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Proposed Rule

Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates; Proposed Changes to Disclosure of Physician Ownership in Hospitals and Physician Self-Referral Rules; Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians

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Start Preamble Start Printed Page 23528

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, the Medicare Improvements and Extension Act, Division B, Title I of the Tax Relief and Health Care Act of 2006, and the TMA, Abstinence Education, and QI Programs Extension Act of 2007. 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. These proposed changes would be applicable to discharges occurring on or after October 1, 2008. We also are setting forth the proposed update to the rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The proposed updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2008.

Among the other policy decisions and changes that we are proposing to make are changes related to: Limited proposed revisions of the classification of cases to Medicare severity diagnosis-related groups (MS-DRGs), proposals to address charge compression issues in the calculation of MS-DRG relative weights, the proposed revisions to the classifications and relative weights for the Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs); applications for new medical services and technologies add-on payments; wage index reform changes and the wage data, including the occupational mix data, used to compute the proposed FY 2009 wage indices; submission of hospital quality data; proposed changes to the postacute care transfer policy relating to transfers to home for the furnishing of home health services; and proposed policy changes relating to the requirements for furnishing hospital emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).

In addition, we are proposing policy changes relating to disclosure to patients of physician ownership or investment interests in hospitals and soliciting public comments on a proposed collection of information regarding financial relationships between hospitals and physicians. We are also proposing changes or soliciting comments on issues relating to policies on physician self-referrals.

DATES:

To be assured consideration, comments must be received at one of the addresses provide below, no later than 5 p.m. E.S.T. on June 13, 2008.

ADDRESSES:

When commenting on issues presented in this proposed rule, please refer to filecode CMS-1390-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may submit electronic comments on this regulation to http://www.regulations.gov. Follow the instructions for “Comment or Submission” and enter the file code CMS-1390-P to submit comments on this proposed rule.

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1390-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-1390-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

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

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

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

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

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

Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by following the instructions 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:

Michele Hudson, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, and Postacute Care Transfer Issues.

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs, EMTALA, Hospital Emergency Services, and Hospital-within-Hospital Issues.

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

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

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

Anne Hornsby, (410) 786-1181, Collection of Managed Care Encounter Data Issues.

Jacqueline Proctor, (410) 786-8852, Disclosure of Physician Ownership in Start Printed Page 23529Hospitals and Financial Relationships between Hospitals and Physicians Issues.

Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1404, Physician Self-Referral Issues.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

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

Comments received timely will also be available for public inspection, 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

AARP American Association of Retired Persons

AAHKS American Association of Hip and Knee Surgeons

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

AF Artrial fibrillation

AHA American Hospital Association

AICD Automatic implantable cardioverter defibrillator

AHIMA American Health Information Management Association

AHIC American Health Information Community

AHRQ Agency for Healthcare Research and Quality

AMA American Medical Association

AMGA American Medical Group Association

AMI Acute myocardial infarction

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis Related Group System

ASC Ambulatory surgical center

ASITN American Society of Interventional and Therapeutic Neuroradiology

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

CARE [Medicare] Continuity Assessment Record & Evaluation [Instrument]

CART CMS Abstraction & Reporting Tool

CBSAs Core-based statistical areas

CC Complication or comorbidity

CCR Cost-to-charge ratio

CDAC [Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CIPI Capital input 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

CoP [Hospital] condition of participation

CPI Consumer price index

CY Calendar year

DFRR Disclosure of financial relationship report

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

DRG Diagnosis-related group

DSH Disproportionate share hospital

DVT Deep vein thrombosis

ECI Employment cost index

EMR Electronic medical record

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

FAH Federation of Hospitals

FDA Food and Drug Administration

FHA Federal Health Architecture

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

HACs Hospital-acquired conditions

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

HPMP Hospital Payment Monitoring Program

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

HWH Hospital-within-a hospital

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

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

ICR Information collection requirement

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

LAMCs Large area metropolitan counties

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

MA Medicare Advantage

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

MRSA Methicillin-resistant Staphylococcus aureus

MSA Metropolitan Statistical Area

MS-DRG Medicare severity diagnosis-related group

MS-LTC-DRG Medicare severity long-term care diagnosis-related group

NAICS  North American Industrial Classification System

NCD  National coverage determination Start Printed Page 23530

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]

PE Pulmonary embolism

PMSAs Primary metropolitan statistical areas

POA Present on admission

PPI Producer price index

PPS Prospective payment system

PRM Provider Reimbursement Manual

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

PSF Provider-Specific File

PS&R Provider Statistical and Reimbursement (System)

QIG Quality Improvement Group, CMS

QIO Quality Improvement Organization

RCE Reasonable compensation equivalent

RHC Rural health clinic

RHQDAPU Reporting hospital quality data for annual payment update

RNHCI Religious nonmedical health care institution

RRC Rural referral center

RUCAs Rural-urban commuting area codes

RY Rate year

SAF Standard Analytic File

SCH Sole community hospital

SFY State fiscal year

SIC Standard Industrial Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

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

TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 110-09

TJA Total joint arthroplasty

UHDDS Uniform hospital discharge data set

VAP Ventilator-associated pneumonia

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, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)

D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007

E. Major Contents of this Proposed Rule

1. Proposed Changes to MS-DRG Classifications 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 Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages

6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals

7. Proposed Changes and Solicitation of Comments on Physician Self-Referral Provisions

8. Proposed Collection of Information Regarding Financial Relationships between Hospitals and Physicians

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

10. Impact Analysis

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

12. Disclosure of Financial Relationships Report (DFRR) Form

13. Discussion of Medicare Payment Advisory Commission Recommendations

F. Public Comments Received on Issues in Related Rules

1. Comments on Phase-Out of the Capital Teaching Adjustment under the IPPS Included in the FY 2008 IPPS Final Rule with Comment Period

2. Policy Revisions Related to Medicare GME Group Affiliations for Hospitals in Certain Declared Emergency Areas

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

A. Background

B. MS-DRG Reclassifications

1. General

2. Yearly Review for Making MS-DRG Changes

C. Adoption of the MS-DRGs in FY 2008

D. MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount

1. MS-DRG Documentation and Coding Adjustment

2. Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

3. Application of the Documentation and Coding Adjustment to Puerto Rico-Specific Standardized Amount

4. Potential Additional Payment Adjustments in FYs 2010 through 2012

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Refining the Medicare Cost Report

3. Timeline for Revising the Medicare Cost Report

4. Revenue Codes used in the MedPAR File

F. Preventable Hospital-Acquired Conditions (HACs), Including Infections

1. General

2. Statutory Authority

3. Public Input

4. Collaborative Process

5. Selection Criteria for HACs

6. HACs Selected in FY 2008 and Proposed Changes to Certain Codes

a. Foreign Object Retained After Surgery: Proposed Inclusion of ICD-9-CM Code 998.7 (CC)

b. Pressure Ulcers: Proposed Changes in Code Assignments

7. HACs Under Consideration as Additional Candidates

a. Surgical Site Infections Following Elective Surgeries

b. Legionnaires' Disease

c. Glycemic Control

d. Iatrogenic Pneumothorax

e. Delirium

f. Ventilator-Associated Pneumonia (VAP)

g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

h. Staphylococcus aureus Septicemia

i. Clostridium Difficile-Associated Disease (CDAD)

j. Methicillin-Resistant Staphylococcus aureus (MRSA)

8. Present on Admission (POA) Indicator Reporting

9. Enhancement and Future Issues

a. Risk Adjustment

b. Rates of HACs

c. Use of POA Information

d. Transition to ICD-10-PCS

e. Application of Nonpayment for HACs to Other Settings

f. Relationship to NQF's Serious Reportable Adverse Events

G. Proposed Changes to Specific MS-DRG Classifications

1. Pre-MDCs: Artificial Heart Devices

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

a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator (tPA)

b. Intractable Epilepsy with Video Electroencephalogram (EEG)

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

a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and Generator Procedures

b. Left Atrial Appendage Device

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions

a. Brief History of Development of Hip and Knee Replacement Codes

b. Prior Recommendations of the AAHKS

c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and AAHKS' Recommendations

d. AAHKS' Recommendations for FY 2009

e. CMS' Response to AAHKS' Recommendations

f. Conclusion

5. MDC 18 (Infections and Parasitic Diseases Systemic or Unspecified Sites): Severe Sepsis Start Printed Page 23531

6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic Compartment Syndrome

7. Medicare Code Editor (MCE) Changes

a. List of Unacceptable Principal Diagnoses in MCE

b. Diagnoses Allowed for Male Only Edit c. Limited Coverage Edit

8. Surgical Hierarchies

9. CC Exclusions List

a. Background

b. CC Exclusions List for FY 2009

10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 989

a. Moving Procedure Codes from MS-DRG 981 through 983 or MS-DRG 987 through 989 to MDCs

b. Reassignment of Procedures among MS-DRGs 981 through 983, 984 through 986, and 987 through 989

c. Adding Diagnosis or Procedure Codes to MDCs

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

H. Recalibration of MS-DRG Weights

I. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background

2. Proposed Changes in the MS-LTC-DRG Classifications

a. Background

b. Patient Classifications into MS-LTC-DRGs

3. Development of the Proposed FY 2009 MS-LTC-DRG Relative Weights

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

b. Data

c. Hospital-Specific Relative Value (HSRV) Methodology

d. Treatment of Severity Levels in Developing Proposed Relative Weights

e. Proposed Low-Volume MS-LTC-DRGs

4. Steps for Determining the Proposed FY 2009 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 2009 Status of Technologies Approved for FY 2008 Add-On Payments

4. FY 2009 Applications for New Technology Add-On Payments

a. CardioWestTM Temporary Total Artificial Heart System (CardioWestTM TAH-t)

b. Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV)

c. Oxiplex®

d. TherOx Downstream® System

5. Proposed Regulatory Change

III. Proposed Changes to the Hospital Wage Index

A. Background

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required Under the MIEA-TRHCA

2. CMS Proposals in Response to Requirements Under Section 106(b) of the MIEA-TRHCA

a. Proposed Revision of the Reclassification Average Hourly Wage Comparison Criteria

b. Within-State Budget Neutrality Adjustment for the Rural and Imputed Floors

c. Within-State Budget Neutrality Adjustment for Geographic Reclassification

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

D. Proposed Occupational Mix Adjustment to the Proposed FY 2009 Wage Index

1. Development of Data for the Proposed FY 2009 Occupational Mix Adjustment

2. Calculation of the Proposed Occupational Mix Adjustment for FY 2009

3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index

E. Worksheet S-3 Wage Data for the Proposed FY 2009 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

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

F. Verification of Worksheet S-3 Wage Data

1. Wage Data for Multicampus Hospitals

2. New Orleans' Post-Katrina Wage Index

G. Method for Computing the Proposed FY 2009 Unadjusted Wage Index

H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2009 Occupational Mix Adjustment Wage Index

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

1. General

2. Effects of Reclassification/Redesignation

3. FY 2009 MGCRB Reclassifications

4. FY 2008 Policy Clarifications and Revisions

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

6. Reclassifications under Section 1886(d)(8)(B) of the Act

J. Proposed FY 2009 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 2009

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

A. Proposed Changes to the Postacute Care Transfer Policy

1. Background

2. Proposed Policy Change Relating to Transfers to Home with a Written Plan for the Provision of Home Health Services

3. Evaluation of MS-DRGs under Postacute Care Transfer Policy for FY 2009

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

1. Background

a. Overview

b. Voluntary Hospital Quality Data Reporting

c. Hospital Quality Data Reporting under Section 501(b) of Pub. L. 108-173

d. Hospital Quality Data Reporting under Section 5001(a) of Pub. L. 109-171

2. Proposed Quality Measures for FY 2010 and Subsequent Years

a. Proposed Quality Measures for FY 2010

b. Possible New Quality Measures, Measure Sets, and Program Requirements for FY 2011 and Subsequent Years

c. Considerations in Expanding and Updating Quality Measures Under the RHQDAPU Program

3. Form and Manner and Timing of Quality Data Submission

4. Current and Proposed RHQDAPU Program Procedures

a. RHQDAPU Program Procedures for FY 2009

b. Proposed RHQDAPU Program Procedures for FY 2010

5. Current and Proposed HCAHPS Requirements

a. FY 2009 HCAHPS Requirements

b. Proposed FY 2010 HCAHPS Requirements

6. Current and Proposed Chart Validation Requirements

a. Chart Validation Requirements for FY 2009

b. Proposed Chart Validation Requirements for FY 2010

c. Chart Validation Methods and Requirements Under Consideration for FY 2011 and Subsequent Years

7. Data Attestation Requirements

a. Proposed Change to Requirements for FY 2009

b. Proposed Requirements for FY 2010

8. Public Display Requirements

9. Proposed Reconsideration and Appeal Procedures

10. Proposed RHQDAPU Program Withdrawal Deadline for FYs 2009 and 2010

11. Requirements for New Hospitals

12. Electronic Medical Records

C. Medicare Hospital Value-Based Purchasing (VBP)

1. Medicare Hospital VBP Plan Report to Congress

2. Testing and Further Development of the Medicare Hospital VBP Plan

D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs): Volume Decrease Adjustment

1. Background

2. Volume Decrease Adjustment for SCHs and MDHs: Data Sources for Determining Core Staff Values

a. Occupational Mix Survey

b. AHA Annual Survey

E. Rural Referral Centers (RRCs)

1. Case-Mix Index

2. Discharges

F. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2009

G. Medicare GME Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations; Technical Correction

1. Background

2. Technical Correction

H. Payments to Medicare Advantage Organizations: Collection of Risk Adjustment Data

I. Hospital Emergency Services under EMTALA Start Printed Page 23532

1. Background

2. EMTALA Technical Advisory Group (TAG): Recommendations

3. Proposed Changes Relating to Applicability of EMTALA Requirements to Hospital Inpatients

4. Proposed Changes to the EMTALA Physician On-Call Requirements

a. Relocation of Regulatory Provisions

b. Shared/Community Call

5. Proposed Technical Change to Regulations

J. Application of Incentives To Reduce Avoidable Readmissions to Hospitals

1. Introduction

2. Measurement

3. Accountability

4. Interventions

5. Financial Incentive: Direct Payment Adjustment

6. Financial Incentive: Performance-Based Payment Adjustment

7. Nonfinancial Incentive: Public Reporting

8. Conclusion

K. Rural Community Hospital Demonstration Program

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

A. Background

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

B. Revisions to the Capital IPPS Based on Data on Hospitals Medicare Capital Margins

1. Elimination of the Large Add-On Payment Adjustment

2. Changes to the Capital IME Adjustment

a. Background and Changes Made for FY 2008

b. Public Comments Received on Phase Out of Capital IPPS Teaching Adjustment Provisions Included in the FY 2008 Final Rule With Comment Period and Further Solicitation of Public Comments

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

A. Proposed Payments to Excluded Hospitals and Hospital Units

B. IRF PPS

C. LTCH PPS

D. IPF PPS

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

F. Proposed Change to the Regulations Governing Hospitals-Within-Hospitals

VII. Disclosure Required of Certain Hospitals and Critical Access Hospitals Regarding Physician Ownership

VIII. Physician Self-Referrals Provisions

A. Stand in the Shoes Provisions

1. Physician “Stand in the Shoes” Provisions

a. Background

b. Proposals

2. DHS Entity “Stand in the Shoes” Provisions

3. Application of the Physician “Stand in the Shoes” and the Entity “Stand in the Shoes” Provisions

4. Definitions: “Physician” and “Physician Organization”

B. Period of Disallowance

C. Gainsharing Arrangements

1. Background

2. Statutory Impediments to Gainsharing Arrangements

3. Office of Inspector General (OIG) Approach Towards Gainsharing Arrangements

4. MedPAC Recommendation

5. Demonstration Programs

6. Solicitation of Comments

D. Physician-Owned Implant and Other Medical Device Companies

1. Background

2. Solicitation of Comments

IX. Financial Relationships between Hospitals and Physicians

A. Background

B. Section 5006 of the Deficit Reduction Act (DRA) of 2005

C. Disclosure of Financial Relationships Report (DFRR)

D. Civil Monetary Penalties

E. Uses of Information Captured by the DFRR

F. Solicitation of Comments

X. MedPAC Recommendations

XI. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments

2. Solicitation of Comments on Proposed Requirements in Regulatory Text

a. ICRs Regarding Physician Reporting Requirements

b. ICRs Regarding Risk Adjustment Data

c. ICRs Regarding Basic Commitments of Providers

3. Associated Information Collections Not Specified in Regulatory Text

a. Present on Admission (POA) Indicator Reporting

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

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

d. Occupational Mix Adjustment to the FY 2009 Index (Hospital Wage Index Occupational Mix Survey)

4. Addresses for Submittal of Comments on Information Collection 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, 2008

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2009

A. Calculation of the Adjusted Standardized Amount

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

C. Proposed MS-DRG Relative Weights

D. Calculation of the Proposed Prospective Payment Rates

III. Proposed Changes of Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2009

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

B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2009

C. Capital Input Price Index

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

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 2007; Hospital Wage Indexes for Federal Fiscal Year 2009; Hospital Average Hourly Wages for Federal Fiscal Years 2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage Data); and 3-Year Average of Hospital Average Hourly Wages

Table 3A.—FY 2009 and 3-Year Average Hourly Wage for Urban Areas by CBSA

Table 3B.—FY 2009 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 and by State—FY 2009

Table 4B.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Rural Areas by CBSA and by State—FY 2009

Table 4C.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA and by State—FY 2009

Table 4D-1.—Rural Floor Budget Neutrality Factors—FY 2009

Table 4D-2.—Urban Areas with Hospitals Receiving the Statewide Rural Floor or Imputed Floor Wage Index—FY 2009

Table 4E.—Urban CBSAs and Constituent Counties—FY 2009

Table 4F.—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) by CBSA—FY 2009

Table 4J.—Out-Migration Wage Adjustment—FY 2009

Table 5.—List of 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 Exclusions List (Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

Table 6H.—Deletions From the CC Exclusions List (Available Through the Start Printed Page 23533Internet 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 (Available Through the Internet on the CMS Web Site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

Table 6K.—Complication and Comorbidity (CC) List (Available Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR Update—December 2007 GROUPER V25.0 MS-DRGs

Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR Update—December 2007 GROUPER V26.0 MS-DRGs

Table 8A.—Proposed Statewide Average Operating Cost-to-Charge Ratios—March 2008

Table 8B.—Proposed Statewide Average Capital Cost-to-Charge Ratios—March 2008

Table 8C.—Proposed Statewide Average Total Cost-to-Charge Ratios for LTCHs—March 2008

Table 9A.—Hospital Reclassifications and Redesignations—FY 2009

Table 9B.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2009

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 Medicare Severity Diagnosis-Related Groups (MS-DRGs)—March 2008

Table 11.—Proposed FY 2009 MS-LTC-DRGs, Proposed Relative Weights, Proposed Geometric Average Length of Stay, and Proposed Short-Stay Outlier Threshold

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 MS-DRG Reclassifications and Relative Cost-Based Weights (Column 2)

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

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

F. Effects of MGCRB Reclassifications (Column 5)

G. Effects of the Proposed Rural Floor and Imputed Rural Floor, Including the Proposed Application of Budget Neutrality at the State Level (Column 6)

H. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 7)

I. Effects of All Proposed Changes with CMI Adjustment Prior to Estimated Growth (Column 8)

J. Effects of All Proposed Changes with CMI Adjustment and Estimated Growth (Column 9)

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

L. Impact Analysis of Table II

VII. Effects of Other Proposed Policy Changes

A. Effects of Proposed Policy on HACs, Including Infections

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

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

D. Effects of Proposed Policy Change Regarding Postacute Care Transfers to Home Health Services

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

F. Effects of Proposed Policy Change to Methodology for Computing Core Staffing Factors for Volume Decrease Adjustment for SCHs and MDHs

G. Effects of Proposed Clarification of Policy for Collection of Risk Adjustment Data From MA Organizations

H. Effects of Proposed Policy Changes Relating to Hospital Emergency Services under EMTALA

I. Effects of Implementation of Rural Community Hospital Demonstration Program

J. Effects of Proposed Policy Changes Relating to Payments to Hospitals-Within-Hospitals

K. Effects of Proposed Policy Changes Relating to Requirements for Disclosure of Physician Ownership in Hospitals

L. Effects of Proposed Changes Relating to Physician Self-Referral Provisions

M. Effects of Proposed Changes Relating to Reporting of Financial Relationships Between Hospitals and Physicians

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 2009

III. Secretary's Recommendation

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

Appendix C—Disclosure of Financial Relationships Report (DFRR) Form

I. Background

A. Summary

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

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

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. 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 Start Printed Page 23534payment, 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 in whole or in part based on their hospital-specific rate based on their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. Until FY 2007, a Medicare-dependent, small rural hospital (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 based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is higher than the IPPS 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. SCHs are the sole source of care in their areas, and 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.

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. However, as discussed in section V.B.2. of this preamble, we are phasing out the IME adjustment beginning with FY 2008. 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” under § 412.23(e)(4) 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 psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF PPS. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount established under the IPF PPS. (For cost reporting periods beginning on or after January 1, 2005, and ending on or before December 31, 2007, some IPFs received transitioned payments for inpatient hospital services based on a blend of reasonable cost-based payment and a Federal per diem payment rate.) The existing regulations governing payment under the IPF PPS are located in 42 CFR part 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 are 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 Start Printed Page 23535for 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)

Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Pub. L. 109-171, requires the Secretary to develop a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals defined in the Act. In section IV.C. of the preamble of this proposed rule, we discuss the report to Congress on the Medicare value-based purchasing plan and the current testing of the plan.

C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)

Section 106(b)(2) of the MIEA-TRHCA instructs the Secretary of Health and Human Services 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. The Secretary was also instructed to consider MedPAC's recommendations on the Medicare wage index classification system in developing these proposals. In section III. of the preamble of this proposed rule, we discuss MedPAC's recommendations in a report to Congress and present our proposed changes to the FY 2009 wage index in response to those recommendations.

D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007

Section 7 of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90) provides for a 0.9 percent prospective documentation and coding adjustment in the determination of standardized amounts under the IPPS (except for MDHs and SCHs) for discharges occurring during FY 2009. The prospective documentation and coding adjustment was established in FY 2008 in response to the implementation of an MS-DRG system under the IPPS that resulted in changes in coding and classification that did not reflect real changes in case-mix under section 1886(d) of the Act. We discuss our proposed implementation of this provision in section II.D. of the preamble of this proposed rule and in the Addendum and in Appendix A to this proposed rule.

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 2009. 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. In addition, we are presenting proposed changes relating to disclosure to patients of physician ownership and investment interests in hospitals, proposed changes to our physician self-referral regulations, and a solicitation of public comments on a proposed collection of information regarding financial relationships between hospitals and physicians.

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

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

In section II. of the preamble to this proposed rule, we are including—

  • Proposed changes to MS-DRG reclassifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment to hospital-specific rates resulting from implementation of the MS-DRG system.
  • Proposed changes to address the RTI reporting recommendations on charge compression.
  • Proposed recalibrations of the MS-DRG relative weights.

We also are proposing to refine the hospital cost reports so that charges for relatively inexpensive medical supplies are reported separately from the costs and charges for more expensive medical devices. This proposal would be applied to the determination of both the IPPS and the OPPS relative weights as well as the calculation of the ambulatory surgical center payment rates.

We are presenting a listing and discussion of additional hospital-acquired conditions (HACs), including infections, that are being proposed to be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2009.

We are presenting our evaluation and analysis of the FY 2009 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

We are proposing the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2009.

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:

  • Proposed wage index reform changes in response to recommendations made to Congress as a result of the wage index study required under Pub. L. 109-432. We discuss changes related to reclassifications criteria, application of budget neutrality in reclassifications, and the rural floor and imputed floor budget neutrality at the State level.
  • Changes to the CBSA designations.
  • The methodology for computing the proposed FY 2009 wage index.
  • The proposed FY 2009 wage index update, using wage data from cost reporting periods that began during FY 2006.
  • Analysis and implementation of the proposed FY 2009 occupational mix adjustment to the wage index.
  • Proposed revisions to the wage index based on hospital redesignations and reclassifications.
  • The proposed adjustment to the wage index for FY 2009 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
  • The timetable for reviewing and verifying the wage data used to compute the proposed FY 2009 wage index.
  • The proposed labor-related share for the FY 2009 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 the provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:

  • Proposed changes to the postacute care transfer policy as it relates to transfers to home with the provision of home health services.
  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Proposed changes in the collection of Medicare Advantage (MA) encounter data that are used for computing the risk payment adjustment made to MA organizations.
  • Discussion of the report to Congress on the Medicare value-based purchasing Start Printed Page 23536plan and current testing and further development of the plan.
  • Proposed changes to the methodology for determining core staff values for the volume decrease payment adjustment for SCHs and MDHs.
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
  • The statutorily-required IME adjustment factor for FY 2009 and technical changes to the GME payment policies.
  • Proposed changes to policies on hospital emergency services under EMTALA to address EMTALA Technical Advisory Group (TAG) recommendations.
  • Solicitation of public comments on Medicare policies relating to incentives for avoidable readmissions to hospitals.
  • Discussion of the fifth 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. We acknowledge the public comments that we received on the phase-out of the capital teaching adjustment included in the FY 2008 IPPS final rule with comment period, and again are soliciting public comments on this phase-out in this proposed rule.

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 proposed changes to payments to excluded hospitals and hospital units, proposed changes for determining LTCH CCRs under the LTCH PPS, including a discussion regarding changing the annual payment rate update schedule for the LTCH PPS, and proposed changes to the regulations on hospitals-within-hospitals.

6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals

In section VII. of the preamble of this proposed rule, we present proposed changes to the regulations relating to the disclosure to patients of physician ownership or investment interests in hospitals.

7. Proposed Changes and Solicitation of Comments on Physician Self-Referrals Provisions

In section VIII. of the preamble of this proposed rule, we present proposed changes to the policies on physician self-referrals relating to the “Stand in Shoes” provision, In addition, we solicit public comments regarding physician-owned implant companies and gainsharing arrangements.

8. Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians

In section IX. of the preamble of this proposed rule, we solicit public comments on our proposed collection of information regarding financial relationships between hospitals and physicians.

9. 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 2009 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 2009 for hospitals and hospital units excluded from the PPS.

10. 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.

11. 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 2009 for the following:

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

12. Disclosure of Financial Relationships Report (DFRR) Form

In Appendix C of this proposed rule, we present the reporting form that we are proposing to use for the proposed collection of information on financial relationships between hospitals and physicians discussed in section IX, of the preamble of this proposed rule.

13. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2008 recommendations concerning hospital inpatient payment policies address 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. We address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2008 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: www.medpac.gov.

F. Public Comments Received on Issues in Related Rules

1. Comments on Phase-Out of the Capital Teaching Adjustment Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment Period

In the FY 2008 IPPS final rule with comment period, we solicited public comments on our policy changes related to phase-out of the capital teaching adjustment to the capital payment update under the IPPS (72 FR 47401). We received approximately 90 timely pieces of correspondence in response to our solicitation. (These public comments may be viewed on the following Web site: http://www.cms.hhs.gov/​eRulemaking/​ECCMSR/​list.asp under file code CMS-1533-FC.) In section V. of the preamble of this proposed rule, we acknowledge receipt of these public comments and again solicit public comments on the phase-out in this proposed rule. We will respond to the public comments received in response to both the FY 2008 IPPS final rule with comment period and this proposed rule in the FY 2009 IPPS final rule, which is scheduled to be published in August 2008.

2. Policy Revisions Related to Medicare GME Group Affiliations for Hospitals in Certain Declared Emergency Areas

We have issued two interim final rules with comment periods in the Federal Register that modified the GME Start Printed Page 23537regulations as they apply to Medicare GME affiliated groups to provide for greater flexibility in training residents in approved residency programs during times of disasters: on April 12, 2006 (71 FR 18654) and on November 27, 2007 (72 FR 66892). We received a number of timely pieces of correspondence in response to these interim final rules with comment period. (The public comments that we received may be viewed on the Web site at: http://www.cms.hhs.gov/​eRulemaking/​ECCMSR/​list.asp under the file codes CMS-1531-IFC1 and CMS-1531-IFC2, respectively.) We will summarize and address these public comments in the FY 2009 IPPS final rule, which is scheduled to be published in August 2008.

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

A. Background

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

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

B. MS-DRG Reclassifications

1. General

As discussed in the preamble to the FY 2008 IPPS final rule with comment period (72 FR 47138), we focused 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 were intermediate steps towards comprehensive reform of both the relative weights and the DRG system that is occurring as we undertook further study. For FY 2008, we adopted 745 new Medicare Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).

Currently, cases are classified into MS-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 MS-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 MS-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 to ensure 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 MS-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 2008, cases are assigned to one of 745 MS-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 an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 26.0), there are 9 MS-DRGs to Start Printed Page 23538which cases are directly assigned on the basis of ICD-9-CM procedure codes. These MS-DRGs are for heart transplant or implant of heart assist systems, liver and/or intestinal transplants, bone marrow transplants, lung transplants, simultaneous pancreas/kidney transplants, pancreas transplants, and for tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)

MS-DRG 103Heart Transplant or Implant of Heart Assist System.
MS-DRG 480Liver Transplant and/or Intestinal Transplant.
MS-DRG 481Bone Marrow Transplant.
MS-DRG 482Tracheostomy for Face, Mouth, and Neck Diagnoses.
MS-DRG 495Lung Transplant.
MS-DRG 512Simultaneous Pancreas/Kidney Transplant.
MS-DRG 513Pancreas Transplant.
MS-DRG 541ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-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) or a major complication or comorbidity (MCC).

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 MS-DRG assignment for certain principal diagnoses. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. Lithotripsy procedures are not routinely performed in an operating room. Therefore, lithotripsy codes are not classified as O.R. procedures. However, our clinical advisors believe that patients with urinary stones who undergo extracorporeal shock wave lithotripsy should be considered similar to other patients who undergo O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.

Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect the consumption of hospital resources. Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).

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 an MS-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 MS-DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into an MS-DRG on the basis of the diagnosis and procedure codes and, for a limited number of MS-DRGs, demographic information (that is, sex, age, and discharge status).

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

As we indicated above, for FY 2008, we made significant improvement in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs. The changes we adopted were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our DRG analysis for the FY 2008 final rule with comment period was based on data from the March 2007 update of the FY 2006 MedPAR file, which contained hospital bills received through March 31, 2007, for discharges occurring through September 30, 2006. For this proposed rule, for FY 2009, our DRG analysis is based on data from the September 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through September 30, 2007, for discharges through September 30, 2007.

2. Yearly Review for Making MS-DRG Changes

Many of the changes to the MS-DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with concerns about MS-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 Start Printed Page 23539timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, concerns about MS-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 MS-DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS-DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered 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 MS-DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS-DRG. We also considered 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 considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 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; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). 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 contained 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 CMS 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 in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives, our actions for FY 2008, and our proposals for FY 2009 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-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 DSH payment adjustments. We discuss these implications for FY 2009 in other sections of this preamble and in the Addendum to this proposed rule.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based 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 HSRV-based methodology as well as other issues brought to our attention related to the cost-based weighting methodology adopted in the FY 2007 final rule. There was significant concern in the public comments that our cost-based weighting methodology does not adequately account for charge compression—the practice of applying a higher percentage charge markup over costs to lower cost items and services and a lower percentage charge markup over costs to higher cost items and services. 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) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based 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 (RTI) 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 reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this proposed rule for our proposals for addressing the issue of charge compression and the HSRV cost-weighting methodology for FY 2009.

We believe that revisions to the DRG system to better recognize severity of Start Printed Page 23540illness 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 prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are proposing in this proposed rule for FY 2009 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).

D. MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount

1. MS-DRG Documentation and Coding Adjustment

As stated above, we adopted the new MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates. Adoption of the MS-DRGs resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. By increasing the number of DRGs and more fully taking into account severity of illness in Medicare payment rates, the MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), which appeared in the Federal Register on August 22, 2007, we indicated that we believe the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for improved documentation and coding. In that final rule with comment period, using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by adjusting the standardized amount to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, Pub. L. 110-90, was enacted. Section 7 of Pub. L. 110-90 included a provision that reduces the documentation and coding adjustment for the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. To comply with the provision of section 7 of Pub. L. 110-90, in a final rule that appeared in the Federal Register on November 27, 2007 (72 FR 66886), we changed the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly, with these revisions effective October 1, 2007.

For FY 2009, Pub. L. 110-90 requires a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment specified in the FY 2008 IPPS final rule with comment period. As required by statute, we are applying a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amounts. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. As a result, the −0.9 percent documentation and coding adjustment in FY 2009 is in addition to the −0.6 percent adjustment in FY 2008, yielding a combined effect of −1.5 percent.

2. Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: The Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greater of either the FY 1982, 1987, or 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period, we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that rule, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, we cited our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust “the standardized amount” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix. However, in a final rule that appeared in the Federal Register on November 27, 2007 (72 FR 66886), we rescinded the application of the documentation and coding adjustment to the hospital-specific rates retroactive to October 1, 2007. In that final rule, we indicated that, while we still believe it would be appropriate to apply the documentation and coding adjustment to the hospital-specific rates, upon further review we decided that application of the documentation and coding adjustment to the hospital-specific rates is not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting “the standardized amount” and does not mention adjusting the hospital-specific rates.

We continue to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from coding improvements that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rate should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. 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.” In light of this authority, for the FY 2010 rulemaking, we plan to Start Printed Page 23541examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. If we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. For example, the −0.9 percent documentation and coding adjustment to the national standardized amount in FY 2009 is in addition to the −0.6 percent adjustment made in FY 2008, yielding a combined effect of −1.5 percent in FY 2009. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 hospital-specific rates, it may involve applying the FY 2008 and FY 2009 documentation and coding adjustments (−1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 hospital-specific rates.

3. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. We are currently in the process of developing a Federal Register notice to correct that error in the Puerto Rico-specific standardized amount for FY 2008 retroactive to October 1, 2007.

While section 1886(d)(3)(A)(vi) of the Act is not applicable to the Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid based on the hospital-specific rate, discussed in section II.D.2. of this preamble, we believe that Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs in section II.D.2. of the preamble of this proposed rule, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals in Puerto Rico. If we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico-specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 Puerto Rico-specific standardized amount, it may involve applying the FY 2008 and FY 2009 documentation and coding adjustments (−1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 Puerto Rico-specific standardized amount.

4. Potential Additional Payment Adjustments in FYs 2010 Through 2012

Section 7 of Pub. L.110-90 also provides for payment adjustments in FYs 2010 through 2012 based upon a retrospective evaluation of claims data from the implementation of the MS-DRG system. If, based on this retrospective evaluation, the Secretary finds that in FY 2008 and FY 2009, the actual amount of change in case-mix that does not reflect real change in underlying patient severity differs from the statutorily mandated documentation and coding adjustments implemented in those years, the law requires the Secretary to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 as a result of that difference, in addition to making an appropriate adjustment to the standardized amount under section 1886(d)(3)(A)(vi) of the Act.

In order to implement these requirements of section 7 of Pub. L. 110-90, we are planning a thorough retrospective evaluation of our claims data. Results of this evaluation would be used by our actuaries to determine any necessary payment adjustments in FYs 2010 through 2012 to ensure the budget neutrality of the MS-DRG implementation for FY 2008 and FY 2009, as required by law. We are currently developing our analysis plans for this effort.

We intend to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expect part of this overall national average change would be attributable to underlying changes in actual patient severity and part would be attributable to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we plan to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within base DRGs. The shifts among base DRGs are the result of changes in principal diagnoses while the shifts within base DRGs are the result of changes in secondary diagnoses. Because we expect most of the documentation and coding improvements under the MS-DRG system will occur in the secondary diagnoses, the shifts among base DRGs are less likely to be the result of the MS-DRG system and the shifts within base DRGs are more likely to be the result of the MS-DRG system. We also anticipate evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the improved documentation and coding payment effect and to quantify their impact. This step would entail analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

While we believe that the data analysis plan described previously will produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding improvements, we may also decide, if feasible, to use historical data from our Hospital Payment Monitoring Program Start Printed Page 23542(HPMP) to corroborate the within base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC). From 1999 to 2007, the CDAC obtained medical records for a sample of discharges as part of our hospital monitoring activities. These data were collected on a random sample of between 30,000 to 50,000 hospital discharges per year. The historical CDAC data could be used to develop an upper bound estimate of the trend in real case-mix growth (that is, real change in underlying patient severity) prior to implementation of the MS-DRGs.

We welcome public comments on our analysis plans, as well as suggestions on other possible approaches for conducting a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patients' severity of illness. Our analysis, findings, and any resulting proposals to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 will be discussed in future years' rulemakings.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

In the FY 2008 IPPS final rule with comment period (72 FR 47188), we continued to implement significant revisions to Medicare's inpatient hospital rates by basing relative weights on hospitals' estimated costs rather than on charges. We continued our 3-year transition from charge-based relative weights to cost-based relative weights. Beginning in FY 2007, we implemented relative weights based on cost report data instead of based on charge information. We had initially proposed to develop cost-based relative weights using the hospital-specific relative value cost center (HSRVcc) methodology as recommended by MedPAC. However, after considering concerns raised in the public comments, we modified MedPAC's methodology to exclude the hospital-specific relative weight feature. Instead, we developed national CCRs based on distinct hospital departments and engaged a contractor to evaluate the HSRVcc methodology for future consideration. To mitigate payment instability due to the adoption of cost-based relative weights, we decided to transition cost-based weights over 3 years by blending them with charge-based weights beginning in FY 2007. In FY 2008, we continued our transition by blending the relative weights with one-third charge-based weights and two-thirds cost-based weights.

Also, in FY 2008, we adopted severity-based MS-DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS-DRGs. We decided to implement a 2-year transition for the MS-DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for more detail on our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

As we transitioned to cost-based relative weights, some commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high cost items and overvalue low cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in March 2007 which was posted on the CMS Web site with its findings on charge compression. In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI found inconsistent matching of charges in the Medicare cost report and their corresponding charges in the MedPAR claims for certain cost centers. In addition, there was inconsistent reporting of costs and charges among hospitals. For example, some hospitals would report costs and charges for devices and medical supplies in the Medical Supplies Charged to Patients cost center, while other hospitals would report those costs and charges in their related ancillary departments such as Operating Room or Radiology. RTI also found evidence that certain revenue codes within the same cost center had significantly different markup rates. For example, within the Medicare Supplies Charged to Patients cost center, revenue codes for devices, implantables, and prosthetics had different markup rates than the other medical supplies in that cost center. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

RTI offered short-term, medium-term, and long-term recommendations to mitigate the effects of charge compression. RTI's short-term recommendations included expanding the distinct hospital CCRs to 19 by disaggregating the “Emergency Room” and “Blood and Blood Products” from the Other Services cost center and by estimating regression-based CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost centers. RTI recommended, for the medium-term, to expand the MedPAR file to include separate fields that disaggregate several existing charge departments. In addition, RTI recommended improving hospital cost reporting instructions so that hospitals can properly report costs in the appropriate cost centers. RTI's long-term recommendations included adding new cost centers to the Medicare cost report, such as adding a “Devices, Implants and Prosthetics” line under “Medical Supplies Charged to Patients” and a “CT Scanning and MRI” subscripted line under “Radiology-Diagnostics”.

Among RTI's short-term recommendations, for FY 2008, we expanded the number of distinct hospital department CCRs from 13 to 15 by disaggregating “Emergency Room” and “Blood and Blood Products” from the Other Services cost center as these lines already exist on the hospital cost report. Furthermore, in an effort to improve consistency between costs and their corresponding charges in the MedPAR file, we moved the costs for cases involving electroencephalography (EEG) from the Cardiology cost center to the Laboratory cost center group which corresponds with the EEG MedPAR claims categorized under the Laboratory charges. We also agreed with RTI's recommendations to revise the Medicare cost report and the MedPAR file as a long-term solution for charge compression. We stated that, in the upcoming year, we would consider additional lines to the cost report and additional revenue codes for the MedPAR file.

We did not adopt RTI's short-term recommendation to create four Start Printed Page 23543additional regression-based CCRs for several reasons, even though we had received comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR. We were concerned that RTI's analysis was limited to charges on hospital inpatient claims while typically hospital cost report CCRs combine both inpatient and outpatient services. Further, because both the IPPS and OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. We have since expanded RTI's analysis of charge compression to incorporate outpatient services. RTI has been evaluating the cost estimation process for the OPPS cost-based weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. The RTI report was finalized at the conclusion of our proposed rule development process and is expected to be posted on the CMS Web site in the near future. We welcome comments on this report.

A second reason that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS-DRGs. We stated that we would consider the results of the second phase of the RAND study as we prepared for the FY 2009 IPPS rulemaking process. The purpose of the RAND study was to analyze how the relative weights would change if we were to adopt regression-based CCRs to address charge compression while simultaneously adopting an HSRV methodology using fully phased-in MS-DRGs. We had intended to include a detailed discussion of RAND's study in this FY 2009 IPPS proposed rule. However, due to some delays in releasing identifiable data to the contractor under revised data security rules, the report on this second stage of RAND's analysis was not completed in time for the development of this proposed rule. Therefore, we continue to have the same concerns with respect to uncertainty about how regression-based CCRs would interact with the MS-DRGs or an HSRV methodology. Therefore, we are not proposing to adopt the regression-based CCRs or an HSRV methodology in this FY 2009 IPPS proposed rule. Nevertheless, we welcome public comments on our proposals not to adopt regression-based CCRs or an HSRV methodology at this time or in the future. The RAND report on regression-based CCRs and the HSRV methodology was finalized at the conclusion of our proposed rule development process and is expected to be posted on the CMS Web site in the near future. Although we are unable to include a discussion of the results of the RAND study in this proposed rule, we welcome public comment on the report.

Finally, we received public comments on the FY 2008 IPPS proposed rule raising concerns on the accuracy of using regression-based CCR estimates to determine the relative weights rather than the Medicare cost report. Commenters noted that regression-based CCRs would not fix the underlying mismatch of hospital reporting of costs and charges. Instead, the commenters suggested that the impact of charge compression might be mitigated through an educational initiative that would encourage hospitals to improve their cost reporting. Commenters recommended that hospitals be educated to report costs and charges in a way that is consistent with how charges are grouped in the MedPAR file. In an effort to achieve this goal, hospital associations have launched an educational campaign to encourage consistent reporting, which would result in consistent groupings of the cost centers used to establish the cost-based relative weights. The commenters requested that CMS communicate to the fiscal intermediaries/MACs that such action is appropriate. In the FY 2008 IPPS final rule with comment period, we stated that we were supportive of the educational initiative of the industry, and we encouraged hospitals to report costs and charges consistently with how the data are used to determine relative weights (72 FR 47196). We would also like to affirm that the longstanding Medicare principles of cost apportionment at 42 CFR 413.53 convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another ancillary department (for example, combining the cost of Medical Supplies Charged to Patients with the costs of Operating Room or any other ancillary cost center. (We note that, effective for cost reporting periods starting on or after January 1, 1979, the departmental method of apportionment replaced the combination method of apportionment where all the ancillary departments were apportioned in the aggregate (Section 2200.3 of the Provider Reimbursement Manual (PRM), Part I).)

Furthermore, longstanding Medicare cost reporting policy has been that hospitals must include the cost and charges of separately “chargeable medical supplies” in the Medical Supplies Charged to Patients cost center (line 55 of Worksheet A), rather than in the Operating Room, Emergency Room, or other ancillary cost centers. Routine services, which can include “minor medical and surgical supplies” (Section 2202.6 of the PRM, Part 1), and items for which a separate charge is not customarily made, may be directly assigned through the hospital's accounting system to the department in which they were used, or they may be included in the Central Services and Supply cost center (line 15 of Worksheet A). Conversely, the separately chargeable medical supplies should be assigned to the Medical Supplies Charged to Patients cost center on line 55.

We note that not only is accurate cost reporting important for IPPS hospitals to ensure that accurate relative weights are computed, but hospitals that are still paid on the basis of cost, such as CAHs and cancer hospitals, and SCHs and MDHs must adhere to Medicare cost reporting principles as well.

The CY 2008 OPPS/ASC final rule with comment period (72 FR 66601) also discussed the issue of charge compression and regression-based CCRs, and noted that RTI is currently evaluating the cost estimation process underpinning the OPPS cost-based weights, including a reassessment of the regression models using both outpatient and inpatient charges, rather than inpatient charges only. In responding to comments in the CY 2008 OPPS/ASC final rule with comment period, we emphasized that we “fully support” the educational initiatives of the industry and that we would “examine whether the educational activities being undertaken by the hospital community to improve cost reporting accuracy under the IPPS would help to mitigate charge compression under the OPPS, either as an adjunct to the application of regression-based CCRs or in lieu of such an adjustment” (72 FR 66601). However, as we stated in the FY 2008 IPPS final rule with comment period that we would consider the results of the RAND study before considering whether to adopt regression-based CCRs, in the CY 2008 OPPS/ASC final rule with comment period, we stated that we would determine whether refinements should be proposed, after reviewing the results of the RTI study.

On February 29, 2008, we issued Transmittal 321, Change Request 5928, to inform the fiscal intermediaries/Start Printed Page 23544MACs of the hospital associations’ initiative to encourage hospitals to modify their cost reporting practices with respect to costs and charges in a manner that is consistent with how charges are grouped in the MedPAR file. We noted that the hospital cost reports submitted for FY 2008 may have costs and charges grouped differently than in prior years, which is allowable as long as the costs and charges are properly matched and the Medicare cost reporting instructions are followed. Furthermore, we recommended that fiscal intermediaries/MACs remain vigilant to ensure that the costs of items and services are not moved from one cost center to another without moving their corresponding charges. Due to a time lag in submittal of cost reporting data, the impact of changes in providers' cost reporting practices occurring during FY 2008 would be reflected in the FY 2011 IPPS relative weights.

2. Refining the Medicare Cost Report

In developing this FY 2009 proposed rule, we considered whether there were concrete steps we could take to mitigate the bias introduced by charge compression in both the IPPS and OPPS relative weights in a way that balance hospitals’ desire to focus on improving the cost reporting process through educational initiatives with device industry interest in adopting regression-adjusted CCRs. Although RTI recommended adopting regression-based CCRs, particularly for medical supplies and devices, as a short-term solution to address charge compression, RTI also recommended refinements to the cost report as a long-term solution. RTI's draft interim March 2007 report discussed a number of options that could improve the accuracy and precision of the CCRs currently being derived from the Medicare cost report and also reduce the need for statistically-based adjustments. As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47193), we believe that RTI and many of the public commenters on the FY 2008 IPPS proposed rule concluded that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of cost weights. Therefore, in this proposed rule, we are proposing to begin making cost report changes geared to improving the accuracy of the IPPS and OPPS relative weights. However, we also received comments last year asking that we proceed cautiously with changing the Medicare cost report to avoid unintended consequences for hospitals that are paid on a cost basis (such as CAHs and, to some extent, SCHs and MDHs), and to consider the administrative burden associated with adapting to new cost reporting forms and instructions. Accordingly, we are proposing to focus at this time on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the relative weights could result from correcting charge compression for devices and implants. When examining markup differences within the Medical Supplies Charged to Patients cost center, RTI found that its “regression results provide solid evidence that if there were distinct cost centers for items, cost ratios for devices and implants would average about 17 points higher than the ratios for other medical supplies” (January 2007 RTI report, page 59). This suggests that much of the charge compression within the Medical Supplies CCR results from inclusion of medical devices that have significantly different markups than the other supplies in that CCR. Furthermore, in the FY 2007 final rule and FY 2008 IPPS final rule with comment period, the Medical Supplies and Equipment CCR received significant attention by the public commenters.

Although we are proposing to make improvements to lessen the effects of charge compression only on the Medical Supplies and Equipment CCR as a first step, we are inviting public comments as to whether to make other changes to the Medicare cost report to refine other CCRs. In addition, we are open to making further refinements to other CCRs in the future. Therefore, we are proposing at this time to add only one cost center to the cost report, such that, in general, the costs and charges for relatively inexpensive medical supplies would be reported separately from the costs and charges of more expensive devices (such as pacemakers and other implantable devices). We will consider public comments submitted on this proposed rule for purposes of both the IPPS and the OPPS relative weights and, by extension, the calculation of the ambulatory surgical center (ASC) payment rates.

Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for supplies and equipment was computed based on line 55 for Medical Supplies Charged to Patients and lines 66 and 67 for DME Rented and DME Sold, respectively. To compute the 15 national CCRs used in developing the cost-based weights under the IPPS (explained in more detail under section II.H. of the preamble of this proposed rule), we take the costs and charges for the 15 cost groups from Worksheet C, Part I of the Medicare cost report for all hospital patients and multiply each of these 15 CCRs by the Medicare charges on Worksheet D-4 for those same cost centers to impute the Medicare cost for each of the 15 cost groups. Under this proposal, the goal would be to split the current CCR for Medical Supplies and Equipment into one CCR for medical supplies, and another CCR for devices and DME Rented and DME Sold.

In considering how to instruct hospitals on what to report in the cost center for supplies and the cost center for devices, we looked at the existing criteria for what type of device qualifies for payment as a transitional pass-through device category in the OPPS. (There are no such existing criteria for devices under the IPPS.) The provisions of the regulations under § 419.66(b) state that for a medical device to be eligible for pass-through payment under the OPPS, the medical device must meet the following criteria:

a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a Category B device by the FDA in accordance with §§ 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption.

b. The device is determined to be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act).

c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissues, and is surgically implanted or inserted whether or not it remains with the patient when the patient is released from the hospital.

d. The device is not any of the following:

  • Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider Reimbursement Manual (CMS Pub. 15-1).
  • A material or supply furnished incident to a service (for example, a suture, customized surgical kit, or clip, other than a radiological site marker).
  • Material that may be used to replace human skin (for example, a biological or synthetic material).

These requirements are the OPPS criteria used to define a device for pass-through payment purposes and do not include additional criteria that are used Start Printed Page 23545under the OPPS to determine if a candidate device is new and represents a substantial clinical improvement, two other requirements for qualifying for pass-through payment.

For purposes of applying the eligibility criteria, we interpret “surgical insertion or implantation” to include devices that are surgically inserted or implanted via a natural or surgically created orifice as well as those devices that are inserted or implanted via a surgically created incision (70 FR 68630).

In proposing to modify the cost report to have one cost center for medical supplies and one cost center for devices, we are proposing that hospitals would determine what should be reported in the Medical Supplies cost center and what should be reported in the Medical Devices cost center using criteria consistent with those listed above that are included under § 419.66(b), with some modification. Specifically, for purposes of the cost reporting instructions, we are proposing that an item would be reported in the device cost center if it meets the following criteria:

a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a Category B device by the FDA in accordance with §§ 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption.

b. The device is reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act).

c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissue, is surgically implanted or inserted through a natural or surgically created orifice or surgical incision in the body, and remains in the patient when the patient is discharged from the hospital.

d. The device is not any of the following:

  • Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider Reimbursement Manual (CMS Pub. 15-1).
  • A material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker).
  • Material that may be used to replace human skin (for example, a biological or synthetic material).
  • A medical device that is used during a procedure or service and does not remain in the patient when the patient is released from the hospital.

We are proposing to select the existing criteria for what type of device qualifies for payment as a transitional pass-through device under the OPPS as a basis for instructing hospitals on what to report in the cost center for Medical Supplies Charged to Patients or the cost center for Medical Devices Charged to Patients because these criteria are concrete and already familiar to the hospital community. However, the key difference between the existing criteria for devices that are eligible for pass-through payment under the OPPS at § 419.66(b) and our proposed criteria stated above to be used for cost reporting purposes is that the device that is implanted remains in the patient when the patient is discharged from the hospital. Essentially, we are proposing to instruct hospitals to report only implantable devices that remain in the patient at discharge in the cost center for devices. All other devices and non-routine supplies which are separately chargeable would be reported in the medical supplies cost center. We believe that defining a device for cost reporting purposes based on criteria that specify implantation and adding that the device must remain in the patient upon discharge would have the benefit of capturing virtually all costly implantable devices (for example, implantable cardioverter defibrillators (ICDs), pacemakers, and cochlear implants) for which charge compression is a significant concern.

However, we acknowledge that a definition of device based on whether an item is implantable and remains in the patient could, in some cases, include items that are relatively inexpensive (for example, urinary catheters, fiducial markers, vascular catheters, and drainage tubes), and which many would consider to be supplies. Thus, some modest amount of charge compression could still be present in the cost center for devices if the hospital does not have a uniform markup policy. In addition, requiring as a cost reporting criterion that the device is to remain in the patient at discharge could exclude certain technologies that are moderately expensive (for example, cryoablation probes, angioplasty catheters, and cardiac echocardiography catheters, which do not remain in the patient upon discharge). Therefore, some charge compression could continue for these technologies. We believe this limited presence of charge compression is acceptable, given that the proposed definition of device for cost reporting purposes would isolate virtually all of the expensive items, allowing them to be separately reported from most inexpensive supplies.

The criteria we are proposing above for instructing hospitals as to what to report in the device cost center specify that a device is not a material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker) (emphasis added). We understand that hospitals may sometimes receive surgical kits from device manufacturers that consist of a high-cost primary implantable device, external supplies required for operation of the device, and other disposable surgical supplies required for successful device implantation. Often the device and the attending supplies are included on a single invoice from the manufacturer, making it difficult for the hospital to determine the cost of each item in the kit. In addition, manufacturers sometimes include with the primary device other free or “bonus” items or supplies that are not an integral and necessary part of the device (that is, not actually required for the safe surgical implantation and subsequent operation of that device). (We note that arrangements involving free or bonus items or supplies may implicate the Federal anti-kickback statue, depending on the circumstances.) One option is for the hospital to split the total combined charge on the invoice in a manner that the hospital believes best identifies the cost of the device alone. However, because it may be difficult for hospitals to determine the respective costs of the actual device and the attending supplies (whether they are required for the safe surgical implantation and subsequent operation of that device or not), we are soliciting comments with respect to how supplies, disposable or otherwise, that are part of surgical kits should be reported. We are distinguishing between such supplies that are an integral and necessary part of the primary device (that is, required for the safe surgical implantation and subsequent operation of that device) from other supplies that are not directly related to the implantation of that device, but may be included by the device manufacturer with or without charge as “perks” along with the kit. If it is difficult to break out the costs and charges of these lower cost items that are an integral and necessary Start Printed Page 23546part of the primary device, we would consider allowing hospitals to report the costs and charges of these lower cost supplies along with the costs and charges of the more expensive primary device in the cost report cost center for implantable devices. However, to the extent that device manufacturers could be encouraged to refine their invoicing practices to break out the charges and costs for the lower cost supplies and the higher cost primary device separately, so that hospitals need not “guesstimate” the cost of the device, this would facilitate more accurate cost reporting and, therefore, the calculation of more accurate cost-based weights. Under either scenario, even for an aggregated invoice that contains an expensive device, we believe that RTI's findings of significant differences in supply CCRs for hospitals with a greater percentage of charges in device revenue codes demonstrate that breaking the Medical Supplies Charged to Patients cost center into two cost centers and using appropriate revenue codes for devices, and walking those costs to the new Implantable Devices Charged to Patients cost center, will result in an increase in estimated device costs.

In summary, we are proposing to modify the cost report to have one cost center for Medical Supplies Charged to Patients and one cost center for Implantable Devices Charged to Patients. We are proposing to instruct hospitals to report only devices that meet the four criteria listed above (specifically including that the device is implantable and remains in the patient at discharge) in the cost center for Implantable Devices Charged to Patients. All other devices and nonchargeable supplies would be reported in the Medical Supplies cost center. This would allow for two distinct CCRs, one for medical supplies and one for implantable devices and DME rented and DME sold.

However, we are also soliciting comments on alternative approaches that could be used in conjunction with or in lieu of the four proposed criteria for distinguishing between what should be reported in the cost center for Implantable Devices and Medical Supplies, respectively. Another option we are considering would distinguish between high-cost and low-cost items based on a cost threshold. Under this methodology, we would also have one cost center for Medical Supplies and one cost center for Devices, but we would instruct hospitals to report items that are not movable equipment or a capital expense but are above a certain cost threshold in the cost center for Devices. Items costing below that threshold would be reported in the cost center for Medical Supplies.

Establishing a cost threshold for cost reporting purposes would directly address the problem of charge compression and would enable hospitals to easily determine whether an item should be reported in the supply or the device cost center. A cost threshold would also potentially allow a broader variety of expensive, single use devices that do not remain in the patient at discharge to be reported in the device cost center (such as specialized catheters or ablation probes). While we have a number of concerns with the cost threshold approach, we are nevertheless soliciting public comments on whether such an approach would be worthwhile to pursue. Specifically, we are concerned that establishing a single cost threshold for pricing devices could possibly be inaccurate across hospitals. Establishing a threshold would require identifying a cost at which hospitals would begin applying reduced markup policies. Currently, we do not have data from which to derive a threshold. We have anecdotal reports that hospitals change their markup thresholds between $15,000 and $20,000 in acquisition costs. Recent research on this issue indicated that hospitals with average inpatient discharges in DRGs with supply charges greater than $15,000, $20,000, and $30,000 have higher supply CCRs (Advamed March 2006).

Furthermore, although a cost threshold directly addresses charge compression, it may not eliminate all charge compression from the device cost center because a fixed cost threshold may not accurately capture differential markup policies for an individual hospital. At the same time, we are also concerned that establishing a cost threshold may interfere with the pricing practices of device manufacturers in that the prices for certain devices or surgical kits could be inflated to ensure that the devices met the cost threshold. We believe our proposed approach of identifying a group of items that are relatively expensive based on the existing criteria for OPPS device pass-through payment status, rather than adopting a cost threshold, would not influence pricing by the device industry. In addition, if a cost threshold were adopted for distinguishing between high-cost devices and low-cost supplies on the cost report, we would need to periodically reassess the threshold for changes in markup policies and price inflation over time.

Another option for distinguishing between high-cost and low-cost items for purposes of the cost report would be to divide the Medical Supplies cost center based on markup policies by placing items with lower than average markups in a separate cost center. This approach would center on documentation requirements for differential charging practices that would lead hospitals to distinguish between the reporting of supplies and devices on different cost report lines. That is, because charge compression results from the different markup policies that hospitals apply to the supplies and devices they use based on the estimated costs of those supplies and devices, isolating supplies and devices with different markup policies mitigates aggregation in markup policies that cause charge compression and is specific to a hospital's internal accounting and pricing practices. If requested by the fiscal intermediaries/MACs at audit, hospitals could be required to submit documentation of their markup policies to justify the way they have reported relatively inexpensive supplies on one line and more expensive devices on the other line. We believe that it should not be too difficult for hospitals to document their markup practices because, as was pointed out by many commenters since the implementation of cost-based weights, the source of charge compression is varying markup practices. Greater knowledge of the specifics of hospital markup practices may allow ultimately for development of standard cost reporting instructions that instruct hospitals to report an item as a device or a supply based on the type of markup applied to that item. This option related to markup practices, the proposal to define devices based on four specific criteria, and the third alternative that would establish a cost threshold for purposes of distinguishing between high-cost and low-cost items, could be utilized separately or in some combination for purposes of cost report modification. Again, we are soliciting comments on these alternative approaches. We are also interested in other recommendations for appropriate cost reporting improvements that address charge compression.

3. Timeline for Revising the Medicare Cost Report

As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47198), we have begun a comprehensive review of the Medicare hospital cost report, and the proposed splitting of the current cost center for Medical Supplies Charged to Patients into one line for Medical Supplies Charged to Patients and another line for Implantable Devices Charged to Patients, is part of Start Printed Page 23547our initiative to update and revise the hospital cost report. Under an effort initiated by CMS to update the Medicare hospital cost report to eliminate outdated requirements in conjunction with the Paperwork Reduction Act, we plan to propose the actual changes to the cost reporting form, the attending cost reporting software, and the cost report instructions in Chapter 36 of the Medicare Provider Reimbursement Manual (PRM), Part II. We expect the proposed revision to the Medicare hospital cost report to be issued after publication of this IPPS proposed rule. If we were to adopt as final our proposal to create one cost center for Medical Supplies Charged to Patients and one cost center for Implantable Devices Charged to Patients in the FY 2009 IPPS final rule, the cost report forms and instructions would reflect those changes. We expect the revised cost report would be available for hospitals to use when submitting cost reports during FY 2009 (that is, for cost reporting periods beginning on or after October 1, 2008). Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS ratesetting purposes and a given fiscal year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2012 IPPS relative weights and the CY 2012 OPPS relative weights.

4. Revenue Codes Used in the MedPAR File

An important first step in RTI's study (as explained in its draft interim March 2007 report) was determining how well the cost report charges used to compute CCRs matched to the charges in the MedPAR file. This match (or lack thereof) directly affects the accuracy of the DRG cost estimates because MedPAR charges are multiplied by CCRs to estimate cost. RTI found 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 some 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, while other hospitals include them in the Medical Supplies Charged to Patients cost center. While the educational initiative undertaken by the national hospital associations is encouraging hospitals to consistently report costs and charges for devices and other medical supplies only in the Medical Supplies Charged to Patients cost center, equal attention must be paid to the way in which charges are grouped by hospitals in the MedPAR file. Several commenters on the FY 2008 IPPS proposed rule supported RTI's recommendation of including additional fields in the MedPAR file to disaggregate certain cost centers. One commenter stated that the assignment of revenue codes and charges to revenue centers in the MedPAR file should be reviewed and changed to better reflect hospital accounting practices as reflected on the cost report (72 FR 47198).

In an effort to improve the match between the costs and charges included on the cost report and the charges in the MedPAR file, we are recommending that certain revenue codes be used for items reported in the proposed Medical Supplies Charged to Patients cost center and the proposed Implantable Devices Charged to Patients cost center, respectively. Specifically, under the proposal to create a cost center for implantable devices that remain in the patient upon discharge, revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), and 0278 (Other Implants) would correspond to implantable devices reported in the proposed Implantable Devices Charged to Patients cost center. Items for which a hospital may have previously used revenue code 0270 (General Classification), but actually meet the proposed definition of an implantable device that remains in the patient upon discharge should instead be billed with the 0278 revenue code. Conversely, relatively inexpensive items and supplies that are not implantable and do not remain in the patient at discharge would be reported in the proposed Medical Supplies Charged to Patients cost center on the cost report, and should be billed with revenue codes 0271 (nonsterile supply), 0272 (sterile supply), and 0273 (take-home supplies), as appropriate. Revenue code 0274 (Prosthetic/Orthotic devices) and revenue code 0277 (Oxygen—Take Home) should be associated with the costs reported on lines 66 and 67 for DME—Rented and DME—Sold on the cost report. Charges associated with supplies used incident to radiology or to other diagnostic services (revenue codes 0621 and 0622 respectively) should match those items used incident to those services on the Medical Supplies Charged to Patients cost center of the cost report, because, under this proposal, supplies furnished incident to a service would be reported in the Medical Supplies Charged to Patients cost center (see item b. listed above, in the proposed definition of a device). A revenue code of 0623 for surgical dressings would similarly be associated with the costs and charges of items reported in the proposed Medical Supplies Charged to Patients cost center, while a revenue code of 0624 for FDA investigational device, if that device does not remain in the patient upon discharge, could be associated with items reported on the Medical Supplies Charged to Patients cost center as well.

In general, if an item is reported as an implantable device on the cost report, the associated charges should be recorded in the MedPAR file with either revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), or 0278 (Other Implants). Likewise, items reported as Medical Supplies should receive an appropriate revenue code indicative of supplies. We understand that many of these revenue codes have been in existence for many years and have been added for purposes unrelated to the goal of refining the calculation of cost-based weights. Accordingly, we acknowledge that additional instructions relating to the appropriate use of these revenue codes may need to be issued. In addition, CMS or the hospital associations may need to request new revenue codes from the National Uniform Billing Committee (NUBC). In either case, we do not believe either should delay use of the new Medical Supplies and Implantable Devices CCRs in setting payment rates. However, in light of our proposal to create two separate cost centers for Medical Supplies Charged to Patients and Implantable Devices Charged to Patients, respectively, we are soliciting comments on how the existing revenue codes or additional revenue codes could best be used in conjunction with the revised cost centers on the cost report.

F. Preventable Hospital-Acquired Conditions (HACs), Including Infections

1. General

In its landmark 1999 report “To Err is Human: Building a Safer Health System,” the Institute of Medicine found that medical errors, particularly hospital-acquired conditions (HACs) caused by medical errors, are a leading cause of morbidity and mortality in the United States. The report noted that the number of Americans who die each year as a result of medical errors that occur in hospitals may be as high as 98,000. The cost burden of HACs is also high. Total national costs of these errors due to lost productivity, disability, and health care costs were estimated at $17 Start Printed Page 23548billion to $29 billion.[2] In 2000, the CDC estimated that hospital-acquired infections added nearly $5 billion to U.S. health care costs every year.[3] A 2007 study found that, in 2002, 1.7 million hospital-acquired infections were associated with 99,000 deaths[4] Research has also shown that hospitals are not following recommended guidelines to avoid preventable hospital-acquired infections. A 2007 Leapfrog Group survey of 1,256 hospitals found that 87 percent of those hospitals do not follow recommendations to prevent many of the most common hospital-acquired infections.[5]

As one approach to combating HACs, including infections, in 2005 Congress authorized CMS to adjust for Medicare IPPS hospital payments to encourage the prevention of these conditions. The preventable HAC provision at section 1886(d)(4)(D) of the Act is part of an array of Medicare value-based purchasing (VBP) tools that CMS is using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. CMS' application of VBP tools through various initiatives, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

The President's FY 2009 Budget outlines another approach for addressing serious preventable adverse events (“never events”), including HACs. The President's Budget proposal would: (1) Prohibit hospitals from billing the Medicare program for “never events” and prohibit Medicare payment for these events; and (2) require hospitals to report occurrence of these events or receive a reduced annual payment update.

Medicare's IPPS encourages hospitals to treat patients efficiently. Hospitals receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In many cases, complications acquired in the hospital do not generate higher payments than the hospital would otherwise receive for uncomplicated cases paid under the same DRG. To this extent, the IPPS encourages hospitals to avoid complications. However, complications, such as infections, acquired in the hospital can generate higher Medicare payments in two ways. First, the treatment of complications can increase the cost of a hospital stay enough to generate an outlier payment. However, the outlier payment methodology requires that a hospital experience a large loss on an outlier case, which serves as an incentive for hospitals to prevent outliers. Second, under the MS-DRGs that took effect in FY 2008, there are currently 258 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. If a condition acquired during a hospital stay is one of the conditions on the CC or MCC list, the hospital currently receives a higher payment under the MS-DRGs (prior to the October 1, 2008 effective date of the HAC payment provision). (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).) The following is an example of how an MS-DRG may be paid.

Service: MS-DRG Assignment* (Examples below with CC/MCC indicate a single secondary diagnosis only)Present on admission (status of secondary diagnosis)Average payment (based on 50th percentile)
Principal Diagnosis$5,347.98
• Intracranial hemorrhage or cerebral infarction (stroke) without CC/MCC—MS-DRG 066
Principal DiagnosisY6,177.43
• Intracranial hemorrhage or cerebral infarction (stroke) with CC—MS-DRG 065
Example Secondary Diagnosis
• Dislocation of patella-open due to a fall (code 836.4 (CC))
Principal DiagnosisN5,347.98
• Intracranial hemorrhage or cerebral infarction (stroke) with CC—MS-DRG 065
Example Secondary Diagnosis
• Dislocation of patella-open due to a fall (code 836.4 (CC))
Principal DiagnosisY8,030.28
• Intracranial hemorrhage or cerebral infarction (stroke) with MCC—MS-DRG 064
Example Secondary Diagnosis
• Stage III pressure ulcer (code 707.23 (MCC))
Principal DiagnosisN5,347.98
• Intracranial hemorrhage or cerebral infarction (stroke) with MCC—MS-DRG 064
Example Secondary Diagnosis
• Stage III pressure ulcer (code 707.23 (MCC))
* Operating amounts for a hospital whose wage index is equal to the national average.

2. Statutory Authority

Section 1886(d)(4)(D) of the Act required the Secretary to select at least two conditions by October 1, 2007, that are: (a) High cost, high volume, or both; (b) assigned to a higher paying DRG when present as a secondary diagnosis; and (c) could reasonably have been prevented through the application of evidence-based guidelines. Beginning October 1, 2008, Medicare can no longer assign an inpatient hospital discharge to Start Printed Page 23549a higher paying MS-DRG if a selected HAC was not present on admission. That is, the case will be paid as though the secondary diagnosis was not present. (Medicare will continue to assign a discharge to a higher paying MS-DRG if the selected condition was present on admission.) Section 1886(d)(4)(D) of the Act provides that the list of conditions can be revised from time to time, as long as the list contains at least two conditions. Beginning October 1, 2007, we required hospitals to begin submitting information on Medicare claims specifying whether diagnoses were present on admission (POA).

The POA indicator reporting requirement and the HACs payment provision apply to IPPS hospitals only. At this time, non-IPPS hospitals such as CAHs, LTCHs, IRFs, and hospitals in Maryland operating under waivers, among others, are exempt from POA reporting and the HAC payment provision. Throughout this section, “hospital” refers to IPPS hospitals.

3. Public Input

In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public input regarding conditions with evidence-based prevention guidelines that should be selected in implementing section 1886(d)(4)(D) of the Act. The public comments we received were summarized in the FY 2007 IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS proposed rule (72 FR 24716), we again sought formal public comment on conditions that we proposed to select. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we summarized the public comments we received on the FY 2008 IPPS proposed rule, presented our responses, selected eight conditions to which the HAC provision will initially apply, and noted that we would be seeking comments on additional HAC candidates in this proposed rule.

4. Collaborative Process

CMS experts worked with public health and infectious disease professionals from the CDC to identify the candidate preventable HACs. CMS and CDC staff also collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital Medicare claims.

On December 17, 2007, CMS and CDC hosted a jointly sponsored HAC and POA Listening Session to receive input from interested organizations and individuals. The agenda, presentations, audio file, and written transcript of the listening session are available on the Web site at: http://www.cms.hhs.gov/​HospitalAcqCond/​07_​EducationalResources.asp. CMS and CDC also received informal comments during the listening session and subsequently received numerous written comments.

5. Selection Criteria for HACs

CMS and CDC staff evaluated each candidate condition against the criteria established by section 1886(d)(4)(D)(iv) of the Act.

  • Cost or Volume—Medicare data [6] must support that the selected conditions are high cost, high volume, or both. At this point, there are no Medicare claims data indicating which secondary diagnoses were POA because POA indicator reporting began only recently; therefore, the currently available data for candidate conditions includes all secondary diagnoses.
  • Complicating Condition (CC) or Major Complicating Condition (MCC)—Selected conditions must be represented by ICD-9-CM diagnosis codes that clearly identify the condition, are designated as a CC or an MCC, and result in the assignment of the case to an MS-DRG that has a higher payment when the code is reported as a secondary diagnosis. That is, selected conditions must be a CC or an MCC that would, in the absence of this provision, result in assignment to a higher paying MS-DRG.
  • Evidence-Based Guidelines—Selected conditions must be reasonably preventable through the application of evidence-based guidelines. By reviewing guidelines from professional organizations, academic institutions, and entities such as the Healthcare Infection Control Practices Advisory Committee (HICPAC), we evaluated whether guidelines are available that hospitals should follow to prevent the condition from occurring in the hospital.
  • Reasonably Preventable—Selected conditions must be reasonably preventable through the application of evidence-based guidelines.

6. HACs Selected in FY 2008 and Proposed Changes to Certain Codes

The HACs that were selected for the HAC payment provision through the FY 2008 IPPS final rule with comment period are listed below. The payment provision for these selected HACs will take effect on October 1, 2008. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) for a detailed analysis supporting the selection of each of these HACs.

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We are seeking public comments on the following refinements to two of the previously selected HACs:

a. Foreign Object Retained After Surgery: Proposed Inclusion of ICD-9-CM Code 998.7 (CC)

In the FY 2008 IPPS final rule with comment period (72 FR 47206), we indicated that a foreign body accidentally left in the patient during a procedure (ICD-9-CM code 998.4) was one of the conditions selected. It has come to our attention that ICD-9-CM diagnosis code 998.7 (Acute reaction to foreign substance accidentally left during a procedure) should also be included. ICD-9-CM code 998.7 describes instances in which a patient developed an acute reaction due to a retained foreign substance. Therefore, we are proposing to make this code subject to the HAC payment provision.

b. Pressure Ulcers: Proposed Changes in Code Assignments

As discussed in the FY 2008 IPPS final rule with comment period (72 FR 47205-47206), we referred the need for more detailed ICD-9-CM pressure ulcer codes to the CDC. The topic of expanding pressure ulcer codes to capture the stage of the ulcer was addressed at the September 27-28, 2007, meeting of the ICD-9-CM Coordination and Maintenance Committee. A summary report of this meeting is available on the Web site at: http://www.cdc.gov/​nchs/​about/​otheract/​icd9/​maint/​maint.htm.

Numerous wound care professionals supported modifying the pressure ulcer codes to capture staging information. The stage of the pressure ulcer is a powerful predictor of severity and resource utilization. At its September 27-28, 2007 meeting, the ICD-9-CM Coordination and Maintenance Committee discussed the creation of pressure ulcer codes to capture this information. The new codes, along with their proposed CC/MCC classifications, are shown in Table 6A of the Addendum to this proposed rule. The new codes are as follows:

  • 707.20 (Pressure ulcer, unspecified stage).
  • 707.21 (Pressure ulcer stage I).
  • 707.22 (Pressure ulcer stage II).
  • 707.23 (Pressure ulcer stage III).
  • 707.24 (Pressure ulcer stage IV).

While the code titles are final, we are soliciting comment on the proposed MS-DRG classifications of these codes, as indicated in Table 6A of the Addendum to this proposed rule. We are proposing to remove the CC/MCC classifications from the current pressure ulcer codes that show the site of the ulcer (ICD-9-CM codes 707.00 through 707.09). Therefore, the following codes would no longer be a CC:

  • 707.00 (Decubitus ulcer, unspecified site).
  • 707.01 (Decubitus ulcer, elbow).
  • 707.09 (Decubitus ulcer, other site). The following codes would no longer be an MCC:
  • 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).

We are proposing to instead assign the CC/MCC classifications to the stage of the pressure ulcer as shown in Table 6A of the Addendum to this proposed rule. We are proposing to classify ICD-9-CM codes 707.23 and 707.24 as MCCs. We are proposing to classify codes 707.20, 707.21, and 707.22 as non-CCs.

Therefore, we are proposing that, beginning October 1, 2008, the codes used to make MS-DRG adjustments for pressure ulcers under the HAC provision would include the proposed MCC codes 707.23 and 707.24.

7. HACs Under Consideration as Additional Candidates

CMS and CDC have diligently worked together and with other stakeholders to identify additional HACs that might appropriately be subject to the HAC payment provision. If the additional candidate HACs are selected in the FY 2009 IPPS final rule, the payment provision will take effect for these candidate HACS on October 1, 2008. The statutory criteria for each HAC candidate are presented in tabular format. Each table contains the following:

  • HAC Candidate—We are seeking public comment on all HAC candidates.
  • Medicare Data—We are seeking public comment on the statutory criterion of high cost, high volume, or both as it applies to the HAC candidate.
  • CC/MCC—We are seeking public comment on the statutory criterion that an ICD-9-CM diagnosis code(s) clearly identifies the HAC candidate.
  • Selected Evidence-Based Guidelines—We are seeking public comment on the degree to which the HAC candidate is reasonably preventable through the application of the identified evidence-based guidelines.

a. Surgical Site Infections Following Elective Surgeries

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In the FY 2008 IPPS final rule with comment period (72 FR 47213), surgical site infections were identified as a broad category for consideration, and we selected mediastinitis after coronary artery bypass graft (CABG) as one of the initial eight HACs for implementation. We are now considering the addition of other surgical site infections, particularly those following elective procedures. In most cases, patients selected as candidates for elective surgeries should have a relatively low-risk profile for surgical site infections.

The following elective surgical procedures are under consideration:

  • Total Knee Replacement (81.54): ICD-9-CM codes 996.66 (CC) and 998.59 (CC)
  • Laparoscopic Gastric Bypass (44.38) and Laparoscopic Gastroenterostomy (44.39): ICD-9-CM code 998.59 (CC)
  • Ligation and Stripping of Varicose Veins (38.50 through 38.53, 38.55, 38.57, and 38.59): ICD-9-CM code 998.59 (CC)

Evidence-based guidelines for preventing surgical site infections emphasize the importance of appropriately using prophylactic antibiotics, using clippers rather than razors for hair removal and tightly controlling postoperative glucose.

While we are seeking public comments on the applicability of each of the statutory criteria to surgical site infections following elective procedures, we are particularly interested in receiving comments on the degree of preventability of surgical site infections following elective procedures generally, as well as specifically for those listed above. We also are seeking public comments on additional elective surgical procedures that would qualify for the HAC provision by meeting all of the statutory criteria. Based on the public comments we receive, we may select some combination of the four procedures presented here along with additional conditions that qualify and are supported by the comments.

b. Legionnaires' Disease

We discussed Legionnaires’ Disease in the FY 2008 IPPS final rule with comment period (72 FR 47216). Legionnaires’ Disease is a type of pneumonia caused by the bacterium Legionella pneumophila. It is contracted Start Printed Page 23554by inhaling contaminated water vapor or droplets. It is not spread person to person. Individuals at risk include those who are elderly, immunocompromised, smokers, or persons with underlying lung disease. The bacterium thrives in warm aquatic environments and infections have been linked to large industrial water systems, including hospital water systems such as air conditioning cooling towers and potable water plumbing systems. Prevention depends primarily on regular monitoring and decontamination of these water systems. While we are seeking public comments regarding the applicability of each of the statutory criteria to Legionnaires' Disease, we are particularly interested in receiving comments on the degree of preventability of Legionnaires' Disease through the application of hospital water system maintenance guidelines.

Legionnaires' Disease is typically acquired outside of the hospital setting and may be difficult to diagnose as present on admission. We are seeking comments on the degree to which hospital-acquired Legionnaires' Disease can be distinguished from community-acquired cases.

We also are seeking public comments on additional water-borne pathogens that would qualify for the HAC provision by meeting the statutory criteria. Based on the public comments we receive, we may finalize some combination of Legionnaires' Disease and additional conditions that qualify and are supported by the public comments.

c. Glycemic Control

During the December 17, 2007 HAC and POA Listening Session, one of the commenters suggested that we explore hyperglycemia and hypoglycemia as HACs for selection. NQF's list of Serious Reportable Adverse Events includes death or serious disability associated with hypoglycemia that occurs during hospitalization.

Hyperglycemia and hypoglycemia are extremely common laboratory findings in hospitalized patients and can be complicating features of underlying diseases and some therapies. However, we believe that extreme forms of poor glycemic control should not occur while under medical care in the hospital setting. Thus, we are considering whether the following forms of extreme glucose derangement should be subject to the HAC payment provision:

  • Diabetic Ketoacidosis: ICD-9-CM codes 250.10-250.13 (CC)
  • Nonketotic Hyperosmolar Coma: ICD-9-CM code 251.0 (CC)
  • Diabetic Coma: ICD-9-CM codes 250.30-250.33 (CC)
  • Hypoglycemic Coma: ICD-9-CM codes 250.30-251.0 (CC)

While we are seeking public comments regarding the applicability of each of the statutory criteria to these extreme aberrations in glycemic control, we are particularly interested in receiving comments on the degree to which these extreme aberrations in glycemic control are reasonably preventable, in the hospital setting, through the application of evidence-based guidelines. Based on the public comments we receive, we may select some combination of these glycemic control-related conditions as HACs.

d. Iatrogenic Pneumothorax

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Iatrogenic pneumothorax refers to the accidental introduction of air into the pleural space, which is the space between the lung and the chest wall. When air is introduced into this space it partially or completely collapses the lung. Iatrogenic pneumothorax can occur during any procedure where there is the possibility of air entering pleural space, including needle biopsy of the lung, thoracentesis, central venous catheter placement, pleural biopsy, tracheostomy, and liver biopsy. Iatrogenic pneumothorax can occur secondary to positive pressure mechanical ventilation when an air sac in the lung ruptures allowing air into the pleural space.

While we are seeking public comments on the applicability of each of the statutory criteria to iatrogenic pneumothorax, we are particularly interested in receiving comments on the degree to which iatrogenic pneumothorax is reasonably preventable through the application of evidence-based guidelines. Based on the public comments we receive, we may select iatrogenic pneumothorax as an HAC.

e. Delirium

Delirium is a relatively abrupt deterioration in a patient's ability to sustain attention, learn, or reason. Delirium is strongly associated with aging and treatment of illnesses that are associated with hospitalizations. Delirium affects nearly half of hospital patient days for individuals age 65 and older, and approximately three-quarters of elderly individuals in intensive care units have delirium. About 14 to 24 percent of hospitalized elderly individuals have delirium at the time of admission. Having delirium is a very serious risk factor, with 1-year mortality of 35 to 40 percent, a rate as high as those associated with heart attacks and sepsis. The adverse effects of delirium routinely last for months. Delirium is a clinical diagnosis, commonly assisted by screening tests such as the Confusion Assessment Method.

Well-established practices, such as reducing certain medications, reorienting the patient, assuring sensory input and sleep, and avoiding malnutrition and dehydration, prevent 30 to 40 percent of the possible cases. While we are seeking public comments on the applicability of each of the statutory criteria to delirium, we are particularly interested in receiving comments on the degree to which delirium is reasonably preventable through the application of evidence-based guidelines. Based upon the public comments we receive, we may select delirium as an HAC.

f. Ventilator-Associated Pneumonia (VAP)

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We discussed ventilator-associated pneumonia (VAP) in the FY 2008 IPPS final rule with comment period (72 FR 47209-47210). VAP is a serious hospital-acquired infection associated with high mortality, significantly increased hospital length of stay, and high cost. It is typically caused by the aspiration of contaminated gastric and/or oropharyngeal secretions. The presence of an endotracheal tube facilitates both the contamination of secretions as well as aspiration.

During the past year, the ICD-9-CM Coordination and Maintenance Committee discussed the creation of a new ICD-9-CM code 997.31 to identify VAP. This new code is shown in Table 6A of the Addendum to this proposed rule. The lack of a specific code was one of the barriers to including VAP as an HAC that we discussed in the FY 2008 IPPS final rule with comment period. We also discussed the degree to which VAP may be reasonably preventable through the application of evidence-based guidelines. Specifically, the FY 2008 IPPS final rule with comment period referenced the American Association for Respiratory Care's Clinical Practice Guidelines at the Web site: http://www.rcjournal.com/​cpgs/​09.03.0869.html.

To further investigate the extent to which VAP is reasonably preventable, we reviewed published clinical research. The literature, including recommendations by CDC and the HICPAC, from 2003 shows numerous prevention guidelines that can significantly reduce the incidence of VAP in the hospital setting. These guidelines include interventions such as educating staff, hand washing, using gowns and gloves, properly positioning the patient, elevating the head of the bed, changing ventilator tubing, sterilizing reusable equipment, applying chlorhexadine solution for oral decontamination, monitoring sedation daily, administering stress ulcer prophylaxis, and administering pneumococcal vaccinations. Further review of the literature, specifically regarding the proportion of VAP cases that might be preventable, revealed two large-scale analyses that were completed recently. One study concluded that an estimated 40 percent of VAP cases are preventable. A second study concluded that at least 20 percent of nosocomial infections in general (not just VAP) are preventable.[7]

During the December 17, 2007 HAC and POA Listing Session, we also received comments on evidence-based guidelines for preventing VAP. Commenters referenced two articles [8] [9] that both state there is a high degree of risk associated with endotracheal tube insertions, suggesting that VAP may not always be preventable.

While we are seeking public comments on the applicability of each of the statutory criteria to VAP, we are particularly interested in receiving comment on the degree to which VAP Start Printed Page 23557is reasonably preventable through the application of evidence-based guidelines. Based on the public comments we receive, we may select VAP as an HAC.

g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

We discussed deep vein thrombosis (DVT) and pulmonary embolism (PE) in the FY 2008 IPPS final rule with comment period (72 FR 47215). DVT and PE are common events. DVT occurs when a blood clot forms in the deep veins of the leg and causes local swelling and inflammation. PE occurs when a clot or a piece of a clot migrates from its original site into the lungs, causing the death of lung tissue, which can be fatal. Risk factors for DVTs and PEs include inactivity, smoking, use of oral contraceptives, prolonged bed rest, prolonged sitting with bent knees, certain types of cancer and other disease states, certain blood clotting disorders, and certain types of orthopedic and other surgical procedures. DVT is not always clinically apparent because the manifestations of pain, redness, and swelling may develop some time after the venous clot forms.

As we discussed in the FY 2008 IPPS final rule with comment period, DVTs and PEs may be preventable in certain circumstances, but it is possible that a patient may have a DVT that is difficult to detect on admission. We also received comments during the December 17, 2007 HAC and POA Listening Session reiterating that not all cases of DVTs and PEs are preventable. For example, common patient characteristics such as immobility, obesity, severe vessel trauma, and venous stasis put certain trauma and joint replacement surgery patients at high risk for these conditions.

In our review of the literature, we found that there are definite pharmacologic and nonpharmacologic interventions that may reduce the likelihood of developing DVTs and PEs, including exercise, compression stockings, intermittent pneumatic boots, aspirin, enoxaparin, dalteparin, heparin, coumadin, clopidogrel, and fondaparinux. However, the evidenceπbased guidelines indicate that some patients may still develop clots despite these therapies.

While we are seeking public comments on the applicability of each of the statutory criteria to DVTs and PEs, we are particularly interested in receiving comments on the degree of preventability of DVTs and PEs. We are also interested in comments on determining the presence of DVT and PE at admission. Based on the public comments we receive, we may select DVTs and PEs as HACs.

h. Staphylococcus aureus Septicemia

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We discuss Staphylococcus aureus Septicemia in the FY 2008 IPPS final rule with comment period (72 FR 47208). Staphylococcus aureus is a bacterium that lives in the nose and on the skin of a large percentage of the population. It usually does not cause physical illness, but it can cause infections ranging from superficial boils to cellulitis to pneumonia to life threatening bloodstream infections (septicemia). It usually enters the body through traumatized tissue, such as cuts or abrasions, or at the time of invasive procedures. Staphylococcus aureus Septicemia can also be a late effect of an injury or a surgical procedure. Risk factors for developing Staphylococcus aureus Septicemia include advanced age, debilitated state, immunocompromised status, and a history of an invasive medical procedure.

CDC has developed evidence-based guidelines for the prevention of the Staphylococcus aureus Septicemia. Most preventable cases of septicemia are primarily related to the presence of a central venous or vascular catheter. During the December 17, 2007 HAC and POA Listening Session, commenters noted that intravascular catheter-associated infections are only one cause of septicemia. Therefore, catheter-oriented evidence-based guidelines would not cover all cases of Staphylococcus aureus Septicemia.[10]

We identified evidence-based guidelines that suggest Staphylococcus aureus Septicemia is reasonably preventable. These guidelines emphasize the importance of effective and fastidious hand washing by both staff and visitors, using gloves and gowns where appropriate, applying proper decontamination techniques, and exercising contact isolation where clinically indicated.

While we are seeking public comments on the applicability of each of the statutory criteria to Staphylococcus aureus infections generally, we are particularly interested in receiving comments on the degree of preventability of Staphylococcus aureus infections generally, and specifically Staphylococcus aureus Septicemia. Based on the public comments we receive, we may select Staphylococcus aureus Septicemia as an HAC.

i. Clostridium Difficile-Associated Disease (CDAD)

We discussed Clostridium difficile-associated disease (CDAD) in the FY 2008 IPPS final rule with comment period. Clostridium difficile is a bacterium that colonizes the gastrointestinal (GI) tract of a certain number of healthy people. Under conditions where the normal flora of the gastrointestinal tract is altered, Clostridium difficile can flourish and release large enough amounts of a toxin to cause severe diarrhea or even life threatening colitis. Risk factors for CDAD include prolonged use of broad spectrum antibiotics, gastrointestinal surgery, prolonged nasogastric tube insertion, and repeated enemas. CDAD can be acquired in the hospital or in the community. Its spores can live outside of the body for months and thus can be spread to other patients in the absence of meticulous hand washing by care providers and others who contact the infected patient.

We continue to receive strong support in favor of selecting CDAD as an HAC. During the December 17, 2007 HAC and POA Listening Session, representatives of consumers and purchasers advocated to include CDAD as an HAC.

The evidence-based guidelines for CDAD prevention emphasize that hand washing by staff and visitors and effective decontamination of environmental surfaces prevent the spread of Clostridium difficile. While we are seeking public comments on the applicability of each of the statutory criteria to CDADs, we are particularly interested in receiving comments on the degree of preventability of CDAD. Based on the public comments we receive, we may select CDAD as an HAC.

j. Methicillin-Resistant Staphylococcus aureus (MRSA)

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We discussed the special case of methicillin-resistant Staphylococcus aureus (MRSA) in the FY 2008 IPPS final rule with comment period (72 FR 47212). In October 2007, the CDC published in the Journal of the American Medical Association an article citing high mortality rates from MRSA, an antibiotic-resistant “superbug.” The article estimates 19,000 people died from MRSA infections in the United States in 2005. The majority of invasive MRSA cases are health care-related—contracted in hospitals or nursing homes—though community-acquired MRSA also poses a significant public health concern. Hospitals have been focused for years on controlling MRSA through the application of CDC's evidence-based guidelines outlining best practices for combating the bacterium in that setting.

MRSA is currently addressed by the HAC payment provision. For every infectious condition selected, MRSA could be the etiology of that infection. For example, if MRSA were the cause of a vascular catheter-associated infection (one of the eight conditions selected in the FY 2008 IPPS final rule with comment period), the HAC payment provision would apply to that MRSA infection.

As we noted in the FY 2008 IPPS final rule with comment period, colonization by MRSA is not a reasonably preventable HAC according to the current evidence-based guidelines; therefore, MRSA does not meet the reasonably preventable statutory criterion for an HAC. An estimated 32.4 percent of Americans are colonized with MRSA, which may reside in the nose or on the skin of asymptomatic carriers.[11] In addition, in last year's final rule with comment period, we noted that there is no CC/MCC code available for MRSA, and therefore it also does not meet the codeable CC/MCC statutory criterion for an HAC. Only when MRSA causes an infection does a codeable condition occur. However, we referenced the possibility that new codes for MRSA were being considered by the ICD-9-CM Coordination and Maintenance Committee. The creation of unique codes to capture MRSA was discussed during the March 19-20, 2008 Committee meeting. While these codes will enhance the data available and our understanding of MRSA, the availability and use of these codes will not change the fact that the mere presence of MRSA as a colonizing bacterium does not constitute an HAC.

Because MRSA as a bacterium does not meet two of our statutory criteria, codeable CC/MCC and reasonably preventable through evidence-based guidelines, we are not proposing MRSA as an HAC. However, we recognize the significant public health concerns that were raised by representatives of consumers and purchasers at the HAC and POA Listening Session, and we are committed to reducing the spread of multi-drug resistant organisms, such as MRSA.

In addition, we are pursuing collaborative efforts with other HHS agencies to combat MRSA. The Agency for Healthcare Research and Quality (AHRQ) has launched a new initiative in collaboration with CDC and CMS to identify and suppress the spread of MRSA and related infections. In support of this work, Congress has appropriated $5 million to fund research, implementation, management, and evaluation practices that mitigate such infections.

CDC has carried out extensive research on the epidemiology of MRSA and effective techniques that could be used to treat the infection and reduce its spread. The following Web sites contain information that reflect CDC's commitment: (1) http://www.cdc.gov/​ncidod/​dhqp/​ar_​mrsa.html (health care-associated MRSA); (2) http://www.cdc.gov/​ncidod/​dhqp/​ar_​mrsa_​ca_​public.html (community-acquired MRSA); (3) http://www.cdc.gov/​mmwr/​preview/​mmwrhtml/​mm4908a1.htm;​ and (4) http://www.cdc.gov/​handhygiene/​.

AHRQ has made previous investments in systems research to help monitor MRSA and related infections in hospital settings, as reflected in material on the Web site at: http://www.guideline.gov/​browse/​guideline_​index.aspx and http://www.ahrq.gov/​clinic/​ptsafety/​pdf/​ptsafety.pdf.

8. Present on Admission (POA) Indicator Reporting

POA indicator information is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision and for broader public health uses of Medicare data. Through Change Request No. 5679 (released June 20, 2007), CMS issued instructions requiring IPPS hospitals to submit the POA indicator data for all diagnosis codes on Medicare claims. Specific instructions on how to select the correct POA indicator for each diagnosis code are included in the ICD-9-CM Official Guidelines for Coding and Reporting, available at the Web site: http://www.cdc.gov/​nchs/​datawh/​ftpserv/​ftpicd9/​icdguide07.pdf (POA Start Printed Page 23560reporting guidelines begin on page 92). Additional instructions, including information regarding CMS's phased implementation of POA indicator reporting and application of the POA reporting options, are available at the Web site: http://www.cms.hhs.gov/​HospitalAcqCond.

There are five POA indicator reporting options: “Y,” “N,” “W,” “U,” and “1.” Under the HAC payment provision, we are proposing to pay the CC/MCC MS-DRGs only for those HACs coded as “Y” and “W” indicators. The “Y” option indicates that the condition was present on admission. The “W” indicator affirms that the provider has determined, based on data and clinical judgment, that it is not possible to document when the onset of the condition occurred. We expect that this approach will encourage better documentation and promote the public health goals of POA reporting by providing more accurate data about the occurrence of HACs in the Medicare population. We anticipate that true clinical uncertainty will occur in only a very small number of cases. We plan to analyze how frequently the “W” indicator is used, and we leave open the possibility of proposing in future IPPS rulemaking not paying the CC/MCC MS-DRGs for HACs coded with the “W” indicator. In addition, we plan to analyze whether both the “Y” and “W” indicators are being used appropriately. Medicare program integrity initiatives closely monitor for inaccurate coding and coding that is inconsistent with medical record documentation. We are seeking public comments regarding the proposed treatment of the “Y” and “W” POA reporting options under the HAC payment provision.

We are proposing to not pay the CC/MMC MS-DRGs for HACs coded with the “N” indicator. The “N” option indicates that the condition was not present on admission. We are also proposing to not pay the CC/MCC MS-DRGs for HACs coded with the “U” indicator. The “U” option indicates that the medical record documentation is insufficient to determine whether the condition was present at the time of admission. Not paying for the CC/MCC MS-DRGs for HACs that are coded with the “U” indicator is expected to foster better medical record documentation.

Although we are proposing not paying the CC/MCC MS-DRG for HACs coded with the “U” indicator, we do recognize there may be some exceptional circumstances under which payment might be made. Death, elopement (leaving against medical advice), and transfers out of a hospital may preclude making an informed determination of whether an HAC was present on admission. We are seeking public comments on the potential use of the following current patient discharge status codes to identify the exceptional circumstances:

Patient Discharge Status Codes

Form locator codeCode descriptor
Exception for Patient Death
20Expired.
Exception for Patient Elopement (Leaving Against Medical Device)
7Left against medical advice or discontinued care.
Exception for Transfer
02Discharged/transferred to a short-term general hospital for inpatient care.
03Discharged/transferred to a skilled nursing facility (SNF) with Medicare certification in anticipation of skilled care.
04Discharged/transferred to an intermediate care facility (ICF).
05Discharged/transferred to a designated cancer center or children's hospital.
06Discharged/transferred to home under care of organized home health service organization.
43Discharged/transferred to a Federal health care facility.
50Hospice-home.
51Hospice-medical facility (certified) providing hospice level of care.
61Discharged/transferred to a hospital-based Medicare approved swing bed.
62Discharged/transferred to an inpatient rehabilitation facility (IRF) including rehabilitation distinct part units of a hospital.
63Discharged/transferred to a Medicare certified long term care hospital (LTCH).
64Discharged/transferred to a nursing facility certified under Medicaid but not certified under Medicare.
65Discharged/transferred to a psychiatric hospital or psychiatric distinct part unit of a hospital.
66Discharged/transferred to a critical access hospital (CAH).
70Discharged/transferred to another type of health care institution not otherwise defined in this code list.

We plan to analyze whether both the “N” and “U” POA reporting options are being used appropriately. The American Health Information Management Association (AHIMA) has promulgated Standards of Ethical Coding that require accurate coding regardless of the payment implications of the diagnoses. That is, diagnoses must be reported accurately regardless of their effect on payment. Medicare program integrity initiatives closely monitor for inaccurate coding and coding inconsistent with medical record documentation. We are seeking public comments regarding the proposal to not pay the CC/MCC MS-DRGs for HACs coded with “N” and “U” indicators.

9. Enhancement and Future Issues

The preventable HAC payment provision is one of CMS' VBP initiatives, as noted earlier in this section. VBP ties payment to performance through the use of incentives based on quality measures and cost of care. The implementation of VBP is rapidly transforming CMS from being a passive payer of claims to an active purchaser of higher quality, more efficient health care for Medicare beneficiaries. Other VBP initiatives include hospital pay for reporting (the RHQDAPU program discussed in section IV.B. of the preamble of this proposed rule), physician pay for reporting (the Physician Quality Reporting Initiative), home health pay for reporting, the Hospital VBP Plan Report to Congress (discussed in section IV.C. of the preamble of this proposed rule), and various VBP demonstration Start Printed Page 23561programs across payment settings, including the Premier Hospital Quality Incentive Demonstration and the Physician Group Practice Demonstration.

The success of CMS' VBP initiatives depends in large part on the validity of the performance measures and on the effectiveness of incentives in driving desired changes in behavior that will result in greater quality and efficiency. We are committed to enhancing the Medicare VBP programs, in close collaboration with stakeholders, to fulfill VBP's potential to promise of promoting higher value health care for Medicare beneficiaries. It is in this spirit that we seek public comment on enhancements to the preventable HACs payment policy and to concomitant POA indicator reporting.

We welcome all public comments presenting ideas and models for combating preventable HACs through the application of VBP principles. To stimulate reflection and creativity, we present several options:

  • Risk adjustment could be applied to make the HAC payment provision more precise.
  • Rates of HACs could be collected to obtain a more robust longitudinal measure of a hospital's incidence of these conditions.
  • POA information could be used in various ways to decrease the incidence of preventable HACs.
  • The adoption of ICD-10-PCS could facilitate more precise identification of HACs.
  • The principle behind the HAC payment provision (Medicare not paying more for preventable HACs) could be applied to Medicare payments in settings of care other than the IPPS.
  • CMS is using authority other than the HAC payment provision to address other events on the NQF's list of Serious Reportable Adverse Events.

We note that we are not proposing new Medicare policy in this Enhancements and Future Issues discussion, as some of these approaches may require new statutory authority.

a. Risk Adjustment

To make the HAC payment provision more precise, the adjustments to payment made when one of the selected HACs occurs during the hospitalization could be further adjusted to account for patient-specific risk factors. The expected occurrence of an HAC may be greater or lesser depending on the health status of the patient, as reflected by severity of illness, presence of comorbidities, or other factors. Rather than not paying any additional amount for the complication, the additional payment for the complication could range from zero for the lowest risk patient to the full amount for the highest risk patient. An option may be individualized adjustment for every hospitalization based on the patient's unique characteristics, but state-of-the-art risk adjustment currently precludes such individualized adjustment.

b. Rates of HACs

Given our limited capability at present for precise patient-level risk adjustment, adding a consideration of risk to the criteria for selecting HACs could be an alternative. If primarily high-risk patients are acquiring a certain condition during hospitalization, that condition could be considered a less-fit candidate for selection. Other alternatives to precise individualized risk adjustment could be adjustment for overall facility case mix or facility case-mix by condition. At the highest level, national Medicare program data could be used to make adjustments to the payment implications for the selected HACs based on expected rates of complications. Another option could be to designate certain patient risk factors as exemptions that would prohibit or mitigate the application of the HAC payment policy to the claims of patients with those risk factors.

The Medicare Hospital VBP Plan was submitted in a Report to Congress on November 21, 2007. The plan includes a performance assessment model that scores a hospital's attainment or improvement on various measures. The scores for each measure would be summed within each domain, such as the clinical process of care domain or the patient experience domain, and then the domains would be weighted and summed to yield a total performance score. The total performance score would then be translated into an incentive payment, proposed to be a certain percentage of each MS-DRG payment, using an exchange function. The plan also calls for public reporting of hospitals' performance scores by domain and in total. (Section IV.C. of this preamble included a related discussion of the Hospital VBP Plan Report to Congress.)

In accordance with this hospital VBP model, a hospital's rates of HACs could be included as a domain within each hospital's total performance score. The measurement of rates over time could be a more meaningful, actionable, and fair way to adjust a hospital's MS-DRG payments for the incidence of HACs. The consequence of a higher incidence of measured conditions would be a lower VBP incentive payment. Public reporting of the measured rates of HACs would give hospitals an additional, nonfinancial incentive to prevent occurrence of the conditions to avoid lower public ratings.

c. Use of POA Information

Information obtained from hospitals' reporting of POA data could be used in various ways to better understand and prevent the occurrence of HACs. The POA information could be provided to health services researchers to analyze factors that lead to HACs and disseminate the best practices for prevention of HACs. At least two states, New York and California, already collect POA data from their hospitals. Comparison of the State POA data with the Medicare data could fill in gaps in the databases and yield valuable insights about POA data validity.

POA data could also be used to calculate the incidence of HACs by hospital. This application of the POA data would be particularly powerful if the Medicare POA data were combined with state or private sector payer POA data. The Medicare-only or combined quality of care information could be initially shared with hospitals and thereafter publicly reported to support better healthcare decision making by Medicare beneficiaries, other health care consumers, professionals, and caregivers.

d. Transition to ICD-10-PCS

Accurate identification of HACs requires unambiguous and precise diagnosis codes. The current ICD-9-CM diagnosis coding system is three decades old. It is outdated and contains numerous instances of broad and vague codes. Attempts to add necessary detail to the ICD-9-CM system are inhibited by lack of expansion capacity. These factors negatively affect CMS' attempts to identify HAC cases.

ICD-10-PCS codes are more precise and capture information using more current medical terminology. For example, ICD-9-CM codes for pressure ulcers do not provide information about the size, depth, or exact location of the ulcer, while ICD-10-PCS has 60 codes to capture this information. ICD-10-PCS would also provide codes, beyond the current ICD-9-CM codes, that would enable the selection of additional surgical complications and adverse drug events.

e. Application of Nonpayment for HACs to Other Settings

The broad principle of Medicare not paying for preventable health care-associated conditions could potentially be applied to Medicare payment settings other than IPPS hospitals. Other Start Printed Page 23562possible settings of care might include hospital outpatient departments, SNFs, HHAs, end-stage renal disease facilities, and physician practices. The implications would be different for each setting, as each payment system is different and the reasonable preventability through the application of evidence-based guidelines would vary for candidate conditions over the different settings. However, alignment of incentives across settings of care is an important goal for all of CMS' VBP initiatives, including the HAC provision.

A related application of the broad principle behind the HAC payment could be accomplished through modification to the Medicare secondary payer policy which would allow us to directly recoup from the provider that failed to prevent the occurrence of a preventable condition in one setting to pay for all or part of the necessary followup care in a second setting. This would help shield the Medicare program from inappropriately paying for the downstream effects of a preventable condition acquired in the first setting but treated in the second setting.

f. Relationship to NQF's Serious Reportable Adverse Events

CMS is applying its authority to address the events on the NQF's list of Serious Reportable Adverse Events (also known as “never events”). In May 2006 testimony before the Senate Finance Committee, the CMS Administrator noted that paying hospitals for serious preventable events is contrary to the promise that hospital payments should support higher quality and efficiency. There is growing consensus that health care purchasers should not be paying for these events when they occur during a hospitalization. In January 2005, HealthPartners, a Minnesota-based not-for-profit HMO, announced that it would no longer reimburse hospitals for services associated with events enumerated in the Minnesota Adverse Health Care Events Reporting Act (essentially the NQF's list of Serious Reportable Adverse Events). Further, HealthPartners' contracts preclude hospitals from seeking reimbursement from the patient for these costs. During 2007, several State hospital associations adopted policies stating that their members will not bill payers or patients when these events occur in their hospitals.

In the FY 2008 IPPS final rule with comment period, we adopted several items from the NQF's list of events as HACs, including retained foreign object after surgery, air embolism, blood incompatibility, stage III and IV pressure ulcers, falls, electric shock, and burns. In this proposed rule, we are seeking public comments regarding adding hypoglycemic coma, which is closely related to NQF's listing of death or serious disability associated with hypoglycemia. However, as we discussed in the FY 2008 IPPS final rule with comment period, the HAC payment provision is not ideally suited to address every condition on the NQF's list of Serious Reportable Adverse Events. To address the events on the NQF's list beyond the effect of the HAC policy, CMS is exploring the application of Medicare authority, including other payment provisions, coverage policy, conditions of participation, and Quality Improvement Organization (QIO) retrospective review.

We note that we are not proposing new Medicare policy in this discussion of the HAC payment provision for IPPS hospitals, as some of these approaches may require new statutory authority. We are seeking public comments on these and other options for enhancing the preventable HACs payment provision and maximizing the use of POA indicator reporting data. We look forward to working with stakeholders in the fight against HACs.

G. Proposed Changes to Specific MS-DRG Classifications

1. Pre-MDCs: Artificial Heart Devices

Heart failure affects more than 5 million patients in the United States with 550,000 new cases each year, and causes more than 55,000 deaths annually. It is a progressive disease that is medically managed at all stages, but over time leads to continued deterioration of the heart's ability to pump sufficient amounts of adequately oxygenated blood throughout the body. When medical management becomes inadequate to continue to support the patient, the patient's heart failure would be considered to be the end stage of the disease. At this point, the only remaining treatment options are a heart transplant or mechanical circulatory support. A device termed an artificial heart has been used only for severe failure of both the right and left ventricles, also known as biventricular failure. Relatively small numbers of patients suffer from biventricular failure, but the exact numbers are unknown. There are about 4,000 patients approved and waiting to receive heart transplants in the United States at any given time, but only about 2,000 hearts per year are transplanted due to a scarcity of donated organs. There are a number of mechanical devices that may be used to support the ventricles of a failing heart on either a temporary or permanent basis. When it is apparent that a patient will require long-term support, a ventricular support device is generally implanted and may be considered either as a bridge to recovery or a bridge to transplantation. Sometimes a patient's prognosis is uncertain, and with device support the native heart may recover its function. However when recovery is not likely, the patient may qualify as a transplant candidate and require mechanical circulatory support until a donor heart becomes available. This type of support is commonly supplied by ventricular assist devices, (VADs), which are surgically attached to the native ventricles but do not replace them.

Devices commonly called artificial hearts are biventricular heart replacement systems that differ from VADs in that a substantial part of the native heart, including both ventricles, is removed. When the heart remains intact, it remains possible for the native heart to recover its function after being assisted by a VAD. However, because the artificial heart device requires the resection of the ventricles, the native heart is no longer intact and such recovery is not possible. The designation “artificial heart” is somewhat of a misnomer because some portion of the native heart remains and there is no current mechanical device that fully replaces all four chambers of the heart. Over time, better descriptive language for these devices may be adopted.

In 1986, CMS made a determination that the use of artificial hearts was not covered under the Medicare program. To conform to that decision, we placed ICD-9-CM procedure code 37.52 (Implantation of total replacement heart system) on the GROUPER program's MCE in the noncovered procedure list.

On August 1, 2007, CMS began a national coverage determination process for artificial hearts. SynCardia Systems, Inc. submitted a request for reconsideration of the longstanding noncoverage policy when its device, the CardioWest Temporary Total Artificial Heart (TAH-t) System, is used for “bridge to transplantation” in accordance with the FDA-labeled indication for the device. “Bridge to transplantation” is a phrase meaning that a patient in end-stage heart failure may qualify as a heart transplant candidate, but will require mechanical circulatory support until a donor heart becomes available. The CardioWest TAH-t System is indicated for use as a bridge to transplantation in cardiac transplant-eligible candidates at risk of imminent death from biventricular Start Printed Page 23563failure. The system is intended for use inside the hospital as the patient awaits a donor heart. The ultimate desired outcome for insertion of the TAH-t is a successful heart transplant, along with the potential that offers for cure from heart failure.

CMS determined that a broader analysis of artificial heart coverage was deemed appropriate, as another manufacturer, Abiomed, Inc. has developed an artificial heart device, AbioCor® Implantable Replacement Heart Device, with different indications. SynCardia Systems, Inc has received approval of its device from the FDA for humanitarian use as destination therapy for patients in end-stage biventricular failure who cannot qualify as transplant candidates. The AbioCor® Implantable Replacement Heart Device is indicated for use in severe biventricular end-stage heart disease patients who are not cardiac transplant candidates and who are less than 75 years old, who require multiple inotropic support, who are not treatable by VAD destination therapy, and who cannot be weaned from biventricular support if they are on such support. The desired outcome for this device is prolongation of life and discharge to home.

On February 1, 2008, CMS published a proposed coverage decision memorandum for artificial hearts which stated, in part, that while the evidence is inadequate to conclude that the use of an artificial heart is reasonable and necessary for Medicare beneficiaries, the evidence is promising for the uses of artificial heart devices as described above. CMS supports additional research for these devices, and therefore proposed that the artificial heart will be covered by Medicare when performed under the auspices of a clinical study. The study must meet all of the criteria listed in the proposed decision memorandum. This proposed coverage decision memorandum may be found on the CMS Web site at: http://www.cms.hhs.gov/​mcd/​viewdraftdecisionmemo.asp?​id=​211. Following consideration of the public comments received, CMS expects to make a final decision on or about May 1, 2008.

The topic of coding of artificial heart devices was discussed at the September 27-28, 2007 ICD-9-CM Coordination and Maintenance Committee meeting held at CMS in Baltimore, MD. We note that this topic was placed on the Committee's agenda because any proposed changes to the ICD-9-CM coding system must be discussed at a Committee meeting, with opportunity for comment from the public. At the September 2007 Committee meeting, the Committee accepted oral comments from participants and encouraged attendees or anyone with an interest in the topic to comment on proposed changes to the code, inclusion terms, or exclusion terms. We accepted written comments until October 12, 2007. As a result of discussion and comment from the Committee meeting, the Committee revised the title of procedure code 37.52 for artificial hearts to read “Implantation of internal biventricular heart replacement system.” In addition, the Committee created new code 37.55 (Removal of internal biventricular heart replacement system) to identify explantation of the artificial heart prior to heart transplantation.

To make conforming changes to the IPPS system with regard to the proposed revision to the coverage decision for artificial hearts, in this proposed rule, we are proposing to remove procedure code 37.52 from MS-DRG 215 (Other Heart Assist System Implant) and assign it to MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with Major Comorbidity or Complication (MCC)) and MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without Major Comorbidity or Complication (MCC)). In addition, we are proposing to remove procedure code 37.52 from the MCE “Non-Covered Procedure” edit and assign it to the “Limited Coverage” edit. We are proposing to include in this proposed edit the requirement that ICD-9-CM diagnosis code V70.7 (Examination of participant in clinical trial) also be present on the claim. We are proposing that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the proposed coverage policy.

During FY 2008, we are making mid-year changes to portions of the GROUPER program that do not affect MS-DRG assignment or ICD-9-CM coding. However, as the proposed coverage decision memorandum for artificial hearts was published after the CMS contractor's testing and release of the mid-year product, the above proposed changes to the MCE will not be included in that revision of the GROUPER Version 25.0. GROUPER Version 26.0, which will be in use for FY 2009, will contain the proposed changes if they are approved. If the proposed revisions to the MCE are accepted, the edits in the MCE Version 25.0 will be effective retroactive to May 1, 2008. (To reduce confusion, we note that the version number of the MCE is one digit lower than the current GROUPER version number; that is, Version 26.0 of the GROUPER uses Version 25.0 of the MCE.)

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

a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator (tPA)

In 1996, the FDA approved the use of tissue plasminogen activator (tPA), one type of thrombolytic agent that dissolves blood clots. In 1998, the ICD-9-CM Coordination and Maintenance Committee created code 99.10 (Injection or infusion of thrombolytic agent) in order to be able to uniquely identify the administration of these agents. Studies have shown that tPA can be effective in reducing the amount of damage the brain sustains during an ischemic stroke, which is caused by blood clots that block blood flow to the brain. tPA is approved for patients who have blood clots in the brain, but not for patients who have a bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to be most effective when used within the first 3 hours after the onset of an embolic stroke, but it is contraindicated in hemorrhagic strokes.

For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and Precerebral Occlusion without Infarction) by removing the diagnostic ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute Ischemic Stroke with Use of Thrombolytic Agent) which increased reimbursement for patients who sustained an ischemic or embolic stroke and who also had administration of tPA. The intent of this DRG was not to award higher payment for a specific drug but to recognize the need for better overall care for this group of patients. Even though tPA is indicated only for a small proportion of stroke patients, that is, those patients experiencing ischemic strokes treated within 3 hours of the onset of symptoms, our data suggested that there was a sufficient quantity of patients to support the DRG change. While our goal is to make payment relate more closely to resource use, we also note that use of tPA in a carefully selected patient population may lead to better outcomes and overall care and may lessen the need for postacute care.

For FY 2008, with the adoption of MS-DRGs, CMS DRG 559 became MS-DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC). Stroke cases in which no thrombolytic Start Printed Page 23564agent was administered were grouped to MS-DRGs 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC), 065 (Intracranial Hemorrhage or Cerebral Infarction with CC), or 066 (Intracranial Hemorrhage or Cerebral Infarction without CC/MCC). The MS-DRGs that reflect use of a thrombolytic agent, that is, MS-DRGs 061, 062, and 063, have higher relative weights than the hemorrhagic or cerebral infarction MS-DRGs 064, 065, and 066.

The American Society of Interventional and Therapeutic Neuroradiology (ASITN) has made us aware of a treatment issue that is of concern to the stroke provider's community. In some instances, patients suffering an embolytic or thrombolytic stroke are evaluated and given tPA in a community hospital's emergency department, and then are transferred to a larger facility's stroke center that is able to provide the level of services required by the increased severity of these cases. The facility providing the administration of tPA in its emergency department does not realize increased reimbursement, as the patient is often transferred as soon a possible to a stroke center. The facility to which the patient is transferred does not realize increased reimbursement, as the tPA was not administered there. The ASITN has requested that CMS give permission to code the administration of tPA as if it had been given in the receiving facility. This would result in the receiving facility being paid the higher weighted MS-DRGs 061, 062, or 063 instead of MS-DRGs 064, 065, or 066. The ASITN's rationale is that the patients who received tPA in another facility (even though administration of tPA may have alleviated some of the worst consequences of their strokes) are still extremely compromised and require increased health care services that are much more resource consumptive than patients with less severe types of stroke. We have advised the ASITN that hospitals may not report services that were not performed in their facility.

We recognize that the ASITN's concerns potentially have merit but the quantification of the increased resource consumption of these patients is not currently possible in the existing ICD-9-CM coding system. Without specific length of stay and average charges data, we are unable to determine an appropriate MS-DRG for these cases. Therefore, we have advised the ASITN to present a request at the diagnostic portion of the ICD-9-CM Coordination and Maintenance Committee meeting on March 20, 2008, for a code that would recognize the fact that the patient had received a thrombolytic agent for treatment of the current stroke. If this request is presented at the March 20, 2008 meeting, it will not be approved in time to be published as a final code in this proposed rule. However, if a diagnosis code is created by the National Centers for Health Statistics as a result of that meeting, it can be added to the list of codes published in the FY 2009 IPPS final rule that will go into effect on October 1, 2008. With such information appearing on subsequent claims, we will have a better idea of how to classify these cases within the MS-DRGs. Therefore, because we lack the data to identify these patients, we are not proposing an MS-DRG modification for the stroke patients receiving tPA in one facility prior to being transferred to another facility.

b. Intractable Epilepsy With Video Electroencephalogram (EEG)

As we did for FY 2008, we received a request from an individual representing the National Association of Epilepsy Centers to consider further refinements to the MS-DRGs describing seizures. Specifically, the representative recommended that a new MS-DRG be established for patients with intractable epilepsy who receive an electroencephalogram with video monitoring (vEEG) during their hospital stay. Similar to the initial recommendation, the representative stated that patients who suffer from uncontrolled seizures or intractable epilepsy are admitted to an epilepsy center for a comprehensive evaluation to identify the epilepsy seizure type, the cause of the seizure, and the location of the seizure. These patients are admitted to the hospital for 4 to 6 days with 24-hour monitoring that includes the use of EEG video monitoring along with cognitive testing and brain imaging procedures.

Effective October 1, 2007, MS-DRG 100 (Seizures with MCC) and MS-DRG 101 (Seizures without MCC) were implemented as a result of refinements to the DRG system to better recognize severity of illness and resource utilization. Once again, the representative applauded CMS for making changes in the DRG structure to better recognize differences in patient severity. However, the representative stated that a subset of patients in MS-DRG 101 who have a primary diagnosis of intractable epilepsy and are treated with vEEG are substantially more costly to treat than other patients in this MS-DRG and represent the majority of patients being evaluated by specialized epilepsy centers. Alternatively, the representative stated that he was not requesting any change in the structure of MS-DRG 100. According to the representative, the number of cases that would fall into this category is not significant. The representative further noted that this is a change from last year's request.

Epilepsy is currently identified by ICD-9-CM diagnosis codes 345.0x through 345.9x. There are two fifth digits that may be assigned to a subset of the epilepsy codes depending on the physician documentation:

  • “0” for without mention of intractable epilepsy.
  • “1” for with intractable epilepsy.

With the assistance of an outside reviewer, the representative analyzed cost data for MS-DRGs 100 and 101, which focused on three subsets of patients identified with a primary diagnosis of epilepsy or convulsions who also received vEEG (procedure code 89.19):

  • Patients with a primary diagnosis of epilepsy with intractability specified (codes 345.01 through 345.91).
  • Patients with a primary diagnosis of epilepsy without intractability specified (codes 345.00 through 345.90).
  • Patients with a primary diagnosis of convulsions (codes 780.39).

The representative acknowledged that the association did not include any secondary diagnoses in its analyses. Based on its results, the representative recommended that CMS further refine MS-DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS-DRG that would be defined as “MS-DRG XXX” (Epilepsy Evaluation without MCC).

According to the representative, these cases are substantially more costly than the other cases within MS-DRG 101 and are consistent with the criteria for dividing MS-DRGs on the basis of CCs and MCCs. In addition, the representative stated that the request would have a minimal impact on most hospitals but would substantially improve the accuracy of payment to hospitals specializing in epilepsy care.

We performed an analysis using FY 2007 MedPAR data. As shown in the table below, we found a total of 54,060 cases in MS-DRG 101 with average charges of $14,508 and an average length of stay of 3.69 days. There were 879 cases with intractable epilepsy and vEEG with average charges of $19,227 and an average length of stay of 5 days. Start Printed Page 23565

MS-DRGNumber of casesAverage length of stayAverage charges
MS-DRG 100—All Cases16,1426.34$27,623
MS-DRG 100—Cases with Intractable Epilepsy with vEEG (Codes 345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91)696.626,990
MS-DRG 100—Cases with Intractable Epilepsy without vEEG3287.8132,539
MS-DRG 101—All cases54,0603.6914,508
MS-DRG 101—Cases with Intractable Epilepsy with vEEG (Codes 345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91)8795.019,227
MS-DRG 101—Cased with Intractable Epilepsy without vEEG1,3514.2514,913

In applying the criteria to establish subgroups, the data do not support the creation of a new subdivision for MS-DRG 101 for cases with intractable epilepsy and vEEG nor does the data support moving the 879 cases from MS-DRG 101 to MS-DRG 100. Moving the 879 cases to MS-DRG 100 would mean moving cases with average charges of approximately $19,000 into an MS-DRG with average charges of $28,000. Therefore, we are not proposing to refine MS-DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS-DRG.

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

a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and Generator Procedures

In the FY 2008 IPPS final rule with comment period (72 FR 47257), we created a separate, stand alone DRG for automatic implantable cardioverter-defibrillator (AICD) generator replacements and defibrillator lead replacements. The new MS-DRG 245 (AICD lead and generator procedures) contains the following codes:

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

Commenters on the FY 2008 IPPS proposed rule supported this new MS-DRG, which recognizes the distinct differences in resource utilization between pacemaker and defibrillator generators and leads, but suggested that CMS should consider additional refinements for the defibrillator generator and leads. In reviewing the standardized charges for the AICD leads, the commenter believed that the leads may be more appropriately assigned to another DRG such as MS-DRG 243 (Permanent Cardiac Pacemaker Implant with CC) or MS-DRG 258 (Cardiac Pacemaker Device Replacement with MCC). The commenter recommended that CMS consider moving the defibrillator leads back into a pacemaker DRG, either MS-DRG 243 or MS-DRG 258.

In response to the commenters, we indicated that the data supported separate DRGs for these very different devices (72 FR 47257). We indicated that moving the defibrillator leads back into a pacemaker MS-DRG defeated the purpose of creating separate MS-DRGs for defibrillators and pacemakers. Therefore, we finalized MS-DRG 245 as proposed with the leads and generator codes listed above.

After publication of the FY 2008 IPPS final rule with comment period, we received a request from a manufacturer that recommended a subdivision for MS-DRG 245 (AICD Lead and Generator Procedures). The requestor suggested creating a new MS-DRG to separate the implantation or replacement of the AICD leads from the implantation or replacement of the AICD pulse generators to better recognize the differences in resource utilization for these distinct procedures.

The requestor applauded CMS' decision to create separate MS-DRGs for the pacemaker device procedures from the AICD procedures in the FY 2008 IPPS final rule (72 FR 47257). The requestor further acknowledged its support of the clinically distinct MS-DRGs for pacemaker devices. Currently, MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with MCC and without MCC, respectively) describe the implantation or replacement of pacemaker generators while MS-DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, without CC/MCC, respectively) describe the insertion or replacement of pacemaker leads.

The requestor believed that the IPPS “needs to continue to evolve to accurately reflect clinical differences and costs of services.” As such, the requestor recommended that CMS follow the same structure as it did with the pacemaker MS-DRGs for MS-DRG 245 to separately identify the implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) from the implantation or replacement of the pulse generators (codes 37.96, 37.98, 00.54).

In our analysis of the FY 2007 MedPAR data, we found a total of 5,546 cases in MS-DRG 245 with average charges of $62,631 and an average length of stay of 3.3 days. We found 1,894 cases with implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) with average charges of $42, 896 and an average length of stay of 3.4 days. We also found a total of 3,652 cases with implantation or replacement of the pulse generator (codes 37.96, 37.98, 00.54) with average charges of $72, 866 and an average length of stay of 3.2 days.

We agree with the requestor that the IPPS should accurately recognize differences in resource utilization for clinically distinct procedures. As the data demonstrate, average charges for the implantation or replacement of the AICD pulse generators are significantly higher than for the implantation or replacement of the AICD leads. Therefore, we are proposing to create a new MS-DRG 265 to separately identify these distinct procedures. The proposed new MS-DRG 265 would be titled “AICD Lead Procedures” and would include procedure codes that identify the AICD leads (codes 37.95, 37.97 and 00.52). The title for MS-DRG 245 would be revised to “AICD Generator Procedures” and include procedure codes 37.96, 37.98, 00.54. We believe these changes would better reflect the clinical differences and resources utilized for these distinct procedures. Start Printed Page 23566

b. Left Atrial Appendage Device

Atrial fibrillation (AF) is the primary cardiac abnormality associated with ischemic or embolytic stroke. Most ischemic strokes associated with AF are possibly due to an embolism or thrombus that has formed in the left atrial appendage. Evidence from studies such as transesophageal echocardiography shows left atrial thrombi to be more frequent in AF patients with ischemic stroke as compared to AF patients without stroke. While anticoagulation medication can be efficient in ischemic stroke prevention, there can be problems of safety and tolerability in many patients, especially those older than 75 years. Chronic warfarin therapy has been proven to reduce the risk of embolism but there can be difficulties concerning its administration. Frequent blood tests to monitor warfarin INR are required at some cost and patient inconvenience. In addition, because warfarin INR is affected by a large number of drug and dietary interactions, it can be unpredictable in some patients and difficult to manage. The efficacy of aspirin for stroke prevention in AF patients is less clear and remains controversial. With the known disutility of warfarin and the questionable effectiveness of aspirin, a device-based solution may provide added protection against thromboembolism in certain patients with AF.

At the April 1, 2004 ICD-9-CM Coordination and Maintenance Committee meeting, a proposal was presented for the creation of a unique procedure code describing insertion of the left atrial appendage filter system. Subsequently, ICD-9-CM code 37.90 (Insertion of left atrial appendage device) was created for use beginning October 1, 2004. This code was designated as a non-operating room (non-O.R.) procedure, and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or Acute Myocardial Infarction). With the adoption of MS-DRGs in FY 2008, CMS DRG 518 was divided into MS-DRGs 250 and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC, and without MCC, respectively).

We have reviewed the data concerning this procedure code annually. Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases were reported, and the average charges ($27,620) closely mimicked the average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As the charges were comparable, we made no recommendations to change the CMS DRG assignment for FY 2007.

Using FY 2006 MedPAR data for the FY 2008 final rule with comment period, we divided CMS DRG 518 into the cases that would be reflected in the MS-DRG configuration; that is, we divided the cases based on the presence or absence of an MCC. There were 35 cases without an MCC with average charges of $24,436, again mimicking the 38,002 cases with average charges of $32,546. There were 3 cases with MCC with average charges of $62,337, compared to the 5,458 cases also with an MCC with average charges of $53,864. Again it was deemed that cases with code 37.90 were comparable to the rest of the cases in CMS DRG 518, and the decision was made not to make any changes in the DRG assignment for this procedure code. As noted above, CMS DRG 518 became MS-DRGs 250 and 251 in FY 2008.

We have received a request regarding code 37.90, and its placement within the MS-DRG system for FY 2009. The requestor asked for either the reassignment of code 37.90 to an MS-DRG that would adequately cover the costs associated with the complete procedure or the creation of a new MS-DRG that would reimburse hospitals adequately for the cost of the device. The requestor, a manufacturer's representative, reported that the device's IDE clinical trial is nearing completion, with the conclusion of study enrollment in May 2008. The requestor will continue to enroll patients in a Continued Use Registry following completion of the trial. The requestor reported that it did not charge hospitals for the atrial appendage device, estimated to cost $6,000, during the trial period, but it will begin to charge hospitals upon the completion of the trial in May. The requestor provided us with its data showing what it believed to be a differential of $107 more per case than the payment average for MS-DRG 250, and a shortfall of $3,808 per case than the payment average for MS-DRG 251.

The requestor pointed out that code 37.90 is assigned to both MS-DRGs 250 and 251, but stated that the final MS-DRG assignment would be MS-DRG 251 when the patient has a principal diagnosis of atrial fibrillation (code 427.31) because AF is not presently listed as a CC or an MCC. We would take this opportunity to note that the principal diagnosis is used to determine assignment of a case to the correct MDC. Secondary or additional diagnosis codes are the only codes that can be used to determine the presence of a CC or an MCC.

With regard to the request to create a specific DRG for the insertion of this device entitled “Percutaneous Cardiovascular Procedures with Implantation of a Left Atrial Appendage Device without CC/MCC”, we would point out that the payments under a prospective payment system are predicated on averages. The device is already assigned to MS-DRGs containing other percutaneous cardiovascular devices; to create a new MS-DRG specific to this device would be to remove all other percutaneously inserted devices and base the MS-DRG assignment solely on the presence of code 37.90. This approach negates our longstanding method of grouping like procedures, and removes the concept of averaging. Further, to ignore the structure of the MS-DRG system solely for the purpose of increasing payment for one device would set an unwelcome precedent for defining all of the other MS-DRGs in the system. We would also point out that the final rule establishing the MS-DRGs set forth five criteria, all five of which are required to be met, in order to warrant creation of a CC or an MCC subgroup within a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule with comment period (72 FR 47169). One of the criteria specifies that there will be at least 500 cases in the CC or MCC subgroup. To date, there are not enough cases of code 37.90 reported within the MedPAR data.

Using FY 2007 MedPAR data, for this FY 2009 IPPS proposed rule, we reviewed MS-DRGs 250 and 251 for the presence of the left atrial appendage device. The following table displays our results:

MS-DRGNumber of casesAverage length of stayAverage charges
250—All Cases6,4247.72$60,597.58
250—Cases with code 37.9046.5065,829.51
250—Cases without code 37.906,4207.7260,594.32
251—All Cases39,4562.8435,719.81
Start Printed Page 23567
251—Cases with code 37.901011.3020,846.09
251—Cases without code 37.9039,3352.8535,757.98

There were a total of 105 cases with code 37.90 reported for Medicare beneficiaries in the 2007 MedPAR data. There are 4 cases with an atrial appendage device in MS-DRG 250 that have higher average charges than the other 6,420 cases in the MS-DRG, and that have slightly shorter lengths of stay by 1.25 days. However, the more telling data are located in MS-DRG 251, which shows that the 101 cases in which an atrial appendage device was implanted have much lower average charges ($20,846.09) than the other 39,355 cases in the MS-DRG, with average charges of $35,758.98. The difference in the average charges is approximately $14,912, so even when the manufacturer begins charging the hospitals the estimated $6,000 for the device, there is still a difference of approximately $8,912 in average charges based on the comparison within the total MS-DRG 251. Interestingly, the 101 cases also have an average length of stay of less than half of the average length of stay compared to the other cases assigned to that MS-DRG.

Because the data do not support either the creation of a unique MS-DRG or the assignment of procedure code 37.90 to another higher-weighted MS-DRG, we are not proposing any change to MS-DRGs 250 and 251, or to code 37.90 for FY 2009. We believe, based on the past 3 year's comparisons, that this code is appropriately located within the MS-DRG structure.

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions

For FY 2009, we again received a request from the American Association of Hip and Knee Surgeons (AAHKS), a specialty group within the American Academy of Orthopedic Surgeons (AAOS), concerning modifications of the lower joint procedure MS-DRGs. The request is similar, in some respects, to the AAHKS's request in FY 2008, particularly as it relates to separating routine and complex procedures. For the benefit of the reader, we are republishing a history of the development of DRGs for hip and knee replacements and a summary of the AAHKS FY 2008 request that were included in the FY 2008 IPPS final rule with comment period (72 FR 47222 through 47224) before we discuss the AAHKS's more recent request.

a. Brief History of Development of Hip and Knee Replacement Codes

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

CMS DRG 545 included 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 being performed. In the FY 2006 IPPS final rule (70 FR 47305), we indicated 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 CMS DRGs to determine if future additional DRG modifications are needed.

b. Prior Recommendations of the AAHKS

Prior to this year, the AAHKS had recommended that we make further refinements to the CMS DRGs for knee and hip arthroplasty procedures. The AAHKS previously presented data to CMS on the important differences in clinical characteristics and resource utilization between primary and revision total joint arthroplasty procedures. The AAHKS stated that CMS's 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. The 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.

The 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, the AAHKS recommended that CMS examine Medicare claims data and consider the creation of separate DRGs for total hip and total knee arthroplasty procedures. The AAHKS stated that based on the differences between patient Start Printed Page 23568characteristics, procedure characteristics, resource utilization, and procedure code payment rates between total hip and total knee replacements, separate DRGs were warranted. Furthermore, the 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 head 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.

The AAHKS also recommended the continuation of CMS DRG 471 (Bilateral or Multiple Major Joint Procedures of Lower Extremity) without modifications. CMS DRG 471 included 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.

c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and AAHKS's Recommendations

In the FY 2008 IPPS final rule with comment period (72 FR 47222 through 47226), we adopted MS-DRGs to better recognize severity of illness for FY 2008. The MS-DRGs include two new severity of illness levels under the then current base DRG 544. We also added three new severity of illness levels to the base DRG for Revision of Hip or Knee Replacement. The new MS-DRGs are as follows:

  • MS-DRG 466 (Revision of Hip or Knee Replacement with MCC)
  • MS-DRG 467 (Revision of Hip or Knee Replacement with CC)
  • MS-DRG 468 (Revision of Hip or Knee Replacement without CC/MCC)
  • MS-DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity with MCC)
  • MS-DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity without MCC)

We found that the MS-DRGs greatly improved our ability to identify joint procedures with higher resource costs. In the final rule, we presented data indicating the average charges for each new MS-DRG for the joint procedures.

In the FY 2008 IPPS final rule with comment period, we acknowledged the valuable assistance the AAHKS had 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. Commenters on the FY 2008 proposed rule had encouraged CMS to continue working with the orthopedic community, including the AAHKS, to monitor the need for additional new DRGs. The commenters stated that MS-DRGs 466 through 470 are a good first step. However, they stated that CMS should continue to evaluate the data for these procedures and consider additional refinements to the MS-DRGs, including the need for additional severity levels. AAHKS stated that its data suggest that all three base DRGs (primary replacement, revision of major joint replacement, and bilateral joint replacement) should be separated into three severity levels (that is, MCC, CC, and non-CC). (We had proposed three severity levels for revision of hip and knee replacement (MS-DRGs 466, 467, and 468), and AAHKS agreed with this 3-level subdivision.)

The AAHKS recommended that the base DRG for the proposed two severity subdivision MS-DRGs for major joint replacement or reattachment of lower extremity with and without CC/MCC (MS-DRGs 483 and 484) be subdivided into three severity levels, as was the case for the revision of hip and knee replacement MS-DRGs. AAHKS also recommended that the two severity subdivision MS-DRGs for bilateral or multiple major joint procedures of lower extremity with and without MCC (MS-DRGs 461 and 462) be subdivided three ways for this base DRG. AAHKS acknowledged that the three way split would not meet all five of the criteria for establishing a subgroup, and stated that these criteria were too restrictive, lack face validity, and create perverse admission selection incentives for hospitals by significantly overpaying for cases without a CC and underpaying for cases with a CC. It recommended that the existing five criteria be modified for low volume subgroups to assure materiality. For higher volume MS-DRG subgroups, the AAHKS recommended that two other criteria be considered, particularly for nonemergency, elective admissions:

  • Is the per-case underpayment amount significant enough to affect admission vs. referral decisions on a case-by-case basis?
  • Is the total level of underpayments sufficient to encourage systematic admission vs. referral policies, procedures, and marketing strategies?

The AAHKS also recommended refining the five existing criteria for MCC/CC/without subgroups as follows:

  • Create subgroups if they meet the five existing criteria, with cost difference between subgroups ($1,350) substituted for charge difference between subgroups ($4,000);
  • If a proposed subgroup meets criteria number 2 and 3 (at least 5 percent and at least 500 cases) but fails one of the others, then create the subgroup if either of the following criteria are met:

◻ At least $1,000 cost difference per case between subgroups; or

◻ At least $1 million overall cost should be shifted to cases with a CC (or MCC) within the base DRG for payment weight calculations. Start Printed Page 23569

In response, we indicated that we did not believe it was appropriate to modify our five criteria for creating severity subgroups. Our data did not support creating additional subdivisions based on the criteria. At that time, we believed the criteria we established to create subdivisions within a base DRG were reasonable and establish the appropriate balance between better recognition of severity of illness, sufficient differences between the groups, and a reasonable number of cases in each subgroup. However, we indicated that we may consider further modifications to the criteria at a later date once we have had some experience with MS-DRGs created using the proposed criteria.

The AAHKS indicated in its response to the FY 2008 proposed rule that it continued to support the separation of routine and complex joint procedures. It believed that certain joint replacement procedures have significantly lower average charges than do other joint replacements. The AAKHS's data suggest that more routine joint replacements are associated with substantially less resource utilization than other more complex revision procedures. The AAHKS stated that leaving these procedures in the revision MS-DRGs results in substantial overpayment for these relatively simple, less costly revision procedures, which in turn results in a relative underpayment for the more complex revision procedures.

In response, we examined data on this issue and identified two procedure codes for partial knee revisions that had significantly lower average charges than did other joint revisions. The two codes are as follows:

  • 00.83 Revision of knee replacement, patellar component
  • 00.84 Revision of total knee replacement, tibial insert (liner)

The data suggest that these less complex partial knee revisions are less resource intensive than other cases assigned to MS-DRGs 466, 467, or 468. We examined other orthopedic DRGs to which these two codes could be assigned. We found that these cases have very similar average charges to those in MS-DRG 485 (Knee Procedures with Principal Diagnosis of Infection with MCC), MS-DRG 486 (Knee Procedures with Principal Diagnosis of Infection with CC), MS-DRG 487 (Knee Procedures with Principal Diagnosis of Infection without CC), MS-DRG 488 (Knee Procedures without Principal Diagnosis of Infection with CC or MCC), and MS-DRG 489 (Knee Procedures without Principal Diagnosis of Infection without CC).

Given the very similar resource requirements of MS-DRG 485 and the fact that these DRGs also contain knee procedures, we moved codes 00.83 and 00.84 out of MS-DRGs 466, 467, and 468 and into MS-DRGs 485, 486, 487, 488, and 489. We also indicated that we would continue to monitor the revision DRGs to determine if additional modifications are needed.

d. AAHKS' Recommendations for FY 2009

The AAHKS’ current request involves the following recommendations:

  • That CMS consolidate and reassign certain joint procedures that have a diagnosis of an infection or malignancy into MS-DRGs that are similar in terms of clinical characteristics and resource utilization. The AAKHS further identifies groups called Stage 1 and 2 procedures that it believes require significant differences in resource utilization.
  • That CMS reclassify certain specific joint procedures, which AAHKS refers to as “routine,” out of their current MS-DRG assignments. The three joint procedures that AAHKS classifies as “routine” are codes 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only), 00.83 (Revision of knee replacement, patellar component), and 00.84 (Revision of total knee replacement, tibial insert (liner)). The AAHKS advocated removing these three “routine” procedures from the following DRGs: MS-DRGs 466, 467, and 468, MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489. The AAHKS refers to MS-DRGs 466, 467, and 468 as “complex” revision DRGs, and recommended that the three “routine” procedures be moved out of MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 489 and into MS-DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity with and without MCC, respectively). The AAHKS contended that the three “routine” procedures have similar clinical characteristics and resource utilization to those in MS-DRGs 469.

The recommendations suggested by AAHKS are quite complex and involve a number of specific code lists and MS-DRG assignment changes. We discuss each of these requests in detail below.

(1) AAHKS Recommendation 1: Consolidate and reassign patients with hip and knee prosthesis related infections or malignancies.

The AAHKS pointed out that deep infection is one of the most devastating complications associated with hip and knee replacements. These infections have been reported to occur in approximately 0.5 percent to 3 percent of primary and 4 percent to 6 percent of revision total joint replacement procedures. These infections often result in the need for multiple reoperations, prolonged use of intravenous and oral antibiotics, extended inpatient and outpatient rehabilitation, and frequent followup visits. Furthermore, clinical outcomes following single- and two-stage revision total joint arthroplasty procedures have been less favorable than revision for other causes of failure not associated with infection.

In addition to the clinical impact, the AAHKS stated that infected total joint replacement procedures also have substantial economic implications for patients, payers, hospitals, physicians, and society in terms of direct medical costs, resource utilization, and the indirect costs associated with lost wages and productivity. The AAHKS stated that the considerable resources required to care for these patients has resulted in a strong financial disincentive for physicians and hospitals to provide care for patients with infected total joint replacements, an increased economic burden on the high volume tertiary care referral centers where patients with infected hip replacement procedures are frequently referred for definitive management. The AAHKS further stated that, in some cases, there are compromised patient outcomes due to treatment delays as patients with infected joint replacements seek providers who are willing to care for them.

Once a deep infection of a total joint prosthesis is identified, the first stage of treatment involves a hospital admission for removal of the infected prosthesis and debridement of the involved bone and surrounding tissue. During the same procedure, an antibiotic-impregnated cement spacer is typically inserted to maintain alignment of the limb during the course of antibiotic therapy. The patient is then discharged to a rehabilitation facility/nursing home (or to home if intravenous therapy can be safely arranged for the patient) for a 6-week course of IV antibiotic treatment until the infection has cleared.

After the completion of antibiotic therapy, the hip or knee may be reaspirated to look for evidence of persistent infection or eradication of infection. A second stage procedure is then undertaken, where the patient is readmitted, the hip or knee is reexplored, and the cement spacer removed. If there are no signs of persistent infection, a hip or knee prosthesis is reimplanted, often using bone graft and costly revision implants in order to address extensive bone loss Start Printed Page 23570and distorted anatomy. Thus, the entire course of treatment for patients with infected joint replacements is 4 to 6 months, with an additional 6 to 12 months of rehabilitation. Furthermore, clinical outcomes following revision for infection are poor relative to outcomes following revision for other, aseptic causes. The AAHKS noted that patients with bone malignancy have a similar treatment focus—surgery to remove diseased tissue, chemotherapy to treat the malignancy, and implantation of the new prosthesis. They also have similar resource use. For simplicity, the AAHKS' discussion focused on infected joint prostheses, but it suggested that the issues it raises would apply to patients with a malignancy as well.

The AAHKS stated that these patients are currently grouped in multiple MS-DRGs, and the cases are often “outliers” in each one. AAHKS proposed to consolidate these patients with similar clinical characteristics and treatment into MS-DRGs reflective of their resource utilization.

The AAHKS states that these more severe patients are currently classified into the following MS-DRGs:

  • MS-DRGs 463, 463, and 465 (Wound Debridement and Skin Graft Excluding Hand, for Musculoskeletal-Connective Tissue Disease with MCC, with CC, without CC/MCC, respectively).
  • MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, without CC/MCC, respectively).
  • MS-DRGs 485, 486, and 487 (Knee Procedures with Principal Diagnosis of Infection and with MCC, with CC, and without CC/MCC, respectively).
  • MS-DRGs 488 and 489 (Knee Procedures without Principal Diagnosis of Infection and with CC/MCC and without CC/MCC, respectively).
  • MS-DRGs 495, 496, and 497 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur with MCC, with CC, and without CC/MCC, respectively).
  • Other MS-DRGs (The AAHKS did not specify what these other MS-DRGs were.).

The AAHKS indicated that cases with the severe diagnoses of infections, neoplasms, and structural defects have similarities. These similarities are due to an overlap of a severe diagnosis (including a principal diagnosis of code 996.66 (Infected joint prosthesis) and the resulting need for more extensive surgical procedures. The AAHKS stated that currently these patients are grouped into MS-DRGs by major procedure alone. AAHKS recommended that these cases be grouped into what it refers to as Stages 1 and 2 as follows:

  • Stage 1 would include the removal of an infected prosthesis and includes cases in MS-DRGs 463, 464, and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497. Stage 1 joint procedure codes would include codes 80.05 (Arthrotomy for removal of prosthesis, hip), 80.06 (Arthrotomy for removal of prosthesis, knee), 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only), and 00.84 (Revision of knee replacement, tibial insert (liner)).
  • Stage 2 would include the implant of a new prosthesis and includes cases in MS-DRGs 461 and 462, 463, 464, and 465, 466, 467, and 468, and 469 and 470. Stage 2 joint procedure codes would include codes 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), 00.80 (Revision of knee replacement, total (all components)), 00.81 (Revision of knee replacement, tibial component), 00.82 (Revision of knee replacement, femoral component), 00.85 (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 (Revise hip replacement), 81.54 (Total knee replacement), 81.55 (Revise knee replacement), and 81.56 (Total ankle replacement).

As stated earlier, the AAHKS recommended patients with certain more severe diagnoses be grouped into a higher severity level. While most of AAHKS' comments focused on joint replacement patients with infections, the AAHKS also believed that patients with certain neoplasms require greater resources. To this group of infections and neoplasms, the AAHKS recommended the addition of four codes that capture acquired deformities. The AAHKS believed that these codes would capture admissions for the second stage of the treatment for an infected joint. The AAHKS stated that the significance of these diagnoses when they are reported as the principal code position was significant in predicting resource utilization. However, the impact was not as significant when the diagnosis was reported as a secondary diagnosis. The AAHKS recommended that patients with one of the following infection/neoplasm/defect principal diagnosis codes be segregated into a higher severity level.

Stage 1 Infection/Neoplasm/Defect Principal Diagnosis Codes

  • 170.7 (Malignant neoplasm of long bones of lower limb).
  • 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip).
  • 711.05 (Pyogenic arthritis, pelvic region and thigh).
  • 711.06 (Pyogenic arthritis, lower leg).
  • 730.05 (Acute osteomyelitis, pelvic region and thigh).
  • 730.06 (Acute osteomyelitis, lower leg).
  • 730.15 (Chronic osteomyelitis, pelvic region and thigh).
  • 730.16 (Chronic osteomyelitis, lower leg).
  • 730.25 (Unspecified osteomyelitis, pelvic region and thigh).
  • 730.26 (Unspecified osteomyelitis, lower leg).
  • 996.66 (Infection and inflammatory reaction due to internal joint prosthesis).
  • 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft).

Stage 2 Infection/Neoplasm/Defect Principal Diagnosis Codes (an Asterisk * Shows the Diagnoses Included in Stage 2 That Were Not Listed in Stage 1)

  • 170.7 (Malignant neoplasm of long bones of lower limb).
  • 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip).
  • 198.5 (Secondary malignant neoplasm of bone and bone marrow) .*
  • 711.05 (Pyogenic arthritis, pelvic region and thigh).
  • 711.06 (Pyogenic arthritis, lower leg).
  • 730.05 (Acute osteomyelitis, pelvic region and thigh).
  • 730.06 (Acute osteomyelitis, lower leg).
  • 730.15 (Chronic osteomyelitis, pelvic region and thigh).
  • 730.16 (Chronic osteomyelitis, lower leg).
  • 730.25 (Unspecified osteomyelitis, pelvic region and thigh).
  • 730.26 (Unspecified osteomyelitis, lower leg).
  • 736.30 (Acquired deformities of hip, unspecified deformity).
  • 736.39 (Other acquired deformities of hip) .*
  • 736.6 (Other acquired deformities of knee) .*
  • 736.89 (Other acquired deformities of other parts of limbs). *
  • 996.66 (Infection and inflammatory reaction due to internal joint prosthesis). *
  • 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft). * Start Printed Page 23571

For the Stage 2 procedures, AAHKS also suggested the use of the following secondary diagnosis codes to assign the cases to a higher severity level. These conditions would not be the reason the patient was admitted to the hospital. They would instead represent secondary conditions that were also present on admission or conditions that were diagnosed after admission.

Stage 2 Infection/Neoplasm/Defect Secondary Diagnosis Codes

  • 170.7 (Malignant neoplasm of long bones of lower limb).
  • 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip).
  • 711.05 (Pyogenic arthritis, pelvic region and thigh).
  • 711.06 (Pyogenic arthritis, lower leg).
  • 730.05 (Acute osteomyelitis, pelvic region and thigh).
  • 730.06 (Acute osteomyelitis, lower leg).
  • 730.15 (Chronic osteomyelitis, pelvic region and thigh).
  • 730.16 (Chronic osteomyelitis, lower leg).
  • 730.25 (Unspecified osteomyelitis, pelvic region and thigh).
  • 730.26 (Unspecified osteomyelitis, lower leg).
  • 996.66 (Infection and inflammatory reaction due to internal joint prosthesis).
  • 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft).

(2) AAHKS Recommendation 2: Reclassify certain specific joint procedures.

The AAHKS suggested that cases with the infection/neoplasm/defect diagnoses listed above be segregated according to the Stage 1 and 2 groups listed above. The AAHKS made one final recommendation concerning joint procedure cases with infections. It identified a subset of patients who had a principal diagnosis of 996.66 (Infection and inflammatory reaction due to internal joint prosthesis) and who also had a secondary diagnosis of sepsis or septicemia. The AAHKS believed that these patients are for the most part admitted with both the joint infection and sepsis/septicemia present at the time of admission. The codes for sepsis/septicemia are classified as MCCs under MS-DRGs. The AAHKS believed it is inappropriate to count the secondary diagnosis of sepsis/septicemia as a MCC when it is reported with code 996.66. The AAHKS believed that counting sepsis and septicemia as a MCC results in double counting the infections. It believed that the joint infection and septicemia are the same infection. The AAHKS recommended that the following sepsis and septicemia codes not count as a MCC when reported with code 996.66:

  • 038.0 (Streptococcal septicemia).
  • 038.10 (Staphylococcal septicemia, unspecified).
  • 038.11 (Staphylococcal aureus septicemia).
  • 038.19 (Other staphylococcal septicemia).
  • 038.2 (Pneumococcal septicemia [streptococcus pneumonia septicemia]).
  • 038.3 (Septicemia due anaerobes).
  • 038.40 (Septicemia due to gram-negative organisms).
  • 038.41 (Hemophilus influenzae [H. Influenzae]).
  • 038.42 (Escherichia coli [E. Coli]).
  • 038.43 (Pseudomonas).
  • 038.44 (Serratia).
  • 038.49 (Other septicemia due to gram-negative organisms).
  • 038.8 (Other specified septicemias).
  • 038.9 (Unspecified septicemia).
  • 995.91 (Sepsis).
  • 995.92 (Severe sepsis).

e. CMS' Response to AAHKS' Recommendations

The MS-DRG modifications proposed by the AAHKS are quite complex and have many separate parts. We made changes to the MS-DRGs in FY 2008 as a result of a request by the AAHKS as discussed above, to recognize two types of partial knee replacements as less complex procedures. We have no data on how effective the new MS-DRGs for joint procedures are in differentiating patients with varying degrees of severity. Therefore, we analyzed data reported prior to the adoption of MS-DRGs to analyze each of the recommendations made. We begin our analysis by focusing first on the more simple aspects of the recommendations made by the AAHKS.

(1) Changing the MS-DRG Assignment for Codes 00.73, 00.83, and 00.84

As discussed previously, in FY 2008, the AAHKS recommended that CMS classify certain joint procedures as either routine or complex. We examined the data for these cases and found that the following two codes had significantly lower charges than the other joint revisions: 00.83 (Revision of knee replacement, patellar component) and 00.84 (Revision of knee replacement, tibial insert (liner)). Therefore, we moved these two codes to MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489.

As a result of AAHKS' most recent recommendations, we once again examined claims data for these two knee procedures (codes 00.83 and 00.84) as well as its request that we move code 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only). Code 00.73 is assigned to MS-DRGs 466, 467, and 468. The following tables show our findings.

MS-DRGNumber of casesAverage length of stayAverage charges
485—All Cases1,12212.20$64,672.47
485—Cases with Code 00.83 or 00.8417911.8364,446.68
485—Cases without Code 00.83 or 00.8494312.2764,715.33
486—All Cases2,0618.0340,758.55
486—Cases with Code 00.83 or 00.844647.3439,864.39
486—Cases without Code 00.83 or 00.841,5978.2341,018.34
487—All Cases1,2365.6729,180.88
487—Cases with Code 00.83 or 00.842845.6131,231.79
487—Cases without Code 00.83 or 00.849525.6828,569.06
488—All Cases2,3745.1730,180.80
488—Cases with code 00.83 or 00.847544.0928,432.06
488—Cases without code 00.83 or 00.841,6205.6730,994.73
489—All Cases5,4933.0421,385.67
489—Cases with code 00.83 or 00,.842,1543.0723,122.18
489—Cases without code 00.83 or 00.843,3393.0320,265.44
469—All cases29,0308.1756,681.64
470—All Cases385,1233.9336,126.23
466—All Cases3,8889.1876,015.66
466—Cases with Code 00.7327310.0271,293.33
Start Printed Page 23572
466—Cases without Code 00.733,6169.1276,372.06
467—All Cases13,5515.5053,431.63
467—Cases with Code 00.731,0785.9443,635.63
467—Cases without Code 00.7312,4845.4754,284.13
468—All Cases19,9173.9444,055.62
468—Cases with Code 00.731,6883.9333,449.22
468—Cases without Code 00.7318,2323.9445,037.09
469—All Cases29,0308.1756,681.64
470—All Cases385,1233.9336,126.23

The tables show that codes 00.73, 00.83, and 00.84 are appropriately assigned to their current MS-DRGs. The data do not support moving these three codes to MS-DRGs 469 and 470. Therefore, we are not proposing a change of MS-DRG assignment for codes 00.73, 00.83, and 00.84.

(2) Excluding Sepsis and Septicemia From Being a MCC With Code 996.66

There are cases where a patient may be admitted with an infection of a joint prosthesis (code 996.66) and also have sepsis. In these cases, it may be possible to perform joint procedures as suggested by AAHKS. However, in other cases, a patient may be admitted with an infection of a joint prosthesis and then develop sepsis during the stay. Because our current data do not indicate whether a condition is present on admission, we could not determine whether or not the sepsis occurred after admission. Our data have consistently shown that cases of sepsis and septicemia require significant resources. Therefore, we classified the sepsis and septicemia codes as MCCs. Our clinical advisors do not believe it is appropriate to exclude all cases of sepsis and septicemia that are reported as a secondary diagnosis with code 996.66 from being classified as a MCC. We discuss septicemia as part of hospital acquired conditions provision under section II.F. of the preamble of this proposed rule. For the purposes of classifying sepsis and septicemia as non-CCs when reported with code 996.66, we do not support this recommendation. Therefore, we are not proposing that the sepsis and septicemia codes be added to the CC exclusion list for code 996.66.

(3) Differences Between Stage 1 and 2 Cases With Severe Diagnoses

We next examined data on AAHKS' suggestion that there are significantly differences in resource utilization for cases they refer to as Stage 1 and 2. AAHKS stated that this is particularly true for those with infections, neoplasms, or structural defects. We used the list of procedure codes listed above that AAHKS describes as Stage 1 and 2 procedures. We also used AAHKS' designated lists of Stage 1 and 2 principal diagnosis codes to examine this proposal. This proposal entails moving cases with a Stage 1 or 2 principal diagnosis and procedure out of their current MS-DRG assignment in the following 19 MS-DRGs and into a newly consolidated set of MS-DRGs: MS-DRGs 463, 464, and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497.

As can be seen from the information below, there was not a significant difference in average charges between these Stage 1 and Stage 2 cases that have an MCC.

Stage 1.—Cases With Infection, Neoplasm, or Structural Defect

Stage 1Total casesAverage length of stayAverage charges
With MCC1,30614.1$79,232
Without MCC4,1157.644,716

Stage 2.—Cases With Infection, Neoplasm, or Structural Defect

Stage 2Total casesAverage length of stayAverage charges
With MCC1,07210.9$80,781
Without MCC5,4136.057,355

Average charges for Stage 1 cases with an MCC was $79,232 compared to $80,781 for Stage 2. Stage 1 cases without an MCC had average charges of $44,716 compared to $57,355. These data do not support reconfiguring the current MS-DRGs based on this new subdivision.

(4) Moving Joint Procedure Cases to New MS-DRGs Based on Secondary Diagnoses of Infection

We examined AAHKS' recommendation that Stage 2 joint cases with specific secondary diagnoses of infection or neoplasm be moved out of their current MS-DRG assignments and into a newly constructed MS-DRG.

We are reluctant to make this type of significant DRG change to the joint MS-DRGs based on the presence of a secondary diagnosis. This results in the movement of cases out of MS-DRGs which were configured based on the reason for the admission (for example, principal diagnosis) and surgery. The cases would instead be assigned based on conditions that are reported as secondary diagnoses. In some cases, the infection may have developed or be diagnosed during the admission. This would be a significant logic change to the MS-DRGs for joint procedures. We have not had an opportunity to examine Start Printed Page 23573claims data based on hospital discharges under the MS-DRGs which began October 1, 2008. Our clinical advisors believe it would be more appropriate to wait for data under the new MS-DRG system to determine how well the new severity levels are addressing accurate payment for these cases before considering this approach to assigning cases to a MS-DRG.

(5) Moving Cases With Infection, Neoplasms, or Structural Defects Out of 19 MS-DRGs and Into Two Newly Developed MS-DRGs

The last recommended by AAHKS that we considered was moving cases with a principal diagnosis of infection, neoplasm, or structural defect from their list of Stage 1 and 2 diagnoses and consolidated them into newly constructed and modified MS-DRGs. AAHKS could not identify an existing set of MS-DRGs with similar resource utilizations into which the Stage 1 cases could be assigned. Therefore, the AAHKS recommended that CMS create three new MS-DRGs for Stage 1 cases with infections, neoplasms and structural defects which would be titled “Arthrotomy/Removal/Component exchange of Infected Hip or Knee Prosthesis with MCC, with CC, and without CC/MCC”, respectively.

The AAHKS recommended moving Stage 2 cases out of MS-DRGs 466, 467, and 468, and 469 and 470 and into MS-DRGs 461 and 462. AAHKS recommended that MS-DRGs 461 and 462 be renamed “Major Joint Procedures of Lower Extremity—Bilateral/Multiple/Infection/Malignancy”.

In reviewing these proposed changes, we had a number of concerns. The first concern was that these proposed changes would result in the removal of cases with varying average charges from 19 current MS-DRGs and consolidating them into two separate sets of MS-DRGs. As the data below indicate, the average charges vary from as low as $29,181 in MS-DRG 487 to $81,089 in MS-DRG 463. Furthermore, the average charges for these infection/neoplasm/structural defect cases are very similar to other cases in their respective MS-DRG assignments for many of these MS-DRGs. There are cases where the average charges are higher. In MS-DRG 469 and 470, the infection/neoplasm/structural defect cases are significantly higher. However, there are only 136 cases in MS-DRG 469 out of a total of 29,030 cases with these diagnoses. There are only 673 cases in MS-DRG 470 out of a total of 385,123 cases with one of these diagnoses. The table below clearly demonstrates the wide variety of charges for cases with these diagnoses.

MS-DRGsNumber of casesAverage length of stayAverage charges
463—All Cases4,74716.25$73,405.46
463—Cases with PDX of Infection/Malignancy/React1,00917.7981,089.07
464—All Cases5,49910.2144,387.73
464—Cases with PDX of Infection/Malignancy/React1,42010.5946,800.60
465—All Cases2,2715.9526,631.57
465—Cases with PDX of Infection/Malignancy/React55710.5929,816.40
466—All Cases3,8889.1876,015.66
466—Cases with PDX of Infection/Malignancy/React89010.6779,334.69
467—All Cases13,5515.5053,431.63
467—Cases with PDX of Infection/Malignancy/React2,4016.7158,506.86
468—All Cases19,9173.9444,055.62
468—Cases with PDX of Infection/Malignancy/React1,9944.7654,322.03
469—All Cases29,0308.1756,681.64
469—Cases with PDX of Infection/Malignancy/React13611.7485,256.07
470—All Cases385,1233.9336,126.23
470—Cases with PDX of Infection/Malignancy/React6736.4459,676.31
480—All Cases25,3919.3252,281.65
480—Cases with PDX of Infection/Malignancy/React88014.5376,355.15
481—All Cases68,6555.9432,963.64
481—Cases with PDX of Infection/Malignancy/React8788.7848,655.30
482—All Cases45,8324.8627,266.20
482—Cases with PDX of Infection/Malignancy/React5776.1937,572.38
485—All Cases1,12212.2064,672.47
485—Cases with PDX of Infection/Malignancy/React1,12212.2064,672.47
486—All Cases2,0618.0340,758.55
486—Cases with PDX of Infection/Malignancy/React2,0618.0340,758.55
487—All Cases1,2365.6729,180.88
487—Cases with PDX of Infection/Malignancy/React1,2365.6729,180.88
488—All Cases2,3745.1730,180.80
488—Cases with PDX of Infection/Malignancy/React317.1350,155.42
489—All Cases5,4933.0421,385.67
489—Cases with PDX of Infection/Malignancy/React363.7235,313.84
495—All Cases1,86010.9455,103.91
495—Cases with PDX of Infection/Malignancy/React1,02511.7459,453.69
496—All Cases5,2035.9532,177.29
496—Cases with PDX of Infection/Malignancy/React2,7596.9836,940.99
497—All Cases6,2593.0121,445.60
497—Cases with PDX of Infection/Malignancy/React1,5005.1829,966.98

Given the wide variety of charges and the small number of cases where there are differences in charges, we do not believe the data support the AAHKS' recommendations. The data do not support removing these cases from the 19 MS-DRGs above and consolidating them into a new set of MS-DRGs, either newly created, or by adding them to Start Printed Page 23574MS-DRG 461 or 462, which have average charges of $80,718 and $57,355, respectively.

A second major concern involves redefining MS-DRGs 461 and 462 is that these MS-DRG currently captures bilateral and multiple joint procedures. These MS-DRGs were specifically created to capture a unique set of patients who undergo procedures on more than one lower joint. Redefining these MS-DRGs to include both single and multiple joints undermines the clinical coherence of this MS-DRG. It would create a widely diverse group of patients based on either a list of specific diagnoses or the fact that the patient had multiple lower joint procedures.

f. Conclusion

The AAHKS recommended a number of complicated, interrelated MS-DRG changes to the joint procedure MS-DRGs. We have not yet had the opportunity to review data for these cases under the new MS-DRGs. We did analyze the impact of these recommendations using cases prior to the implementation of MS-DRGs. The recommendations were difficult to analyze because there were so many separate logic changes that impacted a number of MS-DRGs. We did examine each major suggestion separately, and found that our data and clinical analysis did not support making these changes. Therefore, we are not proposing any revisions to the joint procedure MS-DRGs for FY 2009. We look forward to examining these issues once we receive data under the MS-DRG system. We also welcome additional recommendations from the AAHKS and others on a more incremental approach to resolving its concerns about the ability of the current MS-DRGs to adequately capture differences in severity levels for joint procedure patients.

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

We received a request from a manufacturer to modify the titles for three MS-DRGs with the most significant concentration of severe sepsis patients. The manufacturer stated that modification of the titles will assist in quality improvement efforts and provide a better reflection on the types of patients included in these MS-DRGs. Specifically, the manufacturer urged CMS to incorporate the term “severe sepsis” into the titles of the following MS-DRGs that became effective October 1, 2007 (FY 2008)

  • MS-DRG 870 (Septicemia with Mechanical Ventilation 96+ Hours).
  • MS-DRG 871 (Septicemia without Mechanical Ventilation 96+ Hours with MCC).
  • MS-DRG 872 (Septicemia without Mechanical Ventilation 96+ Hours without MCC).

These MS-DRGs were created to better recognize severity of illness among patients diagnosed with conditions including septicemia, severe sepsis, septic shock, and systemic inflammatory response syndrome (SIRS) who are also treated with mechanical ventilation for a specified duration of time.

According to the manufacturer, “severe sepsis is a common, deadly and costly disease, yet the number of patients impacted and the outcomes associated with their care remain largely hidden within the administrative data set.” The manufacturer further noted that, although improvements have been made in the ICD-9-CM coding of severe sepsis (diagnosis code 995.92) and septic shock (diagnosis code 785.52), results of an analysis demonstrated an unacceptably high mortality rate for patients reported to have those conditions. The manufacturer believed that revising the titles to incorporate “severe sepsis” will provide various clinicians and researchers the opportunity to improve outcomes for these patients. Therefore, the manufacturer recommended revising the current MS-DRG titles as follows:

  • Proposed Revised MS-DRG 870 (Septicemia or Severe Sepsis with Mechanical Ventilation 96+ Hours).
  • Proposed Revised MS-DRG 871 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours with MCC).
  • Proposed Revised MS-DRG 872 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours without MCC).

We agree with the manufacturer that revising the current MS-DRG titles to include the term “severe sepsis” would better assist in the recognition and identification of this disease, which could lead to better clinical outcomes and quality improvement efforts. In addition, both severe sepsis (diagnosis code 995.92) and septic shock (diagnosis code 785.52) are currently already assigned to these three MS-DRGs. Therefore, we are proposing to revise the titles of MS-DRGs 870, 871, and 872 to reflect severe sepsis in the titles as suggested by the manufacturer and listed above for FY 2009.

6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic Compartment Syndrome

Traumatic compartment syndrome is a condition in which increased pressure within a confined anatomical space that contains blood vessels, muscles, nerves, and bones causes a decrease in blood flow and may lead to tissue necrosis.

There are five ICD-9-CM diagnosis codes that were created effective October 1, 2006, to identify traumatic compartment syndrome of various sites.

  • 958.90 (Compartment syndrome, unspecified).
  • 958.91 (Traumatic compartment syndrome of upper extremity).
  • 958.92 (Traumatic compartment syndrome of lower extremity).
  • 958.93 (Traumatic compartment syndrome of abdomen).
  • 958.99 (Traumatic compartment syndrome of other sites) .

Cases with one of the diagnosis codes listed above reported as the principal diagnosis and no operating room procedure are assigned to either MS-DRG 922 (Other Injury, Poisoning and Toxic Effect Diagnosis with MCC) or MS-DRG 923 (Other Injury, Poisoning and Toxic Effect Diagnosis without MCC) in MDC 21.

In the FY 2008 IPPS final rule with comment period when we adopted the MS-DRGs, we inadvertently omitted the addition of these traumatic compartment syndrome codes 958.90 through 958.99 to the multiple trauma MS-DRGs 963 (Other Multiple Significant Trauma with MCC), MS-DRG 964 (Other Multiple Significant Trauma with CC), and MS-DRG 965 (Other Multiple Significant Trauma without CC/MCC) in MDC 24 (Multiple Significant Trauma). Cases are assigned to MDC 24 based on the principal diagnosis of trauma and at least two significant trauma diagnosis codes (either as principal or secondary diagnoses) from different body site categories. There are eight different body site categories as follows:

  • Significant head trauma.
  • Significant chest trauma.
  • Significant abdominal trauma.
  • Significant kidney trauma.
  • Significant trauma of the urinary system.
  • Significant trauma of the pelvis or spine.
  • Significant trauma of the upper limb.
  • Significant trauma of the lower limb.

Therefore, we are proposing to add traumatic compartment syndrome codes 958.90 through 958.99 to MS-DRGs 963 and MS-DRG 965 in MDC 24. Under Start Printed Page 23575this proposal, codes 958.90 through 958.99 would be added to the list of principal diagnosis of significant trauma. In addition, code 958.91 would be added to the list of significant trauma of upper limb, code 958.92 would be added to the list of significant trauma of lower limb, and code 958.93 would be added to the list of significant abdominal trauma.

7. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this proposed rule, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into a DRG. For FY 2009, we are proposing to make the following changes to the MCE edits:

a. List of Unacceptable Principal Diagnoses in MCE

Diagnosis code V62.84 (Suicidal ideation) was created for use beginning October 1, 2005. At the time the diagnosis code was created, it was not clear that the creation of this code was requested in order to describe the principal reason for admission to a facility or the principal reason for treatment. The NCHS Official ICD-9-CM Coding Guidelines therefore categorized the group of codes in V62.X for use only as additional or secondary diagnoses. It has been brought to the government's attention that the use of this code is hampered by its designation as an additional-only diagnosis. NCHS has therefore modified the Official Coding Guidelines for FY 2009 by making this code acceptable as a principal diagnosis as well as an additional diagnosis. In order to conform to this change by NCHS, we are proposing to remove code V62.84 from the MCE list of “Unacceptable Principal Diagnoses” for FY 2009.

b. Diagnoses Allowed for Males Only Edit

There are four diagnosis codes that were inadvertently left off of the MCE edit titled “Diagnoses Allowed for Males Only.” These codes are located in the chapter of the ICD-9-CM diagnosis codes entitled “Diseases of Male Genital Organs.” We are proposing to add the following four codes to this MCE edit: 603.0 (Encysted hydrocele), 603.1 (Infected hydrocele), 603.8 (Other specified types of hydrocele), and 603.9 (Hydrocele, unspecified). We have had no reported problems or confusion with the omission of these codes from this section of the MCE, but in order to have an accurate product, we are proposing that these codes be added for FY 2009.

c. Limited Coverage Edit

As explained in section II.G.1. of the preamble of this proposed rule, we are proposing to remove procedure code 37.52 (Implantation of internal biventricular heart replacement system) from the MCE “Non-Covered Procedure” edit and to assign it to the “Limited Coverage” edit. We are proposing to include in this proposed edit the requirement that ICD-9-CM diagnosis code V70.7 (Examination of participant in clinical trial) also be present on the claim. We are proposing that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the proposed coverage policy explained in section II.G.1. of this preamble.

8. Surgical Hierarchies

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

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

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “kidney, ureter and major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 3, 4, and 5. Assume also that the average charge of MS-DRG 1 is higher than that of MS-DRG 3, but the average charges of MS-DRGs 4 and 5 are higher than the average charge of MS-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 MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.

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

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average 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 MS-DRG or MS-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 Start Printed Page 23576average charge than the class ordered below it.

For FY 2009, we are proposing a revision of the surgical hierarchy for MDC 5 (Diseases and Disorders of the Circulatory System) by placing MS-DRG 245 (AICD Generator Procedures) above proposed new MS-DRG 265 (AICD Lead Procedures).

9. CC Exclusions List

a. Background

As indicated earlier in the preamble of this proposed rule, under the IPPS DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. We refer readers to section II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY-2008 (72 FR 47152 through 47121).

b. CC Exclusions List for FY 2009

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.[12]

For FY 2009, 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-9-CM diagnosis coding system effective October 1, 2008. (See section II.G.11. of the preamble of this proposed rule with comment period 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 indicating on the CC exclusion list some updates to reflect the exclusion of a few codes from being an MCC under the MS-DRG system that we adopted for FY 2008.

Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, which will be effective for discharges occurring on or after October 1, 2008, are not being published in this proposed rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS. Each of these principal diagnoses for which there is a CC exclusion is shown in Tables 6G and 6H with an asterisk, and the conditions that will not count as a CC, are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is 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, 2008, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

To assist readers in the review of changes to the MCC and CC lists that occurred as a result of updates to the ICD-9-CM codes, as described in Tables 6A, 6C, and 6E, we are providing the following summaries of those MCC and CC changes.

Summary of Additions to the MS-DRG MCC List.—Table 6I.1

CodeDescription
249.10Secondary diabetes mellitus with ketoacidosis, not stated as uncontrolled, or unspecified.
249.11Secondary diabetes mellitus with ketoacidosis, uncontrolled.
249.20Secondary diabetes mellitus with hyperosmolarity, not stated as uncontrolled, or unspecified.
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249.21Secondary diabetes mellitus with hyperosmolarity, uncontrolled.
249.30Secondary diabetes mellitus with other coma, not stated as uncontrolled, or unspecified.
249.31Secondary diabetes mellitus with other coma, uncontrolled.
707.23Pressure ulcer, stage III.
707.24Pressure ulcer, stage IV.
777.50Necrotizing enterocolitis in newborn, unspecified.
777.51Stage I necrotizing enterocolitis in newborn.
777.52Stage II necrotizing enterocolitis in newborn.
777.53Stage III necrotizing enterocolitis in newborn.
780.72Functional quadriplegia.

Summary of Deletions From the MS-DRG MCC List.—Table 6I.2

CodeDescription
136.2Specific infections by free-living amebae.
511.8Other specified forms of pleural effusion, except tuberculous.
707.02Pressure ulcer, upper back.
707.03Pressure ulcer, lower back.
707.04Pressure ulcer, hip.
707.05Pressure ulcer, buttock.
707.06Pressure ulcer, ankle.
707.07Pressure ulcer, heel.
777.5Necrotizing enterocolitis in fetus or newborn.

Summary of Additions to the MS-DRG CC List.—Table 6J.1

CodeDescription
046.11Variant Creutzfeldt-Jakob disease.
046.19Other and unspecified Creutzfeldt-Jakob disease.
046.71Gerstmann-Sträussler-Scheinker syndrome.
046.72Fatal familial insomnia.
046.79Other and unspecified prion disease of central nervous system.
059.01Monkeypox.
059.21Tanapox.
136.29Other specific infections by free-living amebae.
199.2Malignant neoplasm associated with transplant organ.
203.02Multiple myeloma, in relapse.
203.12Plasma cell leukemia, in relapse.
203.82Other immunoproliferative neoplasms, in relapse.
204.02Acute lymphoid leukemia, in relapse.
204.12Chronic lymphoid leukemia, in relapse.
204.22Subacute lymphoid leukemia, in relapse.
204.82Other lymphoid leukemia, in relapse.
204.92Unspecified lymphoid leukemia, in relapse.
205.02Acute myeloid leukemia, in relapse.
205.12Chronic myeloid leukemia, in relapse.
205.22Subacute myeloid leukemia, in relapse.
205.32Myeloid sarcoma, in relapse.
205.82Other myeloid leukemia, in relapse.
205.92Unspecified myeloid leukemia, in relapse.
206.02Acute monocytic leukemia, in relapse.
206.12Chronic monocytic leukemia, in relapse.
206.22Subacute monocytic leukemia, in relapse.
206.82Other monocytic leukemia, in relapse.
206.92Unspecified monocytic leukemia, in relapse.
207.02Acute erythremia and erythroleukemia, in relapse.
207.12Chronic erythremia, in relapse.
207.22Megakaryocytic leukemia, in relapse.
207.82Other specified leukemia, in relapse.
208.02Acute leukemia of unspecified cell type, in relapse.
208.12Chronic leukemia of unspecified cell type, in relapse.
208.22Subacute leukemia of unspecified cell type, in relapse.
208.82Other leukemia of unspecified cell type, in relapse.
208.92Unspecified leukemia, in relapse.
209.00Malignant carcinoid tumor of the small intestine, unspecified portion.
209.01Malignant carcinoid tumor of the duodenum.
209.02Malignant carcinoid tumor of the jejunum.
209.03Malignant carcinoid tumor of the ileum.
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209.10Malignant carcinoid tumor of the large intestine, unspecified portion.
209.11Malignant carcinoid tumor of the appendix.
209.12Malignant carcinoid tumor of the cecum.
209.13Malignant carcinoid tumor of the ascending colon.
209.14Malignant carcinoid tumor of the transverse colon.
209.15Malignant carcinoid tumor of the descending colon.
209.16Malignant carcinoid tumor of the sigmoid colon.
209.17Malignant carcinoid tumor of the rectum.
209.20Malignant carcinoid tumor of unknown primary site.
209.21Malignant carcinoid tumor of the bronchus and lung.
209.22Malignant carcinoid tumor of the thymus.
209.23Malignant carcinoid tumor of the stomach.
209.24Malignant carcinoid tumor of the kidney.
209.25Malignant carcinoid tumor of foregut, not otherwise specified.
209.26Malignant carcinoid tumor of midgut, not otherwise specified.
209.27Malignant carcinoid tumor of hindgut, not otherwise specified.
209.29Malignant carcinoid tumor of other sites.
209.30Malignant poorly differentiated neuroendocrine carcinoma, any site.
238.77Post-transplant lymphoproliferative disorder (PTLD).
279.50Graft-versus-host disease, unspecified.
279.51Acute graft-versus-host disease.
279.52Chronic graft-versus-host disease.
279.53Acute on chronic graft-versus-host disease.
346.60Persistent migraine aura with cerebral infarction, without mention of intractable migraine without mention of status migrainosus.
346.61Persistent migraine aura with cerebral infarction, with intractable migraine, so stated, without mention of status migrainosus.
346.62Persistent migraine aura with cerebral infarction, without mention of intractable migraine with status migrainosus.
346.63Persistent migraine aura with cerebral infarction, with intractable migraine, so stated, with status migrainosus.
511.81Malignant pleural effusion.
511.89Other specified forms of effusion, except tuberculous.
649.70Cervical shortening, unspecified as to episode of care or not applicable.
649.71Cervical shortening, delivered, with or without mention of antepartum condition.
649.73Cervical shortening, antepartum condition or complication.
695.12Erythema multiforme major.
695.13Stevens-Johnson syndrome.
695.14Stevens-Johnson syndrome-toxic epidermal necrolysis overlap syndrome.
695.15Toxic epidermal necrolysis.
695.53Exfoliation due to erythematous condition involving 30-39 percent of body surface.
695.54Exfoliation due to erythematous condition involving 40-49 percent of body surface.
695.55Exfoliation due to erythematous condition involving 50-59 percent of body surface.
695.56Exfoliation due to erythematous condition involving 60-69 percent of body surface.
695.57Exfoliation due to erythematous condition involving 70-79 percent of body surface.
695.58Exfoliation due to erythematous condition involving 80-89 percent of body surface.
695.59Exfoliation due to erythematous condition involving 90 percent or more of body surface.
997.31Ventilator associated pneumonia.
997.39Other respiratory complications.
998.30Disruption of wound, unspecified.
998.33Disruption of traumatic wound repair.
999.81Extravasation of vesicant chemotherapy.
999.82Extravasation of other vesicant agent.

Summary of Deletions to the MS-DRG CC List.—Table 6J.2

CodeDescription
046.1Jakob-Creutzfeldt disease.
337.0Idiopathic peripheral autonomic neuropathy.
695.1Erythema multiforme.
707.00Pressure ulcer, unspecified site.
707.01Pressure ulcer, elbow.
707.09Pressure ulcer, other site.
997.3Respiratory complications.
999.8Other transfusion reaction.

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 25.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 26.0 of this manual, which will include the final FY 2009 DRG changes, will be available in hard copy for $250.00. Version 26.0 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.

10. Review of Procedure Codes in MS DRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 989

Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among Start Printed Page 23579these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 477 became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC).

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 DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:

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

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.[13]

For FY 2009, we are not proposing to change the procedures assigned among these DRGs.

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 to MDCs

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (formerly CMS DRG 468) or MS-DRGs 987 through 989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these DRGs into one of the surgical DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. For FY 2009, we are not proposing to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989.

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989)

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly, CMS DRGs 468, 476, and 477, 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.

For FY 2009, we are not proposing to move any procedure codes among these DRGs.

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 2009.

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

As described in section II.B.1. of the preamble of this proposed rule, 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 $27.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cdc.gov/​nchs/​products/​prods/​subject/​icd96ed.htm. The Official Start Printed Page 23580Version 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 2009 at a public meeting held on September 27-28, 2007 and finalized the coding changes after consideration of comments received at the meetings and in writing by December 3, 2007. Those coding changes are announced in Tables 6A through 6F in the Addendum to this proposed rule. The Committee held its 2008 meeting on March 19-20, 2008. 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 2008 will be included in the October 1, 2008 update to ICD-9-CM. Code revisions that were discussed at the March 19-20, 2008 Committee meeting but that could not be finalized in time to include them in the Addendum to this proposed rule are not included in Tables 6A through 6F. These additional codes will be included in Tables 6A through 6F of the final rule with comment period and are marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's September 27-28, 2007 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 27-28, 2007 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, 2008. 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 comments on the proposed classification of these new codes.

For codes that have been replaced by new or expanded codes, and 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, 2008. 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, 2008. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), which also includes the MS-DRG assignments for these revised codes. Table 6F includes revised procedure code titles for FY 2009.

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 19-20, 2008 Committee meeting that received consensus and that are finalized by May 2008, 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 Start Printed Page 23581meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the ICD-9-CM Coordination and Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, is published on the CMS and NCHS Web sites in May of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee 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 approved for an expedited April l, 2008 implementation of an ICD-9-CM code at the September 27-28, 2007 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2008.

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

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

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same DRG in which its predecessor code was assigned so there will be no DRG impact as far as DRG assignment. 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.

H. Recalibration of MS-DRG Weights

In section II.E. of the preamble of this proposed rule, we state that we are proposing to fully implement the cost-based DRG relative weights for FY 2009, which is the third year in the 3-year transition period to calculate the relative weights at 100 percent based on costs. In the FY 2008 IPPS final rule with comment period (72 FR 47267), as recommended by RTI, for FY 2008, we added two new CCRs for a total of 15 CCRs: one for “Emergency Room” and one for “Blood and Blood Products,” both of which can be derived directly from the Medicare cost report.

In developing the FY 2009 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 2007 MedPAR data used in this proposed rule include discharges occurring on October 1, 2006, through September 30, 2007, based on bills received by CMS through December 2007, 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 2007 MedPAR file used in calculating the relative weights includes data for approximately 11,433,806 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-based relative weighting methodology is the FY 2006 Medicare cost report data files from HCRIS (that is, cost reports beginning on or after October 1, 2005, and before October 1, 2006), which represents the most recent full set of cost report data available. We used the Start Printed Page 23582December 31, 2007 update of the HCRIS cost report files for FY 2006 in setting the relative cost-based weights.

The methodology we used to calculate the DRG cost-based relative weights from the FY 2007 MedPAR claims data and FY 2006 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the proposed FY 2009 MS-DRG classifications discussed in sections II.B. and G. of the preamble of this proposed rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2007 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 room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.
  • At least 96.1 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 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 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, DSH payments, and IME adjustments under the capital IPPS as well. Charges were then summed by DRG for each of the 15 cost groups so that each DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2006 cost report data.

The 15 cost centers that we used in the relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 15 national cost center CCRs.

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We developed the national average CCRs as follows:

Taking the FY 2006 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 Start Printed Page 23589center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-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-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 15 cost centers by the corresponding national average CCR, we summed the 15 “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 relative weights were then normalized by an adjustment factor of 1.50612 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 15 proposed national average CCRs for FY 2009 are as follows:

GroupCCR
Routine Days0.527
Intensive Days0.476
Drugs0.205
Supplies & Equipment0.341
Therapy Services0.419
Laboratory0.166
Operating Room0.293
Cardiology0.186
Radiology0.171
Emergency Room0.291
Blood and Blood Products0.449
Other Services0.419
Labor & Delivery0.482
Inhalation Therapy0.198
Anesthesia0.150

As we explained in section II.E. of the preamble of this proposed rule, we are proposing to complete our 2-year transition to the MS-DRGs. For FY 2008, the first year of the transition, 50 percent of the relative weight for an MS-DRG was based on the two-thirds cost-based weight/one-third charge-based weight calculated using FY 2006 MedPAR data grouped to the Version 24.0 (FY 2007) DRGs. The remaining 50 percent of the FY 2008 relative weight for an MS-DRG was based on the two-thirds cost-based weight/one-third charge-based weight calculated using FY 2006 MedPAR grouped to the Version 25.0 (FY 2008) MS-DRGs. In FY 2009, we are proposing that the relative weights will be based on 100 percent cost weights computed using the Version 26.0 (FY 2009) MS-DRGs.

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 are proposing to use that same case threshold in recalibrating the MS-DRG weights for FY 2009. Using the FY 2007 MedPAR data set, there are 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients age 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients 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 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 MS-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 2009, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, we are proposing to compute weights for the low-volume MS-DRGs by adjusting their FY 2008 weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

Low-volume MS-DRGMS-DRG titleCrosswalk to MS-DRG
768Vaginal Delivery with O.R. Procedure Except Sterilization and/or D&CFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
789Neonates, Died or Transferred to Another Acute Care FacilityFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
790Extreme Immaturity or Respiratory Distress Syndrome, NeonateFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791Prematurity with Major ProblemsFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792Prematurity without Major ProblemsFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793Full-Term Neonate with Major ProblemsFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794Neonate with Other Significant ProblemsFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795Normal NewbornFY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
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I. Proposed Medicare Severity Long-Term Care (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background

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

When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system (that is, the CMS DRGs) that was utilized at that time under the IPPS. As a component of the LTCH PPS, we refer to the patient classification system as the “long-term care diagnosis-related groups (LTC-DRGs).” As discussed in greater detail below, although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in LTC-DRG relative weights that reflect “the differences in patient resource use * * *” of LTCH patients (section 123(a)(1) of the BBRA (Pub. L. 106-113). As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), the MS-DRGs and the Medicare severity long-term care diagnosis related groups (MS-LTC-DRGs) were adopted for the IPPS and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008). For a full description of the development and implementation of the MS-DRGs and MS-LTC-DRGs, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that, in that same final rule, we revised the regulations at § 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for policy descriptions and payment calculations, all references to LTC-DRGs would be considered a reference to MS-LTC-DRGs. For the remainder of this section, we present the discussion in terms of the current MS-LTC-DRG patient classification unless specifically referring to the previous LTC-DRG patient classification system (that was in effect before October 1, 2007).) We believe the MS-DRGs (and by extension, the MS-LTC-DRGs) represent a substantial improvement over the previous CMS DRGs in their ability to differentiate cases based on severity of illness and resource consumption.

The MS-DRGs represent an increase in the number of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In addition to improving the DRG system's recognition of severity of illness, we believe the MS-DRGs are responsive to the public comments that were made on the FY 2007 IPPS proposed rule with respect to how we should undertake further DRG reform. The MS-DRGs use the CMS DRGs as the starting point for revising the DRG system to better recognize resource complexity and severity of illness. We have generally retained 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.

Consistent with section 123 of the BBRA as amended by section 307(b)(1) of the BIPA and § 412.515, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and estimated resource needs. We then assign an appropriate weight to the MS-LTC-DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCHs.

Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge; and that payment varies by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are classified into MS-LTC-DRGs for payment based on the following six data elements:

  • Principal diagnosis.
  • Up to eight additional diagnoses.
  • Up to six procedures performed.
  • Age.
  • Sex.
  • Discharge status of the patient.

Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the most current version of the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets Standards regulations at 45 CFR Parts 160 and 162 require that no later than October 16, 2003, all covered entities must comply with the applicable requirements of Subparts A and I through R of Part 162. Among other requirements, those provisions direct covered entities to use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, Version 4010, and the applicable standard medical data code sets for the institutional health care claim or equivalent encounter information transaction (see 45 CFR 162.1002 and 45 CFR 162.1102). For additional information on the ICD-9-CM Coding System, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47241 through 47243 and 47277 through 47281). We also refer readers to the detailed discussion on correct coding practices in the August 30, 2002 LTCH PPS final rule (67 FR 55981 through 55983). Additional coding instructions and examples are published in the Coding Clinic for ICD-9-CM, a product of the American Hospital Association.

Medicare contractors (that is, fiscal intermediaries or MACs) enter the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS-LTC-DRG can be made. During this process, the following types of cases are selected for further development:

  • Cases that are improperly coded. (For example, diagnoses are shown that are inappropriate, given the sex of the patient. Code 68.69 (Other and unspecified radical abdominal hysterectomy) would be an inappropriate code for a male.)
  • Cases including surgical procedures not covered under Medicare. (For example, organ transplant in a nonapproved transplant center.)
  • Cases requiring more information. (For example, ICD-9-CM codes are required to be entered at their highest level of specificity. There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262 (Other severe protein-calorie malnutrition) contains all appropriate digits, but if it is reported with either fewer or more than 3 digits, the claim will be rejected by the MCE as invalid.)

After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software. Start Printed Page 23591The Medicare GROUPER software, which is used under the LTCH PPS, is specialized computer software, and is the same GROUPER software program used under the IPPS. The GROUPER software was developed as a means of classifying each case into a MS-LTC-DRG on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). Following the MS-LTC-DRG assignment, the Medicare contractor determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH to review the MS-LTC-DRG assignments made by the Medicare contractor and to submit additional information within a specified timeframe as specified in § 412.513(c).

The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the 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 MS-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during our annual update under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively.

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 DRGs as those used under the IPPS for acute care hospitals, in that same final rule, we explained that the annual update of the LTC-DRG classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the DRGs used under the IPPS. Therefore, we specified that we will continue to update the LTC-DRG classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. 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 RY 2009 LTCH PPS proposed rule (73 FR 5351-5352), due to administrative considerations as well as in response to numerous comments urging CMS to establish one rulemaking cycle that would encompass the update of the LTCH PPS payment rates (currently updated on a rate year basis, effective July 1) as well as the development of the LTC-DRG weights (currently updated on a fiscal year basis, effective October 1), we proposed to amend the regulations at § 412.535 in order to consolidate the rate year and fiscal year rulemaking cycles. Specifically, we proposed that the annual update of the LTCH PPS payment rates (and description of the methodology and data used to calculate these payment rates) and the annual update of the MS-LTC-DRG classifications and associated weighting factors for LTCHs would be effective on October 1 each Federal fiscal year. In order to revise the payment rate update (currently on a rate year cycle of July 1 through June 30) to an October 1 through September 30 cycle, we proposed to extend the 2009 rate period to September 30, 2009, so that RY 2009 would be 15 months. This proposed 15-month rate period would extend from July 1, 2008, through September 30, 2009. We believe that extending RY 2009 by 3 months (July, August, and September) would provide for a smooth transition to a consolidated annual update for both the LTCH PPS payment rates and the LTCH PPS MS-LTC-DRG classifications and weighting factors. (We believe that proposing to shorten the 2009 rate year period to an October 1 through September 30 period so that RY 2009 would only be 3 months (that is, July 1, 2008 through September 30, 2008) would exacerbate the current time-consuming, biannual update process by resulting in two payment rate changes within a very short period of time.) Consequently, under the proposal to extend RY 2009 to a 15-month rate period, after September 30, 2009, when the RY 2009 cycle ends, the LTCH PPS payment rates and other policy changes would subsequently be updated on an October 1 through September 30 cycle in conjunction with the annual update to the MS-LTC-DRG classifications and relative weights. Accordingly, the next update to the LTCH PPS payment rates, after the proposed 15-month RY 2009, would begin October 1, 2009, coinciding with the 2010 Federal fiscal year.

In the past, the annual update to the DRGs used under the IPPS has been based on the annual revisions to the ICD-9-CM codes and was effective each October 1. As discussed in the RY 2009 LTCH PPS proposed rule (73 FR 5348-5349), 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 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). 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 HIPAA.

As noted above, the patient classification system used under the LTCH PPS is the same patient classification system that is used under the IPPS. Therefore, the ICD-9-CM codes currently used under both the IPPS and the LTCH PPS have the potential of being updated 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 in the Federal Register. 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.11. of the preamble of this proposed rule). Any coding updates will be available through the Web sites provided in section II.G.11. of the preamble of this proposed rule and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software system. If new codes are implemented on April 1, revised code books and software systems, including the GROUPER Start Printed Page 23592software program, will be necessary because the most current ICD-9-CM codes must be reported. Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code must be included in the GROUPER algorithm to classify each case under the correct LTCH PPS, 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 diagnosis and procedure code revisions are requested and approved. We note that any new codes created for April 1 implementation will be limited to those 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.11. of the preamble of this proposed rule).

At the September 27, 2007 ICD-9-CM Coordination and Maintenance Committee meeting, there were no requests for an April 1, 2008 implementation of ICD-9-CM codes. Therefore, the next update to the ICD-9-CM coding system will occur on October 1, 2008 (FY 2009). Because there were no coding changes suggested for an April 1, 2008 update, the ICD-9-CM coding set implemented on October 1, 2008, will continue through September 30, 2009 (FY 2009). The update to the ICD-9-CM coding system for FY 2009 is discussed in section II.G.11. of the preamble of this proposed rule. Accordingly, in this proposed rule, as discussed in greater detail below, we are proposing to modify and revise the MS-LTC-DRG classifications and relative weights to be effective October 1, 2008 through September 30, 2009 (FY 2009). As discussed in greater detail below, the MS-LTC-DRGs for FY 2009 in this proposed rule are the same as the MS-DRGs proposed for the IPPS for FY 2009 (GROUPER Version 26.0) discussed in section II.B. of the preamble to this proposed rule.

2. Proposed Changes in the MS-LTC-DRG Classifications

a. Background

As discussed earlier, 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. 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.”

Consistent 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 section II.D. of the preamble of this proposed rule, for FY 2008, we adopted MS-DRGs under the IPPS because we believe that this system results in a significant improvement in the DRG system's recognition of severity of illness and resource usage. We stated that we believe these improvements in the DRG system are equally applicable to the LTCH PPS. The changes we are proposing to make for the FY 2009 IPPS are reflected in the proposed FY 2009 GROUPER, Version 26.0, that would be effective for discharges occurring on or after October 1, 2008 through September 30, 2009.

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, under the LTCH PPS for FY 2008, we adopted the use of MS-LTC-DRGs, which correspond to the MS-DRGs we adopted under the IPPS. In addition, as stated above, we are proposing to use the FY 2009 GROUPER Version 26.0 to classify cases effective for LTCH discharges occurring on or after October 1, 2008, through September 30, 2009. The changes to the MS-DRG classification system that we are proposing to use under the IPPS for FY 2009 (GROUPER Version 26.0) are discussed in section II.B. of the preamble to this proposed rule.

Under the LTCH PPS, as described in greater detail below, we determine relative weights for each of the MS-LTC-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 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through December 31, 2007, for discharges occurring in FY 2007.)

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 2008 IPPS final rule with comment period (72 FR 47283), we use low-volume quintiles in determining the DRG relative weights for DRGs with less than 25 LTCH cases (low-volume MS-LTC-DRGs). Specifically, we group those low-volume DRGs into 5 quintiles based on average charges per discharge. (A listing of the composition of low-volume quintiles for the FY 2008 MS-LTC-DRGs (based on FY 2006 MedPAR data) appears in section II.I.3. of the FY 2008 IPPS final rule with comment period (72 FR 47281 through 47288).) 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, as discussed below in section II.I.4. of the preamble of this proposed rule.

b. Patient Classifications Into MS-LTC-DRGs

Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that is, payment varies by the DRG to which a beneficiary's stay is assigned. Just as cases have been classified into the MS-DRGs for acute care hospitals under the IPPS (section II.B. of the preamble of this proposed rule), cases have been classified into 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 demographic information about the patient. The diagnosis and procedure information is reported by the hospital using the ICD-9-CM coding system. Under the MS-DRGs for the IPPS and the 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 MS-DRGs, which we are maintaining under the MS-LTC-DRG system. As noted above, the patient classification system for the LTCH PPS is derived from the IPPS DRGs and is similarly organized into 25 major diagnostic categories (MDCs). Start Printed Page 23593Most 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 MS-DRGs, some surgical and medical DRGs are further defined for severity purposes based on the presence or absence of MCCs or CCs. The existing MS-LTC-DRGs are similarly categorized. (We refer readers to section II.B. of the preamble of this proposed rule for further discussion of surgical DRGs and medical DRGs.)

Therefore, consistent with the MS-DRGs, a base MS-LTC-DRG may be subdivided according to three alternatives. The first alternative includes division of the DRG into one, two, or three severity levels. The most severe level has cases with 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 do not support the creation of three severity levels, the base DRG is divided into either two levels or the base is not subdivided.

The two-level subdivisions consist of one of the following subdivisions: “with CC/MCC” or “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 “ CC/MCC” DRG. Cases without a CC or an MCC are assigned to the “without CC/MCC” DRG.

The other type of two-level subdivision is as follows: “with MCC” and “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.

3. Development of the Proposed FY 2009 MS-LTC-DRG Relative Weights

a. General Overview of Development of the 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 relative weight in determining payment to LTCHs for each case. (As we have noted above, in last year's final rule, we adopted the MS-LTC-DRGs for the LTCH PPS beginning in FY 2008. However, this 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.

Although the adoption of the MS-LTC-DRGs resulted in some modifications of existing procedures for assigning weights in cases of zero volume and/or nonmonotonicity, as discussed in the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and discussed in detail in the following sections, the basic methodology for developing the proposed FY 2009 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). Under the LTCH PPS, relative weights for each 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 MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as much to treat as cases in an MS-LTC-DRG with a weight of 1.

b. Data

To calculate the proposed MS-LTC-DRG relative weights for FY 2009, we obtained total Medicare allowable charges from FY 2007 Medicare LTCH bill data from the December 2007 update of the MedPAR file, which are the best available data at this time, and we used the proposed Version 26.0 of the CMS GROUPER that is also proposed for use under the IPPS to classify cases for FY 2009. We also are proposing that if more recent data are available, we will use those data and the finalized Version 26.0 of the CMS GROUPER in establishing the FY 2009 MS-LTC-DRG relative weights in the final rule.

Consistent with our historical methodology, we have excluded the data from LTCHs that are all-inclusive rate providers and LTCHs that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Pub. L. 90-248 or section 222(a) of Pub. L. 92-603 (We refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47282)). Therefore, in the development of the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule, we have excluded the data of the 17 all-inclusive rate providers and the 2 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2007 MedPAR file.

c. Hospital-Specific Relative Value (HSRV) 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 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 are proposing to use a hospital-specific relative value (HSRV) methodology to calculate the MS-LTC-DRG relative weights instead of the methodology used to determine the MS-DRG relative weights under the IPPS described in section II.H. of the preamble of this proposed rule. We believe this method will remove this hospital-specific source of bias in measuring LTCH average charges. Specifically, we are proposing to reduce the impact of the variation in charges across providers on any particular MS-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 methodology, 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 Start Printed Page 23594value 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 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 are cases with a length of stay that is less than or equal to five-sixths the average length of stay of the MS-LTC-DRG (§ 412.529 and § 412.503). 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. Treatment of Severity Levels in Developing Proposed Relative Weights

Under the proposed MS-LTC-DRGs, for purposes of the proposed setting of the relative weights, there would be three different categories of DRGs based on volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs with at least 25 cases are each assigned a unique relative weight; low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between one and 24 cases annually) are grouped into quintiles (described below) and assigned the weight of the quintile. No-volume MS-LTC-DRGs (that is, no cases in the database were assigned to those MS-LTC-DRGs) are crosswalked to other MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the crosswalked MS-LTC-DRG. (We provide in-depth discussions of our proposed policy regarding weight setting 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 5 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 developed a severity-adjusted patient classification system which we adopted for both the IPPS and the LTCH PPS in FY 2008. As described in greater detail above, the MS-LTC-DRG system can accommodate three severity levels: “with MCC” (most severe); “with CC,” and “without CC/MCC” (the least severe) 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”. For example, under the MS-LTC-DRG system, multiple sclerosis and cerebellar ataxia with MCC is MS-LTC-DRG 58; multiple sclerosis and cerebellar ataxia with CC is MS-LTC-DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC is MS-LTC-DRG 60. For purposes of discussion in this section, the term “base DRG” is used to refer to the DRG category that encompasses all levels of severity for that DRG. For example, when referring to the entire DRG category for multiple sclerosis and cerebellar ataxia, which includes the above three severity levels, we would use the term “base-DRG.”

As noted above, 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, consistent with the methodology we used when we adopted the MS-LTC-DRGs in the FY 2008 IPPS final rule with comment period (72 FR 47278 through 47281), we are proposing to determine the FY 2009 relative 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-DRG has between 1 and 24 cases, it is assigned to a quintile for which we will compute a relative weight; and (3) if an MS-LTC-DRG has no cases, it is crosswalked to another MS-LTC-DRG based upon clinical similarities to assign an appropriate relative weight (as described below in detail in Step 5 of the Steps for Determining the proposed FY 2009 MS-LTC-DRG Relative Weights). Furthermore, in determining the proposed FY 2009 MS-LTC-DRG relative weights, when necessary, we are proposing to make adjustments to account for nonmonotonicity, as explained below.

Theoretically, cases under the 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 relative weight methodology outlined above, the MS-LTC-DRG with MCC would have a lower relative weight than one with CC, or the MS-LTC-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 weights in order to maintain monotonicity by grouping both sets of cases together and establishing a new relative weight for both LTC-DRGs. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments because, in a nonmonotonic system, cases that are more severe and require greater expenditure of medical care resources would be paid based on a lower relative weight than cases that are less severe and require lower resource use. The procedure for dealing with nonmonotonicity under the MS-LTC-DRG classification system is discussed in greater detail below in section II.I.4. (Step 6) of the preamble of this proposed rule.

e. Proposed Low-Volume MS-LTC-DRGs

In order to account for MS-LTC-DRGs with low volume (that is, with fewer than 25 LTCH cases), consistent with the methodology we established when we implemented the LTCH PPS (August 30, 2002; 67 FR 55984 through 55995), we group those “low-volume MS-LTC-DRGs” (that is, MS-LTC-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 (72 FR 47283 through 47288). In determining the proposed FY Start Printed Page 235952009 MS-LTC-DRG relative weights in this proposed rule, we are proposing to continue to employ this quintile methodology for proposed low-volume MS-LTC-DRGs. In addition, in cases where the initial assignment of a low-volume MS-LTC-DRG to quintiles results in nonmonotonicity within a base DRG, in order to ensure appropriate Medicare payments, consistent with our historical methodology, we are proposing to make adjustments to the treatment of low-volume MS-LTC-DRGs to preserve monotonicity, as discussed in detail below in section II.I.4 (Step 6 of the methodology for determining the proposed FY 2009 MS-LTC-DRG relative weights). In this proposed rule, using LTCH cases from the December 2007 update of the FY 2007 MedPAR file, we identified 290 MS-LTC-DRGs that contained between 1 and 24 cases. This list of proposed MS-LTC-DRGs was then divided into one of the proposed 5 low-volume quintiles, each containing 58 MS-LTC-DRGs (290/5 = 58). We are proposing to make the assignment of a low-volume MS-LTC-DRG to a specific low-volume quintile by sorting the proposed low-volume MS-LTC-DRGs in ascending order by average charge in accordance with our established methodology. Specifically, for this proposed rule, the 290 proposed low-volume MS-LTC-DRGs are sorted by ascending order by average charge and assigned to a specific proposed low-volume quintile (as described below). After sorting the 290 proposed low-volume MS-LTC-DRGs by average charge in ascending order, we are proposing to group the first fifth (1st through 58th) of proposed low-volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1. This process is repeated through the remaining proposed low-volume MS-LTC-DRGs so that each of the 5 proposed low-volume quintiles contains 58 proposed MS-LTC-DRGs. The highest average charge cases would be grouped into Quintile 5. (We note that, consistent with our historical methodology, if the number of proposed low-volume MS-LTC-DRGs had not been evenly divisible by 5, we would have used the average charge of the proposed low-volume MS-LTC-DRG to determine which proposed low-volume quintile would have received the additional proposed low-volume MS-LTC-DRG.)

Accordingly, in order to determine the proposed relative weights for the proposed MS-LTC-DRGs with low-volume for FY 2009, we are proposing to use the five low-volume quintiles described above. 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 2009 (Table 11 of the Addendum of this proposed rule). 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 are proposing to apply to the regular MS-LTC-DRGs (25 or more cases), as described 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 low-volume MS-LTC-DRGs that make up an individual 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.

Proposed Composition of Low-Volume Quintiles for FY 2009

Proposed MS-LTC-DRG (version 26.0)Proposed MS-LTC-DRG description (version 26.0)
PROPOSED QUINTILE 1
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.
79Hypertensive encephalopathy w/o CC/MCC.
87Traumatic stupor & coma, coma <1 hr w/o CC/MCC.
89Concussion w CC.
125Other disorders of the eye w/o MCC.
135Sinus & mastoid procedures w CC/MCC.
136Sinus & mastoid procedures w/o CC/MCC.**
148Ear, nose, mouth & throat malignancy w/o CC/MCC.
149Dysequilibrium.
159Dental & Oral Diseases w/o CC/MCC.
183Major chest trauma w MCC.
184Major chest trauma w CC.
185Major chest trauma w/o CC/MCC.
201Pneumothorax w/o CC/MCC.
257Upper limb & toe amputation for circ system disorders w/o CC/MCC.
261Cardiac pacemaker revision except device replacement w CC.***
263Vein ligation & stripping.
304Hypertension w MCC.
305Hypertension w/o MCC.
311Angina pectoris.
313Chest pain.
382Complicated peptic ulcer w/o CC/MCC.
387Inflammatory bowel disease w/o CC/MCC.
437Malignancy of hepatobiliary system or pancreas w/o CC/MCC.
443Disorders of liver except malig, cirr, alc hepa w/o CC/MCC.
468Revision of hip or knee replacement w/o CC/MCC.
510Shoulder, elbow or forearm proc, exc major joint proc w MCC.***
537Sprains, strains, & dislocations of hip, pelvis & thigh w CC/MCC.
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544Pathological fractures & musculoskelet & conn tiss malig w/o CC/MCC.
547Connective tissue disorders w/o CC/MCC.
556Signs & symptoms of musculoskeletal system & conn tissue w/o MCC.
563Fx, sprn, strn & disl except femur, hip, pelvis & thigh w/o MCC.
601Non-malignant breast disorders w/o CC/MCC.
618Amputat of lower limb for endocrine, nutrit, & metabol dis w/o CC/MCC.
642Inborn errors of metabolism
645Endocrine disorders w/o CC/MCC.
694Urinary stones w/o esw lithotripsy w/o MCC.
723Malignancy, male reproductive system w CC.
726Benign prostatic hypertrophy w/o MCC.
730Other male reproductive system diagnoses w/o CC/MCC.
756Malignancy, female reproductive system w/o CC/MCC.
781Other antepartum diagnoses w medical complications.
810Major hematol/immun diag exc sickle cell crisis & coagul w/o CC/MCC.
816Reticuloendothelial & immunity disorders w/o CC/MCC.
864Fever of unknown origin.
869Other infectious & parasitic diseases diagnoses w/o CC/MCC.
880Acute adjustment reaction & psychosocial dysfunction.
882Neuroses except depressive.
886Behavioral & developmental disorders.
895Alcohol/drug abuse or dependence w rehabilitation therapy.
897Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC.
917Poisoning & toxic effects of drugs w MCC.
918Poisoning & toxic effects of drugs w/o MCC.
958Other O.R. procedures for multiple significant trauma w CC.
965Other multiple significant trauma w/o CC/MCC.
PROPOSED QUINTILE 2
59Multiple sclerosis & cerebellar ataxia w CC.
60Multiple sclerosis & cerebellar ataxia w/o CC/MCC.
75Viral meningitis w CC/MCC.
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.
103Headaches w/o MCC.
121Acute major eye infections w CC/MCC.
122Acute major eye infections w/o CC/MCC.
124Other disorders of the eye w MCC.
153Otitis media & URI w/o MCC.
156Nasal trauma & deformity w/o CC/MCC.
157Dental & Oral Diseases w MCC.
158Dental & Oral Diseases w CC.
182Respiratory neoplasms w/o CC/MCC.*
188Pleural effusion w/o CC/MCC.*
203Bronchitis & asthma w/o CC/MCC.
254Other vascular procedures w/o CC/MCC.
294Deep vein thrombophlebitis w CC/MCC.
354Hernia procedures except inguinal & femoral w CC.
376Digestive malignancy w/o CC/MCC.
379G.I. hemorrhage w/o CC/MCC.
381Complicated peptic ulcer w CC.
390G.I. obstruction w/o CC/MCC.
409Biliary tract proc except only cholecyst w or w/o c.d.e. w CC.
433Cirrhosis & alcoholic hepatitis w CC.
440Disorders of pancreas except malignancy w/o CC/MCC.
446Disorders of the biliary tract w/o CC/MCC.*
489Knee procedures w/o pdx of infection w/o CC/MCC.
533Fractures of femur w MCC.
534Fractures of femur w/o MCC.
553Bone diseases & arthropathies w MCC.
578Skin graft &/or debrid exc for skin ulcer or cellulitis w/o CC/MCC.
584Breast biopsy, local excision & other breast procedures w CC/MCC.
624Skin grafts & wound debrid for endoc, nutrit & metab dis w/o CC/MCC.
661Kidney & ureter procedures for non-neoplasm w/o CC/MCC.
663Minor bladder procedures w CC.
665Prostatectomy w MCC.***
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669Transurethral procedures w CC.
671Urethral procedures w CC/MCC.
688Kidney & urinary tract neoplasms w/o CC/MCC.
696Kidney & urinary tract signs & symptoms w/o MCC.
722Malignancy, male reproductive system w MCC.
759Infections, female reproductive system w/o CC/MCC.*
815Reticuloendothelial & immunity disorders w CC.
835Acute leukemia w/o major O.R. procedure w CC.***
842Lymphoma & non-acute leukemia w/o CC/MCC.
844Other myeloprolif dis or poorly diff neopl diag w CC.
845Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC.
866Viral illness w/o MCC.
876O.R. procedure w principal diagnoses of mental illness.
881Depressive neuroses
923Other injury, poisoning & toxic effect diag w/o MCC.
929Full thickness burn w skin graft or inhal inj w/o CC/MCC.
964Other multiple significant trauma w CC.
976HIV w major related condition w/o CC/MCC.
PROPOSED QUINTILE 3
23Craniotomy w major device implant or acute complex CNS PDX w MCC.***
27Craniotomy & endovascular intracranial procedures w/o CC/MCC.
53Spinal disorders & injuries w/o CC/MCC.
58Multiple sclerosis & cerebellar ataxia w MCC.
82Traumatic stupor & coma, coma >1 hr w MCC.
98Non-bacterial infect of nervous sys exc viral meningitis w CC.
113Orbital procedures w CC/MCC.
116Intraocular procedures w CC/MCC.
136Sinus & mastoid procedures w/o CC/MCC.***
152Otitis media & URI w MCC.
165Major chest procedures w/o CC/MCC.
168Other resp system O.R. procedures w/o CC/MCC.
238Major cardiovascular procedures w/o MCC.
241Amputation for circ sys disorders exc upper limb & toe w/o CC/MCC.
261Cardiac pacemaker revision except device replacement w CC.**
262Cardiac pacemaker revision except device replacement w/o CC/MCC.**
284Circulatory disorders w AMI, expired w CC.*
287Circulatory disorders except AMI, w card cath w/o MCC.
369Major esophageal disorders w CC.
370Major esophageal disorders w/o CC/MCC.
380Complicated peptic ulcer w MCC.
384Uncomplicated peptic ulcer w/o MCC.
424Other hepatobiliary or pancreas O.R. procedures w CC.
471Cervical spinal fusion w MCC.
472Cervical spinal fusion w CC.
476Amputation for musculoskeletal sys & conn tissue dis w/o CC/MCC.
482Hip & femur procedures except major joint w/o CC/MCC.
494Lower extrem & humer proc except hip, foot, femur w/o CC/MCC.
497Local excision & removal int fix devices exc hip & femur w/o CC/MCC.*
502Soft tissue procedures w/o CC/MCC.
504Foot procedures w CC.
505Foot procedures w/o CC/MCC.
510Shoulder, elbow or forearm proc, exc major joint proc w MCC.**
511Shoulder, elbow or forearm proc, exc major joint proc w CC.**
535Fractures of hip & pelvis w MCC.
542Pathological fractures & musculoskelet & conn tiss malig w MCC.
555Signs & symptoms of musculoskeletal system & conn tissue w MCC.
562Fx, sprn, strn & disl except femur, hip, pelvis & thigh w MCC.
598Malignant breast disorders w CC.
599Malignant breast disorders w/o CC/MCC.**
600Non-malignant breast disorders w CC/MCC.
626Thyroid, parathyroid & thyroglossal procedures w CC.
630Other endocrine, nutrit & metab O.R. proc w/o CC/MCC.
665Prostatectomy w MCC.**
666Prostatectomy w CC.**
668Transurethral procedures w MCC.
686Kidney & urinary tract neoplasms w MCC.
687Kidney & urinary tract neoplasms w CC.
693Urinary stones w/o esw lithotripsy w MCC.
Start Printed Page 23598
725Benign prostatic hypertrophy w MCC.
744D&C, conization, laparoscopy & tubal interruption w CC/MCC.
755Malignancy, female reproductive system w CC.
800Splenectomy w CC.
809Major hematol/immun diag exc sickle cell crisis & coagul w CC.
814Reticuloendothelial & immunity disorders w MCC.
824Lymphoma & non-acute leukemia w other O.R. proc w CC.
834Acute leukemia w/o major O.R. procedure w MCC.
835Acute leukemia w/o major O.R. procedure w CC.**
836Acute leukemia w/o major O.R. procedure w/o CC/MCC.**
843Other myeloprolif dis or poorly diff neopl diag w MCC.
883Disorders of personality & impulse control.
903Wound debridements for injuries w/o CC/MCC.
905Skin grafts for injuries w/o CC/MCC.
922Other injury, poisoning & toxic effect diag w MCC.
941O.R. proc w diagnoses of other contact w health services w/o CC/MCC.
963Other multiple significant trauma w MCC.
989Non-extensive O.R. proc unrelated to principal diagnosis w/o CC/MCC.
PROPOSED QUINTILE 4
23Craniotomy w major device implant or acute complex CNS PDX w MCC.**
24Craniotomy w major device implant or acute complex CNS PDX w/o MCC.**
28Spinal procedures w MCC.
29Spinal procedures w CC.
30Spinal procedures w/o CC/MCC.
37Extracranial procedures w MCC.
38Extracranial procedures w CC.**
42Periph & cranial nerve & other nerv syst proc w/o CC/MCC.*
77Hypertensive encephalopathy w MCC.
133Other ear, nose, mouth & throat O.R. procedures w CC/MCC.
164Major chest procedures w CC.
237Major cardiovascular procedures w MCC.
242Permanent cardiac pacemaker implant w MCC.***
246Percutaneous cardiovascular proc w drug-eluting stent w MCC.
247Percutaneous cardiovascular proc w drug-eluting stent w/o MCC.
248Percutaneous cardiovasc proc w non-drug-eluting stent w MCC.
249Percutaneous cardiovasc proc w non-drug-eluting stent w/o MCC.**
259Cardiac pacemaker device replacement w/o MCC.
260Cardiac pacemaker revision except device replacement w MCC.
262Cardiac pacemaker revision except device replacement w/o CC/MCC.***
286Circulatory disorders except AMI, w card cath w MCC.
327Stomach, esophageal & duodenal proc w CC.
328Stomach, esophageal & duodenal proc w/o CC/MCC.**
348Anal & stomal procedures w CC.
358Other digestive system O.R. procedures w/o CC/MCC.*
405Pancreas, liver & shunt procedures w MCC.
406Pancreas, liver & shunt procedures w CC.**
417Laparoscopic cholecystectomy w/o c.d.e. w 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.***
478Biopsies of musculoskeletal system & connective tissue w CC.
481Hip & femur procedures except major joint w CC.
485Knee procedures w pdx of infection w 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.
492Lower extrem & humer proc except hip, foot, femur w MCC.
493Lower extrem & humer proc except hip, foot, femur w CC.
503Foot procedures w MCC.
511Shoulder, elbow or forearm proc, exc major joint proc w CC.***
513Hand or wrist proc, except major thumb or joint proc w CC/MCC.
514Hand or wrist proc, except major thumb or joint proc w/o CC/MCC.**
597Malignant breast disorders w MCC.
599Malignant breast disorders w/o CC/MCC.***
625Thyroid, parathyroid & thyroglossal procedures w MCC.
659Kidney & ureter procedures for non-neoplasm w MCC.
660Kidney & ureter procedures for non-neoplasm w CC.
666Prostatectomy w CC.***
Start Printed Page 23599
695Kidney & urinary tract signs & symptoms w MCC.
711Testes procedures w CC/MCC.
717Other male reproductive system O.R. proc exc malignancy w CC/MCC.
739Uterine, adnexa proc for non-ovarian/adnexal malig w MCC.
749Other female reproductive system O.R. procedures w CC/MCC.
754Malignancy, female reproductive system w MCC.
802Other O.R. proc of the blood & blood forming organs w MCC.
808Major hematol/immun diag exc sickle cell crisis & coagul w MCC.
823Lymphoma & non-acute leukemia w other O.R. proc w MCC.
896Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC.
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.
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.
985Prostatic O.R. procedure unrelated to principal diagnosis w CC.
PROPOSED QUINTILE 5
11Tracheostomy for face, mouth & neck diagnoses w MCC.
12Tracheostomy for face, mouth & neck diagnoses w CC.
24Craniotomy w major device implant or acute complex CNS PDX w/o MCC.***
25Craniotomy & endovascular intracranial procedures w MCC.
26Craniotomy & endovascular intracranial procedures w CC.
31Ventricular shunt procedures w MCC.
32Ventricular shunt procedures w CC.
38Extracranial procedures w CC.***
132Cranial/facial procedures w/o CC/MCC.
137Mouth procedures w CC/MCC.
226Cardiac defibrillator implant w/o cardiac cath w MCC.
227Cardiac defibrillator implant w/o cardiac cath w/o MCC.
242Permanent cardiac pacemaker implant w MCC.**
243Permanent cardiac pacemaker implant w CC.
244Permanent cardiac pacemaker implant w/o CC/MCC.
249Percutaneous cardiovasc proc w non-drug-eluting stent w/o MCC.***
250Perc cardiovasc proc w/o coronary artery stent or AMI w MCC.
326Stomach, esophageal & duodenal proc w MCC.
328Stomach, esophageal & duodenal proc w/o CC/MCC.***
330Major small & large bowel procedures w CC.
331Major small & large bowel procedures w/o CC/MCC.
335Peritoneal adhesiolysis w MCC.
344Minor small & large bowel procedures w MCC.
347Anal & stomal procedures w MCC.
353Hernia procedures except inguinal & femoral w MCC.
406Pancreas, liver & shunt procedures w CC.***
411Cholecystectomy w c.d.e. w MCC.
414Cholecystectomy except by laparoscope w/o c.d.e. w MCC.
415Cholecystectomy except by laparoscope w/o c.d.e. w CC.
417Laparoscopic cholecystectomy w/o c.d.e. w MCC.**
418Laparoscopic cholecystectomy w/o c.d.e. w CC.
423Other hepatobiliary or pancreas O.R. procedures w MCC.
456Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w MCC.
457Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w CC.
459Spinal fusion except cervical w MCC.
469Major joint replacement or reattachment of lower extremity w MCC.**
470Major joint replacement or reattachment of lower extremity w/o MCC.
477Biopsies of musculoskeletal system & connective tissue w MCC.
480Hip & femur procedures except major joint w MCC.
487Knee procedures w pdx of infection w/o CC/MCC.***
488Knee procedures w/o pdx of infection w CC/MCC.
496Local excision & removal int fix devices exc hip & femur w CC.*
498Local excision & removal int fix devices of hip & femur w CC/MCC.
507Major shoulder or elbow joint procedures w CC/MCC.
514Hand or wrist proc, except major thumb or joint proc w/o CC/MCC.***
582Mastectomy for malignancy w CC/MCC.
619O.R. procedures for obesity w MCC.
653Major bladder procedures w MCC.
656Kidney & ureter procedures for neoplasm w MCC.
Start Printed Page 23600
662Minor bladder procedures w MCC.
709Penis procedures w CC/MCC.
713Transurethral prostatectomy w CC/MCC.
746Vagina, cervix & vulva procedures w CC/MCC.
826Myeloprolif disord or poorly diff neopl w maj O.R. proc w MCC.
827Myeloprolif disord or poorly diff neopl w maj O.R. proc w CC.
829Myeloprolif disord or poorly diff neopl w other O.R. proc w CC/MCC.
836Acute leukemia w/o major O.R. procedure w/o CC/MCC.***
855Infectious & parasitic diseases w O.R. procedure w/o CC/MCC.*
906Hand procedures for injuries.
927Extensive burns or full thickness burns w MV 96+ hrs w skin graft.
970HIV w extensive O.R. procedure w/o MCC.***
*One of the original 290 proposed low-volume MS-LTC-DRGs initially assigned to this proposed low-volume quintile; removed from this proposed low-volume quintile in addressing nonmonotonicity (refer to step 6 in section II.I.4..of the preamble of this proposed rule).
**One of the original 290 proposed low-volume MS-LTC-DRGs initially assigned to a different proposed low-volume quintile but moved to this proposed low-volume quintile in addressing nonmonotonicity (refer to step 6 in section II.I.4. of the preamble of this proposed rule).
***One of the original 290 proposed low-volume MS-LTC-DRGs initially assigned to this proposed low-volume quintile but moved to a different proposed low-volume quintile in addressing nonmonotonicity (refer to step 6 in section II.I.4. of the preamble of this proposed rule).

We note that we will continue to monitor the volume (that is, the number of LTCH cases) in the 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 2009 MS-LTC-DRG Relative Weights

In general, the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule were determined based on the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). In summary, for FY 2009, we are proposing to group LTCH cases to the appropriate proposed MS-LTC-DRG, while taking into account the proposed low-volume MS-LTC-DRGs (as described above), before the proposed FY 2009 MS-LTC-DRG relative weights are determined. After grouping the cases to the appropriate proposed MS-LTC-DRG (or proposed low-volume quintile), we would calculate the proposed relative weights for FY 2009 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 would adjust the number of cases in each proposed MS-LTC-DRG (or proposed low-volume quintile) for the effect of short-stay outlier cases (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 (or proposed low-volume quintile) using the HSRV method (described above). In general, to determine the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule, we are proposing to use the same methodology we used in determining the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment period (72 FR 47281 through 47299). However, we are proposing to make a modification to our methodology for determining proposed relative weights for MS-LTC-DRGs with no LTCH cases (as discussed in greater detail in Step 5 below). Also, we note that, although we are generally proposing to use the same methodology in this proposed rule (with the exception noted above) as the methodology used in the FY 2008 IPPS final rule with comment, the discussion presented below of the steps for determining the proposed FY 2009 MS-LTC-DRG relative weights varies slightly from the discussion of the steps for determining the FY 2008 MS-LTC-DRG relative weights (presented in the FY 2008 IPPS final rule with comment) because we are taking this opportunity to refine our description to more precisely explain our methodology for determining the MS-LTC-DRG relative weights.

As discussed in the FY 2008 IPPS final rule with comment when we adopted the MS-LTC-DRGs, the adoption of the MS-LTC-DRGs with either two or three severity levels resulted in some slight modifications of procedures for assigning relative weights in cases of zero volume and/or nonmonotonicity (described in detail below) from the methodology we established when we implemented the LTCH PPS in the August 30, 2002 LTCH PPS final rule. As also discussed in the FY 2008 IPPS final rule with comment when we adopted the MS-LTC-DRGs, we implemented the MS-LTC-DRGs with a 2-year transition beginning in FY 2008. For FY 2008, the first year of the transition, 50 percent of the relative weight for a MS-LTC-DRG was based on the average LTC-DRG relative weight under Version 24.0 of the LTC-DRG GROUPER. The remaining 50 percent of the relative weight was based on the MS-LTC-DRG relative weight under Version 25.0 of the MS-LTC-DRG GROUPER. In FY 2009, the MS-LTC-DRG relative weights are based on 100 percent of the MS-LTC-DRG relative weights. Accordingly, in determining the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule, there is no longer a need to include a step to calculate MS-LTC-DRG transition blended relative weights (see Step 7 in the FY 2008 IPPS final rule with comment period (72 FR 47295)). Therefore, in this proposed rule, we determined the proposed FY 2009 MS-LTC-DRG relative weights based solely on the proposed MS-LTC-DRG relative weight under proposed Version 26.0 of the MS-LTC-DRG GROUPER, which is discussed in section II.B. of the preamble of this proposed rule. Furthermore, we are proposing that we would determine the final FY 2009 MS-LTC-DRG relative weights in the final rule based on the final Version 26.0 of the MS-LTC-DRG GROUPER that will be presented in that same final rule.

Below we discuss in detail the steps for calculating the proposed FY 2009 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 Start Printed Page 23601are paid in accordance with demonstration projects that had claims in the FY 2007 MedPAR file.

Step 1—Remove statistical outliers.

The first step in the calculation of the proposed FY 2009 MS-LTC-DRG relative weights is to remove statistical outlier cases. Consistent with our historical relative weight methodology, we are proposing to continue to 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 because 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 proposed 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 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. If we were to include stays of 7 days or less in the computation of the proposed FY 2009 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. Therefore, consistent with our historical relative weight methodology, in determining the proposed FY 2009 MS-LTC-DRG relative weights, we are proposing to 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. As the next step in the calculation of the proposed FY 2009 MS-LTC-DRG relative weights, consistent with our historical relative weight methodology, we are proposing 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) in conjunction with § 412.503 for LTCH discharges occurring on or after October 1, 2008). (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.)

We would 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 nonshort-stay outlier cases. This has the effect of proportionately reducing the impact of the lower charges for the short-stay outlier cases in calculating the average charge for the 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.

Counting short-stay outlier cases as full discharges with no adjustment in determining the proposed FY 2009 MS-LTC-DRG relative weights would lower the proposed FY 2009 MS-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 are proposing to 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 2009 MS-LTC-DRG relative weights on an iterative basis.

Consistent with our historical relative weight methodology, we are proposing to calculate the proposed MS-LTC-DRG relative weights using the HSRV methodology, which is an iterative process. 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 MS-LTC-DRG, the proposed FY 2009 relative weight is calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the MS-LTC-DRG by the overall average hospital-specific relative charge value across all cases for all LTCHs. Using these recalculated MS-LTC-DRG relative weights, each LTCH's average relative weight for all of its cases (that is, its case-mix) is calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative weights by its total number of cases. The LTCH's hospital-specific relative charge values above are multiplied by these hospital-specific case-mix indexes. These hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of MS-LTC-DRG relative weights across all LTCHs. 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 2009 relative weight for proposed MS-LTC-DRGs with no LTCH cases.

As we stated above, we determine the proposed FY 2009 relative weight for each proposed MS-LTC-DRG using total Medicare allowable charges reported in the best available LTCH claims data (that is, the December 2007 update of the FY 2007 MedPAR file for this proposed rule). Of the proposed FY 2009 MS-LTC-DRGs, we identified a number of proposed MS-LTC-DRGs for which there were no LTCH cases in the database. That is, based on data from the FY 2007 MedPAR file used for this proposed rule, no patients who would have been classified to those proposed MS-LTC-DRGs were treated in LTCHs during FY 2007 and, therefore, no charge data are available for those proposed MS-LTC-DRGs. Thus, in the process of determining the proposed MS-LTC-DRG relative weights, we are unable to calculate proposed relative weights for these proposed MS-LTC-DRGs with no LTCH cases 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, consistent with our historical methodology, we are proposing to assign relative weights to each of the proposed no-volume MS-LTC-DRGs based on clinical similarity and relative costliness (with the Start Printed Page 23602exception of proposed “transplant” MS-LTC-DRGs and proposed “error” MS-LTC-DRGs as discussed below). In general, we are proposing to determine proposed FY 2009 relative weights for the proposed MS-LTC-DRGs with no LTCH cases in the FY 2007 MedPAR file used in this proposed rule (that is, proposed “no-volume MS-LTC-DRGs) by cross-walking each proposed no-volume MS-LTC-DRG to another proposed MS-LTC-DRG with a proposed relative weight (determined in accordance with the proposed methodology described above). Then, under our proposed methodology presented in this proposed rule, the proposed “no-volume” MS-LTC-DRG would be assigned the same proposed relative weight of the proposed MS-LTC-DRG to which it would be cross-walked (as described in greater detail below). As noted above, we are proposing to make a modification to our methodology for determining proposed relative weights for MS-LTC-DRGs with no LTCH cases in this proposed rule, which is discussed in greater detail below. As also noted above, even where we are not proposing changes to our existing methodology, we are taking this opportunity to refine our description to more precisely explain our proposed methodology for determining the MS-LTC-DRG relative weights in this proposed rule.

Specifically, in this proposed rule, we are proposing to determine the relative weight for each proposed MS-LTC-DRG using total Medicare allowable charges reported in the December 2007 update of the FY 2007 MedPAR file. Of the 746 proposed MS-LTC-DRGs for FY 2009, we identified 203 proposed MS-LTC-DRGs for which there were no LTCH cases in the database (including the 8 proposed “transplant” MS-LTC-DRGs and 2 proposed “error” MS-LTC-DRGs). For this proposed rule, as noted above, we are proposing to assign proposed relative weights for each of the 203 proposed no-volume MS-LTC-DRGs (with the exception of the 8 proposed “transplant” proposed MS-LTC-DRGs and the 2 proposed “error” MS-LTC-DRGs, which are discussed below) based on clinical similarity and relative costliness to one of the remaining 543 (746 − 203 = 543) proposed MS-LTC-DRGs for which we are able to determine relative weights, based on FY 2007 LTCH claims data. (For the remainder of this discussion, we refer to one of the 543 proposed MS-LTC-DRGs for which we are able to determine relative weight as the proposed “cross-walked” MS-LTC-DRG.) Then we are proposing to assign the proposed no-volume MS-LTC-DRG the proposed relative weight of the proposed cross-walked MS-LTC-DRG. This proposed approach differs from the one we used to determine the FY 2008 MS-LTC-DRG relative weights when there were no LTCH cases (see 72 FR 47290). Specifically, in determining the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment period, if the no volume MS-LTC-DRG was cross-walked to a MS-LTC-DRG that had 25 or more cases and, therefore, was not in a low-volume quintile, we assigned the relative weight of a quintile to a no-volume MS-LTC-DRG (rather than assigning the relative weight of the cross-walked MS-LTC-DRG). While we believe this approach would result in appropriate LTCH PPS payments (because it is consistent with our methodology for determining relative weights for MS-LTC-DRGs that have a low volume of LTCH cases (which is discussed above in section II.I.3.e. of this preamble)), upon further review during the development of the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule, we now believe that proposing to assign the proposed relative weight of the proposed cross-walked MS-LTC-DRG to the proposed no-volume MS-LTC-DRG would result in more appropriate LTCH PPS payments because those cases generally require equivalent relative resource (and therefore should generally have the same LTCH PPS payment). The relative weight of each MS-LTC-DRG should reflect relative resource of the LTCH cases grouped to that MS-LTC-DRG. Because the proposed no-volume MS-LTC-DRGs would be cross-walked to other proposed MS-LTC-DRGs based on clinical similarity and relative costliness, which usually require equivalent relative resource use, we believe that assigning the proposed no-volume MS-LTC-DRG the proposed relative weight of the proposed cross-walked MS-LTC-DRG would result in appropriate LTCH PPS payments. (As explained below in Step 6, when necessary, we are proposing to make adjustments to account for nonmonotonicity.)

Our proposed methodology for determining the proposed relative weights for the proposed no-volume MS-LTC-DRGs is as follows: We cross-walk the proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG for which there are LTCH cases in the FY 2007 MedPAR file and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as 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. We then assign the proposed relative weight of the proposed cross-walked MS-LTC-DRG as the proposed relative weight for the proposed no-volume MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) would have the same proposed relative weight. We note that if the proposed cross-walked MS-LTC-DRG had 25 cases or more, its proposed relative weight, which was calculated using the proposed methodology described in steps 1 through 4 above, would be assigned to the proposed no-volume MS-LTC-DRG as well. Similarly, if the proposed MS-LTC-DRG to which the proposed no-volume MS-LTC-DRG is cross-walked has 24 or less cases, and therefore was designated to one of the proposed low-volume quintiles for purposes of determining the proposed relative weights, we would assign the proposed relative weight of the applicable proposed low-volume quintile to the proposed no-volume MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) would have the same proposed relative weight. (As we noted above, in the infrequent case where nonmonotonicity involving a proposed no-volume MS-LTC-DRG results, additional measures as described in Step 6 would be required in order to maintain monotonically increasing relative weights.)

For this proposed rule, a list of the proposed no-volume FY 2009 MS-LTC-DRGs and the proposed FY 2009 MS-LTC-DRG to which it is cross-walked (that is, the proposed cross-walked MS-LTC-DRG) is shown in the chart below. Start Printed Page 23603

Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2009

Proposed MS-LTC-DRG (Version 26.0)Proposed MS-LTC-DRG description (version 26.0)Proposed cross-walked MS-LTC-DRG
9Bone marrow transplant823
13Tracheostomy for face, mouth & neck diagnoses w/o CC/MCC12
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/MCC32
33Ventricular shunt procedures w/o CC/MCC32
34Carotid artery stent procedure w MCC37
35Carotid artery stent procedure w CC38
36Carotid artery stent procedure w/o CC/MCC38
39Extracranial procedures w/o CC/MCC38
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
76Viral meningitis w/o CC/MCC75
88Concussion w MCC89
90Concussion w/o CC/MCC89
114Orbital procedures w/o CC/MCC113
115Extraocular procedures except orbit125
117Intraocular procedures w/o CC/MCC125
123Neurological eye disorders125
129Major head & neck procedures w CC/MCC or major device146
130Major head & neck procedures w/o CC/MCC148
131Cranial/facial procedures w CC/MCC132
134Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC133
138Mouth procedures w/o CC/MCC137
139Salivary gland procedures137
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/MCC238
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/MCC238
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/o AMI/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
245AICD generator procedures244
251Perc cardiovasc proc w/o coronary artery stent or AMI w/o MCC250
258Cardiac pacemaker device replacement w MCC259
265AICD lead procedures259
285Circulatory disorders w AMI, expired w/o CC/MCC284
295Deep vein thrombophlebitis w/o CC/MCC294
296Cardiac arrest, unexplained w MCC283
297Cardiac arrest, unexplained w CC284
298Cardiac arrest, unexplained w/o CC/MCC284
332Rectal resection w MCC356
333Rectal resection w CC357
334Rectal resection w/o CC/MCC358
336Peritoneal adhesiolysis w CC335
337Peritoneal adhesiolysis w/o CC/MCC335
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
345Minor small & large bowel procedures w CC344
346Minor small & large bowel procedures w/o CC/MCC344
Start Printed Page 23604
349Anal & stomal procedures w/o CC/MCC348
350Inguinal & femoral hernia procedures w MCC348
351Inguinal & femoral hernia procedures w CC348
352Inguinal & femoral hernia procedures w/o CC/MCC348
355Hernia procedures except inguinal & femoral w/o CC/MCC354
383Uncomplicated peptic ulcer w MCC384
407Pancreas, liver & shunt procedures w/o CC/MCC406
408Biliary tract proc except only cholecyst w or w/o c.d.e. w MCC409
410Biliary tract proc except only cholecyst w or w/o c.d.e. w/o CC/MCC409
412Cholecystectomy w c.d.e. w CC411
413Cholecystectomy w c.d.e. w/o CC/MCC411
416Cholecystectomy except by laparoscope w/o c.d.e. w/o CC/MCC415
419Laparoscopic cholecystectomy w/o c.d.e. w/o CC/MCC418
420Hepatobiliary diagnostic procedures w MCC424
421Hepatobiliary diagnostic procedures w CC424
422Hepatobiliary diagnostic procedures w/o CC/MCC424
425Other hepatobiliary or pancreas O.R. procedures w/o CC/MCC424
434Cirrhosis & alcoholic hepatitis w/o CC/MCC433
453Combined anterior/posterior spinal fusion w MCC457
454Combined anterior/posterior spinal fusion w CC457
455Combined anterior/posterior spinal fusion w/o CC/MCC457
458Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w/o CC/MCC457
460Spinal fusion except cervical w/o MCC459
461Bilateral or multiple major joint procs of lower extremity w MCC480
462Bilateral or multiple major joint procs of lower extremity w/o MCC482
473Cervical spinal fusion w/o CC/MCC472
479Biopsies of musculoskeletal system & connective tissue w/o CC/MCC478
483Major joint & limb reattachment proc of upper extremity w CC/MCC480
484Major joint & limb reattachment proc of upper extremity w/o CC/MCC482
491Back & neck procedures except spinal fusion w/o CC/MCC490
499Local excision & removal int fix devices of hip & femur w/o CC/MCC498
506Major thumb or joint procedures514
508Major shoulder or elbow joint procedures w/o CC/MCC507
509Arthroscopy505
512Shoulder, elbow or forearm proc, exc major joint proc w/o CC/MCC511
517Other musculoskelet sys & conn tiss O.R. proc w/o CC/MCC516
538Sprains, strains, & dislocations of hip, pelvis & thigh w/o CC/MCC537
583Mastectomy for malignancy w/o CC/MCC582
585Breast biopsy, local excision & other breast procedures w/o CC/MCC584
614Adrenal & pituitary procedures w CC/MCC629
615Adrenal & pituitary procedures w/o CC/MCC630
620O.R. procedures for obesity w CC619
621O.R. procedures for obesity w/o CC/MCC619
627Thyroid, parathyroid & thyroglossal procedures w/o CC/MCC626
654Major bladder procedures w CC653
655Major bladder procedures w/o CC/MCC653
657Kidney & ureter procedures forneoplasm w CC656
658Kidney & ureter procedures for neoplasm w/o CC/MCC656
664Minor bladder procedures w/o CC/MCC663
667Prostatectomy w/o CC/MCC666
670Transurethral procedures w/o CC/MCC669
672Urethral procedures w/o CC/MCC671
675Other kidney & urinary tract procedures w/o CC/MCC674
691Urinary stones w esw lithotripsy w CC/MCC694
692Urinary stones w esw lithotripsy w/o CC/MCC694
697Urethral stricture688
707Major male pelvic procedures w CC/MCC660
708Major male pelvic procedures w/o CC/MCC661
710Penis procedures w/o CC/MCC709
712Testes procedures w/o CC/MCC711
714Transurethral prostatectomy w/o CC/MCC713
715Other male reproductive system O.R. proc for malignancy w CC/MCC717
716Other male reproductive system O.R. proc for malignancy w/o CC/MCC717
718Other male reproductive system O.R. proc exc malignancy w/o CC/MCC717
724Malignancy, male reproductive system w/o CC/MCC723
734Pelvic evisceration, rad hysterectomy & rad vulvectomy w CC/MCC717
735Pelvic evisceration, rad hysterectomy & rad vulvectomy w/o CC/MCC717
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
Start Printed Page 23605
740Uterine, adnexa proc for non-ovarian/adnexal malig w CC739
741Uterine, adnexa proc for non-ovarian/adnexal malig w/o CC/MCC739
742Uterine & adnexa proc for non-malignancy w CC/MCC755
743Uterine & adnexa proc for non-malignancy w/o CC/MCC756
745D&C, conization, laparascopy & tubal interruption w/o CC/MCC744
747Vagina, cervix & vulva procedures w/o CC/MCC746
748Female reproductive system reconstructive procedures749
750Other female reproductive system O.R. procedures w/o CC/MCC749
760Menstrual & other female reproductive system disorders w CC/MCC744
761Menstrual & other female reproductive system disorders w/o CC/MCC744
765Cesarean section w CC/MCC744
766Cesarean section w/o CC/MCC744
767Vaginal delivery w sterilization &/or D&C744
768Vaginal delivery w O.R. proc except steril &/or D&C744
769Postpartum & post abortion diagnoses w O.R. procedure744
770Abortion w D&C, aspiration curettage or hysterotomy744
774Vaginal delivery w complicating diagnoses744
775Vaginal delivery w/o complicating diagnoses744
776Postpartum & post abortion diagnoses w/o O.R. procedure744
777Ectopic pregnancy744
778Threatened abortion759
779Abortion w/o D&C759
780False labor759
782Other antepartum diagnoses w/o medical complications781
789Neonates, died or transferred to another acute care facility781
790Extreme immaturity or respiratory distress syndrome, neonate781
791Prematurity w major problems781
792Prematurity w/o major problems781
793Full term neonate w major problems781
794Neonate w other significant problems781
795Normal newborn781
799Splenectomy w MCC800
801Splenectomy w/o CC/MCC800
803Other O.R. proc of the blood & blood forming organs w CC802
804Other O.R. proc of the blood & blood forming organs w/o CC/MCC802
820Lymphoma & leukemia w major O.R. procedure w MCC823
821Lymphoma & leukemia w major O.R. procedure w CC824
822Lymphoma & leukemia w major O.R. procedure w/o CC/MCC824
825Lymphoma & non-acute leukemia w other O.R. proc w/o CC/MCC824
828Myeloprolif disord or poorly diff neopl w maj O.R. proc w/o CC/MCC827
830Myeloprolif disord or poorly diff neopl w other O.R. proc w/o CC/MCC829
837Chemo w acute leukemia as sdx or w high dose chemo agent w MCC829
838Chemo w acute leukemia as sdx or w high dose chemo agent w CC829
839Chemo w acute leukemia as sdx or w high dose chemo agent w/o CC/MCC829
848Chemotherapy w/o acute leukemia as secondary diagnosis w/o CC/MCC847
887Other mental disorder diagnoses881
894Alcohol/drug abuse or dependence, left ama881
915Allergic reactions w MCC918
916Allergic reactions w/o MCC918
955Craniotomy for multiple significant trauma26
956Limb reattachment, hip & femur proc for multiple significant trauma482
959Other O.R. procedures for multiple significant trauma w/o CC/MCC958
986Prostatic O.R. procedure unrelated to principal diagnosis w/o CC/MCC985

To illustrate this methodology for determining the proposed relative weights for the proposed MS-LTC-DRGs with no LTCH cases, we are providing the following example, which refers to the proposed no-volume MS-LTC-DRGs crosswalk information for FY 2009 provided in the chart above.

Example: There were no cases in the FY 2007 MedPAR file used for this proposed rule for proposed MS-LTC-DRG 61 (Acute ischemic stroke w use of thrombolytic agent w MCC). We determined that MS-LTC-DRG 70 (Nonspecific cebrovascular disorders w MCC) is similar clinically and based on resource use to proposed MS-LTC-DRG 61. Therefore, we are proposing to assign the same proposed relative weight of proposed MS-LTC-DRG 70 of 0.8718 for FY 2009 to proposed MS-LTC-DRG 61 (Table 11 of the Addendum of this proposed rule).

Furthermore, for FY 2009, consistent with our historical relative weight methodology, we are proposing to establish MS-LTC-DRG relative weights of 0.0000 for the following proposed transplant MS-LTC-DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG 1); Heart Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 5); Start Printed Page 23606Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8); Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG 652). 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 more than 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 MS-LTC-DRGs affected. At the present time, we would only include these eight 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.

Step 6—Adjust the proposed FY 2009 MS-LTC-DRG relative weights to account for nonmonotonically increasing relative weights.

As discussed in section II.B. of the preamble of this proposed rule, the MS-DRGs (used under the IPPS) on which the 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 those base MS-LTC-DRGs that are split into either two or three severity levels, cases classified into the “without CC/MCC” MS-LTC-DRG are expected to have a lower resource use (and lower costs) than the “with CC/MCC” MS-LTC-DRG (in the case of a two-level split) or the “with CC” and “with MCC” MS-LTC-DRGs (in the case of a three-level split). 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 relative weights do not increase (that is, if within a base MS-LTC-DRG, a MS-LTC-DRG with MCC has a lower relative weight than one with CC, or the 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, in general, we are proposing to combine proposed MS-LTC-DRG severity levels within a base MS-LTC-DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. In determining the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule, in general, we are proposing to use the same methodology to adjust for nonmonotonicity that we used to determine the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment (72 FR 47293 through 47295). However, as noted above, we are taking this opportunity to refine our description to more precisely explain our methodology for determining the MS-LTC-DRG relative weights in this proposed rule. Specifically, in determining the proposed FY 2009 MS-LTC-DRG relative weights in this proposed rule, under each of the example scenarios provided below, we would combine severity levels within a base MS-LTC-DRG as follows:

The first example of nonmonotonically increasing relative weights for a MS-LTC-DRG pertains to a base MS-LTC-DRG with a three-level split and each of the three levels has 25 or more LTCH cases and, therefore, none of those MS-LTC-DRGs is assigned to one of the five low-volume quintiles. In this proposed rule, if nonmonotonicity is detected in the proposed relative weights of the proposed MS-LTC-DRGs in adjacent severity levels (for example, the proposed 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 would combine the nonmonotonic adjacent proposed MS-LTC-DRGs and re-determine a proposed relative weight based on the case-weighted average of the combined LTCH cases of the nonmonotonic proposed MS-LTC-DRGs. The case-weighted average charge is calculated by dividing the total charges for all LTCH cases in both severity levels by the total number of LTCH cases for both proposed MS-LTC-DRGs. The same proposed relative weight would be assigned to both affected levels of the base MS-LTC-DRG. If nonmonotonicity remains an issue because the above process results in a proposed relative weight that is still nonmonotonic to the remaining proposed MS-LTC-DRG relative weight within the base MS-LTC-DRG, we would combine all three of the severity levels to redetermine the proposed relative weights based on the case-weighted average charge of the combined severity levels. This same proposed relative weight is then assigned to each of the proposed MS-LTC-DRGs in that base MS-LTC-DRG.

A second example of nonmonotonically increasing relative weights for a base MS-LTC-DRG pertains to the situation where there are three severity levels and one or more of the severity levels within a base MS-LTC-DRG has less than 25 LTCH cases (that is, low-volume). In this proposed rule, 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 the proposed relative weight of the applicable proposed low-volume quintile(s)), we would combine the data for the cases in the two adjacent proposed low-volume MS-LTC-DRGs for the purpose of determining a proposed relative weight. If the combination results in at least 25 cases, Start Printed Page 23607we re-determine one proposed relative weight based on the case-weighted average charge of the combined severity levels and assign this same proposed relative weight to each of the severity levels. If the combination results in less than 25 cases, based on the case-weighted average charge of the combined proposed low-volume MS-LTC-DRGs, both proposed MS-LTC-DRGs would be assigned to the appropriate proposed low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on the case-weighted average charge of the combined proposed low-volume MS-LTC-DRGs. Then the proposed relative weight of the affected proposed low-volume quintile would be redetermined and that proposed relative weight would be assigned to each of the affected severity levels (and all of the proposed MS-LTC-DRGs in the affected proposed low-volume quintile). If nonmonotonicity persists, we would combine all three severity levels and redetermine one proposed relative weight based on the case-weighted average charge of the combined severity levels and this same proposed relative weight would be assigned to each of the three levels.

Similarly, in nonmonotonic cases where the middle level has 25 cases or more but either or both of the lowest or highest severity level has less than 25 cases (that is, low volume), we would combine the nonmonotonic proposed low-volume MS-LTC-DRG with the middle level proposed MS-LTC-DRG of the base MS-LTC-DRG. We would redetermine one proposed relative weight based on the case-weighted average charge of the combined severity levels and assign this same proposed relative weight to each of the affected proposed MS-LTC-DRGs. If nonmonotonicity persists, we would combine all three levels for the purpose of redetermining a proposed relative weight based on the case-weighted average charge of the combined severity levels, and assign that proposed relative weight to each of the three severity levels.

In the case where all three severity levels in the base MS-LTC-DRGs are proposed low-volume MS-LTC-DRGs and two of the severity levels are nonmonotonic in relation to each other, we would combine the two adjacent nonmonotonic severity levels. If that combination results in less than 25 cases, both proposed low-volume MS-LTC-DRGs would be assigned to the appropriate proposed low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on the case-weighted average charge of the combined proposed low-volume MS-LTC-DRGs. Then the proposed relative weight of the affected proposed low-volume quintile would be redetermined and that proposed relative weight would be assigned to each of the affected severity levels (and all of the proposed MS-LTC-DRGs in the affected proposed low-volume quintile). If the nonmonotonicity persists, we would combine all three levels of that base MS-LTC-DRG for the purpose of redetermining a proposed relative weight based on the case-weighted average charge of the combined severity levels, and assign that proposed relative weight to each of the three severity levels. If that combination of all three severity levels results in less than 25 cases, we would assign that “combined” base MS-LTC-DRG to the appropriate proposed low-volume quintile based on the case-weighted average charge of the combined proposed low-volume MS-LTC-DRGs. Then the proposed relative weight of the affected proposed low-volume quintile would be redetermined and that proposed relative weight would be assigned to each of the affected severity levels (and all of the proposed MS-LTC-DRGs in the affected proposed low-volume quintile).

Another example of nonmonotonicity involves a base MS-LTC-DRG with three severity levels where at least one of the severity levels has no cases. As discussed above in greater detail in Step 5, based on resource use intensity and clinical similarity, we propose to cross-walk a proposed no-volume MS-LTC-DRG to a proposed MS-LTC-DRG that has at least one case. Under our proposed methodology for the treatment of proposed no-volume MS-LTC-DRGs, the proposed no-volume MS-LTC-DRG would be assigned the same proposed relative weight as the proposed MS-LTC-DRG to which the proposed no-volume MS-LTC-DRG is cross-walked. For many proposed no-volume MS-LTC-DRGs, as shown in the chart above in Step 5, the application of our proposed methodology results in a proposed cross-walk MS-LTC-DRG that is the adjacent severity level in the same base MS-LTC-DRG. Consequently, in most instances, the proposed no-volume MS-LTC-DRG and the adjacent proposed MS-LTC-DRG to which it is cross-walked would not result in nonmonotonicity because both of these severity levels would have the same proposed relative weight. (In this proposed rule, under our proposed methodology for the treatment of proposed no-volume MS-LTC-DRGs, in the case where the proposed no-volume MS-LTC-DRG is either the highest or lowest severity level, the proposed cross-walk MS-LTC-DRG would be the middle level (“with CC”) within the same base MS-LTC-DRG, and therefore the proposed no-volume MS-LTC-DRG (either the “with MCC” or the “without CC/MCC”) and the proposed cross-walk MS-LTC-DRG (the “with CC”) would have the same proposed relative weight. Consequently, no adjustment for monotonicity would be necessary.) However, if our proposed methodology for determining proposed relative weights for proposed no-volume MS-LTC-DRGs results in nonmonotonicity with the third severity level in the base-MS-LTC-DRG, all three severity levels would be combined for the purpose of redetermining one proposed relative weight based on the case-weighted average charge of the combined severity levels. This same proposed relative weight would be assigned to each of the three severity levels in the base MS-LTC-DRG.

Thus far in the discussion, we have presented examples of nonmonotonicity in a base MS-LTC-DRG that has three severity levels. We would apply the same process where the base MS-LTC-DRG contains only two severity levels. For example, if nonmonotonicity occurs in a base MS-LTC-DRG with two severity levels (that is, the proposed relative weight of the higher severity level is less than the lower severity level), where both of the proposed MS-LTC-DRGs have at least 25 cases or where one or both of the proposed MS-LTC-DRGs is low volume (that is, less than 25 cases), we would combine the two proposed MS-LTC-DRGs of that base MS-LTC-DRG for the purpose of redetermining a proposed relative weight based on the combined case-weighted average charge for both severity levels. This same proposed relative weight would be assigned to each of the two severity levels in the base MS-LTC-DRG. Specifically, if the combination of the two severity levels would result in at least 25 cases, we would redetermine one proposed relative weight based on the case-weighted average charge and assign that proposed relative weight to each of the two proposed MS-LTC-DRGs. If the combination results in less than 25 cases, we would assign both proposed MS-LTC-DRGs to the appropriate proposed low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on their combined case-weighted average charge. Then the proposed relative weight of the affected proposed low-volume quintile would be redetermined and that proposed relative Start Printed Page 23608weight would be assigned to each of the affected severity levels.

Step 7—Calculate the proposed FY 2009 budget neutrality factor.

As we established in the RY 2008 LTCH PPS final rule (72 FR 26882), 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, beginning with the MS-LTC-DRG update for FY 2008, the annual update to the MS-LTC-DRG classifications and relative weights will 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 MS-LTC-DRG classification and relative weight changes. Specifically, in that same final rule, we established under § 412.517(b) that the annual update to the MS-LTC-DRG classifications and relative weights be done in a budget neutral manner. For a detailed discussion on the establishment of the requirement to update the MS-LTC-DRG classifications and relative weights in a budget neutral manner, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 26880 through 26884). Updating the MS-LTC-DRGs in a budget neutral manner results in an annual update to the individual MS-LTC-DRG classifications and relative weights based on the most recent available data to reflect changes in relative LTCH resource use. To accomplish this, the MS-LTC-DRG relative weights are uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that provision, we are proposing to update the MS-LTC-DRG classifications and relative weights for FY 2009 based on the most recent available data and include a proposed budget neutrality adjustment that would be applied in determining the proposed MS-LTC-DRG relative weights.

To ensure budget neutrality in updating the proposed MS-LTC-DRG classifications and proposed relative weights under § 412.517(b), consistent with the budget neutrality methodology we established in the FY 2008 IPPS final rule with comment period (72 FR 47295 through 47296), in determining the proposed budget neutrality adjustment for FY 2009 in this proposed rule, we are proposing to use a method that is similar to the methodology used under the IPPS. Specifically, for FY 2009, 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 those relative weights to ensure that estimated payments are not influenced by changes in the composition of case types or the changes being proposed to the classification system. That is, the proposed 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 proposed normalization factor for FY 2009, we would use the following steps: (1) We use the most recent available claims data (FY 2007) and the proposed MS-LTC-DRG relative weights (determined above in Steps 1 through 6 above) to calculate the average CMI; (2) we group the same claims data (FY 2007) using the FY 2008 GROUPER (Version 25.0) and FY 2008 relative weights (established in the FY 2008 IPPS final rule with comment period (72 FR 47295 through 47296)) and calculate the average CMI; and (3), we compute the ratio of these average CMIs by dividing the average CMI determined in step (2) by the average CMI determined in step (1). In determining the proposed MS-LTC-DRG relative weights for FY 2009, based on the latest available LTCH claims data, the normalization factor is estimated as 1.038266, which would be applied in determining each proposed MS-LTC-DRG relative weight. That is, each proposed MS-LTC-DRG relative weight would be multiplied by 1.038266 in the first step of the budget neutrality process. Accordingly, the proposed relative weights in Table 11 in the Addendum of this proposed rule reflect this proposed normalization factor. We also ensure that estimated aggregate LTCH PPS payments (based on the most recent available LTCH claims data) after reclassification and recalibration (the new proposed FY 2009 MS-LTC-DRG classifications and relative weights) are equal to estimated aggregate LTCH PPS payments (for the same most recent available LTCH claims data) before reclassification and recalibration (the existing FY 2008 MS-DRG classifications and relative weights). Therefore, we would calculate the proposed budget neutrality adjustment factor by simulating estimated total payments under both sets of GROUPERs and relative weights using current LTCH PPS payment policies (RY 2008) and the most recent available claims data (from the FY 2007 MedPAR file).

Accordingly, we are proposing to use RY 2008 LTCH PPS rates and policies in determining the proposed FY 2009 budget neutrality adjustment in this proposed rule, using the following steps: (1) We simulate estimated total payments using the normalized proposed relative weights under GROUPER Version 26.0 (as described above); (2) we simulate estimated total payments using the FY 2008 GROUPER (Version 25.0) and FY 2008 MS-LTC-DRG relative weights (as established in the FY 2008 IPPS final rule (72 FR 47295 through 47296)); (3) we calculate the ratio of these estimated total payments by dividing the estimated total payments determined in step (2) by the estimated total payments determined in step (1). Then, each of the normalized proposed relative weights is multiplied by the proposed budget neutrality factor to determine the budget neutral proposed relative weight for each proposed MS-LTC-DRG.

Accordingly, in determining the proposed MS-LTC-DRG relative weights for FY 2009 in this proposed rule, based on the most recent available LTCH claims data, we are proposing a budget neutrality factor of 0.99965, which would be applied to the normalized proposed relative weights (described above). The proposed FY 2009 MS-LTC-DRG relative weights in Table 11 in the Addendum of this proposed rule reflect this proposed budget neutrality factor. Furthermore, we expect that we will have established payments rates and policies for RY 2009 prior to the development of the FY 2009 IPPS final rule. Therefore, for purposes of determining the FY 2009 budget neutrality factor in the final rule, we are proposing that we would simulate estimated total payments using the most recent LTCH PPS payment policies and LTCH claims data that are available at that time.

Table 11 in the Addendum to this proposed rule lists the proposed MS-LTC-DRGs and their respective proposed budget neutral relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (used in the determination of short-stay outlier payments under § 412.529) for FY 2009.

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

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies Start Printed Page 23609that 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, 42CFR412.87(b)(2) states that a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the DRG weights through recalibration. Typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) 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 2007 are used to calculate the FY 2009 DRG weights in this proposed rule. Section 412.87(b)(2) of our existing regulations 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 on the date on which the medical service or technology received FDA approval or clearance. (We note that, for purposes of this section of the proposed rule, we refer to both FDA approval and FDA clearance as FDA “approval.”) However, in some cases, initially there may be no Medicare data available for the new service or technology following FDA approval. For example, the newness period could extend beyond the 2-year to 3-year period after FDA approval is received in cases where the product initially was generally unavailable to Medicare patients following FDA approval, such as in the case of a national noncoverage determination, or if 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 following 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 medical service or technology is no longer eligible for special add-on payment for new medical services or technologies (§ 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2007 and entered the market at that time may be eligible to receive add-on payments as a new technology for discharges occurring before October 1, 2010 (the start of FY 2011). Because the FY 2011 DRG weights would be calculated using FY 2009 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2011 DRG weights. Therefore, the new technology would no longer be eligible to receive add-on payments as a new technology for discharges occurring in FY 2011 and thereafter.

Section 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess whether a new technology would be inadequately paid under the applicable DRG-prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. 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 converted 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 more than one DRG).

However, section 503(b)(1) of Pub. L. 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, CMS will apply “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 one standard deviation for the diagnosis-related group involved.” (We refer readers 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 in section XIX. of the interim final rule with comment period published in the Federal Register on November 27, 2007, contained the final thresholds that are being used to evaluate applications for new technology add-on payments for FY 2009 (72 FR 66888 through 66892). An applicant must demonstrate that the cost threshold is met using information from inpatient hospital claims.

With regard to 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 addressed this issue in the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917). 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 requirements by discussing how the HIPAA Privacy Rule permitted providers to share with health plans information needed to ensure correct payment, if they had 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 protected health information for treatment, payment, or health care operations, and expressly permits such entities to use or to disclose protected health information for any of these purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and 164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually Identifiable Health Information published in the Federal Start Printed Page 23610Register on August 14, 2002, for a full discussion of changes in consent requirements.)

Section 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. (We refer readers to the September 7, 2001 final rule for a complete discussion of this criterion (66 FR 46902).)

The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, if the costs of the discharge (determined by applying CCRs as described in § 412.84(h)) exceed the full DRG payment, Medicare will make an add-on payment equal to the lesser of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for the case including the new technology exceed Medicare's payment) or (2) 50 percent of the difference between the full DRG payment and the hospital's estimated cost for the case. If the amount by which the actual costs of a new medical service or technology case exceeds the full DRG payment (including payments for IME and DSH, but excluding outlier payments) by more than the 50-percent marginal cost factor, Medicare payment is limited to the full DRG payment plus 50 percent of the estimated costs of the new technology.

Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year at the same time we estimated the payment effect of changes to the DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. However, section 503(d)(2) of Pub. L. 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, add-on payments for new medical services or technologies for FY 2005 and later years have not been budget neutral.

Applicants for add-on payments for new medical services or technologies for FY 2010 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be available on our Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​08_​newtech.asp#TopOfPage. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2010, the Web site will also list the tracking forms completed by each applicant.

The Council on Technology and Innovation (CTI) at CMS oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes for Medicare with respect to new technologies and procedures, including new drug therapies, as well as promoting the exchange of information on new technologies between CMS and other entities. The CTI, composed of senior CMS staff and clinicians, was established under section 942(a) of Pub. L. 108-173. It is co-chaired by the Director of the Center for Medicare Management (CMM), who is also designated as the CTI's Executive Coordinator, and the Director of the Office of Clinical Standards and Quality (OCSQ).

The specific processes for coverage, coding, and payment are implemented by CMM, OCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements rather than replaces these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care, and at the same time to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

The agency plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve understanding of CMS processes for coverage, coding, and payment and how to access them, the CTI is developing an “innovator's guide” to these processes. This guide will, for example, outline regulation cycles and application deadlines. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on CMS's Web site, in a user-friendly format. In the meantime, we invite any product developers with specific issues involving the agency to contact us early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide information on CTI activities to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts, and other stakeholders with useful information on CTI initiatives. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov or from the “Contact Us” section of the CTI home page (http://www.cms.hhs.gov/​CouncilonTechInnov/​).

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

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of Pub. L. 108-173, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement or advancement. The process for evaluating new medical service and technology applications requires the Secretary to—Start Printed Page 23611

  • Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries;
  • Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending;
  • Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement; and
  • Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2009 before publication of the FY 2009 IPPS proposed rule, we published a notice in the Federal Register on December 28, 2007 (72 FR 73845 through 73847), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 21, 2008. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for each of the FY 2009 new medical service and technology add-on payment applications before the publication of the FY 2009 IPPS proposed rule.

Approximately 70 individuals attended the town hall meeting in person, while approximately 20 additional participants listened over an open telephone line. Each of the four FY 2009 applicants presented information on its technology, including a focused discussion of data reflecting the substantial clinical improvement aspect of the technology. We received two comments during the town hall meeting, which are summarized below. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on each applicant's application, in our evaluation of the new technology add-on applications for FY 2009 in this proposed rule. We have summarized these comments below or, if applicable, indicated that no comments were received at the end of the discussion of each application.

Comment: One commenter addressed the substantial clinical improvement criterion. A medical device association stated that CMS' interpretation of the statutory criteria for new technology add-on payments is narrow and makes it difficult for potential applicants, especially small manufacturing companies, to qualify for new technology add-on payments. The commenter urged CMS to “deem a device to satisfy the substantial clinical improvement criteria if it was granted a humanitarian device exemption or priority review based on the fact that it represents breakthrough technologies, which offer significant advantages over existing approved alternatives, for which no alternatives exist, or the availability of which is in the best interests of the patients.” In addition, the commenter remarked that this process would simplify CMS' evaluation of applications for new technology add-on payments and would promote access to innovative treatments, as intended by Congress. Although the commenter also made remarks that were unrelated to substantial clinical improvement, because the purpose of the town hall meeting was specifically to discuss substantial clinical improvement of pending new technology applications, those comments are not summarized in this proposed rule.

Response: With respect to the comment that CMS has a narrow interpretation of the statute that makes it difficult for applicants to meet the statutory criteria for a new technology add-on payment, we note that we have already specifically addressed the issue in the past (71 FR 47997 and 72 FR 47301). In addition, we addressed the comment concerning automatically deeming technologies granted a humanitarian device exemption (HDE) at 72 FR 47302. Further, because the purpose of the new technology town hall meeting was to discuss substantial clinical improvement of pending applications, we are not providing a response to the unrelated comments in this proposed rule.

Comment: One commenter, a medical technology association, submitted comments in reference to the MS-DRGs and the need to account for complexity as well as severity in making refinements to the DRG classification system. The commenter also made the following comments: CMS should raise the new technology marginal cost factor, adjust the newness policy to begin with the issuance of an ICD-9-CM code instead of the FDA approval date, provide access to the quarterly MedPAR updates, and allow for the use of external data for determining new technology payments (when CMS determines that the external data are unbiased and valid).

Response: Section 1886(d)(5)(K)(viii) of the Act requires that CMS accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement. Because the comments above are not related to the substantial clinical improvement criterion of pending applications, we are not providing a response to them in this proposed rule.

3. FY 2009 Status of Technologies Approved for FY 2008 Add-On Payments

We did not approve any applications for new technology add-on payments for FY 2008. For additional information, refer to the FY 2008 IPPS final rule with comment period (72 FR 47305 through 47307).

4. FY 2009 Applications for New Technology Add-On Payments

We received four applications to be considered for new technology add-on payment for FY 2009. A discussion of each of these applications is presented below. We note that, in the past, we have considered applications that had not yet received FDA approval, but were anticipating FDA approval prior to publication of the IPPS final rule. In such cases, we generally provide a more limited discussion of those technologies in the proposed rule because it is not known if these technologies will meet the newness criterion in time for us to conduct a complete analysis in the final rule. This year, three out of four applicants do not yet have FDA approval. Consequently, we have presented a limited analysis of them in this proposed rule.

a. CardioWestTM Temporary Total Artificial Heart System (CardioWestTM TAH-t)

SynCardia Systems, Inc. submitted an application for approval of the CardioWestTM temporary Total Artificial Heart system (TAH-t) for new technology add-on payments for FY 2009. The TAH-t is a technology that is used as a bridge to heart transplant device for heart transplant-eligible patients with end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of blood per minute. This high level of perfusion helps improve hemodynamic function in patients, thus making them better heart transplant candidates. Start Printed Page 23612

The TAH-t was approved by the FDA on October 15, 2004, for use as a bridge to transplant device in cardiac transplant-eligible candidates at risk of imminent death from biventricular failure. The TAH-t is intended to be used in hospital inpatients. Some of the FDA's post-approval requirements include that the manufacturer agree to provide a post-approval study demonstrating that the success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who will be followed up to 1 year, including (but not limited to) the following endpoints; survival to transplant, adverse events, and device malfunction.

Presently, Medicare does not cover artificial heart devices, including the TAH-t. However, on February 01, 2008, CMS proposed to reverse a national noncoverage determination that would extend coverage to this technology within the confines of an FDA-approved clinical study. (To view the proposed National Coverage Determination (NCD), we refer readers to the CMS Web site at http://www.cms.hhs.gov/​mcd/​viewdraftdecisionmemo.asp?​from2=​viewdraftdecisionmemo.asp&​id=​211&​.) Should this proposal be finalized, it would become effective on May 01, 2008. Because Medicare's existing coverage policy with respect to this device has precluded it from being paid for by Medicare, we would not expect the costs associated with this technology to be currently reflected in the data used to determine MS-DRGs relative weights. As we have indicated in the past, although we generally believe that the newness period would begin on the date that FDA approval was granted, in cases where the applicant can demonstrate a documented delay in market availability subsequent to FDA approval, we would consider delaying the start of the newness period. This technology's situation represents one such case. We also note that section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years “beginning on the date on which an inpatient hospital code is issued with respect to the service or technology.” Furthermore, the statute specifies that the term “inpatient hospital code” means any code that is used with respect to inpatient hospital services for which payment may be made under the IPPS and includes ICD-9-CM codes and any subsequent revisions. Although the TAH-t has been described by the ICD-9-CM code(s) (described below in the cost threshold discussion) since the time of its FDA approval, because the TAH-t has not been covered under the Medicare program (and, therefore, no Medicare payment has been made for this technology), this code is not “used with respect to inpatient hospital services for which payment” is made under the IPPS, and thus we assume that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS-DRG weights. For this reason, despite its FDA approval date, it appears that this technology would still be eligible to be considered “new” for purposes of the new technology add-on payment if and when the proposal to reverse the national noncoverage determination concerning this technology is finalized. Therefore, based on this information, it appears that the TAH-t would meet the newness criterion on the date that Medicare coverage begins, should the proposed NCD be finalized.

In an effort to demonstrate that TAH-t would meet the cost criterion, the applicant submitted data based on 28 actual cases of the TAH-t. The data included 6 cases (or 21.4 percent of cases) from 2005, 13 cases (or 46.5 percent of cases) from 2006, 7 cases (or 25 percent of cases) from 2007, and 2 cases (or 7.1 percent of cases) from 2008. Currently, cases involving the TAH-t are assigned to MS-DRG 215 (Other Heart Assist System Implant). As discussed below in this section, we are proposing to remove the TAH-t from MS-DRG 215 and reassign the TAH-t to MS-DRGs 001 (Heart Transplant or Implant of Heart Assist System with MCC) and 002 (Heart Transplant or Implant of Heart Assist System without MCC). Therefore, to determine if the technology meets the cost criterion, it is appropriate to compare the average standardized charge per case to the thresholds for MS-DRGs 001, 002, and 215 included in Table 10 of the November 27, 2007 interim final rule (72 FR 66888 through 66889). The thresholds for MS-DRGs 001, 002, and 215 from Table 10 are $345,031, $178,142, and $151,824, respectively. Based on the 28 cases the applicant submitted, the average standardized charge per case was $731,632. Because the average standardized charge per case is much greater than the thresholds cited above for MS-DRG 215 (and MS-DRGs 001 and 002, should the proposal to reassign the TAH-t be finalized), the applicant asserted that the TAH-t meets the cost criterion whether or not the costs were analyzed by using either a case-weighted threshold or case-weighted standardized charge per case.

In addition to analyzing the costs of actual cases involving the TAH-t, the applicant searched the FY 2006 MedPAR file to identify cases involving patients who would have potentially been eligible to receive the TAH-t. The applicant submitted three different MedPAR analyses. The first MedPAR analysis involved a search for cases using ICD-9-CM diagnosis code 428.0 (Congestive heart failure) in combination with ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist system), and an inpatient hospital length of stay greater than or equal to 60 days. The applicant found two cases that met this criterion, which had an average standardized charge per case of $821,522. The second MedPAR analysis searched for cases with ICD-9-CM diagnosis code 428.0 (Congestive heart failure) and one or more of the following ICD-9-CM procedure codes: 37.51 (Heart transplant), 37.52 (Implantation of total heart replacement system), 37.64 (Removal of heart assist system), 37.66 (Insertion of implantable heart assist system), or 37.68 (Insertion of percutaneous external heart assist device), and a length of stay greater than or equal to 60 days. The applicant found 144 cases that met this criterion, which had an average standardized charge per case of $841,827. The final MedPAR analysis searched for cases with ICD-9-CM procedure code 37.51 (Heart transplant) in combination with one of the following ICD-9-CM procedure codes: 37.52 (Implantation of total heart replacement system), 37.65 (Implantation of external heart system), or 37.66 (Insertion of implantable heart assist system). The applicant found 37 cases that met this criterion, which had an average standardized charge per case of $896,601. Because only two cases met the criterion for the first analysis, consistent with historical practice, we would not consider it to be of statistical significance and, therefore, would not rely upon it to demonstrate whether the TAH-t would meet the cost threshold. However, both of the additional analyses seem to provide an adequate number of cases to demonstrate whether the TAH-t would meet the cost threshold. We assume that none of the costs associated with this technology would be reflected in the MedPAR analyses that the applicant used to demonstrate that the technology would meet the cost criterion. We note that, under all three of the analyses the applicant performed, it identified cases that would have been eligible for the TAH-t, but did not remove charges that Start Printed Page 23613were unrelated to the TAH-t, nor did the applicant insert a proxy of charges related to the TAH-t. However, as stated above, the average standardized charge per case is much greater than any of the thresholds for MS-DRGs 001, 002, and 215. Therefore, even if the applicant were to approximate what the costs of cases eligible to receive the TAH-t would have been by removing non-TAH-t associated charges and inserting charges related to the TAH-t, it appears that the average standardized charges per case for cases eligible for the TAH-t would exceed the relevant thresholds from Table 10 (as discussed above) and would therefore appear to meet the cost criterion. We invite public comment on whether TAH-t meets the cost criterion.

As noted in section II.G. of this preamble, we are proposing to remove the TAH-t from MS-DRG 215 and reassign the TAH-t to MS-DRGs 001 and 002. As stated earlier, CMS is proposing to reverse a national noncoverage determination that would extend coverage to artificial heart devices within the confines of an FDA-approved clinical study, effective May 1, 2008. If this proposal is finalized, the MCE will require both the procedure code 37.52 (Implantation of total replacement heart system) and the diagnosis code reflecting clinical trial—V70.7 (Examination of participant in clinical trial). As we have previously mentioned, the TAH-t appears to meet the cost thresholds for MS-DRGs 001, 002, and 215. Therefore, its proposed reassignment from MS-DRG 215 to MS-DRGs 001 and 002 should have no material effect on meeting the cost thresholds in MS-DRGs 001 and 002 should the reassignment proposal be finalized.

The manufacturer states that the TAH-t is the only mechanical circulatory support device intended as a bridge-to-transplant for patients with irreversible biventricular failure. It also asserts that the TAH-t improves clinical outcomes because it has been shown to reduce mortality in patients who are otherwise in end-stage heart failure. In addition, the manufacturer claims that the TAH-t provides greater hemodynamic stability and end-organ perfusion, thus making patients who receive it better candidates for eventual heart transplant. We welcome comments from the public regarding whether the TAH-t represents a substantial clinical improvement.

We did not receive any written comments or public comments at the town hall meeting regarding the substantial clinical improvement aspects of this technology.

b. Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV)

Emphasys Medical submitted an application for new technology add-on payments for FY 2009 for the Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV). The Zephyr® EBV is intended to treat patients with emphysema by reducing volume in the diseased, hyperinflated portion of the emphysematous lung with fewer risks and complications than with more invasive surgical alternatives. Zephyr® EBV therapy involves placing small, one-way valves in the patients' airways to allow air to flow out of, but not into, the diseased portions of the lung thus reducing the hyperinflation. A typical procedure involves placing three to four valves in the target lobe using a bronchoscope, and the procedure takes approximately 20 to 40 minutes to complete. The Zephyr® EBVs are designed to be relatively easy to place, and are intended to be removable so that, unlike more risky surgical alternatives such as Lung Volume Reduction Surgery (LVRS) or Lung Transplant, the procedure has the potential to be fully reversible.

Currently, the Zephyr® EBV has yet to receive approval from the FDA, but the manufacturer indicated to CMS that it expects to receive its FDA approval in the second or third quarter of 2008. Because the technology is not yet approved by the FDA, we will limit our discussion of this technology to data that the applicant submitted, rather than make specific proposals with respect to whether the device would meet the new technology add-on criteria.

In an effort to demonstrate that the Zephyr® EBV would meet the cost criterion, the applicant searched the FY 2006 MedPAR file for cases with one of the following ICD-9-CM diagnosis codes: 492.0 (Emphysematous bleb), 492.8 (Other emphysema, NEC), or 496 (Chronic airway obstruction, NEC). Based on the diagnosis codes searched by the applicant, cases of the Zephyr® EBV would be most prevalent in MS-DRGs 190 (Chronic Obstructive Pulmonary Disease with MCC), 191 (Chronic Obstructive Pulmonary Disease with CC), and 192 (Chronic Obstructive Pulmonary Disease without CC/MCC). The applicant found 1,869 cases (or 12.8 percent of cases) in MS-DRG 190, 5,789 cases (or 39.5 percent of cases) in MS-DRG 191, and 6,995 cases (or 47.7 percent of cases) in MS-DRG 192 (which equals a total of 14,653 cases). The average standardized charge per case was $21,567 for MS-DRG 190, $15,494 for MS-DRG 191, and $11,826 for MS-DRG 192. The average standardized charge per case does not include charges related to the Zephyr® EBV; therefore, it is necessary to add the charges related to the device to the average standardized charge per case in evaluating the cost threshold criteria. Although the applicant submitted data related to the estimated cost of the Zephyr® EBV per case, the applicant noted that the cost of the device was proprietary information because the device is not yet available on the open market. The applicant estimates $23,920 in charges related to the Zephyr® EBV (based on a 100 percent charge markup of the cost of the device). In addition to case-weighting the data based on the amount of cases that the applicant found in the FY 2006 MedPAR file, the applicant case-weighted the data based on its own projections of how many Medicare cases it would expect to map to MS-DRGs 190, 191, and 192 in FY 2009. The applicant projects that, 5 percent of the cases would map to MS-DRG 190, 15 percent of the cases would map to MS-DRG 191, and 80 percent of the cases would map to MS-DRG 192. Adding the charges related to the device to the average standardized charge per case (based on the applicant's projected case distribution) resulted in a case-weighted average standardized charge per case of $36,782 ($12,862 plus $23,920). Using the thresholds published in Table 10 (72 FR 66889), the case-weighted threshold for MS-DRGs 190, 191, and 192 was $18,394. Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount, the applicant maintains that the Zephyr® EBV would meet the cost criterion. As noted above, the applicant also performed a case-weighted analysis of the data based on the 14,653 cases the applicant found in the FY 2006 MedPAR file. Based on this analysis, the applicant found that the case-weighted average standardized charge per case ($38,441 based on the 14,653 cases) exceeded the case-weighted threshold ($20,606 based on the 14,653 cases). Based on both analyses described above, it appears that the applicant would meet the cost criterion. We invite public comment on whether Zephyr® EBV meets the cost criterion.

The applicant asserts that the Zephyr® EBV is a substantial clinical improvement because it provides a new therapy along the continuum of care for patients with emphysema that offers improvement in lung function over standard medical therapy while incurring significantly less risk than more invasive treatments such as LVRS Start Printed Page 23614and lung transplant. Specifically, the applicant submitted data from the ongoing pivotal Endobronchial Valve for Emphysema Palliation (VENT) trial,[14] which compared 220 patients who received EBV treatment to 101 patients who received standard medical therapy, including bronchodilators, steroids, mucolytics, and supplemental oxygen. At 6 months, patients who received the Zephyr® EBV had an average of 7.2 percent and 5.8 percent improvement (compared to standard medical therapy) in the primary effectiveness endpoints of the Forced Expiratory Volume in 1 second test (FEV1), and the 6 Minute Walk Test (6MWT), respectively. Both results were determined by the applicant to be statistically significant. The FEV1 results were determined using the t-test parametric confidence intervals (the p value determined using the one-side t-test adjusted for unequal variance) and the 6MWT results were determined using the Mann-Whitney nonparametric confidence intervals (the p value was calculated using the one-sided Wilcoxon rank sum test). However, the data also showed that patients who received the Zephyr® EBV experienced a number of adverse events, including hemoptyis, pneumonia, respiratory failure, pneumothorax, and COPD exacerbations, as well as valve migrations and expectorations that, in some cases, required repeat bronchoscopy. The manufacturer also submitted the VENT pivotal trial 1-year follow-up data, but has requested that the data not be disclosed because it has not yet been presented publicly nor published in a peer-reviewed journal.

While CMS recognizes that the Zephyr® EBV therapy is significantly less risky than LVRS and lung transplant, we are concerned that the benefits as shown in the VENT pivotal trial may not outweigh the risks when compared with medical therapy alone. Further, we note that, according to the applicant, the Zephyr® EBV is intended for use in many patients who are ineligible for LVRS and/or lung transplant (including those too sick to undergo more invasive surgery and those with lower lobe predominant disease distribution), but that certain patients (that is, those with upper lobe predominant disease distribution) could be eligible for either surgery or the Zephyr® EBV. We welcome comments from the public on both the patient population who would be eligible for the technology, and whether the Zephyr® EBV represents a substantial clinical improvement in the treatment of patients with emphysema.

We received written comments from the manufacturer and its presenters at the town hall meeting clarifying some questions that were raised at the town hall meeting. Specifically, these commenters explained that, in general, the target population for the Zephyr® EBV device was the same population that could benefit from LVRS, and also includes some patients who were too sick to undergo surgery. The commenters also explained that patients with emphysema with more heterogeneous lung damage were more likely to benefit from the device.

We welcome public comments regarding where exactly this technology falls in the continuum of care of patients with emphysema, and for whom the risk/benefit ratio is most favorable.

c. Oxiplex®

FzioMed, Inc. submitted an application for new technology add-on payments for FY 2009 for Oxiplex®. Oxiplex® is an absorbable, viscoelastic gel made of carboxymethylcellulose (CMC) and polyethylene oxide (PEO) that is intended to be surgically implanted during a posterior discectomy, laminotomy, or laminectomy. The manufacturer asserts that the gel reduces the potential for inflammatory mediators that injure, tether, or antagonize the nerve root in the epidural space by creating an acquiescent, semi-permeable environment to protect against localized debris. These proinflammatory mediators (phospholipase A and nitric oxide), induced or extruded by intervertebral discs, may be responsible for increased pain during these procedures. The manufacturer also asserts that Oxiplex® is a unique material in that it coats tissue, such as the nerve root in the epidural space, to protect the nerve root from the effects of inflammatory mediators originating from either the nucleus pulposus, from blood derived inflammatory cells, or cytokines during the healing process.

Oxiplex® is expecting to receive premarket approval from the FDA by June 2008. Because the technology is not yet approved by the FDA, we will limit our discussion of this technology to data that the applicant submitted, rather than make specific proposals with respect to whether the device would meet the new technology add-on payment criteria.

With regard to the newness criterion, we are concerned that Oxiplex® may be substantially similar to adhesion barriers that have been on the market for several years. We also note that Oxiplex® has been marketed as an adhesion barrier in other countries outside of the United States. The manufacturer maintains that Oxiplex® is different from adhesion barriers in several ways, including chemical composition, method of action, surgical application (that is, it is applied liberally to the nerve root and surrounding neural tissues as opposed to minimally only to nerve elements), and tissue response (noninflammatory as opposed to inflammatory). We welcome comments from the public on this issue.

In an effort to demonstrate that the technology meets the cost criterion, the applicant searched the FY 2006 MedPAR file for cases with ICD-9-CM procedure codes 03.09 (Other exploration and decompression of spinal canal) or 80.51 (Excision of interveterbral disc) that mapped to CMS DRGs 499 and 500 (CMS DRGs 499 and 500 are crosswalked to MS-DRGs 490 and 491 (Back and Neck Procedures except Spinal Fusion with or without CC)). Because these cases do not include charges associated with the technology, the applicant determined it was necessary to add an additional $7,143 in charges to the average standardized charge per case of cases that map to MS-DRGs 490 and 491. (To do this, the applicant used a methodology of inflating the costs of the technology by the average CCR computed by using the average costs and charges for supplies for cases with ICD-9-CM procedure codes 03.09 and 80.51 that map to MS-DRGs 490 and 491). Of the 221,505 cases the applicant found, 95,340 cases (or 43 percent of cases) would map to MS-DRG 490, which has an average standardized charge of $60,301, and 126,165 cases (or 57 percent of cases) would map to MS-DRG 491, which has an average standardized charge per case of $43,888. This resulted in a case-weighted average standardized charge per case of $50,952. The case-weighted threshold for MS-DRGs 490 and 491 was $27,481. Because the case-weighted average standardized charge per case exceeds the case-weighted threshold in MS-DRGs 490 and 491, the applicant maintains that Oxiplex® would meet the cost criterion. We invite public comment on whether Oxiplex® meets the cost criterion.

The manufacturer maintains that Oxiplex® is a substantial clinical improvement because it “creates a protective environment around the neural tissue that limits nerve root exposure to post-surgical irritants and damage and thus reduces adverse outcomes associated with Failed Back Start Printed Page 23615Surgery Syndrome (FBSS) following surgery.” The manufacturer also claims that the Oxiplex® gel reduces leg and back pain after discectomy, laminectomy, and laminotomy. The manufacturer also asserts that the use of Oxiplex® is consistent with fewer revision surgeries. (During the FDA Investigational Device Exemption (IDE) trial, one Oxiplex® patient required revision surgery compared to six control patients.) However, as we noted previously in this section, we are concerned that Oxiplex® may be substantially similar to adhesion barriers that have been on the market for several years. We are also concerned that even if we were to determine that Oxiplex is not substantially similar to existing adhesion barriers, there may still be insufficient evidence to support the manufacturer's claims that Oxiplex® reduces pain associated with spinal surgery. In addition, we have found no evidence to support the manufacturer's claims regarding mode of action, degree of dural healing, degree of wound healing, and local tissue response such as might be shown in animal studies. We welcome comments from the public regarding whether Oxiplex® represents a substantial clinical improvement.

We did not receive any written comments or public comments at the town hall meeting regarding the substantial clinical improvement aspects of this technology.

d. TherOx Downstream® System

TherOx, Inc. submitted an application for new technology add-on payments for FY 2009 for the TherOx Downstream® System (Downstream® System). The Downstream® System uses SuperSaturatedOxygen Therapy (SSO2) that is designed to limit myocardial necrosis by minimizing microvascular damage in acute myocardial infarction (AMI) patients following intervention with Percutaneous Transluminal Coronary Angioplasty (PTCA), and coronary stent placement by perfusing the affected myocardium with blood that has been supersaturated with oxygen. SSO2 therapy refers to the delivery of superoxygenated arterial blood directly to areas of myocardial tissue that have been reperfused using PTCA and stent placement, but which may still be at risk. The desired effect of SSO2 therapy is to reduce infarct size and thus preserve heart muscle and function. The DownStream® System is the console portion of a disposable cartridge-based system that withdraws a small amount of the patient's arterial blood, mixes it with a small amount of saline, and supersaturates it with oxygen to create highly oxygen-enriched blood. The superoxygenated blood is delivered directly to the infarct-related artery via the TherOx infusion catheter. SSO2 therapy is a catheter laboratory-based procedure. Additional time in the catheter lab area is an average of 100 minutes. The manufacturer claims that the SSO2 therapy duration lasts 90 minutes and requires an additional 10 minutes post-procedure preparation for transfer time. The TherOx Downstream® System is currently not FDA approved; however, the manufacturer states that it expects to receive FDA approval in the second quarter of 2008. Because the technology is not yet approved by the FDA, we will limit our discussion of this technology to data that the applicant submitted, rather than make specific proposals with respect to whether the device would meet the new technology add-on criteria.

In an effort to demonstrate that it would meet the cost criterion, the applicant submitted two analyses. The applicant believes that cases that would be eligible for the Downstream® System would most frequently group to MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+Vessels/Stents), 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+Vessels/Stents), and 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC). The first analysis used data based on 83 clinical trial patients from 10 clinical sites. Of the 83 cases, 78 were assigned to MS-DRGs 246, 247, 248, or 249. The data showed that 32 of these patients were 65 years old or older. There were 12 cases (or 15.4 percent of cases) in MS-DRG 246, 56 cases (or 71.8 percent of cases) in MS-DRG 247, 2 cases (or 2.6 percent of cases) in MS-DRG 248, and 8 cases (or 10.3 percent of cases) in MS-DRG 249. (The remaining five cases grouped to MS-DRGs that the technology would not frequently group to and therefore are not included in this analysis.) The average standardized charge per case for MS-DRGs 246, 247, 248, and 249 was $66,730, $53,963, $54,977, and $41,594, respectively. The case-weighted average standardized charge per case for the four MS-DRGs listed above is $54,665. Based on the threshold from Table 10 (72 FR 66890), the case-weighted threshold for the four MS-DRGs listed above was $49,303. The applicant also searched the FY 2006 MedPAR file to identify cases that would be eligible for the Downstream® System. The applicant specifically searched for cases with primary ICD-9-CM diagnosis code 410.00 (Acute myocardial infarction of anterolateral wall with episode of care unspecified), 410.01 (Acute myocardial infarction of anterolateral wall with initial episode of care), 410.10 (Acute myocardial infarction of other anterior wall with episode of care unspecified), or 410.11 (Acute myocardial infarction of other anterior wall with initial episode of care) in combination with ICD-9-CM procedure code of 36.06 (Insertion of non-drug-eluting coronary artery stent(s)) or 36.07 (Insertion of drug-eluting coronary artery stent(s)). The applicant's search found 13,527 cases within MS-DRGs 246, 247, 248, and 249 distributed as follows: 2,287 cases (or 16.9 percent of cases) in MS-DRG 246; 9,691 cases (or 71.6 percent of cases) in MS-DRG 247; 402 cases (or 3 percent of cases) in MS-DRG 248; and 1,147 cases (or 8.5 percent of cases) in MS-DRG 249. Not including the charges associated with the technology, the geometric mean standardized charge per case for MS-DRGs 246, 247, 248, and 249 was $59,631, $42,357, $49,718 and $37,446, respectively. Therefore, based on this analysis, the total case-weighted geometric mean standardized charge per case across these MS-DRGs was $45,080. The applicant estimated that it was necessary to add an additional $21,620 in charges to the total case-weighted geometric mean standardized charge per case. The applicant included charges for supplies and tests related to the technology, charges for 100 minutes of additional procedure time in the catheter laboratory and charges for the technology itself in the additional charge amount referenced above. The inclusion of these charges would result in a total case-weighted geometric mean standardized charge per case of $66,700. The case-weighted threshold for MS-DRGs 246, 247, 248, and 249 (from Table 10 (72 FR 66889)) was $49,714. Because the total case-weighted average standardized charge per case from the first analysis and the case-weighted geometric mean standardized charge per case from the second analysis exceeds the applicable case-weighted threshold, the applicant maintains the Downstream® System would meet the cost criterion. We invite public comment on whether Downstream® System meets the cost criterion.

The applicant asserts that the Downstream® System is a substantial clinical improvement because it reduces infarct size in acute AMI where PTCA and stent placement have also been performed. Data was submitted from the Acute Myocardial Infarction Hyperbaric Start Printed Page 23616Oxygen Treatment (AMIHOT) II trial, which was presented at the October 2007 Transcatheter Cardiovascular Therapeutics conference, but has not been published in peer reviewed literature, that showed an average of 6.5 percent reduction in infarct size as measured with Tc-99m Sestamibi imaging in patients who received supersaturated oxygen therapy. We note that those patients also showed a significantly higher incidence of bleeding complications. While we recognize that a reduction of infarct size may correlate with improved clinical outcomes, we question whether the degree of infarct size reduction found in the trial represents a substantial clinical improvement, particularly in light of the apparent increase in bleeding complications. We welcome comments from the public on this matter.

We received one written comment from the manufacturer clarifying questions that were raised at the town hall meeting. Specifically, the commenter explained the methodology of Tc-99m Sestamibi scanning and interpretation in the AMIHOT II trial. In addition, the commenter explained that the AMIHOT [15] and AMIHOT II trials did not attempt to measure differences in heart failure outcomes nor mortality outcomes.

5. Proposed Regulatory Change

Section 1886(d)(5)(K)(i) of the Act directs us to establish a mechanism to recognize the cost of new medical services and technologies under the IPPS, with such mechanism established after notice and opportunity for public comment. In accordance with this authority, we established at § 412.87(b) of our regulations criteria that a medical service or technology must meet in order to qualify for the additional payment for new medical services and technologies. Specifically, we evaluate applications for new medical service or technology add-on payment by determining whether they meet the criteria of newness, adequacy of payment, and substantial clinical improvement.

As stated in section III.J.1. of the preamble of this proposed rule, § 412.87(b)(2) of our existing regulations provides that a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology. The point at which these data become available typically begins when the new medical service or technology is first introduced on the market, generally on the date that the medical service or technology receives FDA approval. Accordingly, for purposes of the new medical service or technology add-on payment, a medical service or technology cannot be considered new prior to the date on which FDA approval is granted.

In addition, as stated in section III.J.1. of the preamble of this proposed rule, § 412.87(b)(3) of our existing regulations provides that, to be eligible for the add-on payment for new medical services or technologies, the DRG prospective payment rate otherwise applicable to the discharge involving the new medical service or technology must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new medical service or technology paid under the applicable DRG prospective payment rate, we evaluate whether the charges for cases involving the new medical service or technology exceed certain threshold amounts.

Section 412.87(b)(1) of our existing regulations provides that, to be eligible for the add-on payment for new medical services or technologies, the new medical service or technology must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. In addition, § 412.87(b)(1) states that CMS will announce its determination as to whether a new medical service or technology meets the substantial clinical improvement criteria in the Federal Register as part of the annual updates and changes to the IPPS.

Since the implementation of the policy on add-on payments for new medical services and technologies, we accept applications for add-on payments for new medical services and technologies on an annual basis by a specified deadline. For example, applications for FY 2009 were submitted in November 2007. After accepting applications, CMS then evaluates them in the annual IPPS proposed and final rules to determine whether the medical service or technology is eligible for the new medical service or technology add-on payment. If an application meets each of the eligibility criteria, the medical service or technology is eligible for new medical service or technology add-on payments beginning on the first day of the new fiscal year (that is, October 1).

We have advised prior and potential applicants that we evaluate whether a medical service or technology is eligible for the new medical service or technology add-on payments prior to publication of the final rule setting forth the annual updates and changes to the IPPS, with the results of our determination announced in the final rule. We announce our results in the final rule for each fiscal year because we believe predictability is an important aspect of the IPPS and that it is important to apply a consistent payment methodology for new medical services or technologies throughout the entire fiscal year. For example, hospitals must train their billing and other staff after publication of the final rule to properly implement the coding and payment changes for the upcoming fiscal year set forth in the final rule. In addition, hospitals' budgetary process and clinical decisions regarding whether to utilize new technologies are based in part on the applicable payment rates under the IPPS for the upcoming fiscal year, including whether the new medical services or technologies qualify for the new medical service or technology add-on payment. If CMS were to make multiple payment changes under the IPPS during a fiscal year, these changes could adversely affect the decisions hospitals implement at the beginning of the fiscal year. For these reasons, we believe applications for new medical service or technology add-on payments should be evaluated prior to publication of the final IPPS rule for each fiscal year. Therefore, if an application does not meet the new medical service or technology add-on payment criteria prior to publication of the final rule, it will not be eligible for the new medical service or technology add-on payments for the fiscal year for which it applied for the add-on payments.

Because we make our determination regarding whether a medical service or technology meets the eligibility criteria for the new medical service or technology add-on payments prior to publication of the final rule, we have advised both past and potential applicants that their medical service or technology must receive FDA approval early enough in the IPPS rulemaking cycle to allow CMS enough time to fully evaluate the application prior to the publication of the IPPS final rule. Moreover, because new medical services or technologies that have not received FDA approval do not meet the newness criterion, it would not be necessary or prudent for us to make a final determination regarding whether a new Start Printed Page 23617medical service or technology meets the cost threshold and substantial clinical improvement criteria prior to the medical service or technology receiving FDA approval. In addition, we do not believe it is appropriate for CMS to determine whether a medical service or technology represents a substantial clinical improvement over existing technologies before the FDA makes a determination as to whether the medical service or technology is safe and effective. For these reasons, we first determine whether a medical service or technology meets the newness criteria, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. For example, even if an application has FDA approval, if the medical service or technology is beyond the timeline of 2-3 years to be considered new, in the past we have not made a determination on the cost threshold and substantial clinical improvement. Further, as we have discussed in prior final rules (69 FR 49018-49019 and 70 FR 47344), it is our past and present practice to analyze the new medical service or technology add-on payment criteria in the following sequence: Newness, cost threshold, and finally substantial clinical improvement. Under our proposal in this proposed rule, we would continue this practice of analyzing the eligibility criteria in this sequence and announce in the annual Federal Register as part of the annual updates and changes to the IPPS our determination on whether a medical service or technology meets the eligibility criteria in § 412.87(b).

In the interest of more clearly defining the parameters under which CMS can fully and completely evaluate new medical service or technology add-on payment applications, we are proposing to amend the regulations at § 412.87 by adding a new paragraph (c) to codify our current policy and specify that CMS will consider whether a new medical service or technology meets the eligibility criteria in § 412.87(b) and announce the results in the Federal Register as part of the annual updates and changes to the IPPS. As a result, we are proposing to remove the duplicative text in § 412.87(b)(1) that specifies that CMS will determine whether a new medical service or technology meets the substantial clinical improvement criteria and announce the results of its determination in the Federal Register as part of the annual updates and changes to the IPPS. We note that this proposal is not a change to our current policy, as we have always given consideration to whether an application meets the new medical service or technology eligibility criteria in the annual IPPS proposed and final rules. Rather, this proposal simply codifies our current practice of fully evaluating new medical service or technology add-on payment applications prior to publication of the final rule in order to maintain predictability within the IPPS for the upcoming fiscal year.

In addition, we are proposing in new paragraph (c) of § 412.87 to set July 1 of each year as the deadline by which IPPS new medical service or technology add-on payment applications must receive FDA approval. This proposed deadline should provide us with enough time to fully consider all of the new medical service or technology add-on payment criteria for each application and maintain predictability in the IPPS for the coming fiscal year.

Finally, under this proposal, applications that have not received FDA approval by July 1 would not be considered in the final rule, even if they were summarized in the corresponding IPPS proposed rule. However, applications that receive FDA approval of the medical service or technology after July 1 would be able to reapply for the new medical service or technology add-on payment the following year (at which time they would be given full consideration in both the IPPS proposed and final rules).

In summary, for the reasons cited above, we are proposing to revise § 412.87 to remove the second sentence of (b)(1) and add a new paragraph (c) to codify our current practice of how CMS evaluates new medical service or technology add-on payment applications and establish in paragraph (c) a deadline of July 1 of each year as the deadline by which IPPS new medical service or technology add-on payment applications must receive FDA approval in order to be fully evaluated in the applicable IPPS final rule each year.

III. Proposed Changes to the Hospital Wage Index

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the definitions of statistical areas established by the Office of Management and Budget (OMB). A discussion of the proposed FY 2009 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.C. of this preamble.

Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for FY 2009 is discussed in section II.B. of the Addendum to this proposed rule.

As discussed below in section III.I. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The proposed budget neutrality adjustment for FY 2009 is discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are proposing to apply beginning October 1, 2008 (the FY 2009 wage index) appears under section III.D. of this preamble.

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required Under the MIEA-TRHCA

Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required Start Printed Page 23618MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare wage index classification system applied under the Medicare IPPS. Section 106(b) of MIEA-TRHCA required 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, section 106(b)(2) of the MIEA-TRHCA instructed the Secretary of Health and Human Services, taking into account MedPAC's recommendations on the Medicare wage index classification system, to include in this 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. The proposal (or proposals) must consider each of the following:

  • Problems associated with the definition of labor markets for the wage index adjustment.
  • The modification or elimination of geographic reclassifications and other adjustments.
  • The use of Bureau of Labor of Statistics data or other data or methodologies to calculate relative wages for each geographic area.
  • Minimizing variations in wage index adjustments between and within MSAs and statewide rural areas.
  • The feasibility of applying all components of CMS' proposal to other settings.
  • Methods to minimize the volatility of wage index adjustments while maintaining the principle of budget neutrality.
  • The effect that the implementation of the proposal would have on health care providers on each region of the country.
  • Methods for implementing the proposal(s) including methods to phase in such implementations.
  • Issues relating to occupational mix such as staffing practices and any evidence on quality of care and patient safety including any recommendation for alternative calculations to the occupational mix.

In its June 2007 Report to Congress, “Report to the Congress: Promoting Greater Efficiency in Medicare” (Chapter 6 with Appendix), MedPAC made three broad recommendations regarding the wage index:

(1) Congress should repeal the existing hospital wage index statute, including reclassifications and exceptions, and give the Secretary authority to establish a new wage index system;

(2) The Secretary should establish a hospital compensation index that—

  • Uses wage data from all employers and industry-specific occupational weights;
  • Is adjusted for geographic differences in the ratio of benefits to wages;
  • Is adjusted at the county level and smoothes large differences between counties; and
  • Is implemented so that large changes in wage index values are phased in over a transition period; and

(3) The Secretary should use the hospital compensation index for the home health and skilled nursing facility prospective payment systems and evaluate its use in the other Medicare fee-for-service prospective payment systems.

The full June 2007 Report to Congress is available at the Web site: http://www.medpac.gov/​documents/​Jun07_​EntireReport.pdf).

In the presentation and analysis of its alternative wage index system, MedPAC addressed almost all of the nine points for consideration under section 106(b)(2) of Pub. L. 109-432. Following are the highlights of the alternative wage index system recommended by MedPAC:

  • Although the MedPAC recommended wage index generally retains the current labor market definitions, it supplements the metropolitan areas with county-level adjustments and eliminates single wage index values for rural areas.
  • In the MedPAC recommended wage index, the county-level adjustments, together with a smoothing process that constrains the magnitude of differences between and within contiguous wage areas, serve as a replacement for geographical reclassifications.
  • The MedPAC recommended wage index uses BLS data instead of the CMS hospital wage data collected on the Medicare cost report. MedPAC adjusts the BLS data for geographic differences in the ratio of benefits to wages using Medicare cost report data.
  • The BLS data are collected from a sample of all types of employers, not just hospitals. The MedPAC recommended wage index could be adapted to other providers such as HHAs and SNFs by replacing hospital occupational weights with occupational weights appropriate for other types of providers.
  • In the MedPAC recommended wage index, volatility over time is addressed by the use of BLS data, which is based on a 3-year rolling sample design.
  • MedPAC recommends a phased implementation for its recommended wage index in order to cushion the effect of large wage index changes on individual hospitals.
  • MedPAC suggests that using BLS data automatically addresses occupational mix differences, because the BLS data are specific to health care occupations, and national industry-wide occupational weights are applied to all geographic areas.
  • The MedPAC report does not provide any evidence of the impact of its wage index on staffing practices or the quality of care and patient safety.

To assist CMS in meeting the requirements of section 106(b)(2) of Pub. L. 109-432, in February 2008, CMS awarded a Task Order under its Expedited Research and Demonstration Contract, to Acumen, LLC. The two general responsibilities of the Task Order are to (1) conduct a detailed impact analysis that compares the effects of MedPAC's wage and hospital compensation indexes with the CMS wage index and (2) assist CMS in developing a proposal (or proposals) that addresses the nine points for consideration under section 106(b)(2) of Pub. L. 109-432. Specifically, the tasks under the Task Order include, but are not limited to, an evaluation of whether differences between the two types of wage data (that is, CMS cost report and occupational mix data and BLS data) produce significant differences in wage index values among labor market areas, a consideration of alternative methods of incorporating benefit costs into the construction of the wage index, a review of past and current research on alternative labor market area definitions, and a consideration of how aspects of the MedPAC recommended wage index can be applied to the CMS wage data in constructing a new methodology for the wage index. We will present any analyses and proposals resulting from this Task Order in the FY 2009 IPPS final rule or in a special Federal Register notice issued after the final rule is published.

2. CMS Proposals in Response to Requirements Under Section 106(b) of the MIEA-TRHCA

As discussed in section III.A. of this preamble, the purpose of the hospital wage index is to adjust the IPPS standardized payment to reflect labor market area differences in wage levels. The geographic reclassification system exists in order to assist “hospitals which are disadvantaged by their current geographic classification because they compete with hospitals that are located in the geographic area to which they seek to be reclassified” (56 FR 25469). Geographic reclassification is Start Printed Page 23619established under section 1886(d)(10) of the Act and is implemented through 42 CFR Part 412, Subpart L. (We refer readers to section III.I. of this preamble for a detailed discussion of the geographic reclassification system and other area wage index exceptions.)

In its June 2007 Report to Congress, MedPAC discussed its findings that geographic reclassification, and numerous other area wage index exceptions added to the system over the years, have created major complexities and “troubling anomalies” in the hospital wage index. A review of the IPPS final rules reveals a long history of legislative changes that have permitted certain hospitals, that otherwise would not be able to reclassify under section 1886(d)(10) of the Act, to receive a higher wage index than calculated for their geographic area. MedPAC reports that more than one-third of hospitals now receive a higher wage index due to geographic reclassification or other wage index exceptions. We are concerned about the integrity of the current system, and agree with MedPAC that the process has become burdensome.

As noted above, MedPAC recommended the elimination of geographic reclassification and other wage index exceptions. In addition, the President's FY 2009 Budget included a proposal to apply the geographic reclassification budget neutrality requirement at the State level rather than by adjusting the standardized rate for hospitals nationwide. Given the language in section 1886(d)(10) of the Act establishing the MGCRB, we believe a statutory change would be required to make these changes. However, we do have the authority to make some regulatory changes to the reclassification system as discussed below. We note that these proposals do not preclude future consideration of MedPAC's recommendations that could be implemented through additional changes to our regulations, once our analysis of those recommendations is complete (after the publication of the FY 2009 IPPS proposed rule).

a. Proposed Revision of the Reclassification Average Hourly Wage Comparison Criteria

Regulations at 42 CFR 413.230(d)(1) set forth the average hourly wage comparison criteria that an individual hospital must meet in order for the MGCRB to approve a geographic reclassification application. Our current criteria (requiring an urban hospital to demonstrate that its average hourly wage is at least 108 percent of the average hourly wage of hospitals in the area in which the hospital is located and at least 84 percent of the average hourly wage of hospitals in the area to which it seeks redesignation) were adopted in the FY 1993 IPPS final rule (57 FR 39825). In that final rule, we explained that the 108 percent threshold “is based on the national average hospital wage as a percentage of its area wage (96 percent) plus one standard deviation (12 percent).” We also explained that we would use the 84-percent threshold to reflect the average hospital wage of the hospital as a percentage of its area wage less one standard deviation. We stated that “to qualify for a wage index reclassification, a hospital must have an average hourly wage that is more than one national standard deviation above its original labor market area and not less than one national standard deviation below its new labor market area” (57 FR 39770). In response to numerous public comments we received, we expressed our policy and legal justifications for adopting the specific thresholds. Among other things, we stated that geographic reclassifications must be viewed not just in terms of those hospitals that are reclassifying, but also in terms of the nonreclassifying hospitals that, through a budget neutrality adjustment, are required to bear a financial burden associated with the higher wage indices received by those hospitals that reclassify. We also indicated that the Secretary has ample legal authority under section 1886(d)(10) of the Act to set the wage comparison thresholds and to revise such thresholds upon further review. We refer readers to that final rule for a full discussion of our justifications for the standards.

In the FY 2000 IPPS final rule (65 FR 47089 through 47090), the wage comparison criteria for rural hospitals seeking individual hospital reclassifications were reduced to 82 percent and 106 percent to compensate for the historic economic underperformance of rural hospitals. The 2-percent drop in both thresholds was determined to allow a significant benefit to some hospitals that were close to meeting the existing criteria but would not make the reclassification standards overly liberal for rural hospitals.

CMS has not evaluated or recalibrated the average hourly wage criteria for geographic reclassification since they were established in FY 1993. In consideration of the MIEA-TRHCA requirements and MedPAC's finding that over one-third of hospitals are receiving a reclassified wage index or other wage index adjustment, we decided to reevaluate the average hourly wage criteria for geographic reclassification. We ran simulations with more recent wage data to determine what would be the appropriate average hourly wage criteria. We found that the average hospital average hourly wage as a percentage of its area's wage has increased from approximately 96 percent in FY 1993 to closer to 98 percent over FYs 2006, 2007, and 2008 (97.8, 98.2, and 98 percent, respectively). We also determined that the standard deviation has been reduced from approximately 12 percent in FY 1993 to closer to 10 percent over the same 3-year period (10.7, 10.4, and 10.4 percent, respectively); that is, assuming normal distributions, approximately 68 percent of all hospitals would have an average hourly wage that deviates less than 10 percentage points above or below the mean. This assessment indicates that the new baseline criteria for reclassification should be set to 88/108 percent. While the 108 criterion appears not to require adjustment, the current 84 percent standard appears to be too low a threshold to serve the purpose of establishing wage comparability with a proximate labor market area.

To assess the impact that these changes would have had on hospitals that reclassified in FY 2008, we ran models that set urban individual reclassification standards to 88/108 percent and the county group reclassification standard to 88 percent. We retained the 2-percent benefit for rural hospitals by setting an 86/106 percent standard. We used 3-year average hourly wage figures from the 2005, 2006, and 2007 wage surveys and compared them to 3-year average hourly wage figures for CBSAs over the same 3-year period.

Of the 295 hospitals that applied for and received individual reclassifications in FY 2008, 45 of them (15.3 percent) would not meet the proposed 88/86 percent threshold. Of the 66 hospitals that applied for and received county group reclassification in FY 2008, 6 hospitals (9.1 percent) in 3 groups would not have qualified with the new standards. We also ran comparisons for hospitals that reclassified in FY 2006 and FY 2007 to determine if they would have been able to reclassify in FY 2008, using 3-year averages available in FY 2008. We found that, of all hospitals that were reclassified in FY 2008 (that is, applications approved for FYs 2006 through 2008), 14.7 percent of individual reclassifications and 8.5 percent of county group reclassification would not have qualified to reclassify in FY 2008. Start Printed Page 23620

Section 106 of MIEA-TRHCA requires us to propose revisions to the hospital wage index system after considering the recommendations of MedPAC. To address this requirement, we are proposing that the 84/108 criteria for urban hospital reclassifications and the 82/106 criteria for rural hospital reclassifications be recalibrated using the methodology published in the FY 1993 final rule and more recent wage data (that is, data used in computing the FYs 2006, 2007, 2008 wage indices). We believe that hospitals that are seeking to reclassify to another area should be required to demonstrate more similarity to the area than the current criteria permit, and our recent analysis demonstrates that those criteria are no longer appropriate. Therefore, we are proposing to change the criterion for the comparison of a hospital's average hourly wage to that of the area to which the hospital seeks reclassification to 88 percent for urban hospitals and 86 percent for rural hospitals for new reclassifications beginning with the FY 2010 wage index and, accordingly, revise our regulations at 42 CFR 412.230 to reflect these changes. The criterion for the comparison of a hospital's average hourly wage to that of its geographic area would be unchanged (108 percent for urban hospitals and 106 percent for rural hospitals). We also are proposing that, when there are significant changes in labor market area definitions, such as CMS' adoption of new OMB CBSA definitions based upon the decennial census (69 FR 49027), we would again reevaluate and, if warranted, recalibrate these criteria. This would allow CMS to consider the effects of periodic changes in labor market boundaries and provide a regular timeline for updating and validating the reclassification criteria. Finally, we are proposing to adjust the 85 percent criterion for both urban and rural county group reclassifications to be equal to the proposed 88 percent standard for urban reclassifications, and to revise the regulations at 42 CFR 412.232 and 412.234 to reflect the change. The urban and rural county group average hourly wage standard has always been equivalent for both urban and rural county groups and has always been 1 percent higher than the 84 percent urban area individual reclassification standard. We would continue the policy of having an equivalent wage comparison criterion for both urban and rural county groups, as these groups have always used the same wage comparison criteria. We also would use the individual urban hospital reclassification standard of 88 percent because this threshold would ensure that the hospitals in the county group are at least as comparable to the proximate area as are individual hospitals within their own areas. Also, we do not believe it would be appropriate to have a group reclassification standard lower than the individual reclassification standards, thus potentially creating a situation where all of the hospitals in a county could reclassify, even though no single hospital within such county would be able to meet any average hourly wage-related comparisons for an individual reclassification.

We considered raising the group reclassification criterion to 89 percent in order to preserve the historical policy of the standard being set at 1 percent higher than the individual reclassification standard. However, we determined that making the group standard equal to the individual standard would adequately address our stated concerns.

We note that the proposed changes in the reclassification criteria apply only to new reclassifications beginning with the FY 2010 wage index. Any hospital or county group that is in the midst of a 3-year reclassification in FY 2010 will not be affected by the proposed criteria change until they reapply for a geographic reclassification. Therefore, we are proposing the effective date for these changes would be September 1, 2008, the deadline for hospitals to submit applications for reclassification for the FY 2010 wage index.

b. Within-State Budget Neutrality Adjustment for the Rural and Imputed Floors

Section 4410 of the Balanced Budget Act of 1997 (BBA) established the rural floor by requiring that the wage index for a hospital in an urban area of a State cannot be less than the area wage index determined for that State's rural area. Section 4410(b) of the BBA imposed the budget neutrality requirement and stated that the Secretary shall “adjust the area wage index referred to in subsection (a) for hospitals not described in such subsection.” Therefore, in order to compensate for the increased wage indices of urban hospitals receiving the rural floor, a nationwide budget neutrality adjustment is applied to the wage index to account for the additional payment to these hospitals. As a result, urban hospitals that qualify for their State's rural floor wage index receive enhanced payments at the expense of all rural hospitals nationwide and all other urban hospitals that do not receive their State's rural floor. In the FY 2009 proposed wage index, 266 hospitals in 27 States benefit from the rural floor. The first chart below lists the percentage of total payments each State either received or contributed to fund the current rural floor and imputed floor provisions with national budget neutrality adjustments (as indicated in the discussion of the imputed floor below in this section III.B.2.b.). The second chart below provides a graphical depiction of the proposed FY 2009 impacts.

FY 2009 IPPS Estimated Payments with Proposed Within-State Rural Floor and Imputed Floor Budget Neutrality

StateCurrent policy application of national rural floor and imputed floor budget neutralityProposed policy application of rural floor and imputed floor budget neutrality within each state
Alabama−0.10.3
Alaska0.0−0.2
Arizona−0.20.3
Arkansas−0.10.3
California0.7−0.8
Colorado0.0−0.1
Connecticut2.1−2.2
Delaware−0.20.3
Washington, DC−0.20.3
Start Printed Page 23621
Florida0.00.0
Georgia−0.10.3
Hawaii−0.10.3
Idaho−0.10.3
Illinois−0.20.1
Indiana−0.10.0
Iowa0.1−0.1
Kansas−0.10.3
Kentucky−0.10.3
Louisiana−0.10.0
Maine−0.10.3
Massachusetts−0.20.3
Michigan−0.20.3
Minnesota−0.20.3
Mississippi−0.10.3
Missouri−0.10.0
Montana−0.10.2
Nebraska−0.10.3
Nevada−0.20.3
New Hampshire1.1−1.2
New Jersey0.7−0.8
New Mexico−0.10.0
New York−0.20.3
North Carolina−0.10.1
North Dakota0.1−0.1
Ohio−0.10.1
Oklahoma−0.10.1
Oregon−0.10.0
Pennsylvania−0.10.1
Rhode Island−0.20.3
South Carolina−0.10.0
South Dakota−0.10.3
Tennessee0.00.0
Texas−0.10.1
Utah−0.10.3
Vermont3.5−3.4
Virginia−0.10.0
Washington−0.1−0.1
West Virginia0.0−0.1
Wisconsin−0.1−0.1
Wyoming0.00.1
Start Printed Page 23622

The above charts demonstrate how, at a State-by-State level, the rural floor is creating a benefit for a minority of States that is then funded by a majority of States, including States that are overwhelmingly rural in character. The intent behind the rural floor seems to have been to address anomalous occurrences where certain urban areas in a State have unusually depressed wages when compared to the State's rural areas. However, because these comparisons occur at the State level, we believe it also would be sound policy to make the budget neutrality adjustment specific to the State, redistributing payments among hospitals within the State, rather than adjusting payments to hospitals in other States.

In addition, a statewide budget neutrality adjustment would address the situation we discussed in the FY 2008 IPPS final rule with comment period (72 FR 47324) in which rural CAHs were converting to IPPS status, apparently to raise the State's rural wage index to a level whereby all urban hospitals in the State would receive the rural floor. Medicare payments to CAHs are based on 101 percent of reasonable costs while the IPPS pays hospitals a fixed rate per discharge. In addition, as a CAH, a hospital is guaranteed to recover its costs, while an IPPS hospital is provided with incentives to increase efficiency to cover its costs. Thus, we stated that the identified CAHs were converting back to IPPS, even though the conversion would not directly benefit them. Because these hospitals’ wage levels are higher than most, if not all, of the urban hospitals in the State, the wage indices for most, if not all, of the State's urban hospitals would increase as a result of the rural floor provision if the CAHs convert to IPPS status. In simulating the effect of the hospitals setting the State's rural floor, we estimated that payment to hospitals in the State would increase in excess of $220 million in a single year. The MedPAC, in its June 2007 Report to the Congress stated, “The fact that the movement of one or two CAHs in or out of the [I]PPS system can increase (or decrease) Medicare payments by $220 million suggests there is a flaw in the design of the wage index system.” (We refer readers to page 131 of the report.)

For the above reasons, we are proposing to apply a State level rural floor budget neutrality adjustment to the wage index beginning in FY 2009. States that have no hospitals receiving a rural floor wage index would no longer have a negative budget neutrality adjustment applied to their wage indices. Conversely, hospitals in States with hospitals receiving a rural floor would Start Printed Page 23623have their wage indices downwardly adjusted to achieve budget neutrality within the State. All hospitals within each State would, in effect, be responsible for funding the rural floor adjustment applicable within that specific State.

In the FY 2005 IPPS final rule and the FY 2008 IPPS final rule with comment period (69 FR 49109 and 72 FR 47321, respectively), we temporarily adopted an “imputed” floor measure to address a concern by some individuals that hospitals in all-urban States were disadvantaged by the absence of rural hospitals. Because no rural wage index could be calculated, no rural floor could be applied within such States. We originally limited application of the policy to FYs 2005 through 2007 and then extended it one additional year, through FY 2008. We are proposing to extend the imputed floor for 3 additional years, through FY 2011, and to revise the introductory text of § 412.64(h)(4) of our regulations to reflect this extension. For FY 2009, 26 hospitals in New Jersey (33.8 percent) would receive the imputed floor. Rhode Island, the only other all-urban State, has no hospitals that would receive the imputed floor. In past years, we applied a national budget neutrality adjustment to the standardized amount to ensure that payments remained constant to payments that would have occurred in the absence of the imputed floor policy. As a result, payments to all other hospitals in the Nation were adjusted downward to subsidize the higher payments to New Jersey hospitals receiving the imputed floor. As the intent of the imputed floor is to create a protection to all-urban States similar to the protection offered to urban-rural mixed States by the rural floor, and the effect of the measure is also State-specific like the rural floor, we believe that the budget neutrality adjustments for the imputed floor and the rural floor should be applied in the same manner. Therefore, beginning with FY 2009, we are also proposing to apply the imputed floor budget neutrality adjustment to the wage index and at the State level.

Based on our impact analysis of these proposals for FY 2009, of the 49 States (Maryland is excluded because it is under a State waiver), the District of Columbia, and Puerto Rico, 39 would see either no change or an increase in total Medicare payments as a result of applying a budget neutrality adjustment to the wage index for the rural and imputed floors at the State level rather than the national level. The total payments of the remaining 12 States would decrease 0.1 percent to 3.4 percent compared to continuing our prior national adjustment policy. The full impact analysis is reflected in the two charts presented earlier in this section III.B.2.b. of the preamble of this proposed rule. Tables 4D-1 and 4D-2 in the Addendum to this proposed rule reflect the proposed FY 2009 State level budget neutrality adjustments for the rural and imputed floors. We are specifically requesting public comments from national and State hospital associations regarding these proposals, particularly the national associations, as they represent member hospitals that are both positively and negatively affected by our proposed policies, and are, therefore, in the best position to comment on the policy merits of these proposals. We will view the absence of any comments from the national hospital associations as a sign that they do not object to our proposed policies.

c. Within-State Budget Neutrality Adjustment for Geographic Reclassification

Currently, section 1886(d)(8)(D) of the Act requires us to adjust the standardized amount to ensure that the effects of geographic reclassification do not increase aggregate IPPS payments. This means that, in the case of a reclassification, budget neutrality is achieved by reducing the standardized amount for all hospitals nationwide. The FY 2009 President's Budget includes a legislative proposal to apply geographic reclassification budget neutrality at the State level (available at the Web site: www.hhs.gov/​budget/​09budget/​2009BudgetInBrief.pdf under FY 2009 Medicare Proposals, page 54). If this proposal is enacted by the Congress, budget neutrality would be achieved by adjusting the wage index for all hospitals within the State rather than reducing the standardized amount for all hospitals nationwide.

As noted also in MedPAC's June 2007 Report to Congress, over the years, there have been many changes to the Medicare law that are intended to broaden the ability for a hospital to receive a wage index that is higher than the value that is calculated for its geographic area and not be subject to the proximity or wage level criteria for geographic reclassification established under section 1886(d)(10) of the Act. These more targeted geographic reclassification provisions are creating inequities in the wage index by sometimes allowing hospitals to be reclassified to areas where other hospitals that are closer in proximity are ineligible to reclassify. Applying budget neutrality at the State level would focus the costs of geographic reclassification closer to the areas where hospitals that benefit from the reclassification are located. We expect that a legislative provision on applying geographic reclassification budget neutrality at the State level would be applied to all reclassifications and wage index exceptions that are implemented through 42 CFR