patterns or behaviors could improve payments with each severity adjusted DRG system. Increases in CMI after adopting the system could be the result of improved coding rather than increases in actual patient severity. Although the State of Maryland's experience using the APR-DRG system is an indicator, coding behaviors are expected to vary under alternative systems according to RAND. Therefore, the risk of case-mix growth due to improved documentation and coding exists with any system. However, RAND advises that the amount of risk can be assessed based on the logic of the DRG system and result in anticipated changes in coding behavior. RAND found that the CMS+AP-DRG system may have the lowest risk of case-mix increase, while the CS DRGs present the greatest risk. The remaining systems under evaluation demonstrated equivalent risk, based on the DRG logic and other features specific to each system.

In section II.D.2.c. of the preamble of this proposed rule, the CMI impact under the proposed MS-DRGs using the State of Maryland's experience and data is described in detail. RAND's final report will include a comparison of the CMI impact under the proposed MS-DRG system with the CMI impact of the other alternative severity-adjusted DRG systems.

d. Other Issues for Consideration

RAND was asked to examine whether each of the alternative severity-adjusted DRG systems under evaluation appear to contain logic that is manageable, administratively feasible, and understandable. Although its evaluation is not yet complete, RAND's preliminary results describe the extent to which those features are present in the grouping logic of each system. A brief summary of these findings and other discussion points follow. For more complete details of the grouping logic for each system evaluated, we encourage readers to review RAND's interim report at the following Web site: http://www.cms.hhs.gov/​Reports/​downloads/​Wynn0307.pdf.

To increase and promote understanding of a DRG classification system, the grouping logic should include a uniform structure. With the exception of the CS DRGs, RAND found that there is uniformity in the hierarchical structure for assigning discharges to MDCs, DRGs, and severity levels for each system evaluated. The CS DRGs utilize a complex rerouting logic and severity of illness level assignment. However, the result is a higher explanatory power that accounts for limitations in the current system. Therefore, due to the complexities associated with that system, it may not easily be understood. However, if the results yield clinically coherent groups of patients with comparable costs, RAND concluded that the system may be worth exploring further. The HSC-DRG and Sol-DRG grouping logic uses a standard number of severity levels for each base DRG, although the result is an increase in the number of low-volume DRGs. The standard severity level structure provides increased understanding, although as mentioned previously, low-volume, severity-adjusted DRGs can affect the relative performance of a classification system. The MM-APS-DRGs and CS DRGs use standard DRG severity levels. However, the method of collapsing DRGs varies due to the modifications made for Medicare use. By only collapsing DRGs to determine relative weights, RAND Start Printed Page 24697notes it is possible to preserve the underlying DRG structure, which perhaps would lead to a more understandable system.

As stated earlier, there are also several transition issues that require attention when evaluating alternative severity-adjusted DRG systems. In determining how manageable, administratively feasible, and understandable the systems being evaluated are, consideration should be given to how they crosswalk or map to the current CMS DRGs. Because four of the systems under evaluation are based on the underlying CMS DRG grouping logic to establish their base DRGs (CMS+AP-DRGs, HSC-DRGs, Sol-DRGs, and MM-APS-DRGs), the CMS DRGs are able to crosswalk smoothly to these severity-adjusted DRGs. Conversely, crosswalking in reverse or backward mapping from the CMS+AP DRGs to the CMS DRGs is problematic due to the discharges in one severity level of the CMS+AP-DRG system compared to several base CMS DRGs. As expected, the CS DRGs do not crosswalk easily to the CMS DRGs due to the complex grouping logic. The MM-APS-DRGs pose unique complications as well due to the large number (over 1,000) of DRGs.

System updates are another important factor that may have serious implications. All of the DRG systems RAND evaluated were reported to make annual updates to reflect ICD-9-CM coding changes. However, the CC severity level assignments for each system have not routinely been reviewed and revised. The review of the CC exclusion list and severity level assignments should be reviewed where appropriate to reflect current patterns of care, according to RAND.

Accessibility to each of the severity-adjusted DRG system's logic and software is also a concern. Each system RAND analyzed is currently maintained as a proprietary product. In general, all of the vendors indicated a willingness to place their product in the public domain, under certain terms. As such, we believe it is likely there would need to be discussion as to whether there would be any limitations (such as the source code as well as the DRG logic) on the availability of the DRG systems to hospitals or competing vendors. The intent of each vendor to provide public access to its grouper logic and software is described in further detail in RAND's interim report.

The RAND contract will be complete by September 1, 2007. The final report will include evaluation of the proposed MS-DRGs, with further analysis of the five alternative severity-adjusted DRG classification systems. RAND will also study various approaches to estimating costs and developing relative weights, as well as the payment impacts of alternative methodologies. Again, we invite public comment on RAND's preliminary analysis of the alternative severity-adjusted DRG systems. The interim report can be viewed on the CMS Web site at: http://www.cms.hhs.gov/​Reports/​downloads/​Wynn0307.pdf.

2. Development of Proposed Medicare Severity DRGs (MS-DRGs)

As discussed previously, we are committed to continuing our efforts of making refinements to the current CMS DRGs to better recognize severity of illness. In the FY 2007 final rule, we stated that we had begun a comprehensive review of over 13,000 diagnosis codes to determine which codes should be classified as CCs when present as a secondary diagnosis. We stated that we would also build on the severity DRG work we performed in the mid-1990's. We received a number of public comments on last year's proposed rule that supported the refinement of the current CMS DRGs so that they better capture severity.

We also committed to performing a more broad based analysis of the entire DRG system to better recognize severity of illness. As a result of this broad based analysis, we developed the proposed MS-DRGs. The proposed MS-DRGs represent a comprehensive approach to applying a severity of illness stratification for Medicare patients throughout the DRGs. As discussed in section II.D.5. of the preamble of this proposed rule, the proposed MS-DRGs maintain the significant advancements in identifying medical technology made to the DRGs in past years. At the same time, they greatly improve our ability to identify groups of patients with varying levels of severity using secondary diagnoses. Further, they improve our ability to assign patients to different DRG severity levels based on resource use that is independent of the patient's secondary diagnosis—referred to in this discussion as “complexity.” We are proposing to adopt the MS-DRGs for FY 2008 and submit the system to RAND as part of its evaluation of alternative DRG systems. We encourage comments on both our proposed methodology as well as on the resulting proposed DRG structure.

a. Comprehensive Review of the CC List

Our efforts to better recognize severity of illness began with a comprehensive review of the CC list. Currently, 115 DRGs are split based on the presence or absence of a CC. For these DRGs, the presence of a CC assigns the discharge to a higher weighted DRG. The list of diagnoses designated as a CC was initially created at Yale University in 1980-1981 as part of the project to develop an ICD-9-CM version of the DRGs. The researchers at Yale University developed the ICD-9-CM DRGs using national hospital data with diagnoses and procedures coded in ICD-9-CM from the second half of 1979. Because hospitals only began reporting ICD-9-CM codes in 1979, discharge abstracts at that time were much less likely to fully report all secondary diagnoses. As a result, the Yale University researchers developed a liberal definition of a CC as any secondary diagnosis that “would cause an increase in length of stay by at least 1 day in at least 75 percent of the patients.” Because of the likely underreporting of secondary diagnoses in the 1979 data, the Yale University researchers also used age as a surrogate for identifying patients with a CC. The original version of the ICD-9-CM DRGs assigned patients to a CC DRG if they had a secondary diagnosis on the CC list or if the patient was 70 years or older.

With the implementation of the IPPS in FY 1984, the coding of secondary diagnoses by hospitals dramatically improved. During the first 4 years of the IPPS, the CC definition included the age 70 criterion. With the improved coding and reporting of diagnoses associated with the implementation of the IPPS, the use of age as a surrogate for CCs was no longer necessary. Thus, beginning in FY 1988, the age 70 criterion was removed from the CC definition and a CC DRG was defined exclusively by the presence of a secondary diagnosis on the CC list.

Except for new diagnosis codes that were added to ICD-9-CM after FY 1984 (for example, HIV), the CC list of diagnoses currently used in the CMS DRGs is virtually identical to the CC list created at Yale University. However, there have been dramatic changes not only in the accuracy and completeness of the coding of secondary diagnoses but also in the characteristics of patients admitted to hospitals and the practice patterns within hospitals as well.

Since the implementation of the IPPS, Medicare average length of stay has dropped dramatically from 9.8 days in 1983 to 5.7 days in 2005. The economic incentives inherent in DRGs motivated a change in practice patterns to discharge patients earlier from the hospital. These changes were facilitated by the increased availability of postacute care services, such as nursing homes and home health services, which Start Printed Page 24698allowed problems previously requiring continued hospitalization to be effectively treated outside the acute care hospital. Furthermore, there has also been a dramatic shift to outpatient surgery that avoids costly inpatient stays. Many surgical procedures formerly performed in the hospital are now routinely performed on an outpatient basis. As a result, patients admitted to the hospital today are on average more likely to have a CC than when the IPPS was implemented. The net effect of better coding of secondary diagnoses, reductions in hospital length of stay, increased availability of postacute care services, and the shift to outpatient care is that most patients (nearly 80 percent) admitted to a hospital now have a CC. As a result of the changes that have occurred during the 22 years since the implementation of the IPPS, the CC list as currently defined has lost much of its power to discriminate hospital resource use.

Currently, 115 CMS DRGs have a CC subdivision. Up until FY 2002, the number of DRGs with a CC subdivision remained essentially unchanged from the original FY 1984 version of the DRGs. As a means of improving the payment accuracy of the DRGs, beginning with the FY 2002 DRG update, each base CMS DRG without a CC subdivision was evaluated to determine if a CC subdivision was warranted. Over the past five DRG updates, only seven base CMS DRGs have had a CC subdivision added. The primary constraint preventing a significant increase in the number of base CMS DRGs with a CC subdivision is the low number of patients that would be assigned to the non-CC group. Thus, the expansion of the number of CMS DRGs subdivided based on a CC is constrained because the vast majority of patients would be assigned to the CC group and few patients would be assigned to the non-CC group. To remedy these problems, we reviewed each of the 13,549 secondary diagnosis codes to evaluate their assignment as a CC or non-CC using statistical information from the Medicare claims data and applying medical judgment based on current clinical practice. We refer to this list in this section as the “revised CC list.”

The need for a revised CC list prompted a reexamination of the secondary diagnoses that qualify as a CC. Our intent was to better distinguish cases that are likely to result in increased hospital resource use based on secondary diagnosis. Using a combination of mathematical data and the judgment of our medical officers, we included the condition on the CC list if it could demonstrate that its presence would lead to substantially increased hospital resource use.

Diagnoses may require increased hospital resource use because of a need for such services as:

  • Intensive monitoring (for example, an intensive care unit (ICU) stay).
  • Expensive and technically complex services (for example, heart transplant).
  • Extensive care requiring a greater number of caregivers (for example, nursing care for a quadriplegic). There are 3,326 diagnosis codes on the current CC list. Our 2006 review of the CC list reduced the number of diagnosis codes on the CC list to 2,583. Based on the current CC list, 77.6 percent of patients have at least one CC present. Based on the revised CC list from our 2007 review, the percent of patients having at least one CC present would be reduced to 41.24 percent.

b. Chronic Diagnosis Codes

The 1979 data used in the original formation of the CC list often did not have the manifestations of a chronic disease fully coded. As a result, the CC list included many chronic diseases with a broad range of manifestations. Such chronic illness diagnoses usually do not cause a significant increase in hospital resource use unless there is an acute exacerbation present or there is a significant deterioration in the underlying chronic condition. Therefore, in the revised CC list, we removed chronic diseases without a significant acute manifestation. Recognition of the impact of the chronic disease is accomplished by separately coding the acute manifestation. For example, the mitral valve disease codes (codes 396.0 through 396.9) are assigned to the current CC list. However, unless the mitral valve abnormalities are associated with other diagnoses indicating acute deterioration, such as acute congestive heart failure, acute pulmonary edema, or respiratory failure, they would not be expected to significantly increase hospital resource use. Therefore, the revised CC list did not include the mitral valve codes. Recognition of the contribution of mitral valve disease to the complexity of hospital care would be accomplished by separately coding those diseases on the CC list that are associated with an acute exacerbation or deterioration of the mitral valve disease.

The revised CC list applied the criterion that chronic diagnoses having a broad range of manifestations are not assigned to the CC list as long as there are codes available that allow the acute manifestations of the disease to be coded separately. For some diseases, there are ICD-9-CM codes that explicitly include a specification of the acute exacerbation of the underlying disease. For example, for congestive heart failure, the following codes specify an acute exacerbation of the congestive heart failure:

  • 428.21, Acute systolic heart failure
  • 428.41, Acute systolic and diastolic heart failure
  • 428.43, Acute on chronic systolic heart failure
  • 428.31, Acute diastolic heart failure
  • 428.33, Acute on chronic diastolic heart failure

These congestive heart failure codes are included on the revised CC List. However, the following congestive heart failure codes do not indicate an acute exacerbation and are not included in the revised CC list:

  • 428.0, Congestive heart failure not otherwise specified
  • 428.1, Left heart failure
  • 428.20, Systolic heart failure not otherwise specified
  • 428.22, Chronic systolic heart failure
  • 428.32, Chronic diastolic heart failure
  • 428.40, Systolic and diastolic heart failure
  • 428.9, Heart failure not otherwise specified

As a result of this approach, most chronic diseases were not assigned to the revised CC list. In general, a significant acute manifestation of the chronic disease must be present and coded for the patient to be assigned a CC. We made exceptions for diagnosis codes that indicate a chronic disease in which the underlying illness has reached an advanced stage or is associated with systemic physiologic decompensation and debility. The presence of such advanced chronic diseases, even in the absence of a separately coded acute manifestation, significantly adds to the treatment complexity of the patient. Thus, the presence of the advanced chronic disease inherently makes the reason for admission more difficult to treat. For example, under the revised CC list, stage IV, V, or end-stage chronic renal failure (codes 585.4 through 585.6) are designated as a CC, but stage I through III chronic renal failure (codes 585.1 through 585.3) are not. For obesity, a body mass index over 35 (codes V85.35 through V85.4) is a CC, but a body mass index between 19 and 35 is not. End-stage renal failure and extreme obesity are examples of chronic diseases for which the advanced stage of the disease is clearly specified.

However, for most major chronic diseases, the stage of the disease is not clearly specified in the code. These Start Printed Page 24699codes were evaluated based on the consistency and intensity of the physiologic decompensation and debility associated with the chronic disease. For example, quadriplegia (codes 344.00 through 344.09) requires extensive care with a substantial increase in nursing services and more intensive monitoring. Therefore, quadriplegia is considered a CC in the revised CC list.

c. Acute Diagnosis Codes

Examples of acute diseases included on the revised CC list included acute myocardial infarction (AMI), cerebrovascular accident (CVA) or stroke, acute respiratory failure, acute renal failure, pneumonia and septicemia. These six diseases are representative of the types of illnesses we included on the revised CC list. Other acute diseases were designated as a CC if their impact on hospital resource use would be expected to be comparable to these representative acute diseases. For example, acute endocarditis was included on the CC list but urinary tract infection was not.

The revised CC list is essentially comprised of significant acute disease, acute exacerbations of significant chronic diseases, advanced or end stage chronic diseases and chronic diseases associated with extensive debility. Compared to the existing CC list, the revised CC list requires a secondary diagnosis to have a consistently greater impact on hospital resource.

The following Table D compares the current CC list and the revised CC list. There are 3,326 diagnosis codes on the current CC list. The CC revisions reduce the number of diagnosis codes on the CC list to 2,583. Based on the current CC list, 77.6 percent of patients have at least one CC present, using FY 2006 MedPAR data. Based on the revised CC list, the percent of patients having at least one CC present is reduced to 40.34 percent. The revised CC list increases the difference in average charges between patients with and without a CC by 56 percent ($15,236 versus $9,743).

Table D.—Comparison of Current CC List and Revised CC List

Current CC listRevised CC list
Codes designated as a CC3,3262,583
Percent of patients with one or more CCs77.6640.34
Percent of patients with no CC22.3459.66
Average charge of patients with one or more CCs$24,538$31,451
Average charge of patients with no CCs$14,795$16,215

The analysis above suggests that merely reviewing and updating the CC list can lead to significant improvements in the ability of the CMS DRGs to recognize severity of illness. Although we could potentially adopt this one change to better recognize severity of illness in the CMS DRGs, we have undertaken additional analyses that further refine secondary diagnoses into MCCs, CCs and non-CCs as described below.

d. Prior Research on Subdivision of CCs into Multiple Categories

(1) Refined DRGs

During the mid-1980s, CMS (then HCFA) funded a project at Yale University to revise the use of CCs in the CMS DRGs. The Yale University project mapped all secondary diagnoses that were considered a CC in the CMS DRGs into 136 secondary diagnosis groups, each of which was assigned a CC complexity level. For surgical patients, each of the 136 secondary diagnosis groups was assigned to 1 of 4 CC complexity levels (non-CC, moderate CC, MCC, and catastrophic CC). For medical patients, each of the 136 secondary diagnosis groups was assigned to 1 of 3 CC complexity levels (non-CC, moderate/MCC, and catastrophic CC). All age subdivisions and CC subdivisions in the DRGs were eliminated and replaced by the four CC subgroups for surgical patients, or the three CC subgroups for medical patients. The Yale University project did not reevaluate the categorization of secondary diagnosis as a CC versus a non-CC. Only the diagnoses on the standard CC list were used to create the moderate, major, and catastrophic subgroups. All secondary diagnoses in a secondary diagnosis group were assigned the same level, and a patient was assigned to the subgroup corresponding to the highest level secondary diagnosis. The number of secondary diagnoses had no effect on the subgroup assigned to the patient (that is, multiple secondary diagnoses at one level did not cause a patient to be assigned to a higher subgroup). The DRG system developed by the Yale University project demonstrated that a subdivision of the CCs into multiple subclasses would improve the predictability of hospital costs.

(2) 1994 Severity DRGs

We also examined the work we performed in the mid-1990's to revise the CMS DRGs to better capture severity. In 1993, we reevaluated the use of CCs within the CMS DRGs. The reevaluation excluded the CMS DRGs associated with pregnancy, newborn, and pediatric patients (MDCs 14 and 15 and DRGs defined based on age 0-17). The major CC list from the AP-DRGs that are used for Medicaid payment by New York and other States was used to identify an initial list of MCCs. Using Medicare data, we reevaluated the categorization of each secondary diagnosis as a non-CC, CC, or an MCC. The end result was that 111 diagnoses that were non-CCs in the standard CMS DRGs were made a CC, 220 diagnoses that were a CC were made a non-CC, and 395 CCs were considered an MCC.

All CC splits in the CMS DRGs were eliminated, and an additional 24 DRGs were merged together. The resulting base CMS DRGs were then subdivided into three, two, or no subgroups based on an analysis of Medicare data. The result was 84 DRGs with no subgroups, 124 DRGs with two subgroups, and 85 DRGs with three subgroups. An additional 63 pregnancy, newborn, and pediatric DRGs not evaluated resulted in a total of 652 DRGs.

A patient was assigned to the CC subgroup corresponding to the highest level secondary diagnosis. Multiple secondary diagnoses at one level did not cause a patient to be assigned to a higher subgroup. The categorization of a diagnosis as non-CC, CC, or MCC was uniform across the CMS DRGs, and there were no modifications for specific DRGs. As part of the FY 1995 IPPS proposed rule, we made a complete file of the revised DRG descriptions available to the public. However, we never adopted the revised DRGs (55 FR 27756).

e. Proposed Medicare Severity DRGs (MS-DRGs)

We had several options in developing a refinement to the current CMS DRGs to better recognize increased resource use due to severity of illness. One Start Printed Page 24700option would involve simply taking the work performed in 1994 and then updating it with all the code changes that have taken place since then. We were reluctant to do this because of changes in medical practices as well as the substantial change in ICD-9-CM codes since that time. Another option would be to build on current CMS DRGs which include a number of advancements that better identify medical practices and technologies. Many commenters on the FY 2007 IPPS proposed rule urged us to take the latter approach because they believed the current base CMS DRGs clearly differentiate between the complexities of varying surgical procedures and medical devices. Therefore, we chose the option of developing a new severity DRG system based on the current CMS DRGs.

The development of the 1994 Severity DRGs involved three steps:

  • Consolidation of existing DRGs into base DRGs.
  • Categorization of each diagnosis as an MCC, CC, or non-CC.
  • Subdivision of each base DRG into subclasses based on CCs.

We reviewed and revised each of the three steps and applied them to our current CMS DRGs to develop DRGs that better identify severity of illness among Medicare patients. We refer to this proposed system as the Medicare Severity DRGs (MS-DRGs). The purpose of the proposed MS-DRGs is to more accurately stratify groups of Medicare patients with varying levels of severity.

(1) Consolidation of Existing CMS DRGs Into Proposed Base MS-DRGs

The first step in our process was the consolidation of existing CMS DRGs into new proposed base MS-DRGs. We combined together the 115 pairs of CMS DRGs that are subdivided based on the presence of a CC. We further consolidated the CMS DRGs that are split on the basis of a major cardiovascular condition, AMI with and without major complication (CMS DRGs 121 and 122), and cardiac catheterization with and without complex diagnoses (CMS DRGs 124 and 125). We also consolidated the three pairs of burn CMS DRGs that were defined based on the presence of a CC or a significant trauma (CMS DRGs 506 and 507; 508 and 509; and 510 and 511). Next, we consolidated the 43 pediatric CMS DRGs that are defined based on age less than or equal to 17. These pediatric CMS DRGs contain a very low volume of Medicare patients. As shown in Table 10 of the FY 2007 IPPS final rule (71 FR 48318), only two of these pediatric CMS DRGs contained more than 100 patients (CMS DRGs 298 and 333). Seventeen of these pediatric DRGs had no patients (CMS DRGs 30, 33, 41, 48, 54, 58, 137, 252, 255, 282, 330, 340, 343, 393, 405, 446, and 448). As we have stated frequently, our primary focus in maintaining the CMS DRGs is to serve the Medicare population. We do not have the data or the expertise to maintain the DRGs in clinical areas that are not relevant to the Medicare population. We continue to encourage users of the CMS DRGs (or MS-DRGs if adopted) to make relevant adaptations if they are being used for a non-Medicare patient population.

In addition to the pediatric CMS DRGs defined by the age of the patient, there are a number of CMS DRGs that relate primarily to the pediatric or adult population that have very low volume in the Medicare population, such as male sterilization, tubal interruptions, circumcisions, tonsillectomies, and myringotomies. These CMS DRGs were consolidated into the most clinically similar proposed MS-DRG.

Over the past two decades, the site of service for some elective procedures such as carpal tunnel release, cataract extraction, and laparoscopy has shifted from the inpatient to the outpatient setting, resulting in the CMS DRGs associated with these procedures having very low volume. These CMS DRGs were also consolidated into the most clinically similar proposed MS-DRG. In addition, there were some clinically related CMS DRGs that had significant Medicare patient volume but had no significant difference in resource use. For example, thyroid (CMS DRG 290) and parathyroid (CMS DRG 289) procedures were virtually identical in terms of hospital resource use and were, therefore, consolidated. In total, 34 of these CMS DRGs were consolidated. The DRG consolidations are summarized in Table E below.

Four pairs of proposed MS-DRGs (223 and 224; 228 and 229; 323 and 324; and 551 and 552) were defined based on the presence of a CC or some other condition. For example, proposed MS-DRG 323 is defined based on the presence of a CC or the performance of extracorporeal shock wave lithotripsy. For these proposed MS-DRGs, the CC condition was removed and the pair of DRGs remains separate but defined based only on the other condition (that is, proposed MS-DRG 323 became urinary stones with extracorporeal shock wave lithotripsy). As was done in the 1994 severity DRG work, we did not consolidate any of the CMS DRGs for maternity or newborn cases.

Before proceeding further, we made one additional change to a base DRG assignment after completing these consolidations. We assigned cranial-facial bone procedures to a proposed new base DRG (Cranial/Facial Bone Procedures). These cases were previously assigned to DRGs 52 and 55 through 63.

Table E below shows how DRGs in the CMS DRGs (Version 24.0) were consolidated into proposed new base MS-DRGs. We refer readers to section II.D.2. of the preamble of this proposed rule for a detailed discussion of CCs and MCCs under the proposed MS-DRGs.

Table E.—DRG Consolidation

CMS-DRG Version 24.0DRG descriptionProposed 2008 MS-DRGProposed new base MS-DRGs description
6 7,8Carpal Tunnel Release Peripheral & Cranial Nerve & Other Nervous System Procedure40 41 42Peripheral & Cranial Nerve & Other Nervous System Procedure with MCC, with CC, and without CC/MCC.
36 38 39 42Retinal Procedures Primary Iris Procedures Lens Procedures with or without Vitrectomy Intraocular Procedures Except Retina, Iris & Lens116 117Intraocular Procedures with and without CC/MCC.
43 46,47,48Hyphema Other Disorders of the Eye124 125Other Disorders of the Eye with and without MCC.
Start Printed Page 24701
50 51Sialoadenectomy Salivary Gland Procedures Except Sialoadenectomy139Salivary Gland Procedures.
52 55Cleft Lip & Palate Repair Miscellaneous Ear, Nose, Mouth & Throat Procedures133 134Other Ear, Nose, Mouth & Throat O.R. Procedures with and without CC/MCC.
56 57,58 59,60 61,62 63Rhinoplasty Tonsillectomy & Adenoidectomy Procedure, Except Tonsillectomy &/or Adenoidectomy Only Tonsillectomy &/or Adenoidectomy Only Myringotomy with Tube Insertion Other Ear, Nose, Mouth & Throat O.R. Procedures131 132New DRG—Cranial/Facial Bone Procedures with and without CC/MCC.
67 68,69,70 71Epiglottitis Otitis Media & Upper Respiratory Infection Laryngotracheitis152 153Otitis Media & Upper Respiratory Infection with and without MCC.
72 73,74Nasal, Trauma & Deformity Other Ear, Nose, Mouth & Throat Diagnoses154 155 156Other Ear, Nose, Mouth & Throat Diagnoses with MCC, with CC, without CC/MCC.
185,186 187Dental & Oral Diseases Except Extractions & Restorations Dental Extractions & Restorations157 158 159Dental & Oral Diseases with MCC, with CC, without CC/MCC.
199 200Hepatobiliary Diagnostic Procedure for Malignancy Hepatobiliary Diagnostic Procedure for Non-Malignancy420 421 422Hepatobiliary Diagnostic Procedures with MCC, with CC, without CC/MCC.
244,245 246Bone diseases & Specific Arthropathies Non-Specific Arthropathies553 554Bone Diseases & Arthropathies with and without MCC.
259,260 261 262Subtotal Mastectomy for Malignancy* Breast Procedures for Non-Malignancy Except Biopsy & Local Excision Breast Biopsy & Local Excision for Non-Malignancy584 585Breast Biopsy, Local Excision & Other Breast Procedures with and without CC/MCC.
267 268 269,270Perianal & Pilonidal Procedures Skin, Subcutaneous Tissue & Breast Plastic Procedures Other Skin, Subcutaneous Tissue & Breast Procedure579 580 581Other Skin, Subcutaneous Tissue & Breast Procedures with MCC, with CC, without CC/MCC.
289 290 291Parathyroid Procedures Thyroid Procedures Thyroglossal Procedures625 626 627Thyroid, Parathyroid & Thyroglossal Procedures with MCC, with CC, without CC/MCC.
294 295Diabetes > 35 Diabetes < 35637 638 639Diabetes with MCC, with CC, without CC/MCC.
338 339,340Testes Procedures for Malignancy Testes Procedures, Non-Malignancy711 712Testes Procedures with and without CC/MCC.
342,343CircumcisionProcedure 64.0 changed to non-O.R. Cases with only this procedure will go to medical DRGs.
351 352Sterilization, Male Other Male Reproductive System Diagnoses729 730Other Male Reproductive System Diagnoses with and without CC/MCC.
361 362 363 364Laparoscopy & Incisional Tubal Interruption Endoscopic Tubal Interruption D&C, Conization & Radio-Implant, for Malignancy D&C, Conization Except for Malignancy History of Malignancy with Endoscopy744 745D&C, Conization, Laparascopy & Tubal Interruption with and without CC/MCC.
411 412 413,414History of Malignancy without Endoscopy Other Myeloproliferative Disease or Poorly Differentiated Neoplasm Diagnosis843 844 845Other Myeloproliferative Disease or Poorly Differentiated Neoplasm Diagnosis with MCC, with CC, without CC/MCC.
Start Printed Page 24702
465 466Aftercare with History of Malignancy as Secondary Diagnosis Aftercare without History of Malignancy as Secondary Diagnosis949 950Aftercare with and without CC/MCC.
*Codes 85.22 and 85.23 in CMS DRGs 259 and 260 were moved to proposed MS-DRG 582 and 583.

As summarized in the Table F, the consolidation resulted in the formation of 335 proposed base MS-DRGs.

Table F.—Consolidation of Current CMS DRGs Into Proposed MS-DRGs

Number
Current CMS DRGs538
Elimination of CC subgroups−114
Elimination of MCC subgroups−7
Elimination of CC complexity subgroups−5
Elimination of age 0-17 subgroups−43
Consolidation due to volume or resource similarity−34
New DRG+1
Revised Base DRGs311
Newborn, maternity and error DRGs+24
Base DRGs for severity subdivision335

The end result of the consolidation of the CMS DRGs in the proposed MS-DRGs was similar to the consolidation performed in the 1994 severity DRGs. The 1994 DRG consolidations resulted in 356 base DRGs plus 2 error DRGs. The number of the 1994 base DRGs is different because new CMS DRGs have been added since 1994, the 43 age 0-17 pediatric CMS DRGs were not consolidated, and some of the volume shifts to outpatient care had not yet occurred in 1994. In the 1994 severity DRGs, 24 DRGs were consolidated due to volume or resource similarity. Sixteen of these 1994 DRG consolidations are included in the 34 consolidations done in the 2007 consolidations. However, due to concerns expressed by our physician consultants, 8 of the DRG consolidations from 1994 were not done. For example, interstitial lung disease (DRGs 92 and 93) was not consolidated with simple pneumonia and pleurisy (DRGs 89, 90, 91) as was done in the 1994 consolidations.

(2) Categorization of Diagnoses

We decided to establish three different levels of CC severity into which we would subdivide the diagnosis codes. The proposed three levels are MCC, CC, and non-CC. Diagnosis codes classified as MCCs reflect the highest level of severity. The next level of severity includes diagnosis codes classified as CCs. The lowest level is for non-CCs. Non-CCs are diagnosis codes that do not significantly affect severity of illness and resource use. Therefore, secondary diagnoses that are non-CCs do not affect the DRG assignment under either the current CMS DRGs or the proposed MS-DRGs.

The categorization of diagnoses as an MCC, CC, or non-CC was accomplished using an iterative approach in which each diagnosis was evaluated to determine the extent to which its presence as a secondary diagnosis resulted in increased hospital resource use. In order to begin this iterative process, we started with an initial categorization of each diagnosis as an MCC, CC, or non-CC. As noted previously the 1994 CC revision began by separating CCs into MCC and CC based on the AP-DRG major CCs. One way to begin this iterative process would have been to use the 1994 CC categorization. However, the 1994 CC categorization was based on FY 1992 data and ICD-9-CM diagnosis codes, which now are 15 years old. Since 1992, 1,897 new diagnoses codes have been added, and 346 diagnoses codes have been deleted. Because the revised CC list (explained in section II.C.2.a. of this preamble) was based on current ICD-9-CM codes and used recent data, we decided to utilize the revised CC list rather than the 1994 categorization as our starting point for determining whether each secondary diagnosis should be an MCC, a CC, or a non-CC.

The revised CC list categorizes each diagnosis as a CC or a non-CC. We decided to use this list in combination with the categorization under the AP-DRGs and the APR DRGs. The AP-DRGs and the APR-DRGs are updated annually with current codes and provide a good comparison source to use with the revised CC list. We designated as an MCC any diagnosis that was a CC in the revised CC list and was an AP-DRG major CC and was an APR DRG default severity level 3 (major) or 4 (extensive). We designated as a non-CC any diagnosis that was a non-CC in the revised CC list and was an AP-DRG non-CC and was an APR DRG default severity level of 1 (minor). Any diagnoses that did not meet either of the above two criteria was designated as a CC.

The only exception to our approach was for diagnoses related to newborns, maternity, and congenital anomalies. These diagnoses are very low volume in the Medicare population and were not reviewed for purposes of creating the revised CC list. We used the APR DRGs to categorize these diagnoses. For newborn, obstetric, and congenital anomaly diagnoses, we designated the APR DRG default severity level 3 (major) and 4 (extreme) diagnoses as an MCC, the APR-DRG default severity level 2 (moderate) diagnoses as a CC, and the APR DRG default severity 1 (minor) diagnoses as a non-CC. Table G summarizes the number of codes in each CC category.

Table G.—Initial Categorization of CC Codes

Number of codes
MCC1,096
CC4,221
Non-CC8,232
Total13,549

This initial CC categorization of diagnosis codes was used to begin the iterative process of determining the proposed final CC categorization for each diagnosis code.

(3) Additional CC Exclusions

For some CMS DRGs, the presence of specific secondary diagnoses affects the base DRG assignment. For example, in MDC 5 (Diseases and Disorders of the Circulatory System), the presence of an AMI code as the principal diagnosis or as a secondary diagnosis will cause the patient to be assigned to the AMI DRGs (CMS DRGs 121 through 123). Therefore, if the AMI code is present as Start Printed Page 24703a secondary diagnosis, it should not be used to assign the CC category for a patient because it is redundant within the definition of the base DRG. Similarly, for MDC 24 (Multiple Significant Trauma), specific combinations of significant trauma as principal or secondary diagnosis cause the assignment to the multiple trauma DRGs (CMS DRGs 484 through 487). Therefore, any secondary diagnosis of trauma is redundant with the definition of the multiple trauma DRGs and should not be used to determine the CC category for a patient. Any secondary diagnoses that are used to assign a specific proposed base MS-DRG were excluded from the determination of the CC category for patients assigned to that proposed base MS-DRG.

(4) Analysis of Secondary Diagnoses

The 311 proposed base MS-DRGs (335 total base DRGs minus the MDC 14, MDC 5, and error DRGs) were subdivided into three CC subgroups. Patients were assigned to the subgroup corresponding to the most extreme CC present). All but four of the proposed base MS-DRGs had strictly monotonically increasing average charges across the three CC subgroups (that is, average charges progressively increased from the non-CC to the CC to the MCC subgroups). The four proposed MS-DRGs that failed to have monotonically increasing charges all had at least one CC subgroup with very low volume. For example, the non-CC subgroup for the pancreas transplant DRG (CMS DRG 513) had only 2 cases. The overall statistics by CC subgroup for the 311 proposed base MS-DRG is contained in Table H. Patients in the MCC subgroup have average charges that are nearly double the average charge for patients in the CC subgroup. The CC subgroup with the largest number of patients is the non-CC subgroup with 41.1 percent of the patients.

Table H.—Overall Statistics for Proposed MS-DRGs Excluding Those in MDCs 14 and 15

CC subgroupNumber of casesPercentAverage charges
Major2,604,69622.2$44,246
CC4,293,74436.624,131
Non-CC4,818,41141.118,435

In order to evaluate the initial assignment of secondary diagnoses to the three CC subclasses, we devised a system that determined the impact on resource use of each secondary diagnosis. For each secondary diagnosis, we measured the impact in resource use for the following three subsets of patients:

(a) Patients with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs.

(b) Patients with at least one other secondary diagnosis that is a CC but none that is an MCC.

(c) Patients with at least one other secondary diagnosis that is an MCC.

Numerical resource impact values were assigned for each diagnosis as follows:

ValueMeaning
0Significantly below expected value for the non-CC subgroup.
1Approximately equal to expected value for the non-CC subgroup.
2Approximately equal to expected value for the CC subgroup.
3Approximately equal to expected value for the MCC subgroup.
4Significantly above the expected value for the MCC subgroup.

Each diagnosis for which Medicare data were available was evaluated to determine its impact on resource use and to determine the most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order to make this determination, the average charge for each subset of cases was compared to the expected charge for cases in that subset. The following format was used to evaluate each diagnosis:

CodeDiagnosisCnt1C1Cnt2C2Cnt3C3

Count (Cnt) is the number of patients in each subset and C1, C2, and C3 are a measure of the impact on resource use of patients in each of the subsets. The C1, C2, and C3 values are a measure of the ratio of average charges for patients with these conditions to the expected average charge across all cases. The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a major CC. The C3 value reflects a patient with at least one other secondary diagnosis that is a major CC. A value close to 1.0 in the C1 field would suggest that the code produces the same expected value as a non-CC diagnosis. That is, average charges for the case are similar to the expected average charges for that subset and the diagnosis is not expected to increase resource usage. A higher value in the C1 (or C2 and C3) field suggests more resource usage is associated with the diagnosis and an increased likelihood that it is more like a CC or major CC than a non-CC. Thus, a value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or non-CC. For example, a C1 value of 1.8 for a secondary diagnosis means that for the subset of patients who have the secondary diagnosis and have either no other secondary diagnosis present, or all the other secondary diagnoses present are non-CCs, the impact on resource use of the secondary diagnoses is greater than the expected value for a non-CC by an amount equal to 80 percent of the difference between the expected value of a CC and a non-CC (that is, the impact on resource use of the secondary diagnosis is closer to a CC than a non-CC).

Table I below shows examples of the results. Start Printed Page 24704

Table I.—Examples of Impact on Resource Use of Secondary Diagnoses

CodeCnt1C1CntC2C2Cnt3C3CC subclass
401.1, Benign essential hypertension12,3080.95540,1131.7155,2972.384Non-CC.
530.81, Esophageal reflux294,6730.986917,0581.639122,0762.302Non-CC
560.1, Paralytic Ileus10,6511.46687,7882.32051,3033.226CC
491.20, Obstructive chronic bronchitis7,0031.41632,2762.19313,3553.035CC
410.71, Subendocardial infarction initial episode1,6572.24530,2262.77842,8623.232MCC
518.81, Acute respiratory failure5,3322.096118,9372.936223,0543.337MCC

The resource use impact reports were produced for all diagnoses except obstetric, newborn, and congenital anomalies (10,690 diagnoses). These mathematical constructs were used as guides in conjunction with the judgment of our clinical staff to classify each secondary diagnosis reviewed as an MCC, CC or non-CC. Our clinical panel reviewed the resource use impact reports and modified 14.9 percent of the initial CC subclass assignments as summarized in Table J below. The rows in the table are the initial CC subclass categories and the columns are the final CC subclass categories.

Table J.—CC Subclass Modifications

Initial CC subclassFinal CC subclassTotalPercent
MCCCCNon-CC
MCC8476209098.5
CC5422,5797373,85836.1
Non-CC02725,6515,92355.4
Total1,3892,9136,38810,690
Percent13.027.259.8

Of the diagnoses initially designated as an MCC, 6.8 percent were made a CC (62/909), and of the diagnoses initially designated as non-CC, 4.6 percent were made a CC (272/5,923). The major shift occurred in the diagnoses initially assigned to the CC subclass. Fourteen percent of the diagnoses initially designated as a CC were made an MCC (542/3858), and 19.1 percent of the diagnoses initially designated a CC were made a non-CC (737/3,858). In determining the CC subclass assigned to a diagnosis, imprecise codes were, in general, not assigned to the MCC or CC subclass. For example, the congestive heart failure codes have the following CC subclass assignments:

CodeCC subclass assignment
428.21, Acute systolic heart failureMCC
428.41, Acute systolic & diastolic heart failureMCC
428.43, Acute on chronic systolic heart failureMCC
428.31, Acute diastolic heart failureMCC
428.33, Acute on chronic diastolic heart failureMCC
428.1, Left heart failureCC
428.20, Systolic heart failure NOSCC
428.22, Chronic systolic heart failureCC
428.32, Chronic diastolic heart failureCC
428.40, Systolic & diastolic heart failureCC
428.0, Congestive heart failure NOSNonCC
428.9, Heart failure NOSNon-CC

The acute heart failure codes are MCCs, and the chronic heart failure codes are CCs. However, Not Otherwise Specified (NOS) heart failure codes are non-CCs. Thus, the precise type of heart failure must be specified in order for an MCC or CC to be assigned.

There are currently 13,549 ICD-9-CM diagnosis codes. The External Cause of Injury and Poisoning codes (E800—E999) and congenital codes were not included in our current CC review for the proposed MS-DRGs. We excluded the External Cause of Injury and Poisoning codes (E codes) from consideration as an MCC or a CC because they describe how an injury occurred, and not the exact nature of the injury. For instance, if a patient fell on the deck of a boat and fractured his or her skull, one would assign an E code to describe the fall on the boat. A separate diagnosis code would be assigned to describe the exact nature of any resulting injury such as a contusion, fractured bone, or skull fracture and concussion. A patient would be assigned to a severity level based on the exact nature of the injury and not the manner in which the injury occurred. Therefore, we decided not to classify any of the E codes as either an MCC or a CC. The congenital codes describe abnormalities when a baby is born. At times, a beneficiary may live with these congenital abnormalities for years without a problem. The congenital abnormalities may later lead to complications that require hospital admissions. Should these congenital abnormalities lead to medical problems that result in a hospital admission for a Medicare beneficiary, the exact nature of the condition being treated would also be assigned a code. This more precise code would be evaluated to determine whether or not it was an MCC or a CC. Therefore, we decided not to classify congenital abnormality codes as an MCC or a CC, but to instead use the other reported diagnosis codes that better describe the reason for the admission. Excluding the external cause of injury codes, we reviewed 10,690 diagnosis codes.

As was done in our 1994 severity proposal, diagnoses that were closely associated with patient mortality were assigned different CC subclasses, depending on whether the patient lived or died. These diagnoses are:

  • 427.41, Ventricular fibrillation Start Printed Page 24705
  • 427.5, Cardiac arrest
  • 785.51, Cardiogenic shock
  • 785.59, Other shock without mention of trauma
  • 799.1, Respiratory arrest

Resource use for patients with these diagnoses who were discharged alive was consistent with an MCC. Resource use for patients with these diagnoses who died was consistent with a non-CC. Further, most patients who died could legitimately have one of these diagnoses coded. As a result, these diagnoses are assigned an MCC subclass for patients who lived and a non-CC subclass for patients who died.

For some secondary diagnoses assigned to the CC subclass, our medical consultants identified specific clinical situations in which the diagnosis should not be considered a CC. In such clinical situations, the CC exclusion list was used to exclude the secondary diagnosis from consideration in determining the CC subgroup essentially making the secondary diagnosis a non-CC. For example, primary cardiomyopathy (code 425.4) is designated as a CC. However, for patients admitted for congestive heart failure, our medical consultants believed that primary cardiomyopathy should be treated as a non-CC. In order to accomplish that, the congestive heart failure principal diagnoses were added to the CC exclusion list for primary cardiomyopathy as a secondary diagnosis.

The list of diagnosis codes that we are proposing to classify as an MCC is included in Table 6J in the Addendum of this proposed rule. The diagnosis codes that we are proposing to classify as a CC are included in Table 6K in the Addendum of this proposed rule. The proposed E-codes, which are diagnosis codes used to classify external causes of injury and poisoning, are not included in this list. All proposed E-codes are designated as non-CCs under the current CMS DRG system and our evaluation supports this non-CC designation as appropriate.

3. Dividing Proposed MS-DRGs on the Basis of the CCs and MCCs

In developing the proposed MS-DRGs, two of our major goals were to create DRGs that would more accurately reflect the severity of the cases assigned to them and to create groups that would have sufficient volume so that meaningful and stable payment weights could be developed. As noted above, we excluded the CMS DRGs in MDCs 14 and 15 from consideration because these DRGs are low volume. As stated previously, we do not have the expertise or data to maintain the CMS DRGs for newborns, pediatric, and maternity patients. We continue to maintain MDCs 14 and 15 without modification in order to have MS-DRGs available for these patients in the rare instance where there is a Medicare beneficiary admitted for maternity or newborn care.

In designating a proposed MS-DRG as one that will be subdivided into subgroups based on the presence of a CC or MCC, we developed a set of criteria to facilitate our decision-making process. In order to warrant creation of a CC or major CC subgroup within a base MS-DRG, the subgroup had to meet all of the following five criteria:

  • A reduction in variance of charges of at least 3 percent.
  • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
  • At least 500 cases are in the CC or MCC subgroup.
  • There is at least a 20-percent difference in average charges between subgroups.
  • There is a $4,000 difference in average charge between subgroups.

Our objective in developing these criteria was to create homogeneous subgroups that are significantly different from one another in terms of resource use, that have enough volume to be meaningful, and that improve our ability to explain variance in resource use. These criteria are essentially the same criteria we used in our 1994 severity analysis.

To begin our analysis, we subdivided each of the base MS-DRGs into three subgroups: non-CC, CC, and MCC. Each subgroup was then analyzed in relation to the other two subgroups using the volume, charge, and reduction in variance criteria. The criteria were applied in the following hierarchical manner:

  • If a three-way subdivision met the criteria, we subdivided the base MS-DRG into three CC subgroups.
  • If only one type of two-way subdivisions met the criteria, we subdivided the base MS-DRG into two CC subgroups based on the type of two-way subdivision that met the criteria.
  • If both types of two-way subdivisions met the criteria, we subdivided the base MS-DRG into two CC subgroups based on the type of two-way subdivision with the highest R2 (most explanatory power to explain the difference in average charges).
  • Otherwise, we did not subdivide the base MS-DRG into CC subgroups.

For any given base MS-DRG, our evaluation in some cases showed that a subdivision between a non-CC and a combined CC/MCC subgroup was all that was warranted (that is, there was not a great enough difference between the CC and MCC subgroups to justify separate CC and MCC subgroups). Conversely, in some cases, even though an MCC subgroup was warranted, there was not a sufficient difference between the non-CC and CC subgroups to justify separate non-CC and CC subgroups.

Based on this methodology, a base MS-DRG may be subdivided according to the following three alternatives, rather than the current “with CC” and “without CC” division.

  • DRGs with three subgroups (MCC, CC, and non-CC).
  • DRGs with two subgroups consisting of an MCC subgroup but with the CC and non-CC subgroups combined. We refer to these groups as “with MCC” and “without MCC.”
  • DRGs with two subgroups consisting of a non-CC subgroup but with the CC and MCC subgroups combined. We refer to these two groups as “with CC/MCC” and “without CC/MCC.”

As a result of the application of these criteria, 745 proposed MS-DRGs were created as shown in the following table.

Table K.—Number of CC Subgroups

SubgroupsNumber of proposed base MS-DRGsNumber of proposed MS-DRGs
No Subgroups5353
Three subgroups152456
Two subgroups: major CC and CC; non-CC63126
Two subgroups: non-CC and CC; major CC4386
Subtotal311721
MDC 142222
Start Printed Page 24706
Error DRGs22
Total335745

The 745 proposed MS-DRGs represent an increase over the 652 DRGs created in our 1994 CC revision analysis. The increase in the number of DRGs is primarily the result of an increase in the number of proposed base MS-DRGs that are subdivided into three CC subgroups. The distribution of patients across the different types of CC subdivisions is contained in Table L below. The table shows that 51.7 percent of the patients are assigned to base MS-DRGs with three CC subgroups, and only 11.8 percent of the patients are assigned to base MS-DRGs with no CC subgroups.

Table L.—Distribution of Patients by Type of CC Subdivision

CC subdivisionCountPercent
None1,382,81011.8
(MCC and CC), Non-CC629,6395.4
MCC, (CC and Non-CC)3,650,32131.2
MCC, CC, and Non-CC6,054,08151.7

Using Medicare charge data (without applying any criteria to remove statistical outlier cases), the reduction in variance (R2) was computed for current CMS DRGs, the MS-DRGs with all 311 base MS-DRGs subdivided into 3 CC subgroups, and the MS-DRGs collapsed into 745 DRGs. Table L below shows that the R2 for the proposed MS-DRGs with all 311 base MS-DRGs subdivided into 3 CC subgroups (957 DRGs composed of 311 base MS-DRGs subdivided into 3 CC subgroups plus an additional 22 MDC 14 and MDC 15 DRGs as well as 2 error DRGs) is 10.62 percent higher than the current CMS DRGs. Collapsing the 957 proposed MS-DRGs down to 745 proposed MS-DRGs lowers this increase in R2 slightly to 9.41 percent. Although adopting a 3-way split for each base MS-DRG would produce a DRG system with higher explanatory power, the 957 MS-DRGs would not meet the criteria we specified above for subdividing each base DRG. The criteria we specified above would create a monotonic DRG system. We believe that the value of having a monotonic DRG system outweighs the slight decrease in explanatory power. For this reason, we are proposing to adopt the 745 MS-DRGs.

Table M.—Explanatory Power (R2) for Proposed MS-DRGs

R2Percent change
Current CMS DRG36.19
2007 CMS Severity DRGs with 3 CC Subgroups40.0310.62
2007 CMS Severity DRGs Collapsed to 714 DRGs39.599.41

4. Conclusion

We believe the proposed MS-DRGs represent a substantial improvement over the current CMS DRGs in their ability to differentiate cases based on severity of illness and resource consumption. As developed, the proposed MS-DRGs increase the number of DRGs by 207, while maintaining the reasonable patient volume in each DRG. The proposed MS-DRGs increase the explanation of variance in hospital resource use relative to the current CMS DRGs by 9.41 percent. Further, the data shown below in Table N and Table O illustrate how assignment of cases to different severity of illness subclasses improves in the proposed MS-DRGs relative to the CMS DRGs.

Table N.—Overall Statistics for CMS DRGs

CC subclass—Current CMS DRGPercentAverage charges
One or more CCs77.66$24,538
Non-CC22.3414,795

Table O.—Overall Statistics for Proposed MS-DRGs

CC subgroupNumber of casesPercentAverage charges
MCC2,607,35122.2$44,219
CC4,298,36236.624,115
Non-CC4,826,98041.118,416

Under the current CMS DRGs, 78 percent of cases are assigned to the highest severity levels (CC) and the remaining 22 percent are assigned to the lowest severity level (non-CC). Applying the three severity subclasses to FY 2006 data would result in approximately 22 percent of patients being assigned to the severity subgroup with the highest level of severity (MCC), 41 percent being assigned to the lowest severity subclass (non-CC), and the remaining 37 percent being assigned to the middle severity subclass (CC). Adding the new MCC subgroup greatly enhances our ability to identify and reimburse hospitals for treating patients with high levels of severity. As Table N above shows, the Start Printed Page 24707new subgroups also have significantly different resource requirements. The MCC subgroup contains patients with average charges almost twice as large as for those in the CC group ($44,219 compared to $24,115).

In addition to resulting in improvements in the DRG system's recognition of severity of illness, we believe the proposed MS-DRGs are responsive to the public comments that were made on last year's IPPS proposed rule with respect to how we should undertake further DRG reform. In the FY 2007 IPPS final rule, we identified three major concerns in the public comments about our proposed adoption of CS DRGs:

We received comments after the FY 2007 IPPS final rule suggesting that further adjustments are needed to the proposed DRG system. The commenters believed that the CS DRGs did not incorporate many of the changes to the DRG assignments that have been made over the year to the CMS DRGs. There was significant interest in the public comments in either revising the CS DRGs to reflect these changes or using the CMS DRGs at the starting point to better recognize severity.

We believe that the proposed MS-DRGs discussed in this proposed rule are responsive to these suggestions. The proposed MS-DRGs use the CMS DRGs as the starting point for revising the DRGs to better recognize resource complexity and severity of illness. We are generally retaining all of the refinements and improvements that have been made to the base DRGs over the years that recognize the significant advancements in medical technology and changes to medical practice. At the same time, the proposed MS-DRGs greatly improve our ability to identify groups of patients with varying levels of severity. They retain all of the improvements made to the DRGs over the years, while providing a more equitable basis for hospital payment.

We received many comments about the potential use of a proprietary DRG system. The comments about the CS DRGs raised compelling issues about the potential government use of a proprietary system including concerns about the availability, price, and transparency of the source code, logic and documentation of the DRG system. The commenters noted that CMS makes available these resources in the public domain for purchase through the National Technical Information Service at nominal fees to cover costs. The commenters urged CMS not to adopt a proprietary DRG system that would not be available on the same terms as the current CMS DRGs.

There are no proprietary issues associated with the proposed MS-DRGs in this proposed rule. The proposed MS-DRGs would be available on the same terms as the current CMS DRGs through the National Technical Information Service.

We also received other comments concerning the use of CS DRGs. The commenters stated that no alternatives to CS DRGs had been evaluated. The commenters suggested that alternative DRG systems can better recognize severity than the CS DRGs and should be evaluated before CMS decides which system to adopt.

We currently have a contract with the RAND Corporation to evaluate several alternative DRG systems. We believe it is premature to propose adopting one of the systems as RAND has not yet completed its evaluation. However, we believe the proposed MS-DRGs should be part of this process and have asked RAND to evaluate the proposed MS-DRGs with other DRG products that have been submitted for review. Although we are proposing to adopt the MS-DRGs for FY 2008, this decision would not preclude us from adopting any of the systems being evaluated by RAND for FY 2009.

As indicated above, we believe the proposed MS-DRGs offer significant improvements to the DRG system without many of the liabilities the public commenters identified with the CS DRGs. Thus, we believe the proposed MS-DRGs offer significant improvements in recognition of severity of illness and complexity of resources and are proposing to adopt them for FY 2008. However, we are continuing our evaluation of alternative DRG systems that can better recognize severity of illness and resource consumption and have submitted the proposed MS-DRGs to RAND for further evaluation.

5. Impact of the Proposed MS-DRGs

Unlike the CS DRGs we proposed last year for FY 2008, the payment impacts from the MS-DRGs we are proposing to adopt this year would largely be redistributive within each base MS-DRG. Such a result occurs because we collapse the current CC/non-CC, age and other distinctions that exist in the CMS DRGs and redivide them based on MCCs, CCs, and non-CCs. Thus, within each proposed base MS-DRG, some cases will be paid more and some less, but the base MS-DRGs are retained so there is no redistribution between types of cases as would have occurred under the proposed CS DRGs. We encourage readers to review Table 5 in the Addendum to this proposed rule for a list of the proposed MS-DRGs and the proposed respective relative weight from the revisions we are proposing to better recognize severity of illness to better understand how payment for cases within each base MS-DRG will be affected.

As indicated above, all of the severity DRG systems being evaluated by RAND can be expected to result in similar redistributions in case-mix among hospitals. The payment models used by RAND and CMS (and RTI as well) all assume static utilization. That is, payment impact models simulate the effects of a change in policy, assuming no change to Medicare utilization. Any system adopted to better recognize severity of illness with a budget neutrality constraint will result in case-mix changes that can be expected to benefit urban hospitals at the expense of rural hospitals. This impact occurs because patients treated in urban hospitals are generally more severely ill than patients in rural hospitals and the CMS DRGs are not currently recognizing the full extent of these differences. Similarly, there will be differential impacts among other categories of hospitals (for example, teaching, disproportionate share, large urban, and other urban hospitals) depending on the mix of cases that each hospital treats. The impact of the proposed MS-DRGs can be expected to have similar effects on case-mix as the DRG systems being analyzed by RAND. In addition, we believe that it is important to note that the MS-DRGs are proposed to be adopted for FY 2008 at the same time that we are phasing in cost weights. In the FY 2007 IPPS final rule, we adopted cost weights over a 3-year transition period in 1/3 increments. Thus, the full impact of adopting cost weights will not be incorporated into IPPS payments until FY 2009. Nevertheless, we believe it is important to consider together the effect on case-mix of the fully phased-in cost weights and proposed MS-DRGs to get a complete understanding of how IPPS payment reforms would affect case-mix for different categories of hospitals from FY 2007 through FY 2009. For instance, using cost weights are estimated to increase payments to rural hospitals (see 71 FR 47917). In FY 2007, we are paying hospitals using a blend of 1/3 cost and 2/3 charge relative weights. In FY 2008, we will pay hospitals using a blend of 2/3 cost and 1/3 charge relative weights. In FY 2009, we will pay hospitals using 100 percent cost relative weights. Therefore, there will likely be some additional increases in payments to rural hospitals from the final year of the transition to fully implemented cost weights that are not Start Printed Page 24708illustrated in the table in the impact section of this proposed rule.

6. Changes to Case-Mix Index (CMI) From the Proposed MS-DRGs

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), which we use as a proxy measurement for severity of illness. We had projected the rate of growth in case-mix for the period 1981 to 1984 to be 3.4 percent. The realized rate of growth during this period, which included the introduction of the IPPS, was 8.4 percent, a variance in excess of 1.6 percent per year. The unexpected growth in payments was due to increases in the hospital case-mix index (CMI) beyond the previously projected trend. Hospitals' CMI values measure the expected treatment cost of the mix of patients treated by a particular hospital. There are three factors that determine changes in a hospital's CMI:

(a) 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);

(b) 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

(c) Changes in documentation (more complete medical records) and coding practice (more accurate and complete coding of the information contained in the medical record).

We note that changes in patient-mix and medical practice signal real changes in underlying resource utilization and cost of treatment. While these changes may have occurred in response to incentives from IPPS policies, they represent real changes in resource needs. In contrast, 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.[2]

The Medicare Trustees Technical Review Panel [3] has previously determined the annual measured change in CMI for inpatient hospital services to oscillate around an underlying real trend of 1 percent annual growth. In 1991 the Medicare specific trend in real CMI growth was found in a then-HCFA funded study [4] to be within a range of 1 to 1.4 percent. In the annual study conducted by CMS, there has been no evidence to support a real case-mix increase in excess of the annually projected 1 percent upper bound in the period. MedPAC findings have echoed this with its recent study of real case-mix change finding growth rates for years 2002, 2003, and 2004 of 1 percent, 0.6 percent, and 0.4 percent, respectively.[5]

We believe that adoption of the MS-RGs proposed in this proposed rule 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 increase 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.” [6]

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 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 CMS DRGs may result in a case being assigned to a higher paid DRG under the proposed MS-DRGs. Thus, more accurate and complete documentation and coding may occur because it will result in higher payments under the proposed MS-DRGs. We believe the potential for more accuate and complete documentation and coding will apply equally under the acute IPPS as well as under the LTCH PPS because the same DRGs are used for both payment systems. Thus, the analysis below will apply to both the IPPS and the LTCH PPS.

CMS in the past has adjusted standardized amounts under the IRF PPS to account for case-mix increases due to improvements in documentation and coding. In 2004, RAND [7] published a technical report as part of the followup to the implementation of the IRF PPS. The initial weights used within the IRF PPS were based on a mix of CY 1999 and CY 1998 data. The study reviewed the changes between this base data set and the IRF PPS implementation year of 2002. The report found that the weight per discharge for IRFs had grown by 3.4 percent between the CY 1999 data set and the CY 2002 data set. In a detailed analysis of both statistical patterns in acute stay records and directly measured coding behaviors, RAND found that the level of case-mix increase associated with documentation and coding-induced changes in the transition year ranged between 1.9 and 5.8 percent, with the upper end of the estimate associated with real declines in resource use. (We note that RAND revised its report in late 2005 to reflect an upper bound of 5.9 percent, instead of the 5.8 percent that we reported in the FY 2006 IRF PPS proposed and final rules.)

We used the results of this analysis to justify a 1.9 percent adjustment to payment rates for IRFs in FY 2006 (70 FR 47904) and a 2.6 percent adjustment to payment rates for IRFs in FY 2007 (71 FR 48370), for a combined total adjustment of 4.5 percent. The implementation year was marked by the transitioning of hospitals to the IRF PPS payment based on cost reports beginning January 1, 2002, and staggered to October 1, 2002. A combination of increased familiarity with the system by providers and the staggered transition could mean that documentation and coding-induced case-mix change continued as hospitals experienced ongoing changes in the early years of the IRF PPS and as the Start Printed Page 24709incentives within the system were more widely recognized. We also recognize that significant changes in IRF patient populations may be occurring as a result of recent regulatory changes, such as the phase-in of the 75 percent rule compliance percentage. We intend to continue analyzing changes in coding and case-mix closely, using the most current available data, as part of our ongoing monitoring of the IRF PPS and, based on this analysis, we intend to propose additional payment refinements for IRFs in the future as the analysis indicates such adjustments are warranted.

Furthermore, as part of our analysis of this issue, we considered the recent experience of the State of Maryland with adopting the APR DRG system. Maryland introduced APR DRGs for payment for three teaching hospitals in 2000. Between State fiscal years (SFYs) 2001 and 2005,[8] the remaining hospitals continued to be paid using modified CMS DRGs. In June 2004, the remaining hospitals were notified that Maryland would expand the use of APR DRGs throughout its all payer charge-per-case system beginning in July 2005. Hospitals in Maryland improved coding and documentation in response to the adoption of APR DRGs. As a result of this improved documentation and coding, reported CMI increased at a greater rate than real CMI. Given the similarity between coding incentives using the APR DRGs in Maryland and the MS-DRGs that are being proposed for Medicare, we analyzed Maryland data to develop an adjustment for improved documentation and coding.

For the Maryland analysis, we assume that, in SFY 2005, those hospitals not already being paid under the APR DRG system began acting as if the transition to the new DRG logic had already taken place. This assumption is supported by the following facts: (a) Maryland hospitals were reporting to the Health Services and Cost Review Commission (HSCRC), Maryland's governing body of its all-payer ratesetting system) using the APR DRG GROUPER in 2005; (b) hospitals were provided training in coding under the APR DRG GROUPER; (c) hospitals had access to reports based on APR DRG logic; and (d) hospitals were given large amounts of feedback as to their performance under the GROUPER by the HSCRC relative to peer hospitals.

The incentives for Maryland hospitals are to code as completely and accurately as possible because, beginning in July 2005, all Maryland hospitals were paid using APR DRGs. SFY 2005 was an important year in Maryland, as it marked the beginning of the 2-year period of transition after which a hospital's revenues were reduced if coding was not as complete as a peer hospital. Under the current CMS DRGs, each secondary diagnosis code is recognized as either a CC or non-CC. Hospitals in Maryland and nationally for Medicare only needed to code one secondary diagnosis as a CC when paid using CMS DRGs for the patient to be assigned to a higher weighted DRG split based on the presence or absence of a CC. Under the APR DRGs, each secondary diagnosis is designated as minor, moderate, major, or extreme. Under the proposed MS-DRGs, each secondary diagnosis is designated as a non-CC, CC, or MCC. Hospitals in Maryland have incentives under the APR DRGs to code until a case is assigned to the highest of the four severity levels within a base DRG. Under the proposed MS-DRGs, hospitals will have incentives to code until a case is assigned to one of up to three severity levels within a base DRG. Although the APR DRGs and the proposed MS-DRGs may be different, we believe that hospitals have the same incentive under both systems to code as completely as possible. For this reason, we believe that the Maryland experience is a reasonable basis for projecting behavioral changes in the wider national hospital population for the first 2 years of the MS-DRGs.

We believe the analysis presented below provides a reasonable analysis of the potential growth in CMI due to improved documentation and coding. In addition to the similarity between coding incentives under the proposed MS-DRGs and the APR DRGs, we note that Maryland is an all-payer State; therefore, hospitals are paid by all third party payers—not just the State's Medicaid program—using the APR DRGs. Coding has been very important for each hospital's overall revenue for many years, and the incentives are uniform across all third party payers. The transition to APR DRGs was known well in advance of the actual date and, as stated above, hospitals were provided training in coding under the APR DRGs. It is reasonable to expect that hospitals' experience with improved documentation and coding will occur over a period of at least 2 years. Thus, the experience in Maryland may be similar to expectations for case-mix growth for the nation as a whole. Finally, in reviewing the results from Maryland, we note that three large teaching hospitals began using APR DRGs prior to SFY 2005. These facilities generally treat a wider variety of patients with higher acuity that gives them a greater potential for increasing coding under the APR DRG system than other hospitals throughout Maryland. Because these hospitals were paid using the APR DRGs earlier than other Maryland hospitals, we believe data for them need to be analyzed from an earlier time period. However, based on the consultations with the HSCRC, we believe there were special issues with one of these hospitals that may have made its case-mix growth during the early years of the transition to the APR DRGs atypical of the other teaching hospitals.[9] Therefore, we did not separately analyze the data for this hospital from the earlier time period and, as stated below, included its data with the rest of Maryland hospitals.

As part of its contract with CMS, 3M Health Information Systems reviewed the Maryland data in the context of our proposed changes to adopt MS-DRGs. 3M grouped Medicare cases in Maryland through both the CMS DRGs Version 24.0 and the MS-DRGs that we are proposing to adopt for FY 2008. At our request, 3M deleted two of the three early transition hospitals from the data. It compared the results of the observed growth in case-mix from these data to the same process applied to Medicare data, excluding Maryland hospitals.

The MedPAR data file for Federal fiscal year (FFY) 2006 (October 2005 through September 2006) was used to create relative weights for both CMS DRG Version 24.0 and the proposed MS-DRGs. The MedPAR data file contained 12,794,280 records. In constructing the weights, the following edits were used:

  • Cases with zero covered charges or length of stay were excluded.
  • Cases with length of stay greater than 2 years were excluded.
  • Only hospitals contained in the impact file for the FY 2007 IPPS final rule were included. Start Printed Page 24710

The latter criterion excluded providers reimbursed outside of the IPPS, including Maryland hospitals, from the weight calculation. 3M employed standardized charge-based relative weights developed in accordance with the CMS methodology. Cost-based weights were not used and no adjustment to the charge weights was made for application of CMS transfer and postacute care transfer payment policy.

3M further grouped 2 years of MedPAR data from FY 2004 and FY 2005, using CMS DRG Version 24.0 and the proposed MS-DRGs for hospitals nationally. Using 2 years of MedPAR data with one version of each DRG system further required 3M to make adjustments to the data to reflect revisions to ICD-9-CM codes that are made each year. MedPAR data for Maryland IPPS acute care providers within the IPPS data set were similarly assigned to the proposed MS-DRGs and CMS DRGs for FYs 2004 through 2006.

Each Maryland record, exclusive of the two early transition teaching hospitals for the 3 observed years (SFY 2004 to SFY 2006), was assigned to a proposed MS-DRG based on the ICD-9-CM codes the hospital submitted. The same results were obtained from data at the national level using the proposed MS-DRGs. Further, we obtained data from the HSCRC showing the weighted average increase in case-mix for calendar years 2001 to 2003 for the two large academic medical centers that began an early transition to the APR DRGs. In addition, we also obtained case-mix increases under the CMS DRGs for FYs 2004 through 2006. The Medicare Actuary examined the data below:

Table Q.—Maryland and National Data Used for Case-Mix Adjustment Analysis

FY 2004 to 2005FY 2005 to 2006FY 2004 to 2006
Rest of Maryland MS-DRG CMI Δ2.30%2.57%4.93%
CY 2000 to FY 2003
Early Transition Hospitals4.46.711.4
National MS-DRG CMI Δ0.472.653.13
National CMS DRG CMI Δ−0.041.201.16
Blend of MS-DRG & CMS DRG Δ using 0.47 Percent for 2005 and 1.2 Percent for 20061.68
Difference between Maryland Early Transition Hospitals and National Data9.58
Difference between Rest of Maryland and National Data3.20
Medicare Actuary Estimate (75%/25%) between Early Transition and Rest of Maryland4.8

The data above show that case-mix for hospitals increased by 4.93 percent from SFYs 2004 to 2006, during which Maryland adopted the APR DRGs for most hospitals. Case-mix for the two large teaching hospitals that were paid using the APR DRGs earlier than other hospitals in the State increased by 11.4 percent from SFYs 2001 to 2003. The weighted average increase in Maryland from these two categories of hospitals is 5.58 percent. Case-mix using the proposed MS-DRGs would have increased 0.47 percent in FY 2005 and 2.65 percent in FY 2006. Nationally, Medicare case-mix using the CMS DRGs decreased by 0.04 percent in FY 2005 and increased by 1.2 percent in FY 2006. The Actuary calculated a Medicare case-mix increase nationally over 2 years using a blend of these data from proposed MS-DRGs for FY 2005 and national Medicare data for FY 2006 from the CMS DRGs. The Actuary did not use either the −0.04 percent for the CMS DRGs or the 2.65 percent for the proposed MS-DRGs to create this blended case-mix because these figures appeared atypical to national trends. Therefore, the Actuary dropped one atypically high and low number from each of the 2 years of data and calculated an average increase of 1.68 percent from FY 2004 to FY 2006. These data demonstrate that the measure of average CMI for Medicare cases is growing more rapidly within Maryland than nationally. Case-mix for the Maryland teaching hospitals and the rest of Maryland increased 9.58 percent and 3.20 percent more, respectively, than the national average over 2 years, suggesting that improved documentation and coding lead to perceived, but not real, changes in case-mix.

The Actuary noted that the case-mix increase in Maryland for two large teaching hospitals over a 2-year period was much higher in the early years of the APR DRGs than other Maryland hospitals (11.4 percent compared to 4.93 percent for the rest of Maryland). Further, teaching hospitals generally treat cases with higher acuity than other hospitals and have more opportunity to improve coding and documentation to increase case-mix than other hospitals. Teaching hospitals also represent a higher proportion of national Medicare data than they do of the data in Maryland. The two early transition teaching hospitals in Maryland account for approximately 10 percent of the Medicare discharges in Maryland. Nationally, teaching hospitals account for approximately 50 percent of Medicare discharges. Therefore, the Actuary believes that the teaching hospitals should be given a higher weight in the national data than they represent in Maryland. However, like other hospitals, teaching hospitals vary in size and patient-mix and not all have the same opportunity to improve documentation and coding. Therefore, we believe the weight given to teaching hospitals should be higher than the 10 percent for the two early transition hospitals in Maryland but lower than the 50 percent of discharges that they account for in Maryland. The Actuary gave a weight of 25 percent for teaching hospitals and 75 percent for the rest of Maryland to the excess growth in case-mix over the national average and estimates that an adjustment of 4.8 percent will be necessary to maintain budget neutrality for the transition to the MS-DRGs. This analyis reflects our current estimate of the necessary adjustment needed to maintain budget neutrality for improvements in documentation and coding that lead to increases in case-mix. Consistent with the statute, we will compare the actual increase in case-mix due to documentation and coding to our projection once we have actual data to revise the Actuary's estimate and the adjustment we make to the standardized amounts.

Based on the Actuary's analysis, using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to adjust the standardized amount to eliminate the effect of changes in coding or classification of discharges that do not reflect real changes in case-mix, we are proposing to reduce the IPPS Start Printed Page 24711standardized amounts by 2.4 percent each year for FY 2008 and FY 2009. We are considering proposing a 4.8 percent adjustment for FY 2008. However, we believe it would be appropriate to provide a transition because we would be making a significant adjustment to the standardized amounts. We are interested in public comments on whether we should apply the proposed adjustment in a single year, over 2 years, or in different increments than 1/2 of the adjustment each year. Section 1886(d)(3)(A)(vi) of the Act further gives the Secretary authority to revisit adjustments to the standardized amounts for changes in coding or classification of discharges that were based on estimates in a future year. Consistent with the statute, we will compare the actual increase in case-mix due to documentation and coding to our projection once we have actual data for FY 2008 and FY 2009 for the FY 2010 and FY 2011 IPPS rules. At that time, if necessary, we may make a further adjustment to the standardized amounts to account for the difference between our projection and actual data.

Under section 123(a)(1) of Pub. L. 105-33, as amended by section 307(b) of Pub. L. 106-554, we are also proposing to adjust the DRG relative weights that are used for the LTCH PPS by −2.4 percent (0.976) in FYs 2008 and 2009 to account for the anticipated increase in case mix from improved documentation and coding. This proposed budget neutrality adjustment is necessary to ensure that estimated aggregate LTCH PPS payments would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the proposed LTC-DRG reclassification and update of the relative weights. As discussed earlier with regards to the IPPS, we have estimated that a 2.4 percent adjustment is needed to maintain budget neutrality. We believe an adjustment of at least 2.4 percent for both FYs 2008 and 2009 is appropriate under the LTCH PPS because LTCHs have an average inpatient length of stay greater than 25 days and due to the comorbidities of these patients, LTCHs will have a significantly increased opportunity to better code for these paitents under the proposed MS-LTC-DRG system. In the LTCH proposed rule (72 FR 4793) for rate year (RY) 2008, we proposed to update the LTCH standardized amounts by 0.71 percent. The proposed changes to the LTCH standardized amounts will be effective on July 1. However, the proposed changes to adopt MS-LTC-DRGs for LTCHs would not be effective until October 1 if finalized. Because changes to the LTCH standardized amounts for RY 2008 are already being set through a separate rulemaking process and are effective on July 1 instead of October 1, we decided that the adjustment for increases in case mix due to improvements and documentation and coding should be applied to the LTCH relative weights rather than the standardized amounts.

7. Effect of the Proposed MS-DRGs on the Outlier Threshold

To qualify for outlier payments, a case must have costs greater than Medicare's payment rate for the case plus a “fixed loss” or cost threshold. The statute requires that the Secretary set the cost threshold so that outlier payments for any year are projected to be not less than 5 percent or more than 6 percent of total operating DRG payments plus outlier payments. The Secretary is required by statute to reduce the average standardized amount by a factor to account for the estimated proportion of total DRG payments made to outlier cases. Historically, the Secretary has set the cost threshold so that 5.1 percent of estimated IPPS payments are paid as outliers. The FY 2007 cost outlier threshold is $24,485. Therefore, for any given case, a hospital's charge adjusted to cost by its hospital-specific CCR must exceed Medicare's DRG payment by $24,485 for the case to receive cost outlier payments.

Adoption of the proposed MS-DRGs will have an effect on calculation of the outlier threshold. For this proposed rule, we analyzed how the outlier threshold would be affected by adopting the proposed MS-DRGs. Using FY 2005 MedPAR data, we have simulated the effect of the proposed MS-DRGs on the outlier threshold. By increasing the number of DRGs from 538 to 745 to better recognize severity of illness, the proposed MS-DRGs would be providing increased payment that better recognizes complexity and severity of illness for cases that are currently paid as outliers. That is, many cases that are high-cost outlier cases under the current CMS DRG system would be paid using an MCC DRG under the proposed MS-DRGs and could potentially be paid as nonoutlier cases. For this reason, we expected the proposed FY 2008 outlier threshold to decline from its FY 2007 level of $24,485. We are proposing an FY 2008 outlier threshold of $23,015. In section II.A.4. of the Addendum to this proposed rule, we provide a more detailed explanation of how we determined the proposed FY 2008 cost outlier threshold.

8. Effect of the Proposed MS-DRGs on the Postacute Care Transfer Policy

Existing regulations at § 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines transfers from one acute care hospital to another. Section 412.4(c) establishes the conditions under which we consider a discharge to be a transfer for purposes of our postacute care transfer policy. In transfer situations, each transferring hospital is paid a per diem rate for each day of the stay, not to exceed the full DRG payment that would have been made if the patient had been discharged without being transferred.

The per diem rate paid to a transferring hospital is calculated by dividing the full DRG payment by the geometric mean length of stay for the DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 45804), our policy provides for payment that is double the per diem amount for the first day (§ 412.4(f)(1)). Transfer cases are also eligible for outlier payments. The outlier threshold for transfer cases is equal to the fixed-loss outlier threshold for nontransfer cases, divided by the geometric mean length of stay for the DRG, multiplied by the length of stay for the case, plus one day. The purpose of the IPPS postacute care transfer payment policy is to avoid providing an incentive for a hospital to transfer patients to another hospital early in the patients' stay in order to minimize costs while still receiving the full DRG payment. The transfer policy adjusts the payments to approximate the reduced costs of transfer cases.

Beginning with FY 2006 IPPS, the regulations at § 412.4 specified that, effective October 1, 2005, we make a DRG subject to the postacute care transfer policy if, based on Version 23.0 of the DRG Definitions Manual (FY 2006), using data from the March 2005 update of FY 2004 MedPAR file, the DRG meets the following criteria:

  • The DRG had a geometric mean length of stay of at least 3 days;
  • The DRG had at least 2,050 postacute care transfer cases; and
  • At least 5.5 percent of the cases in the DRG were discharged to postacute care prior to the geometric mean length of stay for the DRG.

In addition, if the DRG was one of a paired set of DRGs based on the presence or absence of a CC or major cardiovascular condition (MCV), both paired DRGs would be included if either one met the three criteria above. Start Printed Page 24712

If a DRG met the above criteria based on the Version 23.0 DRG Definitions Manual and FY 2004 MedPAR data, we made the DRG subject to the postacute care transfer policy. We noted in the FY 2006 final rule that we would not revise the list of DRGs subject to the postacute care transfer policy annually unless we make a change to a specific CMS DRG. We established this policy to promote certainty and stability in the postacute care transfer payment policy. Annual reviews of the list of CMS DRGs subject to the policy would likely lead to great volatility in the payment methodology with certain DRGs qualifying for the policy in one year, deleted the next year, only to be reinstated the following year. However, we noted that, over time, as treatment practices change, it was possible that some CMS DRGs that qualified for the policy will no longer be discharged with great frequency to postacute care. Similarly, we explained that there may be other CMS DRGs that at that time had a low rate of discharges to postacute care, but which might have very high rates in the future.

The regulations at § 412.4 further specify that if a DRG did not exist in Version 23.0 of the DRG Definitions Manual or a DRG included in Version 23.0 of the DRG Definitions Manual is revised, the DRG will be a qualifying DRG if it meets the following criteria based on the version of the DRG Definitions Manual in use when the new or revised DRG first became effective, using the most recent complete year of MedPAR data:

  • The total number of discharges to postacute care in the DRG must equal or exceed the 55th percentile for all DRGs; and
  • The proportion of short-stay discharges to postacute care to total discharges in the DRG exceeds the 55th percentile for all DRGs. A short-stay discharge is a discharge before the geometric mean length of stay for the DRG.

A DRG also is a qualifying DRG if it is paired with another DRG based on the presence or absence of a CC or MCV that meets either of the above two criteria.

The MS-DRGs that we are proposing to adopt for FY 2008 are a significant revision to the current CMS DRG system. Because the proposed new MS-DRGs are not reflected in Version 23.0 of the DRG Definitions Manual, consistent with § 412.4, we will need to recalculate the 55th percentile thresholds in order to determine which proposed MS-DRGs, if adopted, would be subject to the postacute care transfer policy. Further, under the proposed MS-DRGs, the subdivisions within the base DRGs will be different than those under the current CMS DRGs. Unlike the current CMS DRGs, the proposed MS-DRGs are not divided based on the presence or absence of a CC or MCV. Rather, the proposed MS-DRGs have up to three subdivisions based on: (1) The presence of a MCC; (2) the presence a CC; or (3) the absence of either an MCC or CC. Consistent with our existing policy under which both DRGs in a CC/non-CC pair are qualifying DRGs if one of the pair qualifies, we are proposing that each MS-DRG that shares a base MS-DRG would be a qualifying DRG if one of the MS-DRGs that shares the base DRG qualifies. We are proposing to revise § 412.4(d)(3)(ii) to codify this proposed policy.

Similarly, we believe that the proposed changes to adopt MS-DRGs also necessitate a revision to one of the criteria used in § 412.4(f)(5) of the regulations to determine whether a DRG meets the criteria for payment under the “special payment methodology.” Under the special payment methodology, a case subject to the special payment methodology that is transferred early to a postacute care setting will be paid 50 percent of the total IPPS payment plus the average per diem for the first day of the stay. Fifty percent of the per diem amount will be paid for each subsequent day of the stay, up to the full MS-DRG payment amount. A CMS DRG is currently subject to the special payment methodology if it meets the criteria of § 412.4(f)(5). Section 412.4(f)(5)(iv) specifies that if a DRG meets the criteria specified under § 412.4(f)(5)(i) through (f)(5)(iii), any DRG that is paired with it based on the presence or absence of a CC or MCV is also subject to the special payment methodology. Given that this criterion would no longer be applicable under the proposed MS-DRGs, we are proposing to add a new § 412.4(f)(6) that includes a DRG in the special payment methodology if it is part of a CC/non-CC MCV/non-MCV pair. We are proposing to update this criterion so that it conforms to the proposed changes to adopt MS-DRGs for FY 2008. The proposed revision would make an MS-DRG subject to the special payment methodology if it shares a base MS-DRG with an MS-DRG that meets the criteria for receiving the special payment methodology.

Section 412.4(f)(3) states that the postacute care transfer policy does not apply to CMS DRG 385 for newborns who die or are transferred. We are proposing to make a conforming change to this paragraph to reflect that this CMS DRG would become MS-DRG 789 (Neonates, Died or Transferred to Another Acute Care Facility) under our proposed DRG changes for FY 2008.

These revisions do not constitute a change to the application of the postacute care transfer policy. Therefore, any savings attributed to the postacute care transfer policy would be unchanged as a result of adopting the MS-DRGs. Consistent with section 1886(d)(4)(C)(iii) of the Act, aggregate payments from adoption of the proposed MS-DRGs cannot be greater or less than those that would have been made had we not proposed to make any DRG changes.

We are also proposing technical changes to §§ 412.4(f)(5)(i) and (f)(5)(iv) to correct a cross-reference and a typographical error, respectively.

E. Refinement of the Relative Weight Calculation

(If you choose to comment on issues in this section, please include the caption “DRGs: Relative Weight Calculations” at the beginning of your comment.)

In the FY 2007 IPPS final rule (71 FR 47882), effective for FY 2007, we began to implement significant revisions to Medicare's inpatient hospital rates by basing the relative weights on hospitals' estimated costs rather than on charges. This reform was one of several measured steps to improve the accuracy of Medicare's payment for inpatient stays that include using costs rather than charges to set the relative weights and making refinements to the current DRGs so they better account for the severity of the patient's condition. Prior to FY 2007, we used hospital charges as a proxy for hospital resource use in setting the relative weights. Both MedPAC and CMS have found that the limitations of charges as a measure of resource use include the fact that hospitals cross-subsidize departmental services in many different ways that bear little relation to cost, frequently applying a lower charge markup to routine and special care services than to ancillary services. In MedPAC's 2005 Report to the Congress on Physician-Owned Specialty Hospitals, MedPAC found that hospitals charge much more than their costs for some types of services (such as operating room time, imaging services and supplies) than others (such as room and board and routine nursing care).[10] Our analysis of the MedPAC report in the FY 2007 IPPS proposed rule (71 FR 24006) produced consistent findings.

In the FY 2007 IPPS proposed rule, we proposed to implement cost-based weights incorporating aspects of a Start Printed Page 24713methodology recommended by MedPAC, which we called the hospital-specific relative value cost center (HSRVcc) methodology. MedPAC indicated that an HSRVcc methodology 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. After studying Medicare cost report data, we proposed to establish 10 national cost center categories from which to compute 10 national CCRs based upon broad hospital accounting definitions. We made several important changes to the HSRVcc methodology that MedPAC recommended using in its March 2005 Report to the Congress on Physician-Owned Specialty Hospitals. We refer readers to the FY 2007 IPPS proposed rule (71 FR 24007 through 24011) for an explanation and our reasons for the modification to MedPAC's methodology. In its public comments on the FY 2007 IPPS proposed rule, MedPAC generally agreed with the adaptations we made to its methodology, with the exception of expanding the number of distinct hospital department CCRs being used from 10 to 13 and basing the CCRs on Medicare-specific costs and charges.[11]

We did not finalize the HSRVcc methodology for FY 2007 because of concerns raised in the public comments on the FY 2007 IPPS proposed rule (71 FR 47882 through 47898). Rather, we adopted a cost-weighting methodology without the hospital-specific relative weight feature. We also expanded the number of distinct hospital departments with CCRs from 10 to 13. We indicated our intent to study whether to adopt the HSRVcc methodology after we had the opportunity to further consider some of the issues raised in the public comments. In the interim, we adopted a cost-weighting methodology over a 3-year transition period, substantially mitigating the redistributive payment impacts illustrated in the proposed rule, while we engaged a contractor to assist us with evaluating the HSRVcc methodology.

Some public commenters raised concerns about potential bias in cost weights due to “charge compression,” which is the practice of applying a lower percentage markup to higher cost services and a higher percentage markup to lower cost services. These commenters were concerned that our proposed weighting methodology may undervalue high cost items and overvalue low cost items if a single CCR is applied to items of widely varying costs in the same cost center. The commenters suggested that the HSRVcc methodology would exacerbate the effect of charge compression on the final relative weights. One of the commenters suggested an analytic technique of using regression analysis to identify adjustments that could be made to the CCRs to better account for charge compression. We indicated our interest in researching whether a rigorous model should allow an adjustment for charge compression to the extent that it exists. We engaged a contractor, RTI International (RTI), to study several issues with respect to the cost weights, including charge compression, and to review the statistical model provided to us by the commenter for adjusting the weights to account for it. We discuss RTI's findings in detail below.

Commenters also suggested that the cost report data used in the cost methodology are outdated, not consistent across hospitals, and do not account for the costs of newer technologies such as medical devices. However, the relationship between costs and charges (not costs alone) is the important variable in setting the relative weights under this new system. Older cost reports also do not include the hospital's higher charges for these same medical devices. Therefore, it cannot be known whether the CCR for the more recent technologies will differ from those we are using to set the relative weights. The use of national average cost center CCRs rather than hospital-specific CCRs may mitigate potential inconsistencies in hospital cost reporting. Nevertheless, we agree that it is important to review how hospitals report costs and charges on the cost reports and on the Medicare claims and asked RTI to further study this issue as well.

In summary, we proposed to adopt HSRVcc relative weights for FY 2007 using national average CCRs for 10 hospital departments. Based on public comments concerned about charge compression and the accuracy of cost reporting, we decided not to finalize the HSRVcc methodology, but adopted costs weights without the hospital-specific feature. In response to comments from MedPAC, we expanded the number of hospital cost centers used in calculating the national CCRs from 10 to 13. Finally, we decided to implement the cost-based weighting methodology gradually, by blending the cost and charge weights over a 3-year transition period beginning with FY 2007, while we further studied many of the issues raised in the public comments. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for more details on our final policy for calculating the cost-based DRG relative weights.

1. Summary of RTI's Report on Charge Compression

In August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating DRG relative weights. The purpose of the study was to develop more accurate estimates of the costs of Medicare inpatient hospital stays that can be used in calculating the relative weights per DRG. RTI was asked to assess the potential for bias in relative weights due to CCR differences within the 13 CCR groups used in calculating the cost-based DRG relative weights and to develop an analysis plan that explored alternative methods of estimating costs, with the objective of better aligning the charges and costs used in those calculations. RTI was asked to consider methods of reducing the variation in CCRs across services within cost centers by:

  • Modifying existing cost centers and/or creating new costs centers.
  • Using statistical methods, such as the regression adjustment for charge compression. Some commenters on the FY 2007 IPPS proposed rule suggested that we use a regression adjustment to account for charge compression.

As part of its contract, RTI convened a Technical Expert Panel composed of individuals representing academic institutions, hospital associations, medical device manufacturers, and MedPAC. The members of the panel met on October 27, 2006, to evaluate RTI's analytic plan, to identify other areas that are likely to be affected by compression or aggregation problems, and to propose suggestions for adjustments for charge compression. We posted RTI's draft interim report on the CMS Web site in March 2007. For more information, interested individuals can view RTI's report at the following Web site: http://cms.hhs.gov/​reports/​downloads/​Dalton.pdf.

As the first step in its analysis, RTI compared the reported Medicare program charge amounts from the cost reports to the total Medicare charges summed across all claims filed by providers. Using cost and charge data from the most recent available Medicare cost reports and inpatient claims from IPPS hospitals, RTI was charged with performing an analysis to determine how well the MedPAR charges matched the cost report charges used to compute CCRs. The accuracy of the DRG cost estimates is directly affected by this match because MedPAR charges are multiplied by CCRs to estimate cost. RTI found consistent matching of charges Start Printed Page 24714from the Medicare cost report to charges grouped in the MedPAR claims for some cost centers but there appeared to be problems with others. For example, RTI found that the data between the cost report and the claims matched well for total discharges, days, covered charges, nursing unit charges, pharmacy, and laboratory. However, there appeared to be inconsistent reporting between the cost reports and the claims data for charges in several ancillary departments (medical supplies, operating room, cardiology, and radiology). For example, the data suggested that hospitals often include costs and charges for devices and other medical supplies within the Medicare cost report cost centers for Operating Room, Radiology or Cardiology instead of the Medical Supplies cost center.

RTI found that some charge mismatching results from the way in which charges are grouped in the MedPAR file. Examples include the intermediate care nursing charges being grouped with intensive care nursing charges, and electroencephalography (EEG) charges being grouped with laboratory charges. RTI suggested that reclassifying intermediate care charges from the intensive care unit to the routine cost center could address the former problem.

As the second step in its analysis, RTI reviewed the existing cost centers that are combined into the 13 groups used in calculating the national average CCRs. RTI identified CCRs with potential aggregation problems and considered whether separating the charge groups could result in more accurate cost conversion at the DRG level. The analysis led RTI to calculate separate CCRs for Emergency Room and Blood and Blood Administration, both of which had been included in “Other Services” in FY 2007.

During this second step, RTI noted that a variation of charge compression is also present in inpatient nursing services because most patients are charged a single type of accommodation rate per day that is linked to the type of nursing unit (routine, intermediate, or intensive), but not to the hours of nursing services given to individual patients. Unlike the situation with charge compression in ancillary service areas, there are virtually no detailed charge codes that can distinguish patient nursing care use. Therefore, any potential bias cannot be empirically evaluated or adjustments made without additional data.

Next, RTI examined individual revenue codes within the cost centers and used regression analysis to determine whether certain revenue codes in the same cost center had significantly different markup rates. Those revenue codes include devices, prosthetics, implants within the Medical Supplies cost center, IV Solutions within the Drugs cost center, CT scanning and MRI within the Radiology cost center, Cardiac Catheterization within the Cardiology cost center, and Intermediate Care Units within the Routine Nursing Care cost center. Devices, prosthetics, and implants within the Medical Supplies cost center have a lower markup and, as a result, a higher CCR than the remainder of the medical supplies group according to RTI's analysis. Within the Drugs CCR, IV Solutions have a much higher markup and much lower CCR than the other drugs included in the category. Within the Radiology CCR, CT scanning and MRI have higher markups and lower CCRs than the remaining radiology services. RTI's results for Cardiac Catheterization and Intermediate Care Units were ambiguous due to data problems.

RTI's analysis also determined the impact of the disaggregated CCRs on the relative weights. Differences in CCRs alone do not necessarily alter the DRG relative weights. The impact on the relative weights is the result of the interaction of CCR differences and DRG differences in the proportions of the services with different CCRs. In FY 2007, we calculated relative weights using CCRs for 13 hospital departments. The RTI analysis suggests expanding the number of distinct hospital department CCRs from 13 to 19. Of the additional six CCRs, two would result from separating the Emergency Department and Blood (Products and Administration) from the residual “Other Services” category. Four additional CCRs would result from applying a regression method similar to a method suggested in last year's public comments to three existing categories: supplies, radiology, and drugs. This method, as adapted by RTI, used detailed coding of charges to disaggregate hospital cost centers and derive separate, predicted alternative CCRs for the disaggregated services. RTI's analysis suggests splitting Medical Supplies into one CCR for devices, implants, and prosthetics and one CCR for Other Supplies; splitting Radiology into one CCR for MRIs, one CCR for CT scans, and one CCR for Other Radiology; and splitting Drugs into one CCR for IV Solutions and one CCR for Other Drugs.

RTI's draft report provides the potential impacts of adopting these changes to the CCRs. We note that RTI's analysis was based on Version 24.0 of the CMS DRGs. Because the proposed MS-DRGs were under development for the FY 2008 IPPS proposed rule, they were unavailable to RTI for their analysis. The results of RTI's analysis may be different if applied to the proposed MS-DRGs. However, it seems reasonable to believe that the impact of RTI's suggestions will be consistent using Version 24.0 of the CMS DRGs and the proposed MS-DRGs, as both systems generally use the same base DRGs while applying different subdivisions to recognize severity of illness. Of all the adjusted CCRs, the largest impact on weights came from accounting for charge compression in medical supplies for devices and implants. The impact on weights from accounting for CCR differences among drugs was modest. The impact of splitting MRI and CT scanning from the radiology CCR was greater than the impact of modifying the Drugs CCRs, but less than the impact of splitting the medical supplies group. Separating Emergency Department and Blood Products and Administration from the “Other Services” category would raise the CCR for other services in the group.

RTI found that disaggregating cost centers may have a mitigating effect on the impact of transitioning from charge-based weights to cost-based weights. That is, the changes being suggested by RTI will generally offset (fully or more than fully in some cases or in part in other cases) the impacts of fully implemented cost weights that we are adopting over the FY 2007-FY 2009 transition period. Thus, RTI's analysis suggests that expanding the number of distinct hospital department CCRs used to calculate cost weights from 13 to 19 will generally increase the relative weights for surgical DRGs and decrease them for the medical DRGs compared to the fully implemented cost-based weights to which we began transitioning in FY 2007.

2. RTI Recommendations

In its report, RTI provides recommendations for the short term, medium term, and long term, to mitigate aggregation bias in the calculation of relative weights. We summarize RTI's recommendations below and respond to each of them.

a. Short-Term Recommendations

Most of RTI's short-term recommendations have already been described above. The most immediate changes that RTI recommends implementing include expanding from 13 distinct hospital department CCRs to 19 by: Start Printed Page 24715

  • Disaggregating “Emergency Room” and “Blood and Blood Products” from the “Other Services” cost center;
  • Establishing regression-based estimates as a temporary or permanent method for disaggregating the Medical Supplies, Drugs, and Radiology cost centers; and
  • Reclassifying intermediate care charges from the intensive care unit cost center to the routine cost center.

We believe these recommendations have significant potential to address issues of charge compression and potential mismatches between how costs and charges are reported in the cost reports and on the Medicare claims.

RTI's recommendations show significant promise in the short term for addressing issues raised in the public comments on the cost weights in the FY 2007 IPPS proposed rule. However, in the time available for the development of this proposed rule, we have been unable to investigate how RTI's recommended changes may interact with other potential changes to the DRGs and to the method of calculating the DRG relative weights. As we noted above, RTI's analysis was done on the Version 24.0 of the CMS DRGs and not the MS-DRGs we are proposing for FY 2008. For this proposed rule, we were not able to examine the combined impacts of the proposed MS-DRGs and RTI's recommendations. In addition, we believe it is also important to consider that, in the FY 2007 IPPS final rule (71 FR 47897), we anticipated undertaking further analysis of the HSRVcc methodology over the next year in conjunction with the research we were to do on charge compression. Analysis of the HSRVcc methodology will be part of the second phase of the RAND study of alternative DRG systems to be completed by September 1, 2007, that has not been completed in time for this proposed rule. As a result, we have also been unable to consider the effects of the HSRVcc methodology together with the proposed MS-DRGs and RTI's recommendations. Finally, we note that in order to complete the analysis in time for this proposed rule, RTI's study used only inpatient hospital claims. However, hospital ancillary departments typically include both inpatient and outpatient services within the same department and only a single CCR covering both inpatient and outpatient services can be calculated from Medicare cost reports. Although we believe that applying the regression method used by RTI to only inpatient services is unlikely to have had much impact for the adjustments recommended by RTI, the preferred approach would be to apply the regression method to the combined inpatient and outpatient services. The latter approach would ensure that any potential CCR adjustments in the IPPS would be consistent with potential CCR adjustments in the OPPS. We hope to expand their analysis to incorporate outpatient services during the coming year. For all of these reasons, we are not proposing to adopt RTI's recommendations for FY 2008.

Although we are not proposing to adopt RTI's recommendations for FY 2008, we are interested in public comments on expanding from 13 CCRs to 19 CCRs. Again, we note that RTI's analysis suggests significant improvements that could result in the cost weights from adopting its recommendations to adjust for charge compression. Therefore, we are also interested in public comments on whether we should proceed to adopt the RTI recommended changes for FY 2008 in the absence of a detailed analysis of how the relative weights would change if we were to address charge compression while simultaneously adopting an HSRVcc methodology together with the proposed MS-DRGs. Given the change in the impacts that were illustrated in last year's FY 2007 IPPS final rule (71 FR 47915-47916), going from a hospital-specific to a nonhospital-specific cost-weighting methodology, we believe that sequentially adjusting for charge compression and later adopting an HSRVcc methodology could create the potential for instability in IPPS payments over the next 2 years (that is, payments for surgical DRGs would increase and payment for medical DRGs would decrease if we were adopt the RTI recommended changes for FY 2008, but could potentially reverse direction if we were to adopt an HSRVcc methodology for FY 2009). Again, we are interested in public comments on all of these issues before we make a final decision as to whether to proceed with the RTI's short-term recommendations in the final rule for FY 2008.

Among its other short-term recommendations, RTI also suggested that we incorporate edits to reject or require more intensive review of cost reports from hospitals with extreme CCRs. This action would reduce the number of hospitals with excluded data in the national CCR computations, and would also improve the accuracy of all departmental CCRs within problem cost reports by forcing hospitals to review and correct the assignment of costs and charges before the cost report is filed. Although we do not have a substantive disagreement with the recommendation, we generally focus our audit resources on areas in which cost report information directly affects payments to individual providers.

RTI further suggested revising cost report instructions to reduce cost and charge mismatching and program charge misalignment in its short-term recommendations. Although RTI suggests such an action could be immediately effective for correcting the reporting of costs and charges for medical supply items that are now distributed across multiple cost centers, we note that changes to improve cost reporting now will not become part of the relative weights for several years because of lags between the submission of hospital reports and our ability to use them in setting the relative weights. Currently, we expect there will continue to be a 3-year lag between a hospital's cost report fiscal year and the year it is used to set the relative weights. Thus, even if it were possible to issue instructions immediately beginning for FY 2008, revised reporting would not affect the relative weights until at least FY 2011. Nevertheless, we agree with this recommendation, and we welcome public input on potential changes to cost reporting instructions to improve consistency between how charges are reported on cost reports and in the Medicare claims. We will consider these changes to the cost reporting instructions as we consider further changes to the cost report described below.

b. Medium-Term Recommendations

RTI recommended that we expand the MedPAR file to include separate fields that disaggregate several existing charge departments. For compatibility with prior years' data, the new fields should partition the existing ones rather than recombine charges. RTI recommended including additional fields in the MedPAR file for the hospital departments that it statistically disaggregated in its report, as well as intermediate care, observation beds, other special nursing codes, therapeutic radiation and EEG, and possibly others. As with some of RTI's earlier recommendations with respect to cost reports, we will examine this suggestion in conjunction with other competing priorities CMS has been given for our information systems. We have limited information systems resources, and we will need to consider whether the time constraints we have to develop the IPPS final rule, in conjunction with the inconvenience of using the SAF and accounting for charge compression through regression, will justify the infrastructure cost to our information Start Printed Page 24716systems of incorporating these variables into the MedPAR.

Finally, RTI's medium-term recommendations include encouraging providers to use existing standard cost centers, particularly those for Blood and Blood Administration and for Therapeutic Radiology, in the current Medicare cost report. We believe this recommendation is closely related to the one for improved cost reporting instructions. Therefore, we will consider this recommendation as part of any further effort we may undertake to revise cost reporting instructions or change the cost report.

c. Long-Term Recommendations

RTI's long-term recommendations include adding new cost centers to the Medicare cost report and/or undertaking the following activities:

  • Add “Devices, Implants and Prosthetics” under the line for “Medical Supplies Charged to Patients.” Consider also adding a similar line for IV Solutions as a subscripted line under the line for “Drugs Charged to Patients.”
  • Add CT Scanning and MRI as subscripted lines under the line for “Radiology-Diagnostic.” About one-third of hospitals that offer CT Scanning and/or MRI services are already reporting these services on nonstandard line numbers. More consistent reporting for both cost centers would eliminate the need for statistical estimation on the radiology CCRs.
  • In consultation with hospital industry representatives, determine the best way to separate cardiology cost centers and add a new standard cost center for cardiac catheterization and/or for all other cardiac diagnostic laboratory services. About 20 percent of hospitals already include a nonstandard line on their cost reports for catheterization. Creating a new standard cost center could improve consistency in reporting and substantially improve the program charge mismatching that now occurs.
  • In consultation with hospital industry representatives, consider establishing a new cost center to capture intermediate care units as distinct from routine or intensive care.
  • Establish expert study groups or other research vehicles to study options for improving patient-level charging within nursing units. Nursing accounts for one-fourth of IPPS charges and 41 percent of the computed costs from our claims analysis file. Historically, nursing charges and costs have been assigned to patients without relying on individual measures of service use. Consideration should be given to finding ways to improve precision in nursing cost-finding that will improve relative resource weights without adding substantial administrative costs to either the Medicare program or to hospitals.

We agree with RTI that attention should be paid to these issues as we consider changes to the Medicare cost report. The cost report has not been revised in nearly 10 years. During this time, there have been significant changes to the Medicare statute and regulations that have affected the Medicare payment policies. Necessary incremental changes have been made to the Medicare cost report over the years to accommodate the Medicare wage index, disproportionate share payments, indirect and direct graduate medical education payments, reporting of uncompensated care costs, among others. The adoption of cost-based weights for the IPPS beginning in FY 2007 has brought further attention to the importance of the Medicare cost report and how hospitals report costs and charges. We recently began doing a comprehensive review of the Medicare cost report and plan to make updates that will consider its many uses. As we update the cost report, we will give strong consideration to RTI's recommendations and potential long-term improvements that could be made to the IPPS cost-based relative weighting methodology.

F. Hospital-Acquired Conditions, Including Infections

(If you choose to comment on issues in this section, please include the caption “DRGs: Hospital-Acquired Conditions” at the beginning of your comment.)

1. General

Medicare's IPPS encourages hospitals to treat patients efficiently. Hospitals receive the same DRG payment for stays that vary in length. In many cases, complications acquired in the hospital do not generate higher payments than the hospital would otherwise receive for other cases in the same DRG. To this extent, the IPPS does encourage hospitals to manage their patients well and to avoid complications, when possible. However, complications, such as infections, acquired in the hospital can trigger higher payments in two ways. First, the treatment of complications can increase the cost of hospital stays enough to generate outlier payments. However, the outlier payment methodology requires that hospitals experience large losses on outlier cases (for example, in FY 2007, the fixed-loss amount was $24,485 before a case qualified for outlier payments, and the hospital then only received 80 percent of its costs above the fixed-loss cost threshold). Second, there are about 121 sets of DRGs that split based on the presence or absence of a complication or comorbidity (CC). The CC DRG in each pair would generate a higher Medicare payment. If a condition acquired during the beneficiary's hospital stay is one of the conditions on the CC list, the result may be a higher payment to the hospital under a CC DRG. Under the proposed MS-DRGs, there will be 258 sets of DRGs that are split into 2 or 3 subgroups based on the presence or absence of a major CC (MCC) or CC. If a condition acquired during the beneficiary's hospital stay is one of the conditions on the MCC or CC list, the result may be a higher payment to the hospital under the MS-DRGs. (See section II.C. of the FY 2007 IPPS final rule (71 FR 47881) for a detailed discussion of proposed DRG reforms.)

2. Legislative Requirement

Section 5001(c) of Pub. L. 109-171 requires the Secretary to select, by October 1, 2007, at least two conditions that are (a) high cost or high volume or both, (b) result in the assignment of a case to a DRG that has a higher payment when present as a secondary diagnosis, and (c) could reasonably have been prevented through the application of evidence-based guidelines. For discharges occurring on or after October 1, 2008, hospitals will not receive additional payment for cases in which one of the selected conditions was not present on admission. That is, the case will be paid as though the secondary diagnosis was not present. Section 5001(c) provides that we can revise the list of conditions from time to time, as long as the list contains at least two conditions. Section 5001(c) also requires hospitals to submit the secondary diagnoses that are present at admission when reporting payment information for discharges on or after October 1, 2007.

3. Public Input

In the FY 2007 IPPS proposed rule (71 FR 24100), we sought input from the public about which conditions and which evidence-based guidelines should be selected in order to implement section 5001(c) of Public Law 109-171. The comments that we received were summarized in the FY 2007 IPPS final rule (71 FR 48051 through 48053). In that final rule, we indicated that the next opportunity for formal public comment would be this FY 2008 proposed rule and encouraged the public to comment on our proposal at that time. Start Printed Page 24717

In summary, the majority of the comments that we received in response to the FY 2007 IPPS proposed rule addressed conceptual issues concerning the selection, measurement, and prevention of hospital-acquired infections. Many commenters encouraged CMS to engage in a collaborative discussion with relevant experts in designing, evaluating, and implementing this section. The commenters urged CMS to include individuals with expertise in infection control and prevention, as well as representatives from the provider community, in the discussions.

Many commenters supported the statutory requirement for hospitals to submit information regarding secondary diagnoses present on admission beginning in FY 2008, and suggested that it would better enable CMS and health care providers to more accurately differentiate between comorbidities and hospital-acquired complications. MedPAC, in particular, noted that this requirement was recommended in its March 2005 Report to Congress and indicated that this information is important to Medicare's value-based purchasing efforts. Other commenters cautioned us about potential problems with relying on secondary diagnosis codes to identify hospital-acquired complications, and indicated that secondary diagnosis codes may be an inaccurate method for identifying true hospital-acquired complications.

A number of commenters expressed concerns about the data coding requirement for this payment change and asked for detailed guidance from CMS to help them identify and document hospital-acquired complications. Other commenters expressed concern that not all hospital-acquired infections are preventable and noted that sicker and more complex patients are at greater risk for hospital-acquired infections and complications. Commenters suggested that CMS include standardized infection-prevention process measures, in addition to outcome measures of hospital-acquired infections.

Some commenters proposed that CMS expand the scope of the payment changes beyond the statutory minimum of two conditions. They noted that the death, injury, and cost of hospital-acquired infections are too high to limit this provision to only two conditions. Commenters also recommended that CMS annually select additional hospital-acquired complications for the payment change. Conversely, a number of commenters proposed that CMS initially begin with limited demonstrations to test CMS' methodology before nationwide implementation. One commenter recommended that CMS include appropriate consumer protections to prevent providers from billing patients for the nonreimbursed costs of the hospital-acquired complications and to prevent hospitals from selectively avoiding patients perceived at risk of complications.

In addition to the broad conceptual suggestions, some commenters recommended specific conditions for possible inclusion in the payment changes, which we discuss in detail in section II.D.4. of this preamble. We also discuss throughout section II.D. of this preamble other comments that we have considered in developing hospital-acquired conditions that would be subject to reporting.

4. Collaborative Effort

CMS worked with public health and infectious disease experts from the Centers for Disease Control and Prevention (CDC) to identify a list of hospital-acquired conditions, including infections, as required by section 5001(c) of Public Law 109-171. As previously stated, the selected conditions must meet the following three criteria: (a) High cost or high volume or both; (b) result in the assignment of the case to a DRG that has a higher payment when present as a secondary diagnosis; and (c) could reasonably have been prevented through the application of evidence-based guidelines. CMS and CDC staff also collaborated on developing a process for hospitals to submit a Present on Admission (POA) indicator with each secondary condition. The statute requires the Secretary to begin collecting this information as of October 1, 2007. The POA indicator is required in order for us to determine which of the selected conditions developed during a hospital stay. The current electronic format used by hospitals to obtain this information (ASC X12N 837, Version 4010) does not provide a field to obtain the POA information. We are in the process of issuing instructions to require acute care IPPS hospitals to submit the POA indicator for all diagnosis codes effective October 1, 2007. The instructions will specify how hospitals under the IPPS will submit this information in segment K3 in the 2300 loop, data element K301 on the ASC X12N 837, Version 4010 claim. Specific instructions on how to select the correct POA indicator for a diagnosis code are included in the ICD-9-CM Official Guidelines for Coding and Reporting. These guidelines can be found at the following Web site:   http://www.cdc.gov/​nchs/​datawh/​ftpserv/​ftpicd9/​ftpicd9.htm

CMS and CDC staff also received input from a number of groups and organizations on hospital-acquired conditions, including infections. Many of these groups and organizations recommended the selection of conditions mentioned in the FY 2007 IPPS final rule, including the following because of the high cost or high volume (frequency) of the condition, or both, and because in some cases preventable guidelines already exist:

  • Surgical site infections. The groups and organizations stated that there were evidence-based measures to prevent the occurrence of these infections which are currently measured and reported as part of the Surgical Care Improvement Program (SCIP).
  • Ventilator-associated pneumonias. The groups and organizations pointed out that these conditions are currently measured and reported through SCIP. However, other organizations counseled against selecting these conditions because they believed it was difficult to obtain good definitions and that it was not always clear which ones are hospital-acquired.
  • Catheter associated bloodstream infections.
  • Pressure ulcers, as an alternative to hospital-acquired infections. The groups and organizations pointed out that the specific language in section 5001(c) of Public Law 109-171 mentions hospital-acquired conditions; therefore, the language does not restrict the Secretary to the selection of infections.
  • Hospital falls, as an alternative to hospital-acquired infections. The injury prevention groups included this condition among a group referred to as “serious preventable events,” also commonly referred to as “never events” or “serious reportable events.” A serious preventable event is defined as a condition which should not occur during an inpatient stay.

In addition to the aforementioned conditions, we received other recommendations for the selection of hospital-acquired conditions. These recommendations were also based on the high cost and the high volume of the condition, or both, or the fact that preventable guidelines exist. The recommendations include—

  • Bloodstream infections/septicemia. Some commenters suggested that we focus on one specific organism, such as staph aureus septicemia.
  • Pneumonia. Some commenters recommended the inclusion of a broader group of pneumonia patients, instead of restricting cases to ventilator-associated pneumonias. Some commenters Start Printed Page 24718mentioned that while prevention guidelines exist for pneumonia, it is not clear how effective these guidelines may be in preventing pneumonia.
  • Vascular catheter associated infections. Commenters pointed out that there are CDC guidelines for these infections. Other commenters pointed out that while this condition certainly deserves focused attention by health care providers, there is not a clear one unique ICD-9-CM code that identifies vascular catheter-associated infections. Therefore, these commenters suggested that there would be difficulty separately identifying these conditions.
  • Clostridium difficile-associated disease (CDAD). Several commenters identified this condition as a significant public health issue. Other commenters pointed out that while prevalence of this condition is emerging as a public health problem, there is not currently a strategy for reasonably preventing these infections.
  • Methicillin-resistant staphylococcus aureus (MRSA). Several commenters pointed out that MRSA has become a very common bacteria occurring both in and outside the hospital environment. However, other organizations pointed out that the code for MRSA (V09.0, Infection with microorganism resistant to penicillins Methicillin-resistant staphylococcus aureus) is not currently classified as a CC. Therefore, the commenters stated that MRSA does not lead to a higher reimbursement when the code is reported.
  • Serious preventable events. As stated earlier, some commenters representing injury prevention groups suggested including a broader group of conditions than hospital falls which should not be expected to occur during a hospital admission. Hey notes that these conditions are referred to as “serious preventable events,” and include events such as the following: (a) Leaving an object in during surgery; (b) operating on the wrong body part or patient, or performing the wrong surgery; (c) air embolism as a result of surgery; and (d) providing incompatible blood or blood products. Other commenters indicated that serious preventable events are so rare that they should not be selected as a hospital condition that cannot result in a case being assigned to a higher paying DRG.

5. Criteria for Selection of the Hospital-Acquired Conditions

CMS and CDC staff greatly appreciate the many comments and suggestions offered by organizations and groups that were interested in providing input into the selection of the initial hospital-acquired conditions.

CMS and CDC staff evaluated each recommended condition under the three criteria established by section 1886(d)(4)(D)(iv) of the Act. In order to meet the higher payment criterion, the condition selected must have an ICD-9-CM diagnosis code that clearly identifies the condition and is classified as a CC, or as an MCC as proposed for the MS-DRGs in this proposed rule. Some conditions recommended for inclusion among the initial hospital-acquired conditions did not have codes that clearly identified the conditions. Because there has not been national reporting of a POA indicator for each diagnosis, there is no Medicare data to determine the incidence of the reported secondary diagnoses occurring after admission. To the extent possible, we used information from the CDC on the incidence of these conditions. CDC's data reflect the incidence of hospital-acquired conditions in 2002. We also examined FY 2006 Medicare data on the frequency that these conditions were reported as secondary diagnoses. We developed the following criteria to assist in our analysis of the conditions. The conditions described were those recommended for inclusion in the initial hospital-acquired infection provision.

  • Coding—Under section 1886(d)(4)(D)(ii)(I) of the Act, a discharge is subject to the payment adjustment if “the discharge includes a condition identified by a diagnosis code” selected by the Secretary under section 1886(d)(4)(D)(iv) of the Act. We only selected conditions that have (or could have) a unique ICD-9-CM code that clearly describes the condition. Some conditions recommended by the commenters would require the use of two or more ICD-9-CM codes to clearly identify the conditions. Although we did not exclude these conditions from further consideration, the need to utilize multiple ICD-9-CM codes to identify them may present operational issues. For instance, below we describe in detail the complexities associated with selecting septicemia as a hospital-acquired condition that would be subject to section 5001(c) of the DRA. In some cases, septicemia may be a reasonably preventable condition with proper hospital care. However, in other cases, clinicians may argue that the condition arose from further development of another infection the patient did have upon admission and the septicemia was not preventable. As we indicate in detail below, there could be a significant variety of clinical scenarios and potential coding vignettes to describe situations where septicemia occurs. Although we could select septicemia, we would also have to identify many exclusions for situations where the septicemia is not preventable. The vast number of clinical scenarios that we would have to account for could complicate implementation of the provision.
  • Burden (High Cost/High Volume)—Under section 1886(d)(4)(D)(iv)(I) of the act, we must select cases that have conditions that are high cost or high volume, or both.
  • Prevention guidelines—Under section 1886(d)(4)(D)(iv)(II) of the Act, we must select codes that describe conditions that could reasonably have been prevented through application of evidence-based guidelines. We evaluated whether there is information available for hospitals to follow to prevent the condition from occurring.
  • CC—Under section 1886(d)(4)(D)(iv)(III) of the Act, we must select codes that result in assignment of the case to a DRG that has a higher payment when the code it present as a secondary diagnosis. The condition must be an MCC or a CC that would, in the absence of this provision, result in assignment to a higher paying DRG.
  • Considerations—We evaluate each condition above according to how it meets the statutory criteria in light of the potential difficulties that we would face if the condition were selected.

6. Proposed Selection of Hospital-Acquired Conditions

We discuss below our analysis of each of the conditions that were raised as possible candidates for selection under section 5001(c) of Pub. L. 109-171 according to the criteria described above in section II.D.5. of this preamble. We also discuss any considerations, which would include any administrative issues surrounding the selection of a proposed condition. For example, the condition may only be able to be identified by multiple codes, thereby requiring the development of special GROUPER logic to also exclude similar or related ICD-9-CM codes from being classified as a CC. Similarly, a condition acquired during a hospital stay may arise from another condition that the patient had prior to admission, making it difficult to determine whether the condition was reasonably preventable. Following a discussion of each condition, we provide a summary table that describes the extent to which each condition meets each of the above criteria. We present 13 conditions in rank order. In our view, the conditions listed at the top of the table best meet the statutory selection criteria, while the conditions Start Printed Page 24719listed lower may meet the selection criteria but could present a particular challenge (that is, they may be preventable only in some circumstances but not in others). Therefore, we would submit that the first conditions listed should receive the highest consideration of selection among our initial group of hospital-acquired conditions. We encourage comments on whether or not we have ranked these conditions appropriately. We also encourage additional comments on clinical, coding, and prevention issues that may affect the conditions selected. While we have ranked these conditions, there may be compelling public health reasons for including conditions that are not at the top of our list. We ask commenters to recommend how many and which conditions should be selected for implementation on October 1, 2008, along with justifications for these selections.

(a) Catheter-Associated Urinary Tract Infections

  • Coding—ICD-9-CM code 996.64 (Infection and inflammatory reaction due to indwelling urinary catheter) clearly identifies this condition. The hospital would also report the code for the specific type of urinary infection. For instance, when a patient develops a catheter associated urinary tract infection during the inpatient stay, the hospital would report code 996.64 and 599.0 (Urinary tract infection, site not specified) to clearly identify the condition. There are also a number of other more specific urinary tract infection codes that could also be coded with code 996.64. These codes are classified as CCs. If we were to select catheter-associated urinary tract infections, we would implement the decision by not counting code 996.64 and any of the urinary tract infection codes listed below when both codes are present and the condition was acquired after admission. If only code 996.64 were coded on the claim as a secondary diagnosis, we would not count it as a CC.

Burden (High Cost/High Volume)—CDC reports that there are 561,667 catheter-associated urinary tract infections per year. For FY 2006, there were 11,780 reported cases of Medicare patients who had a catheter associated urinary tract infection as a secondary diagnosis. The cases had average charges of $40,347 for the entire hospital stay. According to a study in the American Journal of Medicine, catheter-associated urinary tract infection is the most common nosocomial infection, accounting for more than 1 million cases in hospitals and nursing homes nationwide.[12] Approximately 11.3 million women in the United States had at least one presumed acute community-acquired urinary tract infection resulting in antimicrobial therapy in 1995, with direct costs estimated at $659 million and indirect costs totaling $936 million. Nosocomial urinary tract infection necessitates one extra hospital day per patient, or nearly 1 million extra hospital days per year. It is estimated that each episode of symptomatic urinary tract infection adds $676 to a hospital bill. In total, according to the study, the estimated annual cost of nosocomial urinary tract infection in the United States ranges between $424 and $451 million.

Prevention guidelines—There are widely recognized guidelines for the prevention of catheter-associated urinary tract infections. Guidelines can be found at the following Web site: http://www.cdc.gov/​ncidod/​dhqp/​gl_​catheter_​assoc.html.

CC—Codes 996.64 and 599.0 are classified as CCs in the current CMS DRGs as well as in the proposed MS-DRGs.

Considerations—The primary prevention intervention would be not using catheters or removing catheters as soon as possible, both of which are worthy goals because once catheters are in place for 3 to 4 days, most clinicians and infectious disease/infection control experts do not believe urinary tract infections are preventable. While there may be some concern about the selection of catheter associated urinary tract infections, it is an important public health goal to encourage practices that will reduce urinary tract infections. Approximately 40 percent of Medicare beneficiaries have a urinary catheter during hospitalization based on Medicare Patient Safety Monitoring System (MPSMS) data.

As stated above in the Coding section, this condition is clearly identified through ICD-9-CM code 996.64. Code 996.64 is classified as a CC. The hospital would also report the code for the specific type of urinary infection. For instance, when a patient develops a catheter associated urinary tract infection during the inpatient stay, the hospital would report codes 996.64 and 599.0 or another more specific code that clearly identifies the condition. These codes are classified as CCs under the current CMS DRGs as well as the proposed MS-DRGs. To select catheter-associated urinary tract infections as one of the hospital-acquired conditions that would not be counted as a CC, we would not classify code 996.64 as a CC if the condition occurred after admission. Furthermore, we would also not classify any of the codes listed below as CCs if present on the claim with code 996.64 because these additional codes identify the same condition. The following codes represent specific types of urinary infections. We did not include codes for conditions that could be considered chronic urinary infections, such as code 590.00 (Chronic pyelonephritis, without lesion or renal medullary necrosis). Chronic conditions may indicate that the condition was not acquired during the current stay. We would not count code 996.64 or any of the following codes representing acute urinary infections if they developed after admission and were coded together on the same claim.

  • 112.2 (Candidiasis of other urogenital sites)
  • 590.10 (Acute pyelonephritis, without lesion of renal medullary necrosis)
  • 590.11 (Acute pyelonephritis, with lesion of renal medullary necrosis)
  • 590.2 (Renal and perinephric abscess)
  • 590.3 (Pyeloureteritis cystica)
  • 590.80 (Pyelonephritis, unspecified)
  • 590.81 (Pyelitis or pyelonephritis in diseases classified elsewhere)
  • 590.9 (Infection of kidney, unspecified)
  • 595.0 (Acute cystitis)
  • 595.3 (Trigonitis)
  • 595.4 (Cystitis in diseases classified elsewhere)
  • 595.81 (Cystitis cystica)
  • 595.89 (Other specified type of cystitis, other)
  • 595.9 (Cystitis, unspecified)
  • 597.0 (Urethral abscess)
  • 597.80 (Urethritis, unspecified)
  • 599.0 (Urinary tract infection, site not specified)

We believe the condition of catheter-associated urinary tract infection meets all of our criteria for selection as one of the initial hospital-acquired conditions. We can easily identify the cases with ICD-9-CM codes. The condition is a CC under both the current CMS DRGs and the proposed MS-DRGs that are discussed earlier in this proposed rule. The condition meets our burden criterion with its high cost and high frequency. There are prevention guidelines on which the medical community agrees. Of all 13 conditions discussed in this proposed rule, we believe this condition best meets the Start Printed Page 24720criteria discussed. Therefore, we are proposing the selection of catheter-associated urinary tract infections as one of the initial hospital-acquired conditions.

We encourage comments on both the selection of this condition and the related conditions that we are proposing to exclude from being counted as CCs.

(b) Pressure Ulcers

Coding—Pressure ulcers are also referred to as decubitus ulcers. The following codes clearly identify pressure ulcers.

  • 707.00 (Decubitus ulcer, unspecified site)
  • 707.01 (Decubitus ulcer, elbow)
  • 707.02 (Decubitus ulcer, upper back)
  • 707.03 (Decubitus ulcer, lower back)
  • 707.04 (Decubitus ulcer, hip)
  • 707.05 (Decubitus ulcer, buttock)
  • 707.06 (Decubitus ulcer, ankle)
  • 707.07 (Decubitus ulcer, heel)
  • 707.09 (Decubitus ulcer, other site)

Burden (High Cost/High Volume)—This is both a high-cost and high-volume condition. For FY 2006, there were 322,946 reported cases of Medicare patients who had a pressure ulcer as a secondary diagnosis. These cases had average charges for the hospital stay of $40,381.

Prevention guidelines—Prevention guidelines can be found at the following Web sites: http://www.npuap.org/​positn1.html. http://www.ncbi.nlm.nih.gov/​books/​bv.fcgi?​rid=​hstat2.chapter.4409

CC—Decubitus ulcer codes are classified as CCs under the current CMS DRGs. Codes 707.00, 707.01, and 707.09 are CCs under the proposed MS-DRGs. Codes 707.02 through 707.07 are considered MCCs under the proposed MS-DRGs. As discussed earlier, MCCs result in even larger payments than CCs.

Considerations—Pressure ulcers are an important hospital-acquired complication. Prevention guidelines exist (non-CDC) and can be implemented by hospitals. Clinicians may state that some pressure ulcers present on admission cannot be identified (skin is not yet broken (Stage I) but damage to tissue is already done and skin will eventually break down. However, by selecting this condition, we would provide hospitals the incentive to perform careful examination of the skin of patients on admission to identify decubitus ulcers. If the condition is present on admission, the provision will not apply. We are proposing to include pressure ulcers as one of our initial hospital-acquired conditions. This condition can be clearly identified through ICD-9-CM codes. These codes are classified as a CC under the current CMS DRGs and as a CC or MCC under the proposed MS-DRGs. Pressure ulcers meet the burden criteria because they are both high cost and high frequency cases. There are clear prevention guidelines. While there is some question as to whether all cases with developing pressure ulcers can be identified on admission, we believe the selection of this condition will result in a closer examination of the patient's skin on admission. This will result in better quality of care. We welcome comments on the proposed inclusion of this condition.

Serious Preventable Events

Serious preventable events are events that should not occur in health care. The injury prevention community has developed information on serious preventable events. CMS reviewed the list of serious preventable events and identified those events for which there was an ICD-9-CM code that would assist in identifying them. We identified four types of serious preventable events to include in our evaluation. These include leaving an object in a patient; performing the wrong surgery (surgery on the wrong body part, wrong patient, or the wrong surgery); air embolism following surgery; and providing incompatible blood or blood products. Three of these serious preventable events have unique ICD-9-CM codes to identify them. There is not a clear and unique code for surgery performed on the wrong body part, wrong patient, or the wrong surgery. Each of these events is discussed separately.

(c) Serious Preventable Event—Object Left in During Surgery

Coding—Retention of a foreign object in a patient after surgery is identified through ICD-9-CM code 998.4 (Foreign body accidentally left during a procedure).

Burden (High Cost/High Volume)—For FY 2006, there were 764 cases reported of Medicare patients who had an object left in during surgery reported as a secondary diagnosis. The average charges for the hospital stay were $61,962. This is a rare event. Therefore, it is not high volume. However, an individual case will likely have high costs, given that the patient will need additional surgery to remove the foreign body. Potential adverse events stemming from foreign body could further raise costs for an individual case.

Prevention guidelines—There are widely accepted and clear guidelines for the prevention of this event. Prevention guidelines for avoiding leaving objects in during surgery are located at the following Web site: http://www.qualityindicators.ahrq.gov/​psi_​download.htm. This event should not occur.

CC—This code is a CC under the current CMS DRGs as well as under the proposed MS-DRGs.

Considerations—There are no significant considerations for this condition. There is a unique ICD-9-CM code and wide agreement on the prevention guidelines. We are proposing to include this condition as one of our initial hospital-acquired conditions. The cases can be clearly identified through an ICD-9-CM. This code is a CC under both the current CMS DRGs and the proposed MS-DRGs. There are clear prevention guidelines. While the cases may not meet the high frequency criterion, they do meet the high-cost criterion. Individual cases can be high cost. We welcome comments on including this condition as one of our initial hospital-acquired conditions.

(d) Serious Preventable Event—Air Embolism

Coding—An air embolism is identified through ICD-9-CM code 999.1 (Complications of medical care, NOS, air embolism).

Burden (High Cost/High Volume)—This event is rare. For FY 2006, there were 45 reported cases of air embolism for Medicare patients. The average charges for the hospital stay were $66,007.

Prevention guidelines—There are clear prevention guidelines for air embolisms. This event should not occur. Serious preventable event guidelines can be found at the following Web site: http://www.qualityindicators.ahrq.gov/​psi_​download.htm.

CC—This code is a CC under the current CMS DRGs and is an MCC under the proposed MS-DRGs.

Considerations—There are no significant considerations for this condition. There is a unique ICD-9-CM code and wide agreement on the prevention guidelines. In addition, as stated earlier, the condition is a CC under the current CMS DRGs and an MCC under the proposed MS-DRGs. While the condition is rare, it does meet the cost burden criterion because individual cases can be expensive. Therefore, air embolism is a high-cost condition because average charges per case are high. We welcome comments on the proposal to include this condition. Start Printed Page 24721

(e) Serious Preventable Event—Blood Incompatibility

Coding—Delivering ABO-incompatible blood or blood products is identified by ICM-9-CM code 999.6 (Complications of medical care, NOS, ABO incompatibility reaction).

Burden (High Cost/High Volume)—This event is rare. Therefore, it is not high volume. For FY 2006, there were 33 reported cases of blood incompatibility among Medicare patients, with average charges of $46,492 for the hospital stay. Therefore, individual cases have high costs.

Prevention guidelines—There are prevention guidelines for avoiding the delivery of incompatible blood or blood products. The event should not occur. Serious preventable event guidelines can be found at the following Web site: http://www.qualityindicators.ahrq.gov/​psi_​download.htm

CC—This code is a CC under the current CMS DRGs as well as the proposed MS-DRGs.

Considerations—There are no significant considerations for this condition. There is a unique ICD-9-CM code which is classified as a CC under the CMS DRGs as well as the proposed MS-DRGs. There is wide agreement on the prevention guidelines. While this may not be a high-volume condition, average charges per case are high. Therefore, we believe this condition is a high-cost condition and, therefore, meets our burden criterion. We are proposing to include this condition as one of our initial hospital-acquired conditions.

(f) Staphylococcus Aureus Bloodstream Infection/Septicemia

Coding—ICD-9-CM Code 038.11 (Staphylococcus aureus septicemia) identifies this condition. However, the codes selected to identify septicemia are somewhat complex. The following ICD-9-CM codes may also be reported to identify septicemia:

  • 995.91 (Sepsis) and 995.92 ( Severe sepsis). These codes are reported as secondary codes and further define cases with septicemia.
  • 998.59 (Other postoperative infections). This code includes septicemia that develops postoperatively.
  • 999.3 (Other infection). This code includes but is not limited to sepsis/septicemia resulting from infusion, injection, transfusion, vaccination (ventilator-associated pneumonia also included here).

Burden (High Cost/High Volume)—CDC reports that there are 290,000 cases of staphylococcus aureus infection annually in hospitalized patients of which approximately 25 percent are bloodstream infections or sepsis. For FY 2006, there were 29,500 cases of Medicare patients who had staphylococcus aureus infection reported as a secondary diagnosis. The average charges for the hospital stay were $82,678. Inpatient staphylococcus aureus result in an estimated 2.7 million days in excess length of stay, $9.5 billion in excess charges, and approximately 12,000 inpatient deaths per year.

Prevention guidelines—CDC guidelines are located at the following Web site: http://www.cdc.gov/​ncidod/​dhqp/​gl_​intravascular.html.

CC—Codes 038.11, 995.91, 998.59, and 999.3 are classified as CCs under the current CMS DRGs and as MCCs under the proposed MS-DRGs.

Considerations—Preventive health care associated bloodstream infections/septicemia that are preventable are primarily those that are related to a central venous/vascular catheter, a surgical procedure (postoperative sepsis) or those that are secondary to another preventable infection (for example, sepsis due to catheter-associated urinary tract infection). Otherwise, physicians and other public health experts may argue whether septicemia is reasonably preventable. The septicemia may not be simply a hospital-acquired infection. It may simply be a progression of an infection that occurred prior to admission. Furthermore, physicians cannot always tell whether the condition was hospital-acquired. We examined whether it might be better to limit the septicemia cases to a specific organism (for example, code 038.11 (Staphylococcus aureus septicemia)). CDC staff recommended that we focus on staphylococcus aureus septicemia because this condition is a significant public health issue. As stated earlier, there is a specific code for staphylococcus aureus septicemia, code 038.11. Therefore, the cases would be easy to identify. However, as stated earlier, while this type of septicemia is identified through code 038.11, coders may also provide sepsis code 995.91 or 995.92 to more fully describe the staphylococcus aureus septicemia. Codes 995.91 and 995.92 are reported as secondary codes and further define cases with septicemia. Codes 995.91 and 995.92 are CCs under the current CMS DRGs and MCCs under the proposed MS-DRGs.

  • 998.59 (Other postoperative infections). This code includes septicemia that develops postoperatively.
  • 999.3 (Other infection). This code includes but is not limited to sepsis/septicemia resulting from infusion, injection, transfusion, vaccination (ventilator-associated pneumonia also indexed here).

To implement this condition as one of our initial ones, we would have to exclude the specific code for staphylococcus aureus septicemia, 038.11, and the additional septicemia codes, 995.91, 995.92, 998.59, and 999.3.

We acknowledge that there are additional issues involved with the selection of this condition that may involve developing an exclusion list of conditions present on admission for which we would not apply a CC exclusion to staphylococcus aureus septicemia. For example, a patient may come into the hospital with a staphylococcus aureus infection such as pneumonia. The pneumonia might develop into staphylococcus aureus septicemia during the admission. It may be appropriate to consider excluding cases such as those of patients admitted with staphylococcus aureus pneumonia that subsequently develop staphylococcus aureus septicemia from the provision. In order to exclude cases that did not have a staphylococcus aureus infection prior to admission, we would have to develop a list of specific codes that identified all types of staphylococcus aureus infections such as code 482.41 (Pneumonia due to staphylococcus aureus). We likely would not apply the new provision to cases of staphylococcus aureus septicemia if a patient were admitted with staphylococcus aureus pneumonia. However, if the patient had other types of infections, not classified as being staphylococcus aureus, and then developed staphylococcus aureus septicemia during the admission, we would apply the provision and exclude the staphylococcus aureus septicemia as a CC. We were not able to identify any other specific ICD-9-CM codes that identify specific infections as being due to staphylococcus aureus.

Other types of infections, such as urinary tract infections, would require the reporting of an additional code, 041.11 (Staphylococcus aureus), to identify the staphylococcus aureus infection. This additional coding presents administrative issues, because it will not always be clear which condition code 041.11 (Staphylococcus aureus) is describing. We do not believe it would be appropriate to make code 041.11, in combination with other codes, subject to the hospital-acquired conditions provision until we better understand how to address the Start Printed Page 24722administrative issues that would be associated with their selection. Therefore, we would exclude staphylococcus aureus septicemia cases with code 482.41 reported as being subject to the hospital-acquired conditions provision. Stated conversely, we would allow staphylococcus aureus septicemia to count as a CC if the patient was admitted with staphylococcus aureus pneumonia.

We recognize that there may be other conditions which we should consider for this type of exclusion. We are proposing to include staphylococcus aureus bloodstream infection/septicemia (code 038.11) as one of our initial hospital-acquired conditions. We would also exclude codes 995.91, 998.59, and 999.3 from counting as an MCC/CC when they are reported with code 038.11. The condition can be clearly identified through ICD-9-CM codes that are classified as CC under the current CMS DRGs and MCCs under the proposed MS-DRGs. The condition meets our burden criterion by being both high cost and high volume. There are prevention guidelines which we acknowledge are subject to some debate among the medical community. We also acknowledge that we would have to exclude this condition if a patient were admitted with a staphylococcus aureus infection of a more limited location, such as pneumonia. We encourage commenters to make suggestions on this issue and to recommend any other appropriate exclusion for staphylococcus aureus septicemia. We encourage comments on the appropriateness of selecting staphylococcus aureus septicemia as one of our proposed initial hospital-acquired conditions.

(g) Ventilator Associated Pneumonia (VAP) and Other Types of Pneumonia Coding “ Pneumonia is identified through the following codes:

  • 073.0 (Ornithosis with pneumonia)
  • 112.4 (Candidiasis of lung)
  • 136.3 (Pneumocystosis)
  • 480.0 (Pneumonia due to adenovirus)
  • 480.1 (Pneumonia due to respiratory syncytial virus)
  • 480.2 (Pneumonia due to parainfluenza virus)
  • 480.3 (Pneumonia due to SARS-associated coronavirus)
  • 480.8 (Pneumonia due to other virus not elsewhere classified)
  • 480.9 (Viral pneumonia, unspecified)
  • 481 (Pneumococcal pneumonia [Streptococcus pneumoniae pneumonia])
  • 482.0 (Pneumonia due to Klebsiella pneumoniae)
  • 482.1 (Pneumonia due to Pseudomonas)
  • 482.2 (Pneumonia due to Hemophilus influenzae [H. influenzae])
  • 482.30 (Pneumonia due to Streptococcus, unspecified)
  • 482.31 (Pneumonia due to Streptococcus, Group A)
  • 482.32 (Pneumonia due to Streptococcus, Group B)
  • 482.39 (Pneumonia due to other Streptococcus)
  • 482.40 (Pneumonia due to Staphylococcus, unspecified)
  • 482.41 (Pneumonia due to Staphylococcus aureus)
  • 482.49 (Other Staphylococcus pneumonia)
  • 482.81 (Pneumonia due to Anaerobes)
  • 482.82 (Pneumonia due to Escherichia coli [E. coli])
  • 482.83 (Pneumonia due to other gram-negative bacteria)
  • 482.84 (Pneumonia due to Legionnaires' disease)
  • 482.89 (Pneumonia due to other specified bacteria)
  • 482.9 (Bacterial pneumonia unspecified)
  • 483.0 (Pneumonia due to Mycoplasma pneumoniae)

There is not a unique code that identifies ventilator associated pneumonia. The creation of a code for ventilator associated pneumonia was discussed at the September 29, 2006 meeting of the ICD-9-CM Coordination and Maintenance Committee meeting. Many issues and concerns were raised at the meeting concerning the creation of this proposed new code. It has been difficult to define ventilator-associated pneumonia. We plan to continue working closely with the CDC to develop a code that can accurately describe this condition for implementation in FY 2009. CDC will address the creation of a unique code for this condition at the September 28-29, 2007 ICD-9-CM Coordination and Maintenance Committee meeting.

While we list 27 pneumonia codes above, our clinical advisors do not believe that all of the codes mentioned could possibly be associated with ventilator-associated pneumonia. Our clinical advisors specifically question whether the following codes would ever represent cases of ventilator-associated pneumonia: 073.0, 480.0, 480.1, 480.2, 480.3, 480.8, 480.9, and 483.0. Therefore, we have a range of pneumonia codes, all of which may not represent cases that could involve ventilator-associated pneumonia. In addition, we do not have a specific code that uniquely identifies cases of ventilator-associated pneumonia.

Burden (High Cost/High Volume)—CDC reports that there are 250,205 ventilator-associated pneumonias per year. Because there is not a unique ICD-9-CM code for ventilator-associated pneumonia, there is not accurate data for FY 2006 on the number of Medicare patients who had this condition as a secondary diagnosis. However, we did examine data for FY 2006 on the number of Medicare patients who listed pneumonia as a secondary diagnosis. There were 92,586 cases with a secondary diagnosis of pneumonia, with average charges of $88,781. According to the journal Critical Care Medicine, patients with ventilator-associated pneumonia have statistically significantly longer intensive care lengths of stay (mean = 6.10 days) than those who do not (mean = 5.32-6.87 days). In addition, patients who develop ventilator-associated pneumonia incur, on average, greater than or equal to $10,019 in additional hospital costs compared to those who do not.[13] Therefore, we believe that this is a high-volume condition.

Prevention guidelines—Prevention guidelines are located at the following Web site: http://www.cdc.gov/​ncidod/​dhqp/​ gl_hcpneumonia.html. However, it is not clear how effective these guidelines are in preventing pneumonia. Ventilator-associated pneumonia may be particularly difficult to prevent.

CC—All of the pneumonia codes listed above are CCs under the current CMS DRGs and under the proposed MS-DRGs, except for the following pneumonia codes which are non-CCs: 073.0, 480.0, 480.1, 480.2, 480.3, 480.8, 480.9, 483.0. However, as mentioned earlier, there is not a unique ICD-9-CM code for ventilator-associated pneumonia. Therefore, this condition does not currently meet the statutory criteria for being selected.

Considerations—Hospital-acquired pneumonias, and specifically ventilator associated pneumonias, are an important problem. However, based on our work with the medical community to develop specific codes for this condition, we have learned that it is difficult to define what constitutes ventilator associated pneumonia. Although prevention guidelines exist, it is not clear how effective these are in preventing pneumonia. Clinicians cannot always tell which pneumonias are acquired in a hospital. In addition, Start Printed Page 24723as mentioned above, there is not a unique code that identifies ventilator-associated pneumonia. There are a number of codes that capture a range of pneumonia cases. It is not possible to specifically identify if these pneumonia cases are ventilator-associated or arose from other sources. Because we cannot identify cases with ventilator-associated pneumonia and there are questions about its preventability, we are not proposing to select this condition as one of our initial hospital-acquired conditions. However, we welcome public comments on how to create an ICD-9-CM code that identifies ventilator-associated pneumonia, and we encourage participation in our September 28-29, 2007 ICD-9-CM Coordination and Maintenance Committee meeting where this issue will be discussed. We will reevaluate the selection of this condition in FY 2009.

(h) Vascular Catheter-Associated Infections

Coding—The code used to identify vascular catheter associated infections is ICD-9-CM code 996.62 (Infection due to other vascular device, implant, and graft). This code includes infections associated with all vascular devices, implants, and grafts. It does not uniquely identify a vascular catheter associated infections. Therefore, there is not a unique ICD-9-CM code for this infection. CDC and CMS staff requested that the ICD-9-CM Coordination and Maintenance Committee discuss the creation of a unique ICD-9-CM code for vascular catheter associated infections because the issue is important for public health. The proposal to create a new ICD-9-CM was discussed at the March 22-23, 2007 meeting of the ICD-9-CM Coordination and Maintenance Committee. A summary of this meeting can be found at: http://www.cdc.gov/​nchs/​icd9.htm. Coders would also assign an additional code for the infection such as septicemia. Therefore, a list of specific infection codes would have to be developed to go along with code 996.62. If the vascular catheter associated infection was hospital-acquired, the DRG logic would have to be modified so that neither the code for the vascular catheter associated infection along with the specific infection code would count as a CC.

Burden (High Cost/High Volume)—CDC reports that there are 248,678 central line associated bloodstream infections per year. It appears to be both high cost and high volume. However, we were not able to identify Medicare data on these cases because there is no existing unique ICD-9-CM code.

Prevention guidelines—CDC guidelines are located at the following Web site: http://www.cdc.gov/​ncidod/​dhqp/​gl_​intravascular.html.

CC—Code 996.62 is a CC under the current CMS DRGs and the proposed MS-DRGs. However, as stated earlier, this code is broader than vascular catheter-associated infections. Therefore, there is not a unique ICD-9-CM code to identify the condition at this time, and it does not currently meet the statutory criteria to be selected. However, as indicated above, we will be creating a code(s) to identify this condition and may select it as a condition under the provision beginning in FY 2009.

Considerations—There is not yet a unique ICD-9-CM code to capture this condition. If one is implemented on October 1, 2007, we would be able to specifically identify these cases. Some patients require long-term indwelling catheters, which are more prone to infections. Ideally catheters should be changed at certain time intervals. However, circumstances might prevent such practice (for example, the patient has a bleeding diathesis). In addition, a patient may acquire an infection from another source which can colonize the catheter. As mentioned earlier, coders would also assign an additional code for the infection, such as septicemia. Therefore, a list of specific infection codes would have to be developed to go along with code 996.62. If the vascular catheter-associated infection was hospital-acquired, the DRG logic would have to be modified so that neither the code for the vascular catheter-associated infection along with the specific infection code would count as a CC. Without a specific code for infections due to a catheter, it would be difficult to identify these patients. Given the current lack of an ICD-9-CM code for this condition, we are not proposing to include it as one of our initial hospital-acquired conditions at this time. However, we believe it shows merit for inclusion in future lists of hospital-acquired conditions once we have resolved the coding issues and are able to better identify the condition in the Medicare data. We will reevaluate the selection of this condition in FY 2009.

We encourage comments on this condition which was identified as an important public health issue by several organizations that provided recommendations on hospital-acquired conditions. We are particularly interested in receiving comments on how we should handle additional associated infections that might develop along with the vascular catheter-associated infection.

(i) Clostridium Difficile-Associated Disease (CDAD)

Coding—This condition is identified by ICD-9-CM code 008.45 (Clostridium difficile).

Burden (High Cost/High Volume)—CDC reports that there are 178,000 cases per year in U.S. hospitals. For FY 2006, there were 110,761 reported cases of Medicare patients with CDAD as a secondary diagnosis, with average charges for the hospital stay of $52,464. Therefore, this is a high-volume condition.

Prevention guidelines—Prevention guidelines are not available. Therefore, we do not believe this condition can reasonably be prevented through the application of evidence-based guidelines.

CC—Code 008.45 is a CC under the current CMS DRGs and the proposed MS-DRGs.

Considerations—CDAD is an emerging problem with significant public health importance. If found early CDAD cases can easily be treated. However, cases not diagnosed early can be expensive and difficult to treat. CDAD occurs in patients on a variety of antibiotic regiments, many of which are unavoidable, and therefore preventability is an issue. We are not proposing to include CDAD as one of our initial hospital-acquired conditions at this time, given the lack of prevention guidelines. We welcome public comments on CDAD, specifically on its preventability and whether there is potential to develop guidelines to identify it early in the disease process and/or diminish its incidence. We will reevaluate the selection of this condition in FY 2009.

(j) Methicillin-Resistant Staphylococcus Aureus (MRSA)

Coding—MRSA is identified by ICD-9-CM code V09.0 (Infection with microorganisms resistant to penicillins). One would also assign a code(s) to describe the exact nature of the infection.

Burden (High Cost/High Volume)—For FY 2006, there were 95,103 reported cases of Medicare patients who had MRSA as a secondary diagnosis. The average charges for these cases were $31,088. This condition is a high-cost and high-volume infection. MRSA has become a very common bacteria occurring both in and outside of the hospital environment.

Prevention guidelines—CDC guidelines are located at the following Web site: http://www.cdc.gov/​ncidod/​dhqp/​pdf/​ar/​mdroGuideline2006.pdf.

CC—Code V09.0 is not a CC under the current CMS DRGs and the proposed Start Printed Page 24724MS-DRGs. The specific infection would be identified in a code describing the exact nature of the infection, which may be a CC.

Considerations—As stated earlier, preventability may be hard to ascertain since the bacteria has become so common both inside and outside the hospital. There are also considerations in identifying MRSA infections because hospitals would report the code for MRSA along with additional codes that would describe the exact nature of the infection. We would have to develop a list of specific infections that could be the result of MRSA. We are not proposing to include MRSA as one of our initial hospital-acquired conditions because the condition is not a CC. We recognize that associated conditions may be a CC. We welcome comments on the proposal not to include this condition. Should there be support for including this condition, we request recommendations on what codes might be selected to identify the specific types of infections associated with MRSA.

(k) Surgical Site Infections

Coding—Surgical site infections are identified by ICD-9-CM code 998.59 (Other postoperative infection). The code does not tell the exact location or nature of the postoperative wound infection. The code includes wound infections and additional types of postoperative infections such as septicemia. The coding guidelines instruct the coder to add an additional code to identify the type of infection. To implement this condition we would have to remove both code 998.59 and the specific infection from counting as a CC if they occurred after the admission. We would have to develop an extensive list of possible infections that would be subject to the provision. We may also need to recommend the creation of a series of new ICD-9-CM codes to identify various types of surgical site infections, should this condition merit inclusion among those that are subject to the proposed hospital-acquired conditions provision.

Burden (High Cost/High Volume)—CDC reports that there are 290,485 surgical sites infections each year. As stated earlier, there is not a unique code for surgical site infection. Therefore, we examined Medicare data on patients with any type of postoperative infection. For FY 2006, there were 38,763 reported cases of Medicare patients who had a postoperative infection. These patients had average charges for the hospital stay of $79,504. We are unable to determine how many of these patients had surgical site infections.

Prevention guidelines—CDC guidelines are available at the following Web site: http://www.cdc.gov/​ncidod/​dhqp/​gl_​surgicalsite.html

CC—Code 998.59 is a CC under the current CMS DRGs and the proposed MS-DRGs.

Considerations—As mentioned earlier, code 998.59 is not exclusive to surgical site infections. It includes other types of postoperative infections. Therefore, code 998.59 does not currently meet the statutory criteria for being subject to the provision because it does not uniquely identify surgical site infections. To identify surgical site infections, we would need new codes that provide more detail about the type of postoperative infection as well as the site of the infection. In addition, one would report both code 998.59 as well a more specific code for the specific type of infection, making implementation difficult. While there are prevention guidelines, it is not always possible to identify the specific types of surgical infections that are preventable. Therefore, we are not proposing to select surgical site infections as one of our proposed hospital-acquired conditions at this time. However, we welcome public comments on whether we can develop criteria and codes to identify preventable surgical site infections that would assist us in reducing their incidence. We are exploring ways to identify surgical site infections and will reevaluate this condition in FY 2009.

(l) Serious Preventable Event—Surgery on Wrong Body Part, Patient, or Wrong Surgery

Coding—Surgery performed on the wrong body part, wrong patient, or the wrong surgery would be identified by ICD-9-CM code E876.5 (Performance of inappropriate operation). This diagnosis code does not specifically identify which of these events has occurred.

Burden (High Cost/High Volume)—As stated earlier, there are not unique ICD-9-CM codes which capture surgery performed on the wrong body part or the wrong patient, or the wrong surgery. Therefore, we examined Medicare data on the code for performance of an inappropriate operation. For FY 2006, there was one Medicare case reported with this code, and the patient had average charges for the hospital stay of $24,962. This event is rare. Therefore, it is not high volume. Individual cases could have high costs. However, we were unable to determine the impact with our limited data.

Prevention guidelines—There are prevention guidelines for performing the correct surgery on the correct patient or correct patient's body part. This event should not occur.

CC—This code is not a CC under the current CMS DRGs and the proposed MS-DRGs. Therefore, it does not meet the criteria for selection under section 1886(d)(4)(D)(iv) of the Act. However, Medicare does not pay for performing surgery on the wrong body part or patient, or performing the wrong surgery. These services are not considered to be reasonable and necessary and are excluded from Medicare coverage.

Considerations—There are significant considerations for the selection of this condition. There is not a unique ICD-9-CM code that would describe the nature of the inappropriate operation. All types of inappropriate operations are included in code E876.5. Unlike other conditions, performance of an inappropriate operation is not a complication of a prior medical event that was medically necessary. Rather, in this case, there was a needed intervention but it was done to either the wrong body part or the wrong patient, or was not the correct operation. Thus, a service was completed that was not reasonable and necessary and Medicare does not pay for any inpatient service associated with the wrong surgery. It is not necessary for us to select this condition because Medicare does not pay for it under any circumstances.

(m) Falls

Coding—There is no single code that shows that a patient has suffered a fall in the hospital. Codes would be assigned to identify the nature of any resulting injury from the fall such as a fracture, contusion, concussion, etc. There is a code to indicate that a patient fell from bed, code E884.4 (Fall from bed). One would then assign a code that identifies the external cause of the injury (the fall from the bed) and an additional code(s) for any resulting injury (a fractured bone).

Burden (High Cost/High Volume)—As stated earlier, there is not a code to capture all types of falls. Therefore, we examined Medicare data on the number of Medicare beneficiaries who fell out of bed. For FY 2006, there were 2,591 cases reported of Medicare patients who fell out of bed. These patients had average charges of the hospital stay of $24,962. However, depending on the nature of the injury, costs may vary in specific cases.

Prevention guidelines—Falls may or may not be preventable. Serious preventable event guidelines can be found at the following Web site: http://www.qualityindicators.ahrq.gov/​psi_​download.htm Start Printed Page 24725

CC—Code E884.4 is not a CC under the current CMS DRGs or the proposed MS-DRGs.

Considerations—There are not clear codes that identify all types of falls. Hospitals would also have to use additional codes for fractures and other injuries that result from the fall. In addition, depending on the circumstances, the falls may or may not be preventable. We are not proposing the inclusion of falls as one of our initial hospital-acquired conditions at this time because we can only identify a limited number of these cases, and they are not classified as a CC. However, we welcome public comments on how to develop codes or coding logic that would allow us to identify injuries that result from falls in the hospital so that Medicare would not recognize the higher costs associated with treating patients who acquire these conditions in the hospital. We will reevaluate this condition in FY 2009.

The following table summarizes whether or not the potential conditions meet our criteria and if there are significant considerations with selecting the particular condition. As mentioned earlier, we have listed these conditions in the priority order according to how well they meet the statutory criteria. As discussed earlier, we are proposing to select the first six conditions (catheter associated urinary tract infections through Staphylococcus aureus septicemia) as our initial hospital-acquired conditions. We would not include the last seven conditions (ventilator-associated pneumonia through falls) as initial hospital-acquired conditions. We welcome comments on how appropriately we have evaluated and proposed the selection of the first six conditions. We also encourage specific comments on any additional conditions we should select for October 1, 2008 implementation. We request commenters to include a rationale for selecting any suggested additional conditions, as well as an analysis of why each suggested additional condition meets the criteria under section 1886(d)(4)(D)(iv) of the Act and whether there would be coding issues or other considerations associated with selecting each condition.

Proposed Hospital-Acquired Conditions and Criteria

Proposed hospital-acquired conditionCoding—unique code?Burden—high cost and/or high volume?Prevention guidelines?CC?Considerations?
1. Catheter associated urinary tract infectionsYesYesYesYesMinimal—additional infection codes.
2. Pressure ulcers (Decubitus ulcers)YesYesYesYesNo.
3. Serious preventable event—Object left in surgeryYesYes—high cost in specific circumstancesYesYesNo.
4. Serious preventable event—air embolismYesYes—high cost in specific circumstancesYesYesNo .
5. Serious preventable event—Blood incompatibilityYesYes—high cost in specific circumstancesYesYesNo.
6. Staphylococcus aureus septicemiaYes—multiple codes reportedYesYesYesMultiple codes.
7. Ventilator associated pneumonia (VAP)/Pneumonia/No VAP code, multiple pneumonia codesYesYesNo—no unique codesPreventability issues. VAPs—identification issues.
8. Vascular catheter associated infectionsNoYesYesYes—but code is too broadPreventability issues.
9. Clostridium difficile-associated disease (CDAD)YesYesNoYesPreventability issues.
10. Methicillin-resistant staphylococcus aureus (MRSA)YesYesYesNoPreventability issues.
11. Surgical site infectionsNoYesYesYes—but code is too broadCannot identify.
12. Serious preventable event—Wrong surgeryYesYes—high cost in specific circumstancesYesNoNot a CC.
13. FallsNo—not for all types of fallsYes—high cost in specific circumstancesNo—for all types of fallsNoCannot identify.

As stated earlier, we are soliciting comments on the six conditions we proposed to include among the initial hospital-acquired conditions. We welcome any comments on the clinical aspects of the conditions and on which conditions should be selected for implementation on October 1, 2008. We also solicit comments on any problematic issues for specific conditions that may support not selecting them as one of the initial conditions. We encourage comments on how some of the administrative problems can be overcome if there is support for a particular condition.

7. Other Issues

Under section 1886(d)(4)(D)(vi) of the Act, “[a]ny change resulting from the application of this subparagraph shall not be taken into account in adjusting the weighting factors under subparagraph (C)(i) or in applying budget neutrality under subparagraph (C)(iii).” Subparagraph (C)(i) refers to DRG classifications and relative weights. Therefore, the statute requires the Secretary to continue counting the conditions selected under section 5001(c) of the DRA as MCCs or CCs when updating the relative weights annually. Thus, the higher costs Start Printed Page 24726associated with a case with a hospital-acquired MCC or CC will continue to be assigned to the MCC or CC DRG when calculating the relative weight but payment will not be made to the hospital at one of these higher-paying DRGs. Further, subparagraph (C)(iii) refers to the budget neutrality calculations that are done so aggregate payments do not increase as a result of changes to DRG classifications and relative weights. Again, the higher costs associated with the cases that have a hospital-acquired MCC or CC will be included in the budget neutrality calculation but Medicare will make a lower payment to the hospital for the specific case that include an MCC or CC. Thus, to the extent that the provision applies and cases with an MCC or CC are assigned to a lower-paying DRG, section 5001(c) of the DRA will result in cost savings to the Medicare program. We note that the provision will only apply when the selected conditions are the only MCCs and CCs present on the claim. Therefore, if a nonselected MCC or CC is on the claim, the case will continue to be assigned to the higher paying MCC or CC DRG, and there will be no savings to Medicare from the case. We believe the provision will apply in a small minority of cases because it is rare that one of the selected conditions will be the only MCC or CC present on the claim. We provide our estimate of the savings associated with this provision in the impact section of this proposed rule.

G. Proposed Changes to Specific DRG Classifications

1. Pre-MDC: Intestinal Transplantation

(If you choose to comment on issues in this section, please include the caption “DRGs: Intestinal Transplantation” at the beginning of your comment.)

In the FY 2005 IPPS final rule (69 FR 48976), we reassigned intestinal transplant cases from CMS DRG 148 (Major Small and Large Bowel Procedures with CC) and CMS DRG 149 (Major Small and Large Bowel Procedures without CC) to CMS DRG 480 (Liver Transplant and/or Intestinal Transplantation). In the FY 2006 IPPS final rule (70 FR 47286), we continued to evaluate these cases to see if a further DRG change was warranted. While we found that intestinal only transplants and combination liver-intestine transplants have higher average charges than other cases in CMS DRG 480, these cases are extremely rare (there were only 4 cases in FY 2004) and the insufficient number of cases does not warrant creating a separate DRG.

For FY 2008, we examined the September 2006 update of the FY 2006 MedPAR file and found 1,208 cases assigned to CMS DRG 480. In the proposed MS-DRGs described in section II.C. of the preamble of this proposed rule, we are proposing to split CMS DRG 480 into two severity levels: proposed MS-DRG 005 (Liver Transplant and/or Intestinal Transplant with MCC) and proposed MS-DRG 006 (Liver Transplant and/or Intestinal Transplant without MCC). The following table displays our results:

Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 006—All cases44610.05$129,519
MS-DRG 006—Intestinal transplant cases only334354,793
MS-DRG 005—All cases76222.25243,271
MS-DRG 005—Intestinal transplant cases only940.22460,089
MS-DRG 005—Intestinal and liver transplant1561,179,425

Under the proposed MS-DRGs, 10 of 13 intestinal transplant cases are assigned to proposed MS-DRG 005 based on the secondary diagnosis of the patient. The three remaining intestinal transplant cases do not have an MCC and would have been assigned to proposed MS-DRG 006, absent further changes to the DRG logic. These three intestinal transplants have average charges of approximately $354,793 and an average length of stay of 34 days. Average charges and length of stay for these three cases are more comparable to the average charges of approximately $243,271 and average length of stay of 40.22 days for all cases assigned to proposed MS-DRG 005. For this reason, we are proposing to move all intestinal transplant cases to proposed MS-DRG 005. As part of this proposal, we would redefine proposed MS-DRG 005 as “Liver Transplant with MCC or Intestinal Transplant.” The presence of a liver transplant with MCC or an intestinal transplant would assign a case to the higher severity level. Proposed MS-DRG would also be redefined as “Liver Transplant without MCC.”

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

a. Implantable Neurostimulators

(If you choose to comment on issues in this section, please include the caption “DRGs: Neurostimulators” at the beginning of your comment.)

We received a joint request from three manufacturers to review the DRG assignment for cases involving neurostimulators. The commenters are concerned that:

  • Neurostimulator cases may be assigned to 30 different DRGs in 12 different MDCs depending upon the patient's principal diagnosis.
  • Neurostimulator cases represent a small proportion of the total cases in their assigned DRG and have higher costs.
  • The 11 new ICD-9-CM codes created beginning in FY 2007 that identify pain are assigned to MDC 23 (Factors Influencing Health Status and Other Contacts With Health Services) rather than MDC 1 (Diseases and Disorders of the Nervous System). The commenters are concerned that these pain codes will be a common principal diagnosis for patients who receive a neurostimulator and will be assigned to MDC 23, which contains a wide variety of dissimilar diagnoses. The new ICD-9-CM codes are: 338.0 (Central pain syndrome), 338.11 (Acute pain due to trauma), 338.12 (Acute post-thoracotomy pain), 338.18 (Other acute postoperative pain), 338.19 (Other acute pain), 338.21 (Chronic pain due to trauma), 338.22 (Chronic post-thoracotomy pain), 338.28 (Other chronic postoperative pain), 338.29 (Other chronic pain), 338.3 (Neoplasm related pain (acute)(chronic)), and 338.4 (Chronic pain syndrome)

The commenters recommended that we:

  • Reroute all spinal and peripheral neurostimulator cases into a common set of base DRGs. Start Printed Page 24727
  • Reclassify ICD-9-CM pain codes 338.0 through 338.4 currently assigned to MDC 23 into MDC 1 when reported as principal diagnosis.
  • Revise surgical CMS DRGs in MDC 1 based on whether the patient received a major device.
  • Split the single surgical CMS DRG in MDC 19 (Mental Diseases and Disorders) and MDC 23 into two CMS DRGs: one CMS DRG for minor procedures as defined by CMS DRGs 477 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis) and CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis) and one CMS DRG for major procedures.
  • Create a new CMS DRG in MDC 1 for major devices.

The commenters recognize that implementing a re-routing feature in the CMS DRG system would be a major undertaking and, alternatively, suggested reassigning the pain codes to MDC 1 as an interim step. We agree with this suggestion as described further below. With respect to the suggestion to split the single surgical CMS DRG in MDCs 19 and 23 into two CMS DRGs and create a major device CMS DRG within MDC 1, we encourage the commenters to examine the assignment of neurostimulator cases under the MS-DRGs to determine whether the changes we are proposing to adopt to better recognize severity in the CMS DRG system would address these concerns.

The implantation of a neurostimulator requires two types of procedures. First, the surgeons implant leads containing electrodes into the targeted section of the brain, spine, or peripheral nervous system. Second, a neurostimulator pulse generator is implanted into the pectoral region and extensions from the neurostimulator pulse generator are tunneled under the skin and connected with the proximal ends of the leads. Hospitals stage the two procedures required for a full system neurostimulator implant.

There are separate ICD-9-CM procedure codes that identify the implant of the leads and the insertion of the pulse generator. The three codes for the leads insertion are: 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)); 03.93 (Implantation or replacement of spinal neurostimulator lead(s)); and code 04.92 (Implantation or replacement of peripheral neurostimulator lead(s). The five codes for the insertion of the pulse generator 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 rechargeable neurostimulator pulse generator); and 86.98 (Insertion or replacement of dual array rechargeable neurostimulator pulse generator).

The patient's principal diagnosis determines the MDC assignment. Implant of a cranial, spinal or peripheral neurostimulator will result in assignment of the case to a surgical DRG within that MDC. Although the commenters are correct that neurostimulator cases can potentially be assigned to many different CMS DRGs based on the patient's principal diagnosis, they also provided data that showed that nearly 90 percent are assigned to 6 different CMS DRGs that cross two MDCs. In MDC 1, neurostimulator cases are assigned to four CMS DRGs: CMS DRG 7 (Peripheral and Cranial Nerve and Other Nervous System Procedures With CC); CMS DRG 8 (Peripheral and Cranial Nerve and Other Nervous System Procedures Without CC); CMS DRG 531 (Spinal Procedures With CC); and CMS DRG 532 (Spinal Procedures Without CC). In MDC 8 (Disease and Disorders of the Musculoskeletal System and Connective Tissue), neurostimulator cases are assigned to two CMS DRGs: CMS DRG 499 (Back and Neck Procedures Except Spinal Fusion With CC); and CMS DRG 500 (Back and Neck Procedures Except Spinal Fusion Without CC).

With very limited exceptions, such as tracheostomies and certain types of transplants, the principal diagnosis is fundamental to the assignment of a case to an MDC within the DRG system. By relying on the patient's principal diagnosis, the DRG system will group together patients who are clinically similar. For this reason, we are concerned about adopting the suggestion that all neurostimulator cases be rerouted to a common DRG irrespective of the patient's principal diagnosis. We believe such a step would be fundamentally inconsistent with the idea of creating common groups of patients who are clinically similar based on diagnosis and procedures. For this reason, we do not believe that a rerouting step should be adopted that would group together all neurostimulator cases.

However, we do agree with the commenters' suggestion that the new ICD-9-CM codes created in FY 2007 for central and chronic pain syndrome and chronic pain (codes 338.0, 338.21 through 338.29, and 338.4) should be assigned to MDC 1 when present as the principal diagnosis. The commenters requested that we reclassify the pain codes (338.0 through 338.4) from MDC 23 to MDC 1. Our medical consultants advised that the acute pain codes (codes 338.11 through 338.19) should remain in MDC 23 because the acute pain is not a neurological condition. According to the commenters, the National Center for Health Statistics' (NCHS) choice in locating the pain codes within ICD-9-CM's Nervous System chapter has much clinical validity, particularly for chronic pain. The commenters further noted that acute pain is typically self-limited, a symptomatic response to an immediate insult that serves the body as a warning sign. However, chronic pain is unrelenting and serves no warning or protective function. It is a disease process of its own accord, according to the commenters.

The commenters described pain as follows. Broadly, there are two main categories of pain: nociceptive and neuropathic. Nociceptive pain is caused by sensory neurons, called nociceptors, responding to tissue damage. This type of pain is the body's normal response to injury. The pain is usually localized and time-limited. That is, when the tissue damage heals, the pain typically resolves. Acute pain is typically nociceptive. In general, nociceptive pain is typically treated with anti-inflammatories and, in more severe cases, with opioids via a morphine pump for example.

In contrast, neuropathic pain is caused by malfunctioning or pathologically altered nervous pathways stemming from injury to the nervous system, either as a direct result of trauma to a nerve (phantom limb syndrome, reflex sympathetic dystrophy/complex regional pain syndrome after injury) or due to other medical conditions that cause damage to the nerve such as herpes (postherpetic neuralgia), diabetes (diabetic neuropathy), and peripheral vascular disease (critical limb ischemia). Failed back surgery syndrome (FBSS) is another common source of neuropathic pain. Typically, neuropathic pain is chronic and may persist for months or years beyond the healing of damaged tissue. Because the nerves themselves have been damaged, neuropathic pain can be considered its own disease process. Neuropathic pain may be more difficult to treat than nociceptive pain and has been shown to be more responsive to neurostimulation.

The pain codes, created effective October 1, 2006, are currently assigned to MDC 23. The neurostimulator cases with a principal diagnosis using the pain codes were assigned to CMS DRG Start Printed Page 24728461 (O.R. Procedure With Diagnoses of Other Contact With Health Services) for the first time in FY 2007. As explained above, prior to our adoption of the new pain codes in FY 2007, these cases had historically been assigned to CMS DRGs 7 and 8 (Peripheral and Cranial Nerve and Other Nervous System Procedure With and Without CC, respectively) tin MDC 1. Adopting the commenters' recommendation would result in the neurostimulator cases being assigned to their historic CMS DRGs.

Our medical officers agree that cases that use the new pain diagnosis codes for central and chronic pain syndrome and chronic pain (codes 338.0, 338.21 through 338.29, and 338.4) as a principal diagnosis should be assigned to MDC 1. For this reason, we are proposing to assign cases with a principal diagnosis of central pain syndrome (code 338.0), chronic pain due to trauma (code 338.21), chronic post-thoracotomy pain (code 338.22), other chronic postoperative pain (code 338.28), other chronic pain (code 338.29), or chronic pain syndrome (code 338.4) to MDC 1, although we plan to monitor their use and may reassign them if needed.

b. Intracranial Stents

(If you choose to comment on issues in this section, please include the caption “DRGs: Intracranial Stents” at the beginning of your comment.)

Effective October 1, 2004, the ICD-9-CM Coordination and Maintenance Committee created procedure code 00.62 (Percutaneous angioplasty or atherectomy of intracranial vessel(s)). At the same time, we created code 00.65 (Percutaneous insertion of intracranial vascular stent(s)). It is our customary practice to assign new codes to the same DRG as their predecessor codes. Code 00.62 was removed from code 39.50 (Angioplasty or atherectomy of other noncoronary vessel(s)), which is assigned to CMS DRG 533 (Extracranial Procedures with CC) and CMS DRG 534 (Extracranial Procedures Without CC) (proposed MS-DRGs 37, 38, and 39 (Extracranial Procedures With MCC, With CC, and Without CC/MCC, respectively)) when the patient has principal diagnosis in MDC 1. Therefore, we assigned code 00.62 to CMS DRGs 533 and 534 in MDC 1 beginning in FY 2005. In addition, we made code 00.65 a non-O.R. procedure for DRG assignment. We also assigned code 00.62 to the Non-Covered Procedure edit of the MCE, as Medicare had a national noncoverage determination for intracranial angioplasty and atherectomy with stenting.

Effective November 7, 2006, Medicare covers percutaneous transluminal angioplasty (PTA) and stenting of intracranial arteries for the treatment of cerebral artery stenosis in cases in which stenosis is 50 percent or greater in patients with intracranial atherosclerotic disease when furnished in accordance with FDA-approved protocols governing Category B Investigational Device Exemption (IDE) clinical trials. CMS determined that coverage of intracranial PTA and stenting is reasonable and necessary under these circumstances. All other indications for PTA without stenting to treat obstructive lesions of the vertebral and cerebral arteries remain noncovered. This decision can be found online in the CMS Coverage Manual: http://www.cms.hhs.gov/​Manuals/​IOM/​itemdetail.asp at section 20.7.B.5.

A manufacturer recently met with CMS to request that code 00.62 be reassigned to CMS DRGs 1 and 2 (Craniotomy Age > 17 With and Without CC, respectively) (proposed MS-DRGs 37 (Extracranial Procedures With MCC), 38 (Extracranial Procedures With CC), and 39 (Extracranial Procedures Without CC/MCC)) and CMS DRG 543 (Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis) (proposed MS-DRGs 23 and 24 (Craniotomy With Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis With MCC and Without MCC, respectively). The manufacturer noted that other similar endovascular intracranial procedures that treat a cerebrovascular blockage are currently assigned to the craniotomy CMS DRGs. These endovascular-approach cases already assigned to the craniotomy CMS DRGs are identified by procedure codes 39.72 (Endovascular repair or occlusion of head and neck vessels), 39.74 (Endovascular removal of obstruction from head and neck vessel(s)), and 39.79 (Other endovascular repair (of aneurysm) of other vessels). Under the proposed MS-DRGs, we are proposing to assign procedure codes 39.72, 39.74, and 39.79 to MS-DRGs 011 through 013 and MS-DRG 543. Although we are concerned about the assignment of additional endovascular procedures to an open surgical DRG, we agree that there is clinical consistency between procedure codes 39.72, 39.74, and 39.79 and procedure code 00.62. For this reason, we agree that procedure code 00.62 should be assigned to CMS DRGs 1, 2, and 543 (proposed MS-DRGs 37, 38, and 39 and 243 and 24, respectively, that are divided by the presence or absence of specific CCs).

For FY 2008, we are proposing to remove code 00.62 from CMS DRGs 533 and 534 and assign them to proposed MS-DRGs 37, 38, and 39, as well as to proposed MS-DRGs 23 and 24.

In order to assure appropriate DRG assignment as described above, we are proposing to make conforming changes to the MCE by removing code 00.62 from the Non-Covered Procedure edit. However, as intracranial PTA is only covered when performed in conjunction with insertion of a stent, we are proposing to redefine the edit by specifying that code 00.62 must be accompanied by code 00.65 (Percutaneous insertion of intracranial vascular stent(s)). Should code 00.65 not be reported on the claim, the case would fail the MCE edit. For a full discussion of this proposed change, we refer readers to the MCE discussion in section II.F.6. of the preamble of this proposed rule.

Although we are proposing to assign endovascular intracranial procedures to the same DRG as craniotomy, we remain concerned that endovascular intracranial procedures are clinically different than open craniotomy surgical procedures and may have very different resource requirements. At the current time, there are an insufficient number of cases to warrant creation of a separate base DRG for endovascular intracranial procedures. However, we intend to revisit the assignment of intracranial endovascular procedures at a later date when more data are available to analyze these cases.

3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat)—Cochlear Implants

(If you choose to comment on issues in this section, please include the caption “DRGs: Cochlear Implants” at the beginning of your comment.)

Cochlear implants were first covered by Medicare in 1986 and were assigned to CMS DRG 49 (Major Head and Neck Procedures) in MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat). CMS DRG 49 is the highest weighted DRG in that MDC. However, two manufacturers of cochlear implants contend that this DRG assignment is clinically and economically inappropriate and have requested that cochlear implant cases be reassigned from CMS DRG 49 to CMS DRG 543 (Craniotomy With Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis).

The manufacturers stated that procedures assigned to CMS DRG 49 are performed mostly for diseases such as head and neck cancers, while procedures in CMS DRG 543 include Start Printed Page 24729operations on and inside the skull and implantation of complex devices, including intracranial neurostimulators. The manufacturers described the cochlear implant procedure as requiring incisions behind the ear to remove a section of the temporal bone, followed by microscopic neurotologic surgery under general anesthesia, and is typically completed in 2 to 4 hours to restore hearing to the profoundly deaf. For these reasons, these manufacturers believe cochlear implant procedures are similar to open craniotomies.

Based on their analysis of the FY 2005 MedPAR data, the manufacturers identified a total of 139 cochlear implant cases using ICD-9-CM procedure codes 20.96 (Implantation or replacement of cochlear prosthetic device NOS), 20.97 (Implantation or replacement of cochlear prosthetic device, single channel), and 20.98 (Implantation or replacement of cochlear prosthetic device, multiple channel). The manufacturers reported 121 out of 139 cochlear implant cases were assigned to CMS DRG 49 with average standardized charges of approximately $58,078.

When we reviewed the FY 2006 MedPAR data, we identified 104 cochlear implant cases assigned to CMS DRG 49. In the proposed MS-DRGs, CMS DRG 49 is subdivided into two severity levels: Proposed MS-DRG 129 (Major Head and Neck Procedures With CC or MCC) and proposed MS-DRG 130 (Major Head and Neck Procedures Without CC). The following table displays our results:

Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 130—All cases1,0953.04$23,928
MS-DRG 130—Code 20.96 cases only381.6351,740
MS-DRG 130—Code 20.97 only21.5038,855
MS-DRG 130—Code 20.98 only451.2450,219
MS-DRG 129—All cases1,2445.3534,169
MS-DRG 129—Code 20.96 only102.7081,351
MS-DRG 129—Code 20.97 only15.0095,441
MS-DRG 129—Code 20.98 only83.1353.510

Under the proposed MS-DRGs, 19 out of 104 cochlear implant cases are assigned to proposed MS-DRG 129 based on the secondary diagnosis of the patient. The 85 remaining cochlear implant cases do not have a CC or MCC and would be assigned to proposed MS-DRG 130, absent further changes to the DRG logic.

The average charges of approximately $54,238 for cochlear implant cases are higher than the average charges of approximately $29,375 for the other cases in CMS DRG 49. However, the average charges are not as high as the average charges of approximately $78,118 for cases assigned to CMS DRG 543. Further, our medical advisors do not believe that surgery to implant a cochlear implant is clinically similar to an open craniotomy in MDC 1 because typically a craniotomy involves removing and then replacing a section of the skull in order to perform a procedure on or within the brain, whereas a cochlear implant involves drilling a hole in the mastoid bone in order to insert the implant into the inner ear.

We have been unable to address this issue under the current DRGs because there are not enough inpatient cochlear implant cases to warrant creation of a separate DRG. Although these cases will continue to have higher charges than other cases in their assigned DRG, we are proposing to move the cochlear implant cases to the higher DRG severity level within CMS DRG 49. As part of this proposal, we would redefine proposed MS-DRG 129 as “Major Head and Neck Procedures With CC or MCC or Major Device”. The presence of a major head and neck procedure with a CC or MCC or major device would assign the case to the higher severity level within CMS DRG 49.

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

a. Hip and Knee Replacements

(If you choose to comment on issues in this section, please include the caption “DRGs: Hip and Knee Replacements” at the beginning of your comment.)

In the FY 2006 IPPS final rule (70 FR 47303), we deleted DRG 209 (Major Joint and Limb Reattachment Procedures of Lower Extremity) and created two new DRGs: 544 (Major Joint Replacement or Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee Replacement). The two new DRGs were created to identify that revisions of joint replacement procedures are significantly more resource intensive than original hip and knee replacements procedures. DRG 544 includes the following procedure 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

Further, we created a number of new ICD-9-CM procedure codes effective October 1, 2005, that better distinguish the many different types of joint replacement procedures that are currently being performed. In the FY 2006 IPPS final rule (70 FR 47305), we indicated that a commenter had requested that, once we receive claims data using the new procedure codes, we closely examine data from the use of the codes under the two new DRGs to determine if future additional DRG modifications are needed.

Further, the American Association of Hip & Knee Surgeons (AAHKS) recommended that we make further Start Printed Page 24730refinements to the DRGs for knee and hip arthroplasty procedures. AAHKS previously presented data to CMS on the important differences in clinical characteristics and resource utilization between primary and revision total joint arthroplasty procedures. AAHKS stated that CMS' decision to create a separate DRG for revision of total joint arthroplasty (TJA) in October 2005 resulted in more equitable reimbursement for hospitals that perform a disproportionate share of complex revision of TJA procedures, recognizing the higher resource utilization associated with these cases. AAHKS stated that this important payment policy change led to increased access to care for patients with failed total joint arthroplasties, and ensured that high volume TJA centers could continue to provide a high standard of care for these challenging patients.

AAHKS further stated that the addition of new, more descriptive ICD-9-CM diagnosis and procedure codes for TJA in October 2005 gave it the opportunity to further analyze differences in clinical characteristics and resource intensity among TJA patients and procedures. Inclusive of the preparatory work to submit its recommendations, the AAHKS compiled, analyzed, and reviewed detailed clinical and resource utilization data from over 6,000 primary and revision TJA procedure codes from 4 high volume joint arthroplasty centers located within different geographic regions of the United States: University of California, San Francisco, CA; Mayo Clinic, Rochester, MN; Massachusetts General Hospital, Boston, MA; and the Hospital for Special Surgery, New York, NY. Based on its analysis, AAHKS recommended that CMS examine Medicare claims data and consider the creation of separate DRGs for total hip and total knee arthroplasty procedures. DRG 545 currently contains revisions of both hip and knee replacement procedures. AAHKS stated that based on the differences between patient characteristics, procedure characteristics, resource utilization, and procedure code payment rates between total hip and total knee replacements, separate DRGs were warranted. Furthermore, AAHKS recommended that CMS create separate base DRGs for routine versus complex joint revision or replacement procedures as shown below.

Routine Hip Replacements

  • 00.73, Revision of hip replacement, acetabular liner and/or femoral heal only
  • 00.85, Resurfacing hip, total, acetabulum and femoral head
  • 00.86, Resurfacing hip, partial, femoral head
  • 00.87, Resurfacing hip, partial, acetabulum
  • 81.51, Total hip replacement
  • 81.52, Partial hip replacement
  • 81.53, Revision of hip replacement, not otherwise specified

Complex Hip Replacements

  • 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

Routine Knee Replacements and Ankle Procedures

  • 00.83, Revision of knee replacement, patellar component
  • 00.84, Revision of knee replacement, tibial insert (liner)
  • 81.54, Revision of knee replacement, not otherwise specified
  • 81.55, Revision of knee replacement, not otherwise specified
  • 81.56, Total ankle replacement

Complex Knee Replacements and other reattachments

  • 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
  • 84.26, Foot reattachment
  • 84.27, Lower leg or ankle reattachment
  • 84.28, Thigh reattachment

AAHKS also recommended the continuation of DRG 471 (Bilateral or Multiple Major Joint Procedures of Lower Extremity) without modifications. DRG 471 includes any combination of two or more of the following procedure codes:

  • 00.70, Revision of hip replacement, both acetabular and femoral components
  • 00.80, Revision of knee replacement, total (all components)
  • 00.85, Resurfacing hip, total, acetabulum and femoral head
  • 00.86, Resurfacing hip, partial, femoral head
  • 00.87, Resurfacing hip, partial, acetabulum
  • 81.51, Total hip replacement
  • 81.52, Partial hip replacement
  • 81.54, Total knee replacement
  • 81.56, Total ankle replacement

As discussed in section II.C. of the preamble of this proposed rule, we are proposing to adopt MS-DRGs to better recognize severity of illness for FY 2008. The proposed MS-DRGs include two new severity of illness levels under the current base DRG 544. We are also proposing to add three new severity of illness levels to the base DRG for Revision of Hip or Knee Replacement (currently DRG 545). The new MS-DRGs are as follows:

  • Proposed MS-DRG 466 (Revision of Hip or Knee Replacement with MCC)
  • Proposed MS-DRG 467 (Revision of Hip or Knee Replacement with CC)
  • Proposed MS-DRG 468 (Revision of Hip or Knee Replacement without CC)
  • Proposed MS-DRG 483 (Major Joint Replacement or Reattachment of Lower Extremity with CC/MCC)
  • Proposed MS-DRG 484 (Major Joint Replacement or Reattachment of Lower Extremity without CC/MCC)

We found that the proposed MS-DRGs greatly improved our ability to identify joint procedures with higher resource costs. The following table indicates the average charges for each new proposed MS-DRG for the joint procedures.

Proposed MS-DRGs That Replace DRGs 544 and 535 With New Severity Levels

Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 466390,3444.03$33,465.85
MS-DRG 46728,2118.4653,676.09
MS-DRG 46826,7184.0638,720.28
MS-DRG 48310,0786.0648,575.01
MS-DRG 4843,8869.5569,649.08
Start Printed Page 24731

AAHKS analyzed Medicare data under the current DRG system and was unaware of how its analysis would change under the proposed MS-DRGs. Under the current DRGs, the AAHKS recommendation would replace 2 DRGs with 4 new ones. However, under the proposed MS-DRGs, the AAHKS recommendation would result in 5 DRGs becoming 12. Because AAHKS is recommending four new joint replacement DRGs (two for knees and two for hips), each would need to be subdivided into severity levels under our proposed MS-DRG system. Therefore, the four new joint DRGs could be subdivided into three levels each, leading to 12 new DRGs. At this time, we believe that the changes we are proposing to make to adopt the proposed MS-DRGs are sufficiently better for recognizing severity of illness among the hip and knee replacement cases. We do not believe that there would be significant improvements in the proposed MS-DRGs recognition of severity of illness from creating an additional 7 DRGs. However, we acknowledge the valuable assistance the AAHKS has provided to CMS in creating the new joint replacement procedure codes and modifying the joint replacement DRGs beginning in FY 2006. These efforts greatly improved our ability to categorize significantly different groups of patients according to severity of illness. We welcome comments from AAHKS on whether the proposed MS-DRGs recognize patient complexity and severity of illness in the hip and knee replacement DRGs consistent with the concerns it expressed to us in previous comments. We also welcome public comments from others as well on whether the proposed changes to the hip and knee replacement DRGs better recognize severity of illness and complexity of these operations in the Medicare patient population.

b. Spinal Fusions

(If you choose to comment on issues in this section, please include the caption “DRGs: Spinal Procedures” at the beginning of your comment.)

In the FY 2007 final rule (71 FR 47947), we discussed a request that urged CMS to consider applying a severity concept to all of the back and spine surgical cases, similar to the approach that was used in the FY 2006 final rule in refining the cardiac DRGs with an MCV. Specifically, the commenter recommended that the use of spinal devices be uniquely identified within the spine DRGs. The commenter's suggestion involved the development of 10 new spine DRGs as well as additional modifications. One of these modifications included revising DRG 546 (Spinal Fusions Except Cervical with Curvature of the Spine or Malignancy). The commenter stated DRG 546 did not adequately recognize clinical severity or the resource differences among spinal fusion patients whose surgeries include fusing multiple levels of their spinal vertebrae.

We agreed with the commenter that it was important to recognize severity when classifying groups of patients into specific DRGs. In addition, in response to recommendations from MedPAC's March 2005 Report to Congress, we stated that we were conducting a comprehensive analysis of the entire DRG system to determine if we could better identify severity of illness. We further stated that until results from our analysis were available, it would be premature to implement a severity concept for the spine DRGs. Therefore, we did not make any adjustments to those DRGs at that time.

Under the proposed MS-DRGs described in section II.D. of the preamble of this proposed rule, we are proposing a number of refinements that would better recognize severity for FY 2008. The proposed MS-DRGs include several refinements to the spine DRGs. These refinements are described in detail below.

In the FY 2006 IPPS final rule, we noted that there are numerous innovations occurring in spinal surgery such as artificial spinal disc prostheses, kyphoplasty, vertebroplasty and the use of spine decompression devices. As part of our analysis of the DRG system for this proposed rule, we did a comprehensive review of the DRGs for spinal fusion and other back and neck procedures to determine whether additional refinements beyond the proposed MS-DRGs were necessary. We studied data from the FY 2006 MedPAR file for the entire group of spine DRGs. This group included DRG 496 (Combined Anterior/Posterior Spinal Fusion), DRGs 497 and 498 (Spinal Fusion Except Cervical With and Without CC, respectively), DRGs 499 and 500 (Back and Neck Procedures Except Spinal Fusion With and Without CC, respectively), DRGs 519 and 520 (Cervical Spinal Fusion With and Without CC, respectively), and DRG 546 (Spinal Fusion Except Cervical with Curvature of the Spine or Malignancy).

As indicated earlier, we are proposing a two or three-way split for each of these spine DRGs to better recognize severity of illness, complexity of service, and resource utilization. In addition, we examined the procedure codes that identify multiple fusion or refusion of the vertebrae (codes 81.62 through 81.64) to determine if the data supported further refinement when a greater number of vertebrae are fused.

In applying the proposed MS-DRG logic, CMS DRG 497 and 498 were collapsed and the result is a split with two severity levels: proposed MS-DRG 459 (Spinal Fusion Except Cervical With MCC) and proposed MS-DRG 460 (Spinal Fusion Except Cervical Without MCC). There were a total of 51,667 cases in proposed MS-DRGs 459 and 460. We identified 288 cases where nine or more noncervical vertebrae were fused (code 81.64) that currently are assigned to proposed MS-DRGs 459 and 460. The average charges and length of stay for cases in these MS-DRGs are closer to the average charges and length of stay for cases in proposed MS-DRGs 456 through 458 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With MCC, With CC, and Without CC, respectively). For example, in proposed MS-DRG 460, there were 238 cases with an average length of stay of 6.20 days and average charges of $110,908 when nine or more noncervical vertebrae are fused. There are an additional 50 cases where nine or more vertebrae were fused in proposed MS-DRG 459 with average charges of $171,839. Without any further modification to the proposed MS-DRGs, these cases would be assigned to proposed MS-DRGs 459 and 460 that have average charges of $59,698, and $99,298, respectively. The average charges for these cases are more comparable to $142,871, $95,489, and $77,528, respectively, for proposed MS-DRGs 456 through 458. We believe these data support assigning cases where nine or more noncervical vertebrae are fused from proposed MS-DRG 459 and 460 into proposed MS-DRG 456 through 458. The table below represents our findings.

Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 459 (Spinal Fusion Except Cervical With MCC)—All Cases3,18610.10$99,298
Start Printed Page 24732
MS-DRG 459 (Spinal Fusion Except Cervical With MCC)—Cases with Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae)5013.00171.839
MS-DRG 460 (Spinal Fusion Except Cervical Without MCC)—All Cases48,4814.3659,698
MS-DRG 460 (Spinal Fusion Except Cervical Without MCC)—Cases with Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae)2386.20110,908
MS-DRG 456 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With MCC)—All Cases54814.79142,871
MS-DRG 456 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With MCC)—Cases With Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae)6113.34170,655
MS-DRG 457 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With CC)—All Cases1,5008.1495,489
MS-DRG 457 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With CC)—Cases With Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae)1468.88125,722
MS-DRG 458 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy Without CC—All Cases1,3404.5877,528
MS-DRG 458 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy Without CC)—Cases With Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae)816.21123,823

Therefore, we are proposing to move those cases that include fusing or refusing nine or more vertebrae from proposed MS-DRGs 459 and 460 into proposed MS-DRGs 456 through 458. This proposed modification would include revising the MS-DRG title to reflect the fusion of nine or more vertebrae. The revised titles for proposed MS-DRGs 456 through 458 would be as follows:

  • Proposed MS-DRG 456 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions With MCC)
  • Proposed MS-DRG 457 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions With CC)
  • Proposed MS-DRG 458 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions Without CC/MCC)

We invite public comment on this topic as well as on the additional changes we are proposing to the spine MS-DRGs discussed below.

Further analysis demonstrates that spinal fusion cases with a principal diagnosis of tuberculosis or osteomyelitis also have higher average charges than other cases in CMS DRG 497 (proposed MS-DRGs 459 and 460) that are more similar to the cases assigned to CMS DRG 546 (proposed MS-DRGs 456 through 458). Although the volume of cases is relatively low, the data show very high average charges for these patients. The following tables display our results:

Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 459 (Spinal Fusion Except Cervical With MCC)3,18610.10$99,298
MS-DRG 460 (Spinal Fusion Except Cervical Without MCC)48,4814.3659,698
Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 456 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions With MCC)54814.79$142,870
MS-DRG 457 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions With CC)1,5008.1495,489
MS-DRG 458 (Spinal Fusion Except Cervical With Spinal Curvature or Malignancy or 9+ Fusions Without CC/MCC)1,3404.5877,528
Tuberculosis and Osteomyelitis
Principal diagnosisNumber of casesAverage length of stayAverage charges
Codes 015.02, 015.04, 015.05, 730.08, 730.18 and 730.2819424.8$128,073

For this reason, we are proposing to add the following diagnoses to the principal diagnosis list for proposed MS-DRGs 456 through 458:

  • 015.02, Tuberculosis of bones and joints, vertebral column, bacteriological or histological examination unknown (at present)
  • 015.04, Tuberculosis of bones and joints, vertebral column, tubercle bacilli not found (in sputum) by microscopy, but found by bacterial culture
  • 015.05, Tuberculosis of bones and joints, vertebral column, tubercle bacilli not found by bacteriological examination, but tuberculosis confirmed histologically
  • 730.08, Acute osteomyelitis of other specified sites Start Printed Page 24733
  • 730.18, Chronic osteomyelitis of other specified sites
  • 730.28, Unspecified osteomyelitis of other specified sites

For the complete list of principal diagnosis codes that lead to assignment of CMS DRG 546 (proposed MS-DRGs 496 through 498), we refer readers to section II.D.4.b. of the preamble of the FY 2007 IPPS final rule (71 FR 47947).

c. Spinal Disc Devices

Over the past several years, manufacturers of spinal disc devices have requested reassignment of DRGs for their products and applied for new technology add-on payments. CHARITETM is one of these devices. 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 CMS 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 CMS DRG 499 (Back and Neck Procedures Except Spinal Fusion With CC) and CMS DRG 500 (Back and Neck Procedures Except Spinal Fusion Without CC) to the CMS DRGs for spinal fusion, CMS DRG 497 (Spinal Fusion Except Cervical With CC) and CMS DRG 498 (Spinal Fusion Except Cervical Without CC) for procedures on the lumbar spine and to CMS DRGs 519 and 520 for procedures on the cervical spine. In the FY 2005 IPPS final rule (69 FR 48938), we indicated that CMS 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 CMS 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), 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.

We did evaluate whether to reassign the CHARITETM Artificial Disc to different CMS DRGs using the Secretary's authority under section 1886(d)(4) of the Act (70 FR 47308). We indicated that we did not have Medicare charge information to evaluate CMS DRG changes for cases involving an implant of a prosthetic intervertebral disc like the CHARITETM and did not make a change in its CMS DRG assignments. We stated that we would consider whether changes to the CMS 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 CMS 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 CMS DRGs 497 and 498. The commenter asked that we examine claims data for FY 2005 and reassign procedure code 84.65 from CMS DRGs 499 and 500 into CMS 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 CMS DRGs 497 and 498. If CMS were to reject reassignment of the CHARITETM Artificial Disc to CMS 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 CMS DRGs 499 and 500 to CMS 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 on the CMS Web site 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.

We agreed with a commenter on the FY 2007 IPPS proposed rule that it was not appropriate to consider a DRG revision at that time for the CHARITETM Artificial Disc, given the recent decision to limit coverage for surgical procedures involving this device. Although we had reviewed the Medicare charge data, we were concerned that there were a very small number of cases for patients under 60 years of age who had received the CHARITETM Artificial Disc. We believed it appropriate to base the decision of a DRG change on charge data only on the population for which the procedure is covered. We had an extremely small number of cases for Medicare beneficiaries under 60 on which to base such a decision. For this reason, we did not believe it was appropriate to modify the CMS DRGs in FY 2007 for CHARITETM cases.

For FY 2008, we collapsed CMS DRGs 499 and 500 (Back and Neck Procedures Except Spinal Fusion With and Without CC, respectively) and identified a total of 74,989 cases. Under the proposed MS-DRGs, the result of the analysis of the data supports that these CMS DRGs split into two severity levels: proposed MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC or MCC) and proposed MS-DRG 491 (Back and Neck Procedures Except Spinal Fusion Without CC or MCC). We found a total of 53 cases that used the CHARITETM Artificial Disc. Without any further modification to the proposed MS-DRGs, average charges are $26,481 for 6 cases with a CC or MCC and $37,324 for 47 CHARITETM cases Start Printed Page 24734without a CC or MCC. (We find it counterintuitive that average charges for cases in the higher severity level are lower but checked our data and found it to be correct).

We also analyzed data for other spinal disc devices. Average charges for the X Stop Interspinous Process Decompression Device (code 84.58) are $31,400 for cases with a CC or MCC and $28,821 for cases without a CC or MCC. Average charges for other specified spinal devices described by code 84.59 (Coflex, Dynesys, M-Brace) are $34,002 for 18 cases with a CC or MCC and $33,873 for 65 cases without a CC or MCC. We compared these average charges to data in the proposed spinal fusion MS-DRGs 453 (Combined Anterior/Posterior Spinal Fusion With MCC), 454 (Combined Anterior/Posterior Spinal Fusion With CC), 455 (Combined Anterior/Posterior Spinal Fusion Without CC/MCC), 459 (Spinal Fusion Except Cervical With MCC), and 460 (Spinal Fusion Except Cervical Without MCC). These cases have lower average charges than the spinal fusion MS-DRGs. The following tables display the results:

Proposed MS-DRGs 490 and 491Number of casesAverage length of stayAverage charges
MS-DRG 490—All Cases17,4935.13$29,656
MS-DRG 490—Cases with Procedure Code 84.65 (CHARITETM)63.3326,481
MS-DRG 491—All Cases57,4962.2717,789
MS-DRG 491—Cases with Procedure Code 84.65 (CHARITETM)472.4337,324
MS-DRG 491—Cases without Procedure Code 84.65 (CHARITETM)57,4492.2717,773
Proposed MS-DRGs 490 and 491Number of casesAverage length of stayAverage charges
MS-DRG 490—All Cases17,4935.13$29,656
MS-DRG 490—Cases with Procedure Code 84.58 (X Stop)1792.6531,400
MS-DRG 490—Cases without Procedure Code 84.58 (X Stop)17,3145.1529,638
MS-DRG 491—All Cases57,4962.2717,789
MS-DRG 491—Cases with Procedure Code 84.58 (X Stop)1,1741.3428,821
MS-DRG 491—Cases without Procedure Code 84.58 (X-Stop)56,3222.2917,559
Proposed MS-DRGs 490 and 491Number of casesAverage length of stayAverage charges
MS-DRG 490—All Cases17,4935.13$29,656
MS-DRG 490—Cases with Procedure Code 84.59 (Coflex/Dynesys/M-Brace)185.5634,002
MS-DRG 490—Cases without Procedure Code 84.59 (Coflex/Dynesys/M-Brace)17,4755.1329,651
MS-DRG 491—All Cases57,4962.2717,789
MS-DRG 491—Cases with Procedure Code 84.59 (Coflex/Dynesys/M-Brace)652.3533,873
MS-DRG 491—Cases without Procedure Code 84.59 (Coflex/Dynesys/M-Brace)57,4312.2717,770
Proposed MS-DRGs 453, 454, 455, 459 and 460Number of casesAverage length of stayAverage charges
MS-DRG 453—Combined Anterior/Posterior Spinal Fusion With MCC79215.84$180,658
MS-DRG 454—Combined Anterior/Posterior Spinal Fusion With CC1,4118.69116,402
MS-DRG 455—Combined Anterior/Posterior Spinal Fusion Without CC/MCC1,7944.8485,927
MS-DRG 459—Spinal Fusion Except Cervical with MCC3,18610.1099,298
MS-DRG 460—Spinal Fusion Except Cervical Without MCC48,4814.3659,698

The data demonstrate that the average charges for CHARITETM and the other devices are higher than other cases in proposed MS-DRGs 490 and 491 but lower than proposed MS-DRGs 453 through 55 and 459 and 460. For this reason, we do not believe that any of the cases that use these spine devices should be assigned to the spinal fusion MS-DRGs. However, we do believe that the average charges for cases using these spine devices are more similar to the higher severity level in MS-DRG 490.

As such, we are proposing to move cases with procedure codes 84.58, 84.59, and 84.65 into proposed MS-DRG 490 and revise the title to reflect disc devices. The proposed modified MS-DRG title would be: MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC or MCC or Disc Devices).

We believe these proposed changes to the spine DRGs are appropriate to recognize the similar utilization of resources, differences in levels of severity, and complexity of the services performed for various types of spinal procedures described above. We encourage commenters to provide input on this approach to better recognize the types of patients these procedures are being performed upon and their outcomes.

d. Other Spinal DRGs

We did not identify any data to support moving cases in or out of CMS DRGs 496 (Combined Anterior/Posterior Spinal Fusion), 519 (Cervical Spinal Fusion With CC), or 520 (Cervical Spinal Fusion Without CC)). Under the proposed MS-DRG system, CMS DRG 496 would be split into three severity levels: proposed MS-DRG 453 (Combined Anterior/Posterior Spinal Fusion With MCC), proposed MS-DRG 454 (Combined Anterior/Posterior Spinal Fusion With CC), and proposed MS-DRG 455 (Combined Anterior/Posterior Spinal Fusion Without CC). Start Printed Page 24735CMS DRG 519 would also be split into three severity levels: proposed MS-DRG 471 (Cervical Fusion With MCC), proposed MS-DRG 472 (Cervical Fusion With CC), and proposed MS-DRG 473 (Cervical Fusion Without CC). We are not proposing changes to these DRGs at this time.

5. MDC 17 (Myeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasm): Endoscopic Procedures

(If you choose to comment on issues in this section, please include the caption “DRGs: Endoscopy” at the beginning of your comment.)

We received a request from a manufacturer to review the DRG assignment of codes 33.71 (Endoscopic insertion or replacement of bronchial valve(s)), 33.78 (Endoscopic removal of bronchial device(s) or substances), and 33.79 (Endoscopic insertion of other bronchial device or substances) with the intent of moving these three codes out of CMS DRG 412 (History of Malignancy With Endoscopy) (proposed MS-DRGs 843, 844, and 845). The requestor has noted that CMS DRG 412 is titled to be a DRG for cases with a history of malignancy, and none of the three codes (33.71, 33.78, or 33.79) necessarily involve treatment for malignancies. In addition, the requestor believed the integrity of the DRG is compromised because the other endoscopy codes assigned to CMS DRG 412 are all diagnostic in nature, while codes 33.71, 33.78, and 33.79 represent therapeutic procedures.

The requestor also stated that while the diagnostic endoscopies in CMS DRG 412 do not have significant costs for equipment or pharmaceutical agents beyond the basic endoscopy, the therapeutic procedures described by codes 33.71, 33.78, and 33.79 involve substantial costs for devices or substances in relation to the cost of the endoscopic procedure itself. The requestor was concerned that, if these three codes continue to be assigned to CMS DRG 412, payment will be so inadequate as to constitute a substantial barrier to Medicare beneficiaries for these treatments.

ICD-9-CM procedure codes 33.71, 33.78, and 33.79 were all created for use beginning October 1, 2006. As these codes have been in use only for a few months, we have no data to make a different DRG assignment. We assigned these codes based on the advice of our medical officers to a DRG that includes similar clinical procedures.

On the matter of codes 33.71, 33.78, and 33.79 being therapeutic in nature while all other endoscopies assigned to CMS DRG 412 are diagnostic, we disagree with the commenter. CMS DRG 412 includes procedure codes for therapeutic endoscopic destruction of lesions of the bronchus, lung, stomach, anus, and duodenum, as well as codes for polypectomy of the intestine and rectum. In addition, we note that there are codes for insertion of therapeutic devices currently located in this DRG.

We believe it would be premature to assign these codes to another DRG without any supporting data. We will reconsider our decision for these codes if we have data suggesting that a DRG reassignment is warranted. Therefore, aside from the proposed changes to the MS-DRGs, we are not proposing to change the current DRG assignment for codes 33.71, 33.78, and 33.79 at this time.

6. Medicare Code Editor (MCE) Changes

(If you choose to comment on issues in this section, please include the caption “Medicare Code Editor” at the beginning of your comment.)

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 2008, we are proposing to make the following changes to the MCE edits.

a. Non-Covered Procedure Edit: Code 00.62 (Percutaneous angioplasty or atherectomy of intracranial vessel(s))

As discussed in II.G.2. of the preamble of this proposed rule, under MDC 1, code 00.62 is a covered service when performed in conjunction with code 00.65 (Percutaneous insertion of intracranial vascular stent(s)). Effective November 6, 2006, Medicare covers PTA and stenting of intracranial arteries for the treatment of cerebral artery stenosis in cases in which stenosis is 50 percent or greater in patients with intracranial atherosclerotic disease when furnished in accordance with the FDA-approved protocols governing Category B Investigational Device Exemption (IDE) clinical trials. CMS determines that coverage of intracranial PTA and stenting is reasonable and necessary under these circumstances. Therefore, we are proposing to make a conforming change and to add the following language to this edit: Procedure code 00.62 (PTA of intracranial vessel(s)) is identified as a noncovered procedure except when it is accompanied by procedure code 00.65 (Intracranial stent).

b. Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R. Procedures Edit 10

When MCE Non-Specific Principal Diagnosis Edit 7 and Non-Specific O.R. Procedures Edit 10 were created at the beginning of the IPPS, it was with the intent that they were to encourage hospitals to code as specifically as possible. While the codes on both edits are valid according to the ICD-9-CM coding scheme, more precise codes are preferable to give a more complete understanding of the services provided on the Medicare claims. When the MCE was created, we had intended that these specific edits would allow educational contact between the provider and the contractor. It was never the intention that these edits would be used to deny/reject or return-to-provider claims submitted with non-specific codes. However, we found these two edits to be misunderstood, and found that claims were erroneously being denied, rejected, or returned. On November 11, 2006, CMS issued a Joint Signature Memorandum which instructed all fiscal intermediaries and all Part A and Part B Medicare Administrative Contractors (A/B MACs) to deactivate the Fiscal Intermediary Shared System Edits W1436 through W1439 and W1489 through W1491 which edited for Non-Specific Diagnoses and the Non-Specific Procedures.

Therefore, we are proposing to make a conforming change to the MCE by removing the following codes from Edit 7:

0032011091543
0159011291579
0159111491589
0159212791590
015931291609
0159413091619
01596131001629
036913191639
039913291649
052813691709
0531013701719
053813711729
0544013721739
054813731749
055813741769
05600138179
056813901809
0664013911839
0707013981874
0707114091879
072814191889
073814291899
0742014391909
0824014491929
097914691949
0981014791969
0983015091991
Start Printed Page 24736
09950151920490
0999152920491
1009153920590
20591277936910
20690279336911
206912799
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208912880036913
21292885036914
21392886036915
21492895036916
2159323936917
2169324936918
218932636920
21993270036921
22293271036922
22393272036923
22493273036924
22593274036925
227933093693
2280033193694
2299334936960
2306335936961
23193412036962
2329341936963
2349343936964
23690344936965
237703469036966
238753469136967
2390348936968
2391349936969
2392350936970
2393351936971
2394352936972
2396353936973
2397356936974
2398357936975
2399358936976
246935993698
251936093699
2520036193709
252936293719
253936393729
254936493739
2551036593749
256936693759
257936793769
258936893779
2681369003789
27093690137960
2719369023809
2729369033819
2739369043829
27540369053839
2759369063849
27650369073859
27730369083879
38800521406089
3881052196109
38830523206169
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3887052396184
3889524006189
38900524206199
38910524306209
38975245062130
3899524606219
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4179525606279
42650525962920
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428205280064090
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42840530964093
42895364064100
4299537964110
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4579585964270
4599588964290
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4749590964380
4919595964390
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51995996064420
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6009164620
52110601964630
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646606529065820
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647606537065930
647806538065940
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647926539365980
647936540065990
647946541065991
648006542065993
648106543066000
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648306545066020
648406546066030
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648706549066060
648806549166070
648906549266080
649006549366090
649106549466100
649206550066110
649306551066120
649406552066130
649506553066140
649606554066190
651006555066191
651106556066193
651206557066200
651306558066210
651406559066220
651506559166230
651606559366300
651806560066310
651906561066320
651916562066330
651936563066340
652006564066350
652106565066360
652206566066380
652306567066390
652406568066391
652506569066393
652606570066400
652706580066410
652806581066420
66430671107059
66440671207069
664416713070700
664446714070710
66450671507079
66480671807149
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66491671917179
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665006719371850
665106719471870
665206720072230
665306730072270
665406731072280
665506732072290
66560673307239
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66580674007289
665906741073000
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665936744073030
665946745073090
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666106749073092
666206749273093
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667006750073095
667106751073096
668006752073097
668106758073098
668206759073099
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669306769173810
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6699168297459
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66993686974760
6699469497489
67000701974900
67100704974910
750977699009
752977899029
7531077999039
75312780319048
75320780519049
7539780529050
7559780539051
75670780549052
7579780559053
Start Printed Page 24737
7599780579054
7600780589055
7601780799056
760278259057
7603782619058
7604782629059
7605783409060
7606788309061
76070789009062
76072789309063
76073789409064
76074789609065
76079790099066
760879019067
760979049068
761079059069
761179069070
7612790919071
7613790929072
7614790999073
761579299074
7616793809075
7617795009079
761879549080
761979649081
762979699082
763079939083
7631799899084
763279999085
763382909086
76349089
763582919090
763683989091
763783999092
7638384099093
763984199094
7652084399095
767984699099
768984799219
7701084899229
770986789239
7721086799249
7729868009269
7759868109279
9289944049659
9299944059679
9349944069699
9399944079709
94100944089739
94101945009769
94102945019779
94103945029809
94104945039849
94105945049859
94106945059889
94107945069899
94108945099929
9410994609939
94200947999520
94201949099522
94202949199523
94203949299529
94204949399550
94205949499580
94209949599590
94300951999600
94301952999630
94302953999640
94303954999660
94304955999670
94305956999680
94306957999690
943099589099700
94400959999760
9440196099989
944029639
944039649

In addition, we are proposing to make a conforming change to the MCE by removing the following codes from Edit 10:

065037704400
070038004440
076338104500
076938304590
078038404610
263038504620
350038604640
351038804650
352040404660
355040504680
356041005300
357042105310
361042405640
37107550
767078808070
770078908080
772079108090
776079208100
777079308120
778079408130
779079508153
780079608155
781079808400
782079908440
783080008460
784080108469
785080208660
787080408670

c. Limited Coverage Edit 17

Edit 17 in the MCE contains ICD-9-CM procedure codes describing medically complex procedures, including lung volume reduction surgery, organ transplants, and implantable heart assist devices which are to be performed only in certain preapproved medical centers. CMS has established, through a regulation (CMS-3835-F: Medicare Conditions of Participation: Requirements for Approval and Reapproval of Transplant Centers to Perform Organ Transplants, published in the Federal Register on March 30, 2007 (72 FR 15198)), a survey and certification process for organ transplant programs. The organs covered in this regulation are heart, heart and lung combined, intestine, kidney, liver, lung, pancreas, and multivisceral. Historically, kidney transplants have been regulated under the End-Stage Renal Disease (ESRD) conditions for coverage. Other types of organ transplant facilities have been regulated under various NCDs.

The regulation becomes effective on June 28, 2007. Organ transplant programs will have 180 days from the June 28, 2007 effective date of the regulation to apply for participation in the Medicare program under the new survey and certification process. After these programs apply, we will survey and approve programs that meet the new Medicare conditions of participation. Until transplant facilities are surveyed and approved, kidney transplant facilities will continue to be regulated under the ESRD conditions for coverage, and other types of organ transplant facilities will continue to be regulated under the NCDs.

In this proposed rule, we are proposing to add conforming Medicare Part A payment edits to the MCE, consistent with the requirements of the organ transplant regulation (CMS-3835-F), to ensure that Medicare covers only those organ transplants performed in Medicare-approved facilities. We are proposing to add the following procedure codes to the existing list of limited coverage procedures under Edit 17:

  • 55.69, Other kidney transplantation
  • 52.80, Pancreatic transplant, not otherwise specified
  • 52.82, Homotransplant of pancreas

7. Surgical Hierarchies

(If you choose to comment on issues in this section, please include the caption “Surgical Hierarchies” at the beginning of your comment.)

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 Start Printed Page 24738DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1 is higher than that of DRG 3, but the average charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of each DRG in the class by frequency (that is, by the number of cases in the DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.

This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.

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

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

For FY 2008, we are not proposing any revisions of the surgical hierarchy for any MDC. In general, the MS-DRGs that are being proposed for use in FY 2008 and discussed in section II.D. of the preamble of this proposed rule follow the same hierarchical order as the CMS DRGs they are to replace, except for DRGs that were deleted and consolidated.

8. CC Exclusion List Proposed for FY 2008

(If you choose to comment on issues in this section, please include the caption “CC Exclusion List” at the beginning of your comment.)

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. We refer readers to section II.D.2. and 3. of the preamble of this proposed rule for a discussion of the refinement of CCs in relation to the MS-DRGs we are proposing to adopt for FY 2008.

b. Proposed CC Exclusions List for FY 2008

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list.

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

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

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC.[14]

For FY 2008, we are proposing to make limited revisions to the CC Exclusions List to take into account the changes that will be made in the ICD-Start Printed Page 247399-CM diagnosis coding system effective October 1, 2007. (See section II.G.10. of this preamble for a discussion of ICD-9-CM changes.) We are proposing to make these changes in accordance with the principles established when we created the CC Exclusions List in 1987. In addition, as discussed in section II.D.3. of the preamble of this proposed rule, we are proposing to indicate on the CC Exclusion List some updates to reflect the proposed exclusion of a few codes from being an MCC under the MS-DRG system that we are proposing to adopt for FY 2008.

Table 6I (which is available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS) contains the complete CC Exclusions List that will be effective for discharges occurring on or after October 1, 2007. Table 6I shows the principal diagnoses for which there is a CC exclusion. Each of these principal diagnoses is shown with an asterisk, and the conditions that will not count as a CC, are provided in an indented column immediately following the affected principal diagnosis. Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, are also available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS.)

Beginning with discharges on or after October 1, 2007, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

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 24.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 25.0 of this manual, which will include the final FY 2008 DRG changes, will be available in hard copy for $250.00. Version 25.0 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 CMS DRGs 468, 476, and 477

Each year, we review cases assigned to CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we are proposing to adopt for FY 2008, discussed in section II.D. of the preamble of this proposed rule, CMS DRG 468 would have a three-way split and would become proposed MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 476 would become proposed MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and Without CC/MCC). CMS DRG 477 would become proposed MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC).

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

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

All remaining O.R. procedures are assigned to proposed MS-DRGs 981 through 983 and 987 through 989 (previously CMS DRGs 468 and 477), with proposed MS-DRGs 987 through 989 (previously CMS DRG 477) assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.[15]

For FY 2008, we are not proposing to change the procedures assigned among these CMS DRGs.

a. Moving Procedure Codes From CMS DRG 468 (Proposed MS-DRGs 981 Through 983) or CMS DRG 477 (Proposed MS-DRGs 987 Through 989) to MDCs

We annually conduct a review of procedures producing assignment to CMS DRG 468 (proposed MS-DRGs 981 through 983) or CMS DRG 477 (proposed MS-DRGs 987 through 989) 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 Start Printed Page 24740year's review, we are not proposing to remove any procedures from CMS DRG 477 or CMS DRG 468 with assignment to one of the surgical DRGs.

b. Reassignment of Procedures Among CMS DRGs 468, 476, and 477 (Proposed MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989)

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to CMS DRGs 468, 476, and 477 (proposed MS-DRGs 981 through 983, 984 through 986, and 987 through 989, respectively), to ascertain whether 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 are not proposing to move any procedure codes from CMS DRG 476 (proposed MS-DRGs 984, 985, and 986) to CMS DRG 468 (proposed MS-DRGs 981, 982, and 983) or to CMS DRG 477 (proposed MS-DRGs 987, 988, and 989), or from CMS DRG 477 (proposed MS-DRGs 987, 988, and 989) to CMS DRGs 468 (proposed MS-DRGs 981, 982, and 983) or to CMS DRG 476 (proposed MS-DRGs 984, 985, and 986) for FY 2008.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on our review this year, we are not proposing to add any diagnosis codes to MDCs for FY 2008.

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

(If you choose to comment on issues in this section, please include the caption “ICD-9-CM Coding System” at the beginning of your comment.)

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

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

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

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such 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 2008 at a public meeting held on September 28-29, 2006, and finalized the coding changes after consideration of comments received at the meetings and in writing by December 4, 2006. Those coding changes are announced in Tables 6A through 6F in the Addendum to this proposed rule. The Committee held its 2007 meeting on March 22-23, 2007. 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 2007 will be included in the October 1, 2007 update to ICD-9-CM. Code revisions that were discussed at the March 22-23, 2007 Committee meeting could not be finalized in time to include them in the Addendum to this proposed rule. These additional codes will be included in Tables 6A through 6F of the final rule and are marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's September 28-29, 2006 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/​ICD9ProviderDiagnosticCodes/​03_​meetings.asp. The minutes of the diagnosis codes discussions at the September 28-29, 2006 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, 2007. 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 this proposed rule, we are only soliciting Start Printed Page 24741comments on the proposed classification of these new codes.

For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A. New procedure codes are shown in Table 6B. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2007. 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, 2007. 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 2008.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. As stated previously, ICD-9-CM codes discussed at the March 22-23, 2007 Committee meeting that received consensus and that were finalized by May 2007, will be included in Tables 6A through 6F of the Addendum to the 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 on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

While section 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to identify the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes in order to identify and report the new codes.

The ICD-9-CM Coordination and Maintenance Committee holds its meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the ICD-9-CM Coordination and Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, is publicized on CMS and NCHS Web sites in May of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of 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 l, 2007 implementation of an ICD-9-CM code at the September 28-29, 2006 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2007.

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 identify 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 site at: http://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 site at: http://www.cdc.gov/​nchs/​icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is also provided to the AHA for publication in the Coding Clinic for ICD-9-CM. AHA also distributes information to publishers and software vendors.

CMS also sends copies of all ICD-9-CM coding changes to its contractors for Start Printed Page 24742use 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 to update their code books and software systems. We will strive to have the April 1 updates available through these Web sites 5 months prior to implementation (that is, early November of the previous year), as is the case for the October 1 updates.

11. Other Issues

(If you choose to comment on issues in this section, please include the caption “DRGs: Headaches and Seizures” at the beginning of your comment.)

a. Seizures and Headaches

After publication of the FY 2007 IPPS final rule (71 FR 47928), we received correspondence expressing concerns about the revisions we made to the seizure and headache DRGs effective on October 1, 2006. We created new DRGs 562 (Seizure Age >17 With CC), DRG 563 (Seizure Age >17 Without CC), and DRG 564 (Headaches Age >17) as an interim step to better recognize severity of illness among seizure and headache patients for FY 2007. Although national Medicare utilization data supported the revised DRGs, the commenter indicated that the change did not appropriately recognize hospital resources associated with the patients treated in the hospital's inpatient headache program. The commenter stated that patients who are admitted to the hospital's inpatient headache program suffer from chronic headache pain and require inpatient treatment that can last up to 12 days. The commenter noted that these patients are referred from around the country after several months of unsuccessful pain relief and treatment. The commenter indicated that the majority of patients treated at the hospital's inpatient headache program are drug dependent from being administered increasing dosages of pain relievers that have been unsuccessful in resolving chronic headache pain. Further, the commenter noted that the patients require detoxification before any headache treatment begins. The commenter urged CMS to subdivide the headache DRG to better recognize the higher level of severity associated with treating chronic headache patients in the hospital's program.

Although we are sympathetic to the commenter, it is not feasible to design a DRG system that addresses concerns that may be unique to one facility. Other than this one commenter, we did not receive any concern about our decision to create separate DRGs for seizures and headaches. However, we agreed to review this issue as part of our effort to redesign the DRG system to better recognize severity of illness for FY 2008.

As discussed in section II.C. of the preamble of this proposed rule, we are proposing to adopt MS-DRGs for FY 2008. While our current DRG structure did not support splitting the headache DRG based on the presence or absence of a CC, the proposed MS-DRGs support the creation of a split for the headache DRGs based on whether the patient has an MCC as shown below:

Proposed MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 102 (Headaches with MCC)1,2685.0419,077.33
MS-DRG 103 (Headaches without MCC)14,2773.2211,989.43

(The criteria for determining whether to subdivide a DRG are described in detail earlier in section II.D. of the preamble of this proposed rule.) Thus, we are proposing to create two MS-DRGs for headaches under the MS-DRGs as shown below:

  • Proposed MS-DRG 102 (Headaches With MCC)
  • Proposed MS-DRG 103 (Headaches Without MCC)

We believe this proposed structure would better recognize those headaches patients who are severely ill and require more resources as described by the commenter. We refer the readers to section II.D. of the preamble of this proposed rule for a detailed discussion of the MS-DRG proposal.

b. Devices That Are Replaced Without Cost or Where Credit for a Replaced Device Is Furnished to the Hospital

(If you choose to comment on issues in this section, please include the caption “Replaced Devices” at the beginning of your comment.)

(1) Background

We addressed the topic of Medicare payment for devices that are replaced without costs or where credit for a replaced device is furnished to the hospital in the FY 2007 IPPS final rule (71 FR 47962). In that final rule, we included the following background information:

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. Nonetheless, 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 who would be potentially 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 corrective action to care for patients. Systematic efforts must be undertaken by all interested and involved parties, including manufacturers, insurers, and the medical community, to ensure that Start Printed Page 24743device problems are recognized, and are addressed as early as possible so that patients' quality of health care is protected and high quality medical care, equipment, and technologies are provided. We are taking several steps to assist in the early recognition and analysis of patterns of device problems to minimize the potential for harm from device-related defects to Medicare beneficiaries 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, we issued an 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 medical care received by Medicare beneficiaries was reasonable and necessary and, therefore, that the provider or supplier would be appropriately paid. 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, registry data can facilitate public response to the quality of health care issues in the event of future device recalls. Analysis of registry data may uncover patterns of device malfunction, device-related infection, or early battery depletion that would trigger a more specific investigation. Patterns found in registry data may identify problems in patient outcomes earlier than the currently available mechanisms, which do not systematically collect detailed information about each patient who receives an ICD.

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 patients' quality of health care status and medical outcomes. While participation in an ICD registry is required as a Medicare condition of coverage for ICD implantation for certain clinical conditions, we believe that the potential benefits of other data collection extend well beyond their application in Medicare's specific NCDs. As medical technology continues to advance swiftly, data collection regarding the short-term and long-term medical outcomes of new technologies, 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 device-related problems, patterns of complications, and health-related outcomes. This information will facilitate early interventions to mitigate any harm potentially imposed upon Medicare beneficiaries and the public, and to improve the quality and efficiency of health care services provided.

Moreover, published data from registries may further help the development of high quality, evidence-based clinical practice guidelines for the care of patients who may receive device implants. In turn, widespread use of evidence-based guidelines may reduce variation in medical practice, leading to improved personal care and overall public health. Registry information may also contribute to the development of more comprehensive and refined quality metrics that may be used to systematically assess the collected data, and then improve the safety and quality of health care provided to Medicare beneficiaries. 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 to progressively work towards that goal, and to ensure excellent and open communication and rapid systemwide responses.

One strategy for this data collection involves adding information to the claims forms. CMS has a long history of collecting hemoglobin or hematocrit data from ESRD patients on the claims form. Modification of claims forms was necessary to do that. CMS is exploring the use of claims data to collect other types of clinical or technical data such as device manufacturer and model number. The systematic recording of model numbers can enhance knowledge of device-related outcomes and complications. We look forward to further discussions with the public about new strategies to both recognize device-related problems early as well as recognize health-related outcomes of new technologies.

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-related problems, potentially leading to more timely improvements in medical device technologies. This systematic approach, which enables hospitals to identify and then appropriately report selected services when devices are replaced without cost to the hospital, or with full or partial credit to the hospital for the cost of the replaced device, should provide comprehensive information regarding the hospitals' experiences with Medicare beneficiaries who have specific medical devices that are being replaced. Because Medicare beneficiaries are common recipients of implanted devices, the claims information may be particularly helpful in identifying patterns of device-related problems early in their natural history, so that appropriate strategies to reduce future problems may be developed. One possible strategy would be for the Medicare program to use information obtained through the use of bar coding of medical devices. The FDA issued a final rule in the Federal Register on February 26, 2004 (69 FR 9119), that required bar codes for human drugs and biological product labels effective April 26, 2006. In the final rule, FDA deferred action on requiring bar codes for medical devices, noting the difficulty in standardizing medical devices, as compared to drugs and biologicals, which have the unique NDC numbering system. This rule can be reviewed on the Federal Register's Web site at: http://www.docket.access.gpo.gov/​2004/​04-4249.htm.

We intend to monitor FDA's work in this area to determine how this technology could help CMS promote higher quality through better clinical decision making and, as discussed below, assist in improving the accuracy of the Medicare payment system.

In addition to our concern for overall public health, we also have a fiduciary responsibility to the Medicare Trust Fund to ensure that Medicare pays only for covered services. Therefore, in the FY 2007 IPPS final rule, we indicated that we believe we need to consider whether it is appropriate to reduce the Medicare payment in cases in which an implanted device is replaced at reduced or no cost to the hospital or with partial or full credit for the removed device. Such consideration could cover certain devices for which credit for the replaced medical device is given, or medical devices that are replaced as a result of or pursuant to a warranty, field action, voluntary recall, or involuntary recall, and medical devices that are provided free of charge. We indicated that conveying this information to the Medicare beneficiary could provide for a reduction in the IPPS payment if 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.

In FY 2007 IPPS final rule, we indicated a need to develop a methodology to determine the amount of the reduction to the otherwise Start Printed Page 24744payable IPPS payment for medical devices furnished to Medicare beneficiaries. We believe that this policy is appropriate because, in these cases, the full cost of the replaced device is not incurred and, therefore, an adjustment to the payment is necessary to remove the cost of the device.

(2) Current and Proposed Policies

In the CY 2007 OPPS final rule (71 FR 68071 through 68077), we adopted a policy that requires a reduced payment to a hospital or ambulatory surgical center when a device is provided to them at no cost. From our experience with the OPPS, we understand that a manufacturer will often provide a credit or partial credit for the recalled device rather than a free replacement. In other situations, a manufacturer will provide either a full or partial credit for a device that needs to be replaced only during the manufacturer's warranty period. In either of these situations, the original implantation of the device was paid for either by Medicare, another third party on behalf of the beneficiary by making payment directly to the hospital, or the implantation was paid for directly by the beneficiary. Therefore, we believe that Medicare should not pay the hospital for the full cost of the replacement if the hospital is receiving a partial or full credit, either due to a recall or service during the warranty period. The device was already paid for at the time of initial implantation, and Medicare should retain the credit that is being provided to the hospital for service to a Medicare beneficiary.

Moreover, we also believe that a proposed adjustment is consistent with section 1862(a)(2) of the Act, which excludes from Medicare coverage an item or service for which neither the beneficiary, nor anyone on his or her behalf, has an obligation to pay. Payment of the full IPPS payment amount in cases in which the device was replaced under warranty or in which there was a full or partial credit for the price of the recalled or failed device effectively results in Medicare payment for a noncovered item. Therefore, we are proposing to adjust the IPPS payment amount in these circumstances under the authority of section 1886(d)(5)(I) of the Act, which permits the Secretary to make “exceptions and adjustments to such payment amounts * * * as the Secretary deems appropriate.”

Under the OPPS, we currently only apply the reduced payment amount in situations where the hospital received a replacement device at no cost or at full credit for the replacement device. Unlike the current OPPS policy, we are proposing for purposes of the IPPS to apply the policy for partial as well as full credit for a replacement device. As we indicated above, our experience with the OPPS suggests that the policy should be applied beyond full replacement of a recalled device. We are proposing to reduce the amount of the Medicare IPPS payment when a full or partial credit towards a replacement device is made or the device is replaced without cost to the hospital or with full credit for the removed device. However, we do not believe that the IPPS policy should apply to all DRGs and all situations in which a device is replaced without cost to the hospital for the device or with full or partial credit for the removed device. We recognize that, in many cases, the cost of the device is a relatively modest part of the IPPS payment. In other situations, we believe the amount of the credit will also be nominal. In these cases, we believe that the averaging nature of payments under the IPPS would incorporate any significant savings from a warranty replacement, field action, or recall into the payment rate for the associated DRG, and that no specific adjustment would be necessary or appropriate. For this reason, we are proposing to apply the policy only to those DRGs under the IPPS where the implantation of the device determines the base DRG assignment and situations where the hospital received a credit equal to 20 percent or more of the cost of the device. We believe a credit that is equal to or more than this percentage is substantial, and Medicare should not pay for the full cost of these replacement devices because hospitals have received significant savings from the manufacturer for its replacement costs. We are seeking comment on the application of this percentage amount. We further believe that it is appropriate to limit application of the policy only to those DRGs where implantation of the device determines the DRG assignment. In making a decision to assign a case based on whether a device was implanted, we recognized that the device cost was a significant portion of the overall costs faced by the hospital that treats the case. Therefore, we believe that Medicare should not make full payment for those DRGs where the assignment of the case is made based on implantation of the device when the hospital is receiving either a full or significant partial credit for the device. We have listed the CMS DRGs that would be subject to this proposed policy below. We have also listed, in parentheses after the CMS DRG title, the proposed new MS-DRG title to which these cases would be assigned.

CMS DRGs Subject to Proposed Policy

MDCCMS DRGNarrative Description of DRG
PRE103Heart Transplant or Implant of Heart Assist System (Proposed MS-DRGs 1 and 2, Heart Transplant or Implant of Heart Assist System With and Without MCC, respectively).
11Craniotomy Age > 17 With CC (Proposed MS-DRG 25 and 26, Craniotomy and Endovascular Intracranial Procedure With MCC or Without CC, respectively).
12Craniotomy Age > 17 Without CC (Proposed MS-DRGs 26 and 27, Craniotomy and Endovascular Intracranial Procedure Without CC/MCC).
17Peripheral & Cranial Nerve & Other Nervous System Procedures With CC (Proposed MS-DRGs 40 and 41, Peripheral & Cranial Nerve & Other Nervous System Procedure With MCC or With CC, respectively).
18Peripheral & Cranial Nerve & Other Nervous System Procedures Without CC (Proposed MS-DRG 42, Peripheral & Cranial Nerve & Other Nervous System Procedure Without CC/MCC).
1543Craniotomy With Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis (Proposed MS-DRGs 23 and 24, Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis With and Without MCC, respectively).
349Major Head & Neck Procedures (Proposed MS-DRGs 129 and 130, Major Head & Neck Procedures With CC/MCC or Major Device or Without CC/MCC, respectively).
5104Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization (Proposed MS-DRGs 216, 217, and 218, Cardiac Valve & Other Major Cardiothoracic Procedure With Cardiac Catheterization With MCC, or Without CC, or Without CC/MCC, respectively).
Start Printed Page 24745
5105Cardiac Valve & Other Major Cardiothoracic Procedures Without Cardiac Catheterization (Proposed MS-DRGs 219, 220, and 221, Cardiac Valve & Other Major Cardiothoracic Procedure Without Cardiac Catheterization With MCC, or With CC, or Without CC/MCC, respectively).
5110Major Cardiovascular Procedures With CC (Proposed MS-DRG 237, Major Cardiovascular Procedures With MCC).
5111Major Cardiovascular Procedures Without CC (Proposed MS-DRG 238, Major Cardiovascular Procedures Without MCC).
5117Cardiac Pacemaker Revision Except Device Replacement (Proposed MS-DRGs 260, 261, and 262, Cardiac Pacemaker Revision Except Device Replacement With MCC, or With CC, or Without CC/MCC, respectively).
5118Cardiac Pacemaker Device Replacement (Proposed MS-DRGs 258 and 259, Cardiac Pacemaker Device Replacement With MCC, and Without MCC, respectively).
5515Cardiac Defibrillator Implant Without Cardiac Catheterization (Proposed MS-DRGs 226 and 227, Cardiac Defibrillator Implant Without Cardiac Catheterization With MCC and Without MCC, respectively).
5525Other Heart Assist System Implant (Proposed MS-DRG 215, Other Heart Assist System Implant).
5535Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction/Heart Failure/Shock (Proposed MS-DRGs 222 and 223, Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction/Heart Failure/Shock With MCC and Without MCC, respectively).
5536Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock (Proposed MS-DRGs 224 and 225, Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock With MCC and Without MCC, respectively).
5551Permanent Cardiac Pacemaker Implant With Major Cardiovascular Diagnosis or AICD Lead or Generator (Proposed MS-DRGs 242, 243, and 244, Permanent Cardiac Pacemaker Implant With MCC, With CC, and Without CC/MCC, respectively).
5552Other Permanent Cardiac Pacemaker Implant Without Major Cardiovascular Diagnosis (Proposed MS-DRGs 242, 243, and 244, Permanent Cardiac Pacemaker Implant With MCC, With CC, and Without CC/MCC, respectively).
8471Bilateral or Multiple Major Joint Procedures of Lower Extremity (Proposed MS-DRGs 461 and 462, Bilateral or Multiple Major Joint Procedures of Lower Extremity With MCC, or Without MCC, respectively).
8544Major Joint Replacement or Reattachment of Lower Extremity (Proposed MS-DRGs 469 and 470, Major Joint Replacement or Reattachment of Lower Extremity With MCC or Without MCC, respectively).
8545Revision of Hip or Knee Replacement (Proposed MS-DRGs 466, 467, and 468, Revision of Hip or Knee Replacement With MCC, With CC, or Without CC/MCC, respectively).

CMS has requested and received new condition codes from the National Uniform Billing Committee to describe claims where a provider has received a device or product without cost. We will use these condition codes to reduce payment when the hospital used a device for which full or partial credit is given, or the item was replaced as a result of or under a warranty, field action, voluntary recall, involuntary recall, or otherwise provided free of charge. On November 4, 2005, we issued Change Request 4058, Transmittal 741, in the Medicare Claims Processing Manual. The effective date of this transmittal was April 1, 2006, and the implementation date was April 3, 2006. This transmittal specifies that the following two new condition codes have been created. They are defined below:

  • Condition Code 49—Product Replacement within Product Lifecycle. Replacement of a product earlier than the anticipated lifecycle due to an indication that the product is not functioning properly.
  • Condition Code 50—Product Replacement for Known Recall of a Product. The manufacturer or the FDA has identified the product for recall and therefore replacement.

Hospitals must report these codes on any claim for IPPS services that includes a replacement device or product for which they received full or partial credit. Hospital billing offices would report one of these condition codes in addition to the specific code for the type of procedure performed (for example, replacement of a defibrillator). When this code is received by Medicare and the discharge is assigned to a DRG that is subject to this policy, we are proposing to suspend the claim so that it does not automatically process and the fiscal intermediary (or, if applicable, the MAC) makes a manual payment determination. We are proposing to require the hospital to provide invoices or other information indicating its normal cost of the device and the amount of the credit it received.

This transmittal can be accessed at the following Web site: http://www.cms.hhs.gov/​Transmittals/​downloads/​R741CP.pdf.

Under our policy, the fiscal intermediary (or, if applicable, the MAC) would manually process claims involving DRGs that are subject to this policy that include a device that is replaced without cost to the hospital for the device or with full or partial credit for the removed device as identified by condition codes 49 or 50. For a device provided to the hospital without cost, the fiscal intermediary (or, if applicable, the MAC) would subtract the cost of the device from the DRG payment. For a device for which the hospital received a full or partial credit, the fiscal intermediary (or, if applicable, the MAC) would subtract the amount credited from the DRG payment. We are proposing to require the hospital to provide invoices or other information indicating the cost of the device and the amount of credit it received. We are seeking comment on the best approach to making this payment adjustment and what types of documentation hospitals should provide to the fiscal intermediary or MAC.

We are proposing to invoke our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act to make this adjustment. The special exceptions and adjustment authority authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts* * *as the Secretary deems appropriate.” We believe it would be appropriate to adjust payments for surgical procedures to replace certain devices by providing payments to hospitals only for the nondevice-related procedural costs when such a device is replaced without cost to the hospital for the device or with full credit for the removed device.

To codify in regulations the proposed policies for the IPPS discussed above, we are proposing to add a new paragraph (g) to § 412.2 and a new Start Printed Page 24746§ 412.89 to 42 CFR Part 412, Subpart F. We are also proposing to make a technical, conforming change to the heading of Subpart F and to add an uncoded center heading before the proposed new § 412.89.

H. Recalibration of DRG Weights

(If you choose to comment on issues in this section, please include the caption “Recalibration of DRG Weights” at the beginning of your comment.)

In section II.D.3. of the preamble of this proposed rule, we stated that we are proposing to continue to implement the cost-based DRG relative weights under a 3-year transition period such that, in FY 2008, year two of the transition, the relative weights would be recalibrated using a blend of 67 percent of the cost relative weight and 33 percent of the charge relative weight. By FY 2009, the relative weights will be 100 percent cost-based. We are proposing a few minor changes to the cost-weighting methodology that we adopted in the FY 2007 IPPS final rule (71 FR 47962 through 47971). However, in section II.E.2. of the preamble of this proposed rule, we request public comments about whether to adopt any of the short-term recommendations to the cost relative weighting methodology for FY 2008 made by RTI. Therefore, if we were to adopt any of the RTI recommendations based on public comment, our description of the cost-weighting methodology shown below would be modified accordingly in the IPPS final rule.

In developing the FY 2008 proposed 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 2006 MedPAR data used in this proposed rule include discharges occurring on October 1, 2005, through September 30, 2006, based on bills received by CMS through December 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 2006 MedPAR file used in calculating the relative weights includes data for approximately 11,748,387 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage 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 is the FY 2005 Medicare cost report data files from HCRIS, which represents the most recent full set of cost report data available. We used the December 31, 2006 update of the HCRIS cost report files for FY 2005 in setting the proposed 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 FY 2007 and was applied as follows:

  • To the extent possible, all the claims were regrouped using the MS-DRGs being proposed for FY 2008, as 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 (proposed MS-DRGs 001, 002, 005, 006, and 007, respectively; previously CMS 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 IPPS rates, 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.
  • 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 standardized charges per case and the standardized charges per day for each DRG.
  • The average charge for each DRG was then recomputed (excluding the statistical outliers). To compute the average DRG charge, we sum the standardized charges by DRG and divide by the transfer adjusted case count. A transfer case is counted as a fraction of a case based on the ratio of its transfer payment under the per diem payment methodology to the full DRG payment for nontransfer cases. That is, a transfer case receiving payment under the transfer methodology equal to half of what the case would receive as a nontransfer would be counted as 0.5 of a total case. The average charge per DRG is then 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 1.50808 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.

The methodology we used to calculate the DRG cost-based weights from the FY 2006 MedPAR claims data and FY 2005 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the FY 2008 proposed MS-DRG classifications 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 (proposed MS-DRGs 001, 002, 005, 006, and 007, respectively; previously CMS DRGs 103, 480, and 495) were limited to those Medicare-approved transplant centers that have cases in the FY 2006 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 deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating Start Printed Page 24747room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges and anesthesia charges were also deleted.
  • 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 deleted.
  • 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 2005 cost report data.

The 13 cost centers that we used in the relative weight 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. For FY 2008, we are proposing to make minor revisions to the Cardiology, Laboratory, Radiology, and Other Services CCRs we are using to calculate the DRG relative weights, as follows:

  • The costs for cases involving Electroencephalography (EEG), cost report line 54, are currently in the Cardiology cost center group. However, MedPAR categorizes the claims data for EEG under Laboratory Charges (revenue codes 0740 and 0749). In order to maintain consistency with matching costs on the cost report to charges on MedPAR claims, we are proposing to move cost report line 54 for EEG out of the Cardiology cost center group into the Laboratory cost center group.
  • In the FY 2007 IPPS proposed rule, we originally included the costs for Radioisotopes, cost report line 43, in the Radiology cost center group. However, in response to comments, we moved Radioisotopes to the Other Services cost center group. After researching this issue further over the past year, we believe that Radioisotopes is a radiology-related service that more appropriately belongs in the Radiology cost center group. Accordingly, for FY 2008, we are proposing to move the cost report line item for line 43, Radioisotopes, out of the Other Services cost center group and into the Radiology cost center group. The proposed version of the 13 cost center groupings are in the table below:
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We developed the national average CCRs as follows:

Taking the FY 2005 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 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking Start Printed Page 24754the Medicare charges for each line item from Worksheet D, Part 4 and deriving the Medicare specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D, Part 4. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each DRG in each of the 13 cost centers by the corresponding national average CCR, we summed the 13 “costs” across each DRG to produce a total standardized cost for the DRG. The average standardized cost for each DRG was then computed as the total standardized cost for the DRG divided by the transfer adjusted case count for the DRG. The average cost for each DRG was then divided by the national average standardized cost per case to determine the relative weight.

The new cost-based weights were then normalized by an adjustment factor of 1.50988 so that the average case weight after recalibration was equal to the average case weight before recalibration. Since more trims were applied to the data under the cost-based weights methodology than under the charge-based methodology, a smaller universe of claims was used in the cost-based methodology. In this instance, the different universe of claims also resulted in a slightly higher cost-based normalization factor than the normalization factor derived for charge-based weights. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS as required by section 1886(d)(4)(C)(iii) of the Act.

The 13 proposed national average CCRs for FY 2008 are as follows:

GroupCCR
Routine Days0.52
Intensive Days0.48
Drugs0.21
Supplies & Equipment0.34
Therapy Services0.42
Laboratory0.17
Operating Room0.30
Cardiology0.19
Radiology0.18
Other Services0.37
Labor & Delivery0.47
Inhalation Therapy0.19
Anesthesia0.14

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We used that same case threshold in recalibrating the DRG weights for FY 2008. Using the FY 2006 MedPAR data set, there are 7 proposed MS-DRGs that contain fewer than 10 cases. Under the proposed MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients age 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0-17 or age 17 and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients age 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have heard frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the proposed MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. All of the low-volume DRGs listed below are for newborns. Newborns are unique and require separate DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate DRGs for newborns. In FY 2008, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume DRGs, we are proposing to compute weights for the low-volume DRGs by adjusting their FY 2007 weights by the percentage change in the average weight of the cases in other DRGs. The crosswalk table we are proposing is shown below:

Low-volume DRGDRG titleCrosswalk to DRG
789Neonates, Died or Transferred to Another Acute Care FacilityFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).
790Extreme Immaturity or Respiratory Distress Syndrome, NeonateFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).
791Prematurity With Major ProblemsFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).
792Prematurity Without Major ProblemsFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).
793Full-term Neonate With Major ProblemsFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).
794Neonate With Other Significant ProblemsFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).
795Normal NewbornFY 2007 FR weight (adjusted by percent change in average weight of the cases in other DRGs).

I. Proposed MS-LTC-DRG Reclassifications and Relative Weights for LTCHs for FY 2008

(If you choose to comment on issues in this section, please include the caption “MS-LTC-DRGs” at the beginning of your comment.)

1. Background

In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed the LTCH PPS annual payment rate update cycle to be effective July 1 through June 30 instead of October 1 through September 30. In addition, because the patient classification system utilized under the LTCH PPS uses the same CMS DRGs as those currently used under the IPPS for acute care hospitals, in that same final rule, we explained that the annual update of the long-term care diagnosis-related group (LTC-DRG) classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the CMS DRGs used under the IPPS. Therefore, we specified that we will continue to update the LTC-DRG Start Printed Page 24755classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. We further stated that we will publish the annual proposed and final update of the LTC-DRGs in same notice as the proposed and final update for the IPPS (69 FR 34125).

In the past, the annual update to the IPPS CMS DRGs has been based on the annual revisions to the ICD-9-CM codes and was effective each October 1. As discussed in the FY 2007 IPPS final rule (71 FR 47971 through 47994) and in the Rate Year (RY) 2008 LTCH PPS proposed rule (72 FR 4783 through 4789), with the implementation of section 503(a) of Pub. L. 108-173, there is the possibility that one feature of the GROUPER software program may be updated twice during a Federal fiscal year (October 1 and April 1) as required by the statute for the IPPS. Section 503(a) of Pub. L. 108-173 amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) which states that “the Secretary shall provide for the addition of new diagnosis and procedure codes in [sic] April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS by accounting for those ICD-9-CM codes in the MedPAR claims data earlier than the agency had accounted for new technology in the past. In implementing the statutory change, the agency has provided that ICD-9-CM diagnosis and procedure codes for new medical technology may be created and assigned to existing CMS DRGs in the middle of the Federal fiscal year, on April 1. However, this policy change will not impact the DRG relative weights in effect for that year, which will continue to be updated only once a year (October 1), nor will it have any impact on Medicare payments. The use of the ICD-9-CM code set is also compliant with the current requirements of the Transactions and Code Sets Standards regulations at 45 CFR Parts 160 and 162, promulgated in accordance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191.

As noted above, the patient classification system used under the LTCH PPS (LTC-DRGs) is based on the patient classification system used under the IPPS (CMS DRGs). Therefore, the ICD-9-CM codes currently used under both the IPPS and LTCH PPS may be updated as often as twice a year. This requirement is included as part of the amendments to the Act relating to recognition of new medical technology under the IPPS.

Because we do not publish a midyear IPPS rule, any April 1 ICD-9-CM coding update will not be published midyear. Rather, we will assign any new diagnosis or procedure codes to the same DRG in which its predecessor code was assigned, so that there will be no impact on the DRG assignments (as also discussed in section II.G.10. of this preamble). Any coding updates will be available through the Web sites provided in section II.G.10. of this preamble and through the Coding Clinic for ICD-9-CM, a product of the American Hospital Association. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software system. If new codes are implemented on April 1, revised code books and software systems, including the GROUPER software program, will be necessary because we must use current ICD-9-CM codes. Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code must be included in the GROUPER algorithm to classify each case into a LTC-DRG, the GROUPER software program used under the LTCH PPS would need to be revised to accommodate any new codes.

In implementing section 503(a) of Pub. L. 108-173, there will only be an April 1 update if new technology codes are requested and approved. We note that any new codes created for April 1 implementation will be limited to those diagnosis and procedure code revisions primarily needed to describe new technologies and medical services. However, we reiterate that the process of discussing updates to the ICD-9-CM is an open process through the ICD-9-CM Coordination and Maintenance Committee. Requestors will be given the opportunity to present the merits for a new code and to make a clear and convincing case for the need to update ICD-9-CM codes for purposes of the IPPS new technology add-on payment process through an April 1 update (as also discussed in section II.G.10. of this preamble).

As we discussed in the RY 2008 LTCH PPS proposed rule (72 FR 4783 through 4789), at the September 28, 2006 ICD-9-CM Coordination and Maintenance Committee meeting, there were no requests for an April 1, 2007 implementation of ICD-9-CM codes. Therefore, the next update to the ICD-9-CM coding system will not occur until October 1, 2007 (FY 2008). Because there were no coding changes suggested for an April 1, 2007 update, the ICD-9-CM coding set implemented on October 1, 2006, will continue through September 30, 2007 (FY 2008). The update to the ICD-9-CM coding system for FY 2008 is discussed above in section II.G.10. of this preamble. Accordingly, in this proposed rule, as discussed in greater detail below, we are proposing to modify and revise the LTC-DRG classifications and relative weights, to be effective October 1, 2007 through September 30, 2008 (FY 2008). In addition, we will notify LTCHs of any revisions to the GROUPER software used under the IPPS and the LTCH PPS that may be implemented on April 1, 2008. The proposed LTC-DRGs and proposed relative weights for FY 2008 in this proposed rule are based on the proposed IPPS MS-DRGs (GROUPER Version 25.0) discussed in section II.B. of the preamble to this proposed rule.

2. Proposed Changes in the LTC-DRG Classifications

a. Background

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

In accordance with section 123 of Pub. L. 106-113 as amended by section 307(b)(1) of Pub. L. 106-554 and § 412.515 of our existing regulations, the LTCH PPS uses information from LTCH patient records to classify patient cases into distinct LTC-DRGs based on clinical characteristics and expected resource needs. As described in II.D. of the preamble of this proposed rule, we are proposing to adopt MS-DRGs under the IPPS because we believe that adopting this system will result in a significant improvement in the DRG system's recognition of severity of illness and resource usage. We believe these improvements in the DRG system would be equally applicable to the LTCH PPS. The changes we are currently proposing for the IPPS would be reflected in the FY 2008 GROUPER, Start Printed Page 24756Version 25.0, to be effective for discharges occurring on or after October 1, 2007 through September 30, 2008. Currently, the LTC-DRGs used as the patient classification component of the LTCH PPS correspond to the current CMS DRGs applicable under the IPPS for acute care hospitals

Consistent with our historical practice of having LTC-DRGs correspond to the DRGs applicable under the IPPS, under the broad authority of section 123(a) of Pub. L. 106-113, as modified by section 307(b) of Pub. L. 106-554, we are proposing to use MS-LTC-DRGs which correspond to the proposed MS-DRGs. In addition, as stated above, we are proposing to use the FY 2008 GOUPER Version 25.0, to be effective for discharges occurring on or after October 1, 2007 through September 30, 2008. The proposed changes to the current CMS DRG classification system used under the IPPS for FY 2008 (GROUPER Version 25.0) are discussed in section II.D. of the preamble to this proposed rule.

As noted above, the patient classification system used under the LTCH PPS (LTC-DRGs) is based on the patient classification system used under the IPPS (CMS DRGs), which historically has been updated annually as authorized by section 1886(d)(4)(C) of the Act and is effective for discharges occurring on or after October 1 through September 30 of each year. As such, the proposed updates to the CMS DRG classification system used under the IPPS for FY 2008 (GROUPER Version 25.0), discussed in section II.D. of the preamble of this proposed rule, would be applicable to updates under the LTCH PPS. In conjunction with the proposed changes to the existing CMS DRGs for the IPPS by adoption of the proposed MS-DRGs, we are proposing to adopt the MS-DRGs for the LTCH PPS, as both sets of DRGs are based on the same DRG structure. However, we refer to the proposed DRGs under the LTCH PPS as MS-LTC-DRGs. This proposed conforming change, that is, to replicate the MS-LTC-DRG structure after the proposed MS-DRG structure is appropriate in order to maintain consistency and uniformity among a number of stakeholders, such as acute care hospitals, LTCHs, epidemiologists, ratesetting organizations, and payors, among others.

Under the LTCH PPS, as described in greater detail below, we determine relative weights for each of the DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients. (Unless otherwise noted in this proposed rule, our MS-LTC-DRG analysis is based on LTCH data from the December 2006 update of the FY 2006 MedPAR file, which contains hospital bills received through December 31, 2006, for discharges occurring in FY 2006.)

LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. Therefore, as we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and the FY 2006 IPPS final rule (70 FR 47324), we use low-volume quintiles in determining the LTC-DRG relative weights for LTC-DRGs with less than 25 LTCH cases (low-volume LTC-DRGs). Specifically, we group those low-volume LTC-DRGs into 5 quintiles based on average charges per discharge. (A listing of the composition of low-volume quintiles for the FY 2007 LTC-DRGs (based on FY 2005 MedPAR data) appears in section II.I.2.d. of the FY 2007 IPPS final rule (71 FR 47975 through 47978).) We also adjust for cases in which the stay at the LTCH is less than or equal to five-sixths of the geometric average length of stay; that is, short-stay outlier cases (§ 412.529), as discussed below in section II.I.4. of this preamble.

b. Patient Classifications into DRGs

Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that is, payment varies by the LTC-DRG to which a beneficiary's stay is assigned. Just as cases have been classified into the proposed MS-DRGs for acute care hospitals under the IPPS (section II. of the preamble of this proposed rule), cases have been classified into proposed MS-LTC-DRGs for payment under the LTCH PPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using the ICD-9-CM codes. Under the proposed MS-DRGs for the IPPS and the proposed MS-LTC-DRGs for the LTCH PPS, these factors will not change.

Section II.B. of the preamble of this proposed rule discusses the organization of the existing CMS DRGs, which we are proposing to maintain under the proposed MS-DRG and MS-LTC-DRG systems. As noted above, the patient classification system for the LTCH PPS is derived from the CMS DRGs and is similarly organized into 25 major diagnostic categories (MDCs). Most of these MDCs are based on a particular organ system of the body and the remainder involves multiple organ systems (such as MDC 22, Burns). Accordingly, the principal diagnosis determines MDC assignment. Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Under the present CMS DRGs, some surgical and medical DRGs are further differentiated based on the presence or absence of CCs. The existing LTC-DRGs are similarly categorized. (See section II.B. of the preamble of this proposed rule for further discussion of surgical DRGs and medical DRGs.)

The proposed MS-DRGs and the proposed MS-LTC-DRGs contain base DRGs that have been subdivided into one, two, or three severity levels. The most severe level has at least one code that is a major CC, referred to as “with MCC”. The next lower severity level contains cases with at least one CC, referred to as “with CC”. Those DRGs without an MCC or a CC are referred to as “without CC/MCC”. When data did not support the creation of three severity levels, the base DRG was divided into either two levels or the base was not subdivided. The proposed two-level subdivisions consist of one of the following subdivisions:

  • With CC/MCC
  • Without CC/MCC

In this type of subdivision, cases with at least one code that is on the CC or MCC list are assigned to the “with CC/MCC” DRG. Cases without a CC or an MCC are assigned to the “without CC/MCC” DRG.

The other type of proposed two-level subdivision is as follows:

  • With MCC
  • Without MCC

In this type of subdivision, cases with at least one code that is on the MCC list are assigned to the “with MCC” DRG. Cases that do not have an MCC are assigned to the “without MCC” DRG. This type of subdivision could include cases with a CC code, but no MCC.

As under the present LTC-DRG system, we are proposing that the assignment of a case to a particular MS-LTC-DRG will determine the amount that is paid for the case. Therefore, it is important that the coding is accurate. Classifications and terminology used under the LTCH PPS are consistent with the ICD-9-CM and the Uniform Hospital Discharge Data Set (UHDDS), as recommended to the Secretary by the National Committee on Vital and Health Statistics (“Uniform Hospital Discharge Data: Minimum Data Set, National Center for Health Statistics, April 1980”) and as revised in 1984 by the Health Information Policy Council (HIPC) of the U.S. Department of Health and Human Services. Again, we point Start Printed Page 24757out that the ICD-9-CM coding terminology and the definitions of principal and other diagnoses of the UHDDS are consistent with the requirements of the Transactions and Code Sets Standards under HIPAA (45 CFR Parts 160 and 162).

The emphasis on the need for proper coding cannot be overstated. As under the present LTC-DRG system, inappropriate coding of cases under the proposed MS-LTC-DRG system could adversely affect the uniformity of cases in each proposed MS-LTC-DRG and produce inappropriate weighting factors at recalibration and result in inappropriate payments under the LTCH PPS. LTCHs are required to follow the same coding guidelines established under the IPPS, described in section II.G.10 of the preamble of this proposed rule established under the IPPS. It is mandatory that the coders continue to report the same principal diagnosis on all claims and include all diagnosis codes for conditions that coexist at the time of admission, for conditions that are subsequently developed, or for conditions that affect the treatment received. Similarly, all procedures performed in a LTCH, or paid for under arrangements by a LTCH (§ 412.509), during that stay are to be reported on each claim. Consistent with current practice, there will be only one proposed MS-LTC-DRG assigned to each discharge of the patient from a LTCH.

Under the proposed MS-LTC-DRG classification system, as is required under existing policy, upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the ICD-9-CM. Completed claim forms are to be submitted electronically to the LTCH's fiscal intermediary (or, if applicable, MAC). The fiscal intermediary or MAC enters the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the MCE. These screens are designed to identify cases that require further review before assignment into a LTC-DRG can be made.

After screening through the MCE, each LTCH claim will be classified into the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH GROUPER is specialized computer software and is the same GROUPER used under the IPPS. After the LTC-DRG is assigned, the fiscal intermediary or MAC determines the prospective payment by using the Medicare LTCH PPS PRICER program, which accounts for LTCH hospital-specific adjustments and payment rates. As provided for under the IPPS, we provide an opportunity for the LTCH to review the LTC-DRG assignments made by the fiscal intermediary or MAC and to submit additional information, if necessary, within a specified timeframe (§ 412.513(c)). Under the proposed adoption of the MS-LTC-DRG, there would be no changes in this procedure.

The LTCH GROUPER is used both to classify past cases in order to measure relative hospital resource consumption to establish the proposed MS-LTC-DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible DRG classification changes and to recalibrate the DRG weights during our annual update (as discussed in section II.H. of the preamble of this proposed rule). The proposed MS-LTC-DRG relative weights are based on data for the population of LTCH discharges.

3. Development of the Proposed FY 2008 MS-LTC-DRG Relative Weights

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

As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55981), one of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix in order to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is more costly. To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment system rate by the applicable LTC-DRG relative weight in determining payment to LTCHs for each case. (As we have noted above, we are proposing to adopt the MS-LTC-DRGs for the LTCH PPS for FY 2008. However, this proposed change in the patient classification system does not affect the basic principles of the development of relative weights under a DRG-based prospective payment system. For purposes of clarity, in the general discussion below in which we describe the basic methodology of the patient classification system, in use since the start of the LTCH PPS, we use “MS-LTC-DRG” to specify the proposed DRG system to be used by the LTCH prospective payment system in FY 2008.)

Although the proposed adoption of the MS-LTC-DRGs will result in some modifications of existing procedures for assigning weights in cases of zero volume and/or nonmonotonicity, discussed in detail in the following sections, the basic methodology for developing the proposed FY 2008 MS-LTC-DRG relative weights in this proposed rule continue to be determined in accordance with the general methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). (Therefore, as noted above, in this preamble, “LTC-DRGs” will be used in descriptions of the basic methodology established at the beginning of the LTCH PPS that will remain unchanged if we adopt the proposed MS-LTC-DRGs. Use of “MS-LTC-DRGs” will indicate a discussion of specifics aspects of our proposed adoption of the severity-weighted patient classification system for FY 2008.)

Under the LTCH PPS, relative weights for each proposed MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each proposed MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each proposed MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that proposed MS-LTC-DRG. For example, cases in a proposed MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as much to treat as cases in a proposed MS-LTC-DRG with a weight of 1.

b. Data

To calculate the proposed MS-LTC-DRG relative weights for FY 2008 in his proposed rule, we obtained total Medicare allowable charges from FY 2006 Medicare LTCH bill data from the December 2006 update of the MedPAR file, which are the best available data at this time, and we used the proposed Version 25.0 of the CMS GROUPER used under the IPPS (as discussed in section II.B. of the preamble of this proposed rule) to classify cases. To calculate the final MS-LTC-DRG relative weights for FY 2008, we are proposing that, if more recent data are available (that is, data from the March 2007 update of the MedPAR file), we would use those data and the finalized Version 25.0 of the CMS GROUPER used under the IPPS.

As we discussed in the FY 2007 IPPS final rule (71 FR 47974), we have excluded the data from LTCHs that are Start Printed Page 24758all-inclusive rate providers and LTCHs that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Pub. L. 90-248. Data from demonstration projects authorized under section 222(a) of Pub. L. 92-603 are also excluded. Therefore, in the development of the proposed FY 2008 MS-LTC-DRG relative weights in this proposed rule, we have excluded the data of the 19 all-inclusive rate providers and the 3 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2006 MedPAR file.

c. Hospital-Specific Relative Value Methodology

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

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

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

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

d. Proposed Treatment of Severity Levels in Developing Relative Weights

With the implementation of the LTCH PPS for FY 2003, we established a procedure to address setting relative weights for LTC-DRG “pairs” that were differentiated on the presence or absence of CCs (71 FR 47979). For FY 2008, we are proposing to adopt a severity-based patient classification system for the LTCH PPS, the MS-LTC-DRGs described above, which requires us to adapt our existing procedures for dealing with setting relative weights for the severity levels within a specific base DRG. We are also proposing to modify our existing methodology for maintaining monotonicity when setting relative weights for the proposed MS-LTC-DRGs.

As under the existing procedure, under the proposed MS-LTC-DRGs, for purposes of the annual setting of the relative weights, there continue to be three different categories of DRGs based on volume of cases within specific LTC-DRGs. DRGs with at least 25 cases are each assigned a relative weight; low-volume proposed MS-LTC-DRGs (that is, proposed MS-LTC-DRGs that contain between one and 24 cases annually) are grouped into quintiles (described below) and assigned the weight of the quintile. Cases with no-volume proposed MS-LTC-DRGs (that is, no cases in the databases were assigned to those proposed MS-LTC-DRGs) are crosswalked to other proposed MS-LTC-DRGs based on the clinical similarities and assigned the weight of the quintile that is closest to the relative weight of the crosswalked proposed MS-LTC-DRG. (We provide in-depth discussions of our proposals regarding weightsetting for low-volume MS-LTC-DRGs in section II.I.3.e. of the preamble of this proposed rule and for no-volume MS-LTC-DRGs, under Step 4 in section II.I.4. of the preamble of this proposed rule.)

As described above, in response to the need to account for severity and pay appropriately for cases, we have developed a severity-adjusted patient classification system which we are proposing for both the IPPS and the LTCH PPS. As described in greater detail above, the proposed MS-LTC-DRG system can accommodate three severity levels: MCC (most severe); without CC/MCC (the least severe), and with CC, with each level assigned an individual MS-LTC-DRG number. In cases with two subdivisions, the levels are either with CC/MCC and without CC/MCC or with MCC and without MCC. Two parallel numbering systems have been developed, based on the MS-DRG patient classification system proposed under the IPPS, to describe proposed MS-LTC-DRGs. That is, while each severity level in each DRG category gets a unique MS-LTC-DRG number, in conjunction, each of the severity levels in a single DRG category are also assigned the same “base-DRG” number. We are proposing that the term “base DRG” is actually the MS-LTC-DRG number of the highest severity level and would be used when we refer to the MS-LTC-DRG category that encompasses all the levels of severity for that DRG. Therefore, under the proposed system, multiple sclerosis and cerebellar ataxia with MCC is MS-LTC-DRG 58; multiple sclerosis and Start Printed Page 24759cerebellar ataxia with CC is MS-LTC-DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC is MS-LTC-DRG 59, and the base MS-LTC-DRG for each is 58.

As noted above, for FY 2008, we are proposing to adopt the MS-DRGs for use in both the LTCH PPS and the IPPS. While the LTCH PPS and the IPPS use the same patient classification system, the methodology that is used to set the DRG weights for use in each payment system differs because the overall volume of cases in the LTCH PPS is much less than in the IPPS. As a general rule, we are proposing to set the weights for the MS-LTC-DRGs using the following steps: (1) If an MS-LTC-DRG has at least 25 cases, it is assigned its own relative weight; (2) if an MS-LTC-DRGs has between 1 and 24 cases, it is assigned to a quintile to which we will assign a relative weight; and (3) if an MS-LTC-DRG has no cases, it is crosswalked to another DRG based upon clinical similarities and assigned the appropriate relative weight (as described in detail in Step 5, below).

Theoretically, as with the existing LTC-DRG system, cases under the proposed MS-LTC-DRG system that are more severe require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels, weights should increase with severity, from lowest to highest. If the weights do not increase (that is, if based on the weight calculation, a proposed MS-LTC-DRG with MCC would have a lower relative weight than one with CC, or the DRG without CC/MCC would have a higher relative weight than either of the others), there is a problem with monotonicity. Since the start of the LTCH PPS for FY 2003 (67 FR 55990), we have adjusted the setting of the LTC-DRG relative weight in order to maintain monotonicity by grouping both sets of cases together and establishing a new relative weight that is assigned to both LTC-DRGs. Similarly, we are proposing a procedure for dealing with nonmonotonicity under the proposed MS-LTC-DRG classification system that we describe in detail in our explanation of our methodology for setting the proposed FY 2008 relative weights for the LTCH PPS, which is discussed in section II.F.4 of the preamble of this proposed rule.

e. Low-Volume Proposed MS-LTC-DRGs

In order to account for LTC-DRGs with low volume (that is, with fewer than 25 LTCH cases), under current policy, in accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55984), we group those “low-volume LTC-DRGs” (that is, DRGs that contained between 1 and 24 cases annually) into one of five categories (quintiles) based on average charges, for the purposes of determining relative weights. For this FY 2008 IPPS proposed rule, we are proposing to continue to employ this treatment of low-volume proposed MS-LTC-DRGs with a modification to combine proposed MS-LTC-DRGs for the purpose of computing a relative weight in cases where necessary to maintain monotonicity in determining the proposed FY 2008 MS-LTC-DRG relative weights using the best available LTCH data. In this proposed rule, using LTCH cases from the December 2006 update of the FY 2006 MedPAR file, we identified 307 proposed MS-LTC-DRGs that contained between 1 and 24 cases. This list of proposed MS-LTC-DRGs was then divided into one of the 5 low-volume quintiles, each containing a minimum of 61 proposed MS-LTC-DRGs (307/5 = 61, with a remainder of 2 proposed MS-LTC-DRGs). Consistent with our current methodology, we are proposing to make an assignment to a specific low-volume quintile by sorting the low-volume proposed MS-LTC-DRGs in ascending order by average charge. For this proposed rule, this results in a proposed assignment to a specific low-volume quintile of the sorted 307 low-volume proposed MS-LTC-DRGs by ascending order by average charge. Because the number of low-volume proposed MS-LTC-DRGs for FY 2008 is not evenly divisible by five, to determine the composition of the low-volume quintiles in accordance with our established methodology, the average charge of the low-volume proposed MS-LTC-DRG was used to determine which low-volume quintile received the additional proposed MS-LTC-DRGs. After sorting the 307 low-volume proposed MS-LTC-DRGs in ascending order, we grouped the first fifth (1st through 61st) of low-volume proposed MS-LTC-DRGs (with the lowest average charge) into Quintile 1. Because the average charge of the 62nd proposed MS-LTC-DRG in the sorted list is closer to the 61st proposed MS-LTC-DRGs average charge (assigned to Quintile 1) than to the average charge of the 63rd proposed MS-LTC-DRG in the sorted list (to be assigned to Quintile 2), we placed the 62nd proposed MS-LTC-DRG into Quintile 1. This process was repeated through the remaining low-volume proposed MS-LTC-DRGs so that 2 low-volume quintiles contain 62 proposed MS-LTC-DRGs and 3 low-volume quintiles contain 61 proposed MS-LTC-DRGs. The highest average charge cases were grouped into Quintile 5.

In order to determine the proposed relative weights for the proposed MS-LTC-DRGs with low-volume for FY 2008, based on the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55984), we are proposing to use the five low-volume quintiles described above. In addition, in cases where the initial assignment of the low-volume proposed MS-LTC-DRGs to quintiles results in nonmonotonicity within a base DRG, we are proposing to combine those proposed MS-LTC-DRGs for the purpose of computing a relative weight and set the same relative weight to each of the proposed MS-LTC-DRGs within the base DRG that required combining. The treatment of low-volume proposed MS-LTC-DRGs to preserve monotonicity is further discussed in detail in section II.I.4 (Step 6 of the methodology for determining the proposed FY 2008 MS-LTC-DRG relative weights). The composition of each of the proposed five low-volume quintiles shown in the chart below was used in determining the proposed MS-LTC-DRG relative weights for FY 2008. We would determine a proposed relative weight and (geometric) average length of stay for each of the proposed five low-volume quintiles using the methodology that we apply to the regular proposed MS-LTC-DRGs (25 or more cases), as described below in section II.I.4. of the preamble of this proposed rule. We are proposing to assign the same relative weight and average length of stay to each of the proposed MS-LTC-DRGs that make up an individual proposed low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of MS-LTC-DRGs with a low volume of LTCH cases will vary in the future. We use the best available claims data in the MedPAR file to identify low-volume MS-LTC-DRGs and to calculate the relative weights based on our methodology. Therefore, we are proposing that, if we have updated data for the final rule, we will use that data to determine the finalized FY 2008 relative weights. Start Printed Page 24760

Proposed Composition of Low-Volume Quintiles for FY 2008

Proposed MS-LTC-DRGProposed MS-LTC-DRG description
QUINTILE 1
30Spinal procedures w/o CC/MCC.
32Ventricular shunt procedures w CC.
33Ventricular shunt procedures w/o CC/MCC.
58Multiple sclerosis & cerebellar ataxia w MCC*.
60Multiple sclerosis & cerebellar ataxia w/o CC/MCC*.
66Intracranial hemorrhage or cerebral infarction w/o CC/MCC.
67Nonspecific CVA & precerebral occlusion w/o infarct w MCC.
68Nonspecific CVA & precerebral occlusion w/o infarct w/o MCC.
69Transient ischemia.
72Nonspecific cerebrovascular disorders w/o CC/MCC.
76Viral meningitis w/o CC/MCC.
79Hypertensive encephalopathy w/o CC/MCC.
88Concussion w MCC***.
133Other ear, nose, mouth & throat O.R. procedures w CC/MCC***.
122Acute major eye infections w/o CC/MCC.
123Neurological eye disorders.
149Dysequilibrium.
153Otitis media & URI w/o MCC.
182Respiratory neoplasms w/o CC/MCC.
183Major chest trauma w MCC.
184Major chest trauma w CC**.
201Pneumothorax w/o CC/MCC.
261Cardiac pacemaker revision except device replacement w CC.
262Cardiac pacemaker revision except device replacement w/o CC/MCC.
313Chest pain.
328Stomach, esophageal & duodenal proc w/o CC/MCC.
331Major small & large bowel procedures w/o CC/MCC.
349Anal & stomal procedures w/o CC/MCC.
376Digestive malignancy w/o CC/MCC.
434Cirrhosis & alcoholic hepatitis w/o CC/MCC*.
446Disorders of the biliary tract w/o CC/MCC.
505Foot procedures w/o CC/MCC.
512Shoulder, elbow or forearm proc, exc major joint proc w/o CC/MCC.
544Pathological fractures & musculoskelet & conn tiss malig w/o CC/MCC.
547Connective tissue disorders w/o CC/MCC.
563Fx, sprn, strn & disl except femur, hip, pelvis & thigh w/o MCC.
598Malignant breast disorders w CC***.
630Other endocrine, nutrit & metab O.R. proc w/o CC/MCC.
645Endocrine disorders w/o CC/MCC.
661Kidney & ureter procedures for non-neoplasm w/o CC/MCC.
688Kidney & urinary tract neoplasms w/o CC/MCC.
696Kidney & urinary tract signs & symptoms w/o MCC.
714Transurethral prostatectomy w/o CC/MCC.
718Other male reproductive system O.R. proc exc malignancy w/o CC/MCC.
724Malignancy, male reproductive system w/o CC/MCC.
726Benign prostatic hypertrophy w/o MCC.
756Malignancy, female reproductive system w/o CC/MCC.
759Infections, female reproductive system w/o CC/MCC.
761Menstrual & other female reproductive system disorders w/o CC/MCC.
825Lymphoma & non-acute leukemia w other O.R. proc w/o CC/MCC.
836Acute leukemia w/o major O.R. procedure w/o CC/MCC.
869Other infectious & parasitic diseases diagnoses w/o CC/MCC.
876O.R. procedure w principal diagnoses of mental illness.
881Depressive neuroses.
882Neuroses except depressive.
883Disorders of personality & impulse control.
886Behavioral & developmental disorders.
894Alcohol/drug abuse or dependence, left ama.
895Alcohol/drug abuse or dependence w rehabilitation therapy.
906Hand procedures for injuries.
916Allergic reactions w/o MCC.
922Other injury, poisoning & toxic effect diag w MCC.
923Other injury, poisoning & toxic effect diag w/o MCC.
QUINTILE 2
75Viral meningitis w CC/MCC.
77Hypertensive encephalopathy w MCC.
Start Printed Page 24761
78Hypertensive encephalopathy w CC**.
83Traumatic stupor & coma, coma >1 hr w CC.
84Traumatic stupor & coma, coma >1 hr w/o CC/MCC.
99Non-bacterial infect of nervous sys exc viral meningitis w/o CC/MCC.
102Headaches w MCC***.
113Orbital procedures w CC/MCC.
121Acute major eye infections w CC/MCC.
125Other disorders of the eye w/o MCC.
148Ear, nose, mouth & throat malignancy w/o CC/MCC.
152Otitis media & URI w MCC.
156Nasal trauma & deformity w/o CC/MCC.
157Dental & Oral Diseases w MCC***.
158Dental & Oral Diseases w CC***.
184Major chest trauma w CC***.
188Pleural effusion w/o CC/MCC*.
200Pneumothorax w CC.
245AICD lead & generator procedures.
282Circulatory disorders w AMI, discharged alive w/o CC/MCC.
285Circulatory disorders w AMI, expired w/o CC/MCC*.
304Hypertension w MCC.
311Angina pectoris.
336Peritoneal adhesiolysis w CC.
382Complicated peptic ulcer w/o CC/MCC.
384Uncomplicated peptic ulcer w/o MCC.
390G.I. obstruction w/o CC/MCC.
433Cirrhosis & alcoholic hepatitis w CC*.
437Malignancy of hepatobiliary system or pancreas w/o CC/MCC.
443Disorders of liver except malig, cirr, alc hepa w/o CC/MCC.
499Local excision & removal int fix devices of hip & femur w/o CC/MCC.
514Hand or wrist proc, except major thumb or joint proc w/o CC/MCC.
534Fractures of femur w/o MCC.
535Fractures of hip & pelvis w MCC.
553Bone diseases & arthropathies w MCC.
555Signs & symptoms of musculoskeletal system & conn tissue w MCC.
556Signs & symptoms of musculoskeletal system & conn tissue w/o MCC.
578Skin graft &/or debrid exc for skin ulcer or cellulitis w/o CC/MCC.
598Malignant breast disorders w CC**.
599Malignant breast disorders w/o CC/MCC**.
600Non-malignant breast disorders w CC/MCC.
601Non-malignant breast disorders w/o CC/MCC.
642Inborn errors of metabolism.
660Kidney & ureter procedures for non-neoplasm w CC.
687Kidney & urinary tract neoplasms w CC.
693Urinary stones w/o ESW lithotripsy w MCC.
694Urinary stones w/o ESW lithotripsy w/o MCC**.
723Malignancy, male reproductive system w CC.
730Other male reproductive system diagnoses w/o CC/MCC.
744D&C, conization, laparoscopy & tubal interruption w CC/MC
769Postpartum & post abortion diagnoses w O.R. procedure.
803Other O.R. proc of the blood & blood forming organs w CC.
815Reticuloendothelial & immunity disorders w CC.
816Reticuloendothelial & immunity disorders w/o CC/MCC**.
842Lymphoma & non-acute leukemia w/o CC/MCC.
848Chemotherapy w/o acute leukemia as secondary diagnosis w/o CC/MCC.
864Fever of unknown origin.
897Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC.
903Wound debridements for injuries w/o CC/MCC.
905Skin grafts for injuries w/o CC/MCC.
917Poisoning & toxic effects of drugs w MCC.
918Poisoning & toxic effects of drugs w/o MCC.
929Full thickness burn w skin graft or inhal inj w/o CC/MCC.
956Limb reattachment, hip & femur proc for multiple significant trauma.
964Other multiple significant trauma w CC.
965Other multiple significant trauma w/o CC/MCC.
977HIV w or w/o other related condition.
QUINTILE 3
42Periph & cranial nerve & other nerv syst proc w/o CC/MCC.
53Spinal disorders & injuries w/o CC/MCC.
Start Printed Page 24762
78Hypertensive encephalopathy w CC***.
102Headaches w MCC**.
103Headaches w/o MCC.
133Other ear, nose, mouth & throat O.R. procedures w CC/MCC**.
134Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC**.
157Dental & Oral Diseases w MCC**.
158Dental & Oral Diseases w CC**.
159Dental & Oral Diseases w/o CC/MCC**.
238Major cardiovascular procedures w/o MCC.
246Percutaneous cardiovascular proc w drug-eluting stent w MCC.
250Perc cardiovasc proc w/o coronary artery stent or AMI w MCC.
263Vein ligation & stripping.
284Circulatory disorders w AMI, expired w CC*.
287Circulatory disorders except AMI, w card cath w/o MCC.
294Deep vein thrombophlebitis w CC/MCC.
347Anal & stomal procedures w MCC.
348Anal & stomal procedures w CC.
352Inguinal & femoral hernia procedures w/o CC/MCC.
354Hernia procedures except inguinal & femoral w CC.
358Other digestive system O.R. procedures w/o CC/MCC.
380Complicated peptic ulcer w MCC.
381Complicated peptic ulcer w CC.
383Uncomplicated peptic ulcer w MCC.
387Inflammatory bowel disease w/o CC/MCC*.
420Hepatobiliary diagnostic procedures w MCC.
421Hepatobiliary diagnostic procedures w CC.
424Other hepatobiliary or pancreas O.R. procedures w CC.
425Other hepatobiliary or pancreas O.R. procedures w/o CC/MCC.
494Lower extrem & humer proc except hip, foot, femur w/o CC/MCC.
502Soft tissue procedures w/o CC/MCC.
504Foot procedures w CC.
507Major shoulder or elbow joint procedures w CC/MCC.
517Other musculoskelet sys & conn tiss O.R. proc w/o CC/MCC.
533Fractures of femur w MCC.
597Malignant breast disorders w MCC.
599Malignant breast disorders w/o CC/MCC***.
604Trauma to the skin, subcut tiss & breast w MCC.
618Amputat of lower limb for endocrine, nutrit, & metabol dis w/o CC/MCC.
619O.R. procedures for obesity w MCC.
620O.R. procedures for obesity w CC**.
624Skin grafts & wound debrid for endoc, nutrit & metab dis w/o CC/MCC.
644Endocrine disorders w CC.
657Kidney & ureter procedures for neoplasm w CC.
662Minor bladder procedures w MCC.
665Prostatectomy w MCC.
667Prostatectomy w/o CC/MCC.
694Urinary stones w/o ESW lithotripsy w/o MCC***.
695Kidney & urinary tract signs & symptoms w MCC.
711Testes procedures w CC/MCC***.
722Malignancy, male reproductive system w MCC.
746Vagina, cervix & vulva procedures w CC/MCC.
749Other female reproductive system O.R. procedures w CC/MCC.
755Malignancy, female reproductive system w CC.
809Major hematol/immune diag exc sickle cell crisis & coagul w CC.
810Major hematol/immune diag exc sickle cell crisis & coagul w/o CC/MCC.
816Reticuloendothelial & immunity disorders w/o CC/MCC***.
821Lymphoma & leukemia w major O.R. procedure w CC.
826Myeloprolif disord or poorly diff neopl w maj O.R. proc w MCC.
834Acute leukemia w/o major O.R. procedure w MCC.
835Acute leukemia w/o major O.R. procedure w CC.
838Chemo w acute leukemia as sdx or w high dose chemo agent w CC.
843Other myeloprolif dis or poorly diff neopl diag w MCC***.
844Other myeloprolif dis or poorly diff neopl diag w CC***.
855Infectious & parasitic diseases w O.R. procedure w/o CC/MCC.
896Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC.
963Other multiple significant trauma w MCC.
989Non-extensive O.R. proc unrelated to principal diagnosis w/o CC/MCC.
QUINTILE 4
28Spinal procedures w MCC.
Start Printed Page 24763
29Spinal procedures w CC.
38Extracranial procedures w CC.
39Extracranial procedures w/o CC/MCC.
88Concussion w MCC**.
89Concussion w CC.
124Other disorders of the eye w MCC.
168Other resp system O.R. procedures w/o CC/MCC.
241Amputation for circ sys disorders exc upper limb & toe w/o CC/MCC
242Permanent cardiac pacemaker implant w MCC***.
244Permanent cardiac pacemaker implant w/o CC/MCC.
254Other vascular procedures w/o CC/MCC.
257Upper limb & toe amputation for circ system disorders w/o CC/MCC*.
286Circulatory disorders except AMI, w card cath w MCC.
351Inguinal & femoral hernia procedures w CC.
368Major esophageal disorders w MCC.
369Major esophageal disorders w CC.
370Major esophageal disorders w/o CC/MCC**.
408Biliary tract proc except only cholecyst w or w/o c.d.e. w MCC***.
407Pancreas, liver & shunt procedures w/o CC/MCC.
412Cholecystectomy w c.d.e. w CC.
414Cholecystectomy except by laparoscope w/o c.d.e. w MCC.
415Cholecystectomy except by laparoscope w/o c.d.e. w CC.
418Laparoscopic cholecystectomy w/o c.d.e. w CC.
423Other hepatobiliary or pancreas O.R. procedures w MCC.
472Cervical spinal fusion w CC.
476Amputation for musculoskeletal sys & conn tissue dis w/o CC/MCC*.
478Biopsies of musculoskeletal system & connective tissue w CC.
479Biopsies of musculoskeletal system & connective tissue w/o CC/MCC.
482Hip & femur procedures except major joint w/o CC/MCC.
486Knee procedures w pdx of infection w CC.
487Knee procedures w pdx of infection w/o CC/MCC.
490Back & neck procedures except spinal fusion w CC/MCC or disc devices.
493Lower extrem & humer proc except hip, foot, femur w CC.
497Local excision & removal int fix devices exc hip & femur w/o CC/MCC.
503Foot procedures w MCC.
511Shoulder, elbow or forearm proc, exc major joint proc w CC.
516Other musculoskelet sys & conn tiss O.R. proc w CC.
562Fx, sprn, strn & disl except femur, hip, pelvis & thigh w MCC.
576Skin graft &/or debrid exc for skin ulcer or cellulitis w MCC.
577Skin graft &/or debrid exc for skin ulcer or cellulitis w CC.
584Breast biopsy, local excision & other breast procedures w CC/MCC.
620O.R. procedures for obesity w CC***.
659Kidney & ureter procedures for non-neoplasm w MCC.
675Other kidney & urinary tract procedures w/o CC/MCC.
709Penis procedures w CC/MCC.
711Testes procedures w CC/MCC**.
712Testes procedures w/o CC/MCC**.
717Other male reproductive system O.R. proc exc malignancy w CC/MCC.
725Benign prostatic hypertrophy w MCC.
754Malignancy, female reproductive system w MCC.
760Menstrual & other female reproductive system disorders w CC/MCC.
776Postpartum & post abortion diagnoses w/o O.R. procedure.
781Other antepartum diagnoses w medical complications.
823Lymphoma & non-acute leukemia w other O.R. proc w MCC.
824Lymphoma & non-acute leukemia w other O.R. proc w CC.
843Other myeloprolif dis or poorly diff neopl diag w MCC**.
844Other myeloprolif dis or poorly diff neopl diag w CC**.
845Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC**.
880Acute adjustment reaction & psychosocial dysfunction.
909Other O.R. procedures for injuries w/o CC/MCC.
928Full thickness burn w skin graft or inhal inj w CC/MCC.
933Extensive burns or full thickness burns w MV 96+ hrs w/o skin graft.
958Other O.R. procedures for multiple significant trauma w CC.
983Extensive O.R. procedure unrelated to principal diagnosis w/o CC/MCC.
985Prostatic O.R. procedure unrelated to principal diagnosis w CC.
986Prostatic O.R. procedure unrelated to principal diagnosis w/o CC/MCC.
QUINTILE 5
12Tracheostomy for face, mouth & neck diagnoses w CC.
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26Craniotomy & endovascular intracranial procedures w CC.
31Ventricular shunt procedures w MCC.
37Extracranial procedures w MCC.
131Cranial/facial procedures w CC/MCC.
134Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC***.
137Mouth procedures w CC/MCC.
139Salivary gland procedures.
159Dental & Oral Diseases w/o CC/MCC***.
164Major chest procedures w CC.
226Cardiac defibrillator implant w/o cardiac cath w MCC.
227Cardiac defibrillator implant w/o cardiac cath w/o MCC.
237Major cardiovascular procedures w MCC.
242Permanent cardiac pacemaker implant w MCC**.
243Permanent cardiac pacemaker implant w CC.
248Percutaneous cardiovasc proc w non-drug-eluting stent w MCC.
258Cardiac pacemaker device replacement w MCC.
260Cardiac pacemaker revision except device replacement w MCC.
327Stomach, esophageal & duodenal proc w CC.
329Major small & large bowel procedures w MCC.
330Major small & large bowel procedures w CC.
335Peritoneal adhesiolysis w MCC.
350Inguinal & femoral hernia procedures w MCC.
370Major esophageal disorders w/o CC/MCC***.
405Pancreas, liver & shunt procedures w MCC.
406Pancreas, liver & shunt procedures w CC.
408Biliary tract proc except only cholecyst w or w/o c.d.e. w MCC**.
409Biliary tract proc except only cholecyst w or w/o c.d.e. w CC.
417Laparoscopic cholecystectomy w/o c.d.e. w MCC.
454Combined anterior/posterior spinal fusion w CC.
456Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w MCC.
459Spinal fusion except cervical w MCC.
460Spinal fusion except cervical w/o MCC.
466Revision of hip or knee replacement w MCC.
467Revision of hip or knee replacement w CC.
469Major joint replacement or reattachment of lower extremity w MCC.
470Major joint replacement or reattachment of lower extremity w/o MCC.
471Cervical spinal fusion w MCC.
477Biopsies of musculoskeletal system & connective tissue w MCC.
480Hip & femur procedures except major joint w MCC.
481Hip & femur procedures except major joint w CC.
485Knee procedures w pdx of infection w MCC.
488Knee procedures w/o pdx of infection w CC/MCC.
492Lower extrem & humer proc except hip, foot, femur w MCC.
498Local excision & removal int fix devices of hip & femur w CC/MCC.
513Hand or wrist proc, except major thumb or joint proc w CC/MCC.
582Mastectomy for malignancy w CC/MCC.
664Minor bladder procedures w/o CC/MCC.
668Transurethral procedures w MCC.
669Transurethral procedures w CC.
670Transurethral procedures w/o CC/MCC.
691Urinary stones w esw lithotripsy w CC/MCC.
712Testes procedures w/o CC/MCC***.
713Transurethral prostatectomy w CC/MCC.
715Other male reproductive system O.R. proc for malignancy w CC/MCC.
802Other O.R. proc of the blood & blood forming organs w MCC.
829Myeloprolif disord or poorly diff neopl w other O.R. proc w CC/MCC.
837Chemo w acute leukemia as sdx or w high dose chemo agent w MCC.
845Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC***.
957Other O.R. procedures for multiple significant trauma w MCC.
969HIV w extensive O.R. procedure w MCC.
970HIV w extensive O.R. procedure w/o MCC.
984Prostatic O.R. procedure unrelated to principal diagnosis w MCC
* One of the original 307 low-volume proposed MS-LTC-DRGs initially assigned to this proposed low-volume quintile; removed from this proposed low-volume quintile in addressing nonmonotonicity (see step 6 below).
** One of the original 307 low-volume proposed MS-LTC-DRGs initially assigned to a different proposed low-volume quintile but moved to this proposed low-volume quintile in addressing nonmonotonicity (see step 6 below).
*** One of the original 307 low-volume proposed MS-LTC-DRGs initially assigned to this proposed low-volume quintile but moved to a different proposed low-volume quintile in addressing nonmonotonicity (see step 6 below).
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We note that we will continue to monitor the volume (that is, the number of LTCH cases) in these low-volume quintiles to ensure that our proposed quintile assignment results in appropriate payment for such cases and does not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases.

4. Steps for Determining the Proposed FY 2008 MS-LTC-DRG Relative Weights

As we noted previously, although the proposed adoption of the MS-LTC-DRGs will result in some modifications of existing procedures for assigning weights in cases of zero volume and/or nonmonotonicity, described in detail elsewhere in this section, the proposed FY 2008 MS-LTC-DRG relative weights in this proposed rule are based on the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). In summary, for FY 2008, LTCH cases would be grouped to the appropriate MS-LTC-DRG, while taking into account the low-volume proposed MS-LTC-DRGs as described above, before the proposed FY 2008 MS-LTC-DRG relative weights can be determined. After grouping the cases to the appropriate proposed MS-LTC-DRG, we are proposing to calculate the proposed relative weights for FY 2008 by first removing statistical outliers and cases with a length of stay of 7 days or less, as discussed in greater detail below. Next, we are proposing to adjust the number of cases in each proposed MS-LTC-DRG for the effect of short-stay outlier cases under § 412.529, as also discussed in greater detail below. The short-stay adjusted discharges and corresponding charges are used to calculate “relative adjusted weights” in each proposed MS-LTC-DRG using the HSRV method described above.

Below we discuss in detail the steps for calculating the proposed FY 2008 MS-LTC-DRG relative weights. We note that, as we stated above in section II.I.3.b. of the preamble of this proposed rule, we have excluded the data of all-inclusive rate LTCHs and LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2006 MedPAR file.

Step 1—Remove statistical outliers.

The first step in the calculation of the proposed FY 2008 MS-LTC-DRG relative weights is to remove statistical outlier cases. We define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each proposed MS-LTC-DRG. These statistical outliers are removed prior to calculating the proposed relative weights. As noted above, we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the proposed relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among the proposed MS-LTC-DRGs.

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

The proposed FY 2008 MS-LTC-DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay of 7 days or less do not belong in a LTCH because these stays do not fully receive or benefit from treatment that is typical in a LTCH stay, and full resources are often not used in the earlier stages of admission to a LTCH. As explained above, if we were to include stays of 7 days or less in the computation of the proposed FY 2008 MS-LTC-DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH, by including data from these very short-stays. Thus, as explained above, in determining the proposed FY 2008 MS-LTC-DRG relative weights, we remove LTCH cases with a length of stay of 7 days or less.

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

After removing cases with a length of stay of 7 days or less, we are left with cases that have a length of stay of greater than or equal to 8 days. The next step in the calculation of the proposed FY 2008 MS-LTC-DRG relative weights is to adjust each LTCH's charges per discharge for those remaining cases for the effects of short-stay outliers as defined in § 412.529(a). (We note that even if a case was removed in Step 2 (that is, cases with a length of stay of 7 days or less), it was paid as a short-stay outlier if its length of stay was less than or equal to five-sixths of the average length of stay of the MS-LTC-DRG, in accordance with § 412.529.)

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

As we explained in the FY 2007 IPPS final (71 FR 47979), counting short-stay outlier cases as full discharges with no adjustment in determining the proposed MS-LTC-DRG relative weights would lower the proposed LTC-DRG relative weight for affected proposed MS-LTC-DRGs because the relatively lower charges of the short-stay outlier cases would bring down the average charge for all cases within a proposed MS-LTC-DRG. This would result in an “underpayment” for nonshort-stay outlier cases and an “overpayment” for short-stay outlier cases. Therefore, we adjust for short-stay outlier cases under § 412.529 in this manner because it results in more appropriate payments for all LTCH cases.

Step 4—Calculate the proposed FY 2008 MS-LTC-DRG relative weights on an iterative basis.

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

For each proposed DRG, the proposed FY 2008 MS-LTC-DRG relative weight is calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the proposed MS-LTC-DRG by the overall average hospital-specific relative charge value across all cases for all LTCHs. Using these proposed recalculated MS-LTC-DRG relative weights, each LTCH's average relative weight for all of its cases (case-mix) is calculated by dividing the sum of all the LTCH's proposed MS-LTC-DRG relative weights by its total number of cases. The LTCHs' hospital-specific relative charge values above are multiplied by these hospital-specific case-mix indexes. These hospital-specific case-mix Start Printed Page 24766adjusted relative charge values are then used to calculate a new set of proposed MS-LTC-DRG relative weights across all LTCHs. In this proposed rule, this iterative process is continued until there is convergence between the weights produced at adjacent steps, for example, when the maximum difference is less than 0.0001.

Step 5—Determine a proposed FY 2007 MS-LTC-DRG relative weight for proposed MS-LTC-DRGs with no LTCH cases.

As we stated above, we determine the proposed relative weight for each proposed MS-LTC-DRG using total Medicare allowable charges reported in the December 2006 update of the FY 2006 MedPAR file. Of the 745 proposed MS-LTC-DRGs for FY 2008, we identified 124 proposed MS-LTC-DRGs for which there were no LTCH cases in the database. That is, based on data from the FY 2006 MedPAR file used in this proposed rule, no patients who would have been classified to those proposed MS-LTC-DRGs were treated in LTCHs during FY 2006 and, therefore, no charge data were reported for those proposed MS-LTC-DRGs. Thus, in the process of determining the proposed MS-LTC-DRG relative weights, we are unable to determine weights for these 124 proposed MS-LTC-DRGs using the methodology described in Steps 1 through 4 above. However, because patients with a number of the diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs beginning in FY 2008, for this proposed rule, we are proposing to assign relative weights to each of the 124 no-volume proposed MS-LTC-DRGs based on clinical similarity and relative costliness to one of the remaining 621 (745−124 = 621) proposed MS-LTC-DRGs for which we are able to determine proposed relative weights, based on FY 2006 LTCH claims data. In general, we determined proposed relative weights for the 124 proposed MS-LTC-DRGs with no LTCH cases in the FY 2006 MedPAR file used in this proposed rule by crosswalking these proposed MS-LTC-DRGs to other proposed MS-LTC-DRGs and then grouping them to the appropriate proposed low-volume quintile. This methodology is consistent with our methodology used in determining relative weights to account for the low-volume proposed MS-LTC-DRGs described above.

Our proposed methodology for determining the relative weights for the no-volume MS-LTC-DRGs is as follows: We crosswalk the no-volume proposed MS-LTC-DRG to a proposed MS-LTC-DRG for which there are LTCH cases in the FY 2006 MedPAR file and to which it is similar clinically and in intensity of use of resources as determined by care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. If the proposed MS-LTC-DRG to which it is crosswalked is grouped to one of the proposed low-volume quintiles, we assign the relative weight for the applicable low-volume quintile to the no volume proposed MS-LTC-DRG. However, if the proposed MS-LTC-DRG to which the no-volume proposed MS-LTC-DRG is crosswalked is not one of the proposed MS-LTC-DRGs in a low-volume quintile, we do the following: (1) compare the relative weight of the proposed MS-LTC-DRG to which the no-volume proposed MS-LTC-DRG is crosswalked to the relative weights of each of the five quintiles; (2) assign the no volume proposed MS-LTC-DRG the relative weight of the low-volume quintile with the relative weight that is closest to the proposed MS-LTC-DRG to which the no volume proposed MS-LTC-DRG is crosswalked. (We note that in the infrequent case where nonmonotonicity involving a no volume proposed MS-LTC-DRG results, additional measures as described in Step 6 are required in order to maintain monotonically increasing relative weights.) or this proposed rule, a list of the no-volume proposed FY 2008 MS-LTC-DRGs and the proposed FY 2008 MS-LTC-DRG to which it is crosswalked is shown in the chart below.

No-Volume Proposed MS-LTC-DRG Crosswalk for FY 2008

Proposed MS-LTC-DRGProposed MS-LTC-DRG descriptionProposed crosswalked MS-LTC-DRG
9Bone marrow transplant823
20Intracranial vascular procedures w PDX hemorrhage w MCC31
21Intracranial vascular procedures w PDX hemorrhage w CC32
22Intracranial vascular procedures w PDX hemorrhage w/o CC/MCC33
23Craniotomy w major device implant or acute complex CNS PDX w MCC31
24Craniotomy w major device implant or acute complex CNS PDX w/o MCC33
34Carotid artery stent procedure w MCC37
35Carotid artery stent procedure w CC38
36Carotid artery stent procedure w/o CC/MCC39
61Acute ischemic stroke w use of thrombolytic agent w MCC70
62Acute ischemic stroke w use of thrombolytic agent w CC71
63Acute ischemic stroke w use of thrombolytic agent w/o CC/MCC72
115Extraocular procedures except orbit125
116Intraocular procedures w CC/MCC125
117Intraocular procedures w/o CC/MCC125
129Major head & neck procedures w CC/MCC or major device146
130Major head & neck procedures w/o CC/MCC148
135Sinus & mastoid procedures w CC/MCC133
136Sinus & mastoid procedures w/o CC/MCC133
150Epistaxis w MCC152
151Epistaxis w/o MCC153
215Other heart assist system implant238
216Cardiac valve & oth maj cardiothoracic proc w card cath w MCC237
217Cardiac valve & oth maj cardiothoracic proc w card cath w CC238
218Cardiac valve & oth maj cardiothoracic proc w card cath w/o CC/MCC250
219Cardiac valve & oth maj cardiothoracic proc w/o card cath w MCC237
220Cardiac valve & oth maj cardiothoracic proc w/o card cath w CC238
221Cardiac valve & oth maj cardiothoracic proc w/o card cath w/o CC/MCC250
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222Cardiac defib implant w cardiac cath w AMI/HF/shock w MCC242
223Cardiac defib implant w cardiac cath w AMI/HF/shock w/o MCC243
224Cardiac defib implant w cardiac cath w/o AMI/HF/shock w MCC242
225Cardiac defib implant w cardiac cath w/oAMI/HF/shock w/o MCC243
228Other cardiothoracic procedures w MCC252
229Other cardiothoracic procedures w CC253
230Other cardiothoracic procedures w/o CC/MCC254
231Coronary bypass w PTCA w MCC237
232Coronary bypass w PTCA w/o MCC238
233Coronary bypass w cardiac cath w MCC237
234Coronary bypass w cardiac cath w/o MCC238
235Coronary bypass w/o cardiac cath w MCC237
236Coronary bypass w/o cardiac cath w/o MCC238
296Cardiac arrest, unexplained w MCC283
297Cardiac arrest, unexplained w CC284
298Cardiac arrest, unexplained w/o CC/MCC285
332Rectal resection w MCC356
333Rectal resection w CC357
334Rectal resection w/o CC/MCC358
338Appendectomy w complicated principal diag w MCC371
339Appendectomy w complicated principal diag w CC372
340Appendectomy w complicated principal diag w/o CC/MCC373
341Appendectomy w/o complicated principal diag w MCC371
342Appendectomy w/o complicated principal diag w CC372
343Appendectomy w/o complicated principal diag w/o CC/MCC373
344Minor small & large bowel procedures w MCC371
345Minor small & large bowel procedures w CC372
346Minor small & large bowel procedures w/o CC/MCC373
457Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w CC456
461Bilateral or multiple major joint procs of lower extremity w MCC480
462Bilateral or multiple major joint procs of lower extremity w/o MCC482
483Major joint & limb reattachment proc of upper extremity w CC/MCC480
484Major joint & limb reattachment proc of upper extremity w/o CC/MCC482
506Major thumb or joint procedures514
509Arthroscopy505
537Sprains, strains, & dislocations of hip, pelvis & thigh w CC/MCC505
538Sprains, strains, & dislocations of hip, pelvis & thigh w/o CC/MCC505
614Adrenal & pituitary procedures w CC/MCC629
615Adrenal & pituitary procedures w/o CC/MCC630
625Thyroid, parathyroid & thyroglossal procedures w MCC628
626Thyroid, parathyroid & thyroglossal procedures w CC629
627Thyroid, parathyroid & thyroglossal procedures w/o CC/MCC630
653Major bladder procedures w MCC659
654Major bladder procedures w CC660
655Major bladder procedures w/o CC/MCC661
666Prostatectomy w CC665
671Urethral procedures w CC/MCC687
672Urethral procedures w/o CC/MCC688
697Urethral stricture688
707Major male pelvic procedures w CC/MCC660
708Major male pelvic procedures w/o CC/MCC661
734Pelvic evisceration, rad hysterectomy & rad vulvectomy w CC/MCC717
735Pelvic evisceration, rad hysterectomy & rad vulvectomy w/o CC/MCC718
736Uterine & adnexa proc for ovarian or adnexal malignancy w MCC754
737Uterine & adnexa proc for ovarian or adnexal malignancy w CC755
738Uterine & adnexa proc for ovarian or adnexal malignancy w/o CC/MCC756
739Uterine,adnexa proc for non-ovarian/adnexal malig w MCC754
740Uterine,adnexa proc for non-ovarian/adnexal malig w CC755
741Uterine,adnexa proc for non-ovarian/adnexal malig w/o CC/MCC756
742Uterine & adnexa proc for non-malignancy w CC/MCC755
743Uterine & adnexa proc for non-malignancy w/o CC/MCC756
748Female reproductive system reconstructive procedures749
765Cesarean section w CC/MCC744
766Cesarean section w/o CC/MCC769
767Vaginal delivery w sterilization &/or D&C769
768Vaginal delivery w O.R. proc except steril &/or D&C769
770Abortion w D&C, aspiration curettage or hysterotomy769
774Vaginal delivery w complicating diagnoses769
775Vaginal delivery w/o complicating diagnoses769
777Ectopic pregnancy769
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778Threatened abortion759
779Abortion w/o D&C759
780False labor759
782Other antepartum diagnoses w/o medical complications759
789Neonates, died or transferred to another acute care facility761
790Extreme immaturity or respiratory distress syndrome, neonate761
791Prematurity w major problems760
792Prematurity w/o major problems761
793Full term neonate w major problems760
794Neonate w other significant problems760
795Normal newborn761
799Splenectomy w MCC423
800Splenectomy w CC424
801Splenectomy w/o CC/MCC425
827Myeloprolif disord or poorly diff neopl w maj O.R. proc w CC823
887Other mental disorder diagnoses881
927Extensive burns or full thickness burns w MV 96+ hrs w skin graft933
955Craniotomy for multiple significant trauma26

To illustrate this methodology for determining the proposed relative weights for the 124 proposed MS-LTC-DRGs with no LTCH cases, we are providing the following example, which refers to the no volume proposed MS-LTC-DRGs crosswalk information for FY 2008 provided in the chart above.

Example 1:

There were no cases in the FY 2006 MedPAR file used for this proposed rule for proposed MS-LTC-DRG 22 (Intracranial vascular procedures w PDX hemorrhage w/o CC/MCC). We determined that proposed MS-LTC-DRG 33 (Ventricular shunt procedures w/o CC/MCC), which is assigned to low-volume Quintile 1 for the purpose of determining the proposed FY 2008 relative weights, is similar clinically and based on resource use to proposed MS-LTC-DRG 22. Therefore, we are proposing to assign the same relative weight of proposed MS-LTC-DRG 33 of 0.48011 (Quintile 1) for FY 2008 (Table 11 in the Addendum to this proposed rule) to proposed MS-LTC-DRG 22.

Furthermore, for FY 2008 we are proposing to establish proposed MS-LTC-DRG relative weights of 0.0000 for the following transplant proposed MS-LTC-DRGs: Heart transplant or implant of heart assist system w MCC (proposed LTC-DRG 1); Heart transplant or implant of heart assist system w/o MCC (proposed LTC-DRG 2); Liver transplant w MCC or intestinal transplant (proposed LTC-DRG 5); Liver transplant w/o MCC (proposed LTC-DRG 6); Lung transplant (proposed LTC-DRG 7); Simultaneous pancreas/kidney transplant (proposed LTC-DRG 8); and Pancreas transplant (proposed LTC-DRG 10). This is because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. Based on our research, we found that most LTCHs only perform minor surgeries, such as minor small and large bowel procedures, to the extent any surgeries are performed at all. Given the extensive criteria that must be met to become certified as a transplant center for Medicare, we believe it is unlikely that any LTCHs will become certified as a transplant center. In fact, in the nearly 20 years since the implementation of the IPPS, there has never been a LTCH that even expressed an interest in becoming a transplant center.

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

Again, we note that, as this system is dynamic, it is entirely possible that the number of proposed MS-LTC-DRGs with no volume of LTCH cases based on the system will vary in the future. We used the most recent available claims data in the MedPAR file to identify no volume proposed MS-LTC-DRGs and to determine the proposed relative weights in this proposed rule.

Table 11 in the Addendum to this proposed rule lists the proposed MS-LTC-DRGs and their respective proposed relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (to assist in the determination of short-stay outlier payments under § 412.529) for FY 2008.

Step 6—Adjust the proposed FY 2008 MS-LTC-DRG relative weights to account for nonmonotonically increasing relative weights.

As explained in section II.B. of this preamble, the IPPS proposed FY 2008 MS-DRGs, on which the proposed FY 2008 MS-LTC-DRGs are based, provide a significant improvement in the DRG system's recognition of severity of illness and resource usage. The proposed MS-DRGs contain base DRGs that have been subdivided into one, two, or three severity levels. Where there are three severity levels, the most severe level has at least one code that is referred to as an MCC. The next lower severity level contains cases with at least one code that is a CC. Those cases without a MCC or a CC are referred to as without CC/MCC. When data did not support the creation of three severity levels, the base was divided into either two levels or the base was not subdivided. The two-level subdivisions could consist of the CC/MCC and the without CC/MCC. Alternatively, the other type of two level subdivision could consist of the MCC and without MCC. In base DRGs with two levels, cases classified into a “without CC/MCC” proposed MS-LTC-DRG are expected to have lower resource use Start Printed Page 24769(and lower costs) than the “with CC/MM” and “with MCC.”

That is, theoretically, cases that are more severe typically require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels, relative weights should increase by severity, from lowest to highest. If the weights do not increase (that is, if within a base MS-LTC-DRG, a proposed MS-LTC-DRG with MCC has a lower relative weight than one with CC, or the proposed MS-LTC-DRG without CC/MCC has a higher relative weight than either of the others, they are nonmonotonic. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments. Consequently, we are proposing that, in general, we would combine proposed MS-LTC-DRG severity levels within a proposed base MS-LTC-DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. Specifically, under each of the example scenarios provided below, we would combine severity levels within a proposed base MS-LTC-DRG as follows:

The first example of nonmonotonically increasing relative weights for MS-LTC-DRG pertains to base DRGs with a three-level split and each of the three levels has 25 or more LTCH cases and, therefore, did not fall into one of the proposed five low-volume quintiles. If nonmonotonicity is detected in the relative weights of proposed MS-LTC-DRGs in adjacent severity levels (for example, the relative weight of the “with MCC” (the highest severity level) is less than the “with CC” (the middle level), or the “with CC” is less than the “without CC/MCC”), we are proposing to combine the adjacent proposed MS-LTC-DRGs and determine one relative weight based on the case-weighted average of the combined LTCH cases of the nonmonotonic proposed MS-LTC-DRG. The case-weighted average charge is determined by dividing the total charges for all LTCH cases in both severity levels by the total number of LTCH cases for the combined proposed MS-LTC-DRGs. We are proposing to apply this relative weight to both affected levels of the proposed base MS-LTC-DRG. If nonmonotonicity remains an issue because the above process results in a relative weight that is still nonmonotonic to the remaining proposed MS-LTC-DRG, we are proposing to combine all three of the severity levels to determine one relative weight which is assigned to each of the proposed MS-LTC-DRG in that proposed base MS-LTC-DRG.

A second scenario of nonmonotonically increasing relative weights for an MS-LTC-DRG pertains to the situation where one or more of the severity levels within a base DRG has less than 25 LTCH cases (that is, low volume). If nonmonotonicity occurs in the case where either the highest or lowest severity level (with MCC” or “without CC/MCC”) has 25 LTCH cases or more and the other two severity levels are low volume (and therefore the other two severity levels would otherwise be assigned to quintiles), we are proposing to combine the data for the cases in the two adjacent low-volume proposed MS-LTC-DRGs for the purpose of determining a relative weight. If the combination results in at least 25 cases, we are proposing to calculate one relative weight and assign it to both of the proposed severity levels. If the combination results in less than 25 cases, based on the case-weighted average charge of the combined low-volume MS-LTC-DRGs, both MS-LTC-DRGs, are assigned the relative weight of the quintile that has the closest relative weight to the case weighted average change of the combined low volume case. If nonmonotonicity persists, we are proposing to combine all three severity levels and one relative weight would be assigned to all three levels based on the case weighted average of the combined severity level. Similarly, in nonmonotonic cases where the middle level has 25 cases or more but either or both the lowest or highest severity level has less than 25 cases (that is, low volume), we are proposing to combine the nonmonotonic low-volume proposed MS-LTC-DRG with the middle level proposed MS-LTC-DRG of the base DRG. We are proposing to calculate one relative weight and apply it to both of the affected proposed MS-LTC-DRGs. If the nonmonotonicity persists, we are proposing to combine all three levels for the purpose of determining a relative weight, and apply that relative weight to all three levels.

A third scenario addresses nonmonotonicity in a base DRG where at least one of the severity levels has no cases. As discussed in greater detail in Step 5, based on clinical similarity, we would cross-walk the proposed MS-LTC-DRG to a proposed MS-LTC-DRG to which it is similar clinically and in intensity of resource use and then assign it to a quintile with the relative weight closest to that of the MS-LTC-DRG to which the no-volume MS-LTC-DRG had been cross-walked. If this results in nonmonotonicity, in the case where the no-volume proposed MS-LTC-DRG is either the lowest or highest severity level, we are proposing to assign to the no-volume proposed MS-LTC-DRG the same relative weight that is assigned to the middle level of the MS-LTC-DRG in that base DRG. If nonmonotonicity persists, we are proposing that all three severity levels be combined for the purpose of calculating one relative weight which is applied to each of the three levels. We note that this is a departure from our current treatment of no-volume LTC-DRGs which results in an ultimate assignment to a quintile. However, we propose that in the infrequent case where nonmonotonicity involves a no-volume proposed MS-LTC-DRG, we believe it is appropriate to resolve the nonmonotonicity by assigning the no-volume proposed MS-LTC-DRG the relative weight of the proposed MS-LTC-DRG(s) in the base DRG, regardless of whether the other proposed MS-LTC-DRG(s) is low volume (therefore assigned a relative weight of a quintile) or high volume (assigned its own relative weight). We believe this treatment achieves monotonically increasing relative weights while providing appropriate payment for the no-volume proposed MS-LTC-DRG because the relative weight assigned to the no-volume proposed MS-LTC-DRG is based on the average charges of services rendered within the same proposed base MS-LTC-DRG, rather than a quintile which contains proposed MS-LTC-DRGs from different proposed base MS-LTC-DRGs.

We are proposing to apply the same process where the proposed base MS-LTC-DRG contains a two-level split. For example, if nonmonotonicity occurs in a proposed base MS-LTC-DRG with two severity levels (that is, the higher severity level relative weight is less than the lower severity level), where both of the MS-LTC-DRGs have at least 25 cases or where one or both of the proposed MS-LTC-DRGs is low volume, we are proposing to combine the two proposed MS-LTC-DRGs of that proposed base MS-LTC-DRG for the purpose of determining a case-weighted relative weight. If the combination still results in at least 25 cases, we are proposing to calculate one relative weight and assign it to both of the proposed MS-LTC-DRGs. If the combination results in less than 25 cases, we determine the quintile assignment for both MS-LTC-DRGs based on the case-weighted average charge and assign both MS-LTC-DRGs the same relative weight of the appropriate quintile.

Step 7—Calculate the proposed FY 2008 budget neutrality factor. Start Printed Page 24770

As we stated in the FY 2008 LTCH PPS proposed rule (72 FR 4784 through 4786), under the broad authority conferred upon the Secretary under section 123 of Pub. L. 106-113 as amended by section 307(b) of Pub. L. 106-554 to develop the LTCH PPS, we proposed that, beginning with the MS-LTC-DRG update for FY 2008, the annual update to the proposed MS-LTC-DRG classifications and relative weights would be done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the proposed MS-LTC-DRG classification and relative weight changes. Currently under § 412.517, the LTC-DRG classifications and relative weights are adjusted annually to reflect changes in factors affecting the relative use of LTCH resources, such as treatment patterns, technology and number of discharges. In addition, there are currently no statutory or regulatory requirements that the annual update to the LTC-DRG classifications and relative weights be done in a budget neutral manner. Since the initial implementation of the LTCH PPS in FY 2003, we have updated the LTC-DRG relative weights each year without a budget neutrality adjustment based on the most recent available LTCH claims data, which reflect current LTCH patient mix and coding practices, and appropriately reflected more or less resource use than the previous year's LTC-DRG relative weights (71 FR 47991). Historically, we have not updated the LTC-DRGs in a budget neutral manner because we believed that past fluctuations in the LTC-DRG relative weights were primarily due to changes in LTCH coding practices. We believe that changes in the LTCH PPS payment rates, including the LTC-DRG relative weights, should accurately reflect changes in LTCHs' true cost of treating patients (real CMI increase), and should not be influenced by changes in coding practices (apparent CMI increase). Because LTCH 2006 claims data does not appear to significantly reflect changes in LTCH coding practices in response to the implementation of the LTCH PPS, we believe that it may be appropriate to update the LTC-DRGs so that estimated aggregate LTCH PPS payments would neither increase nor decrease. Thus, in the FY 2008 LTCH PPS proposed rule (72 FR 4784), we proposed that the annual update to the LTC-DRG classifications and relative weights be done in a budget neutral manner. (For a detailed discussion on updating the LTC-DRG classifications and relative weights in a budget neutral manner, refer to the FY 2008 LTCH PPS proposed rule (72 FR 4784 through 4786). Updating the LTC-DRGs in a budget neutral manner would result in an annual update to the individual LTC-DRG classifications and relative weights based on the most recent available data to reflect changes in relative LTCH resource use, and the LTC-DRG relative weights would be uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that proposal, we are proposing to update the proposed MS-LTC-DRG classifications and relative weights for FY 2008 based on the most recent available data and include a budget neutrality adjustment.

To ensure budget neutrality in updating the MS-LTC-DRG classifications and relative weights under the proposed change to § 412.517, we are proposing to use a method that is similar to the methodology used under the IPPS. (A discussion of the IPPS DRG budget neutrality adjustment can be found in the FY 2007 IPPS final rule (71 FR 47970).) Specifically, we are proposing that, after recalibrating the proposed MS-LTC-DRG relative weights, as we do under the methodology as described in detail in Steps 1 through 6 above, we would calculate and apply a normalization factor to the proposed MS-LTC-DRG relative weights to ensure that estimated payments are not influenced by changes in the composition of case types or changes made to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the proposed MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases total estimated payments. To calculate the normalization factor, we are proposing to use the most recent available claims data (FY 2006) and apply the proposed GROUPER (Version 25.0) to calculate the proposed relative weights. Furthermore, we are proposing to use the most recent available claims data in the analysis for the final rule. These weights are determined such that the average CMI value is 1.0. Then, we are proposing to group the same claims data (FY 2006) using the current GROUPER (Version 24.0) and current relative weights. The average CMI is calculated for the claims data using the current GROUPER and relative weights. Finally, the ratio of the average CMI of the claims data set under the current GROUPER and the proposed GROUPER is calculated as the proposed normalization factor. For FY 2008, based on the latest available data, the proposed normalization factor is estimated as 1.020302, which is applied to each proposed MS-LTC-DRG relative weight. (However, if more current data become available prior to publication of the final rule, we will use those data to determine the normalization factor.) That is, each proposed MS-LTC-DRG relative weight is multiplied by 1.020302 in the first step of the budget neutrality process. We are also proposing to ensure that estimated aggregate LTCH PPS payments (based on the most recent available LTCH claims data) after recalibration (the proposed relative weights) would be equal to estimated aggregate LTCH PPS payments (for the same most recent available LTCH claims data) before recalibration (the existing relative weights). Therefore, we are proposing to calculate the budget neutrality adjustment factor by simulating estimated payments under both sets of GROUPERs and relative weights. We are proposing to simulate total estimated payments under the current payment policies (RY 2007) using the most recent available claims data (FY 2006) and using the proposed GROUPER (Version 25.0), and normalized relative weights. Then, we are proposing to simulate estimated payments using the most recent available claims data (FY 2006) and apply the proposed GROUPER (Version 25.0). We next calculate payments using the same claims data (FY 2006) with the current GROUPER (Version 24.0). The ratio of the estimated average payment under the current GROUPER and the proposed GROUPER is calculated as the proposed budget neutrality factor. Then each of the proposed normalized relative weights is multiplied by the budget neutrality factor to determine the proposed budget neutral relative weight for each proposed MS-LTC-DRG. Accordingly, based on the most recent available data, we are proposing a budget neutrality factor of 1.003924 that is applied to the relative weights after normalizing. If more current data become available prior to publication of the final rule, we will use those data to determine the budget neutrality factor. The relative weights in Table 11 in the Addendum of this proposed rule reflect those budget neutral weights. If, as a result of comments, we decide not to finalize the proposed budget neutrality policy, the proposed weights in Table 11 of the Addendum to this proposed Start Printed Page 24771rule change by the two factors discussed herein.

Step 8—Apply the proposed case-mix budget neutrality factor to the proposed MS-LTC-DRG relative weight.

As discussed under section II.D.6. of the preamble of this proposed rule, we are proposing a budget neutral adjustment for FY 2008 and FY 2009 to eliminate the effect of changes in coding or classification of discharges that do not reflect real change in case-mix because we believe that adoption of the proposed MS-LTC-DRGs would create a risk of increased aggregate levels of payment as a result of increased documentation and coding. The additional step 8 would be necessary for FY 2008 and FY 2009 to ensure that estimated aggregate LTCH PPS payments would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the adoption of the proposed MS-LTC-DRG patient classification system. Accordingly, each of the relative weights in Table 11 of the Addendum to this proposed rule reflects this proposed adjustment. That is, each proposed MS-LTC-DRG relative weight is multiplied by a factor of 0.976 to account for changes in coding or classification of discharges resulting from the adoption of the new patient classification system.

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

(If you choose to comment on issues in this section, please include the caption “New Technology” at the beginning of your comment.)

1. Background

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

The regulations implementing this provision establish three criteria for new medical services and technologies to receive an additional payment. First, § 412.87(b)(2) defines when a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments. The statutory provision contemplated the special payment treatment for new medical services or technologies until such time as data are available to reflect the cost of the technology in the DRG weights through recalibration. There is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market and when data reflecting the use of the medical service or technology are used to calculate the DRG weights. For example, data from discharges occurring during FY 2006 are used to calculate the proposed FY 2008 DRG weights in this proposed rule. Section 412.87(b)(2) provides that, “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs based on available data to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered ‘new’ under the criterion for this section.”

The 2-year to 3-year period during which a medical service or technology can be considered new would ordinarily begin with FDA approval, unless there was some documented delay in bringing the product onto the market after that approval (for instance, component production or drug production has been postponed until FDA approval due to shelf life concerns or manufacturing issues). After the DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the special add-on payment for new medical services or technologies ceases (§ 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2006 and entered the market at that time may be eligible to receive add-on payments as a new technology until FY 2010 (discharges occurring before October 1, 2009), when data reflecting the costs of the technology could be used to recalibrate the DRG weights. Because the FY 2009 DRG weights would be calculated using FY 2007 MedPAR data, the costs of such a new technology would be reflected in the FY 2009 DRG weights.

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

However, section 503(b)(1) of Pub. L. 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide for “applying a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges), or 75 percent of 1 standard deviation for the diagnosis-related group involved.” The provisions of section 503(b)(1) apply to classification for fiscal years beginning with FY 2005. (Refer to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion of the revision of the regulations to incorporate the change made by section 503(b)(1) of Pub. L. 108-173.) Table 10 of the Addendum to the FY 2007 IPPS final rule (71 FR 48319) contained the final thresholds that are being used to evaluate applications for new technology add-on payments for FY 2008. An applicant must demonstrate that the cost threshold is met using information from inpatient hospital claims.

We were recently asked to revisit the issue of whether the HIPAA Privacy Rule at 45 CFR Parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. We previously addressed this issue in the September 7, 2001 final rule (66 FR 46917) that established the new technology add-on payment regulations. In the preamble to that final rule, we explained that health plans, including Medicare, and providers that conduct certain transactions electronically, including the hospitals that would be receiving payment under the FY 2001 IPPS final rule, are required to comply with the HIPAA Privacy Rule. We further explained how such entities could meet the applicable HIPAA Start Printed Page 24772requirements by discussing how the HIPAA Privacy Rule permitted providers to share with health plans information needed to ensure correct payment, if they have obtained consent from the patient to use that patient's data for treatment, payment, or health care operations. We also explained that because the information to be provided within applications for new technology add-on payment would be needed to ensure correct payment, no additional consent would be required. The HHS Office of Civil Rights has since amended the HIPAA Privacy Rule, but the results remain. The HIPAA Privacy Rule no longer requires covered entities to obtain consent from patients to use or disclose individually identifiable health information for treatment, payment, or healt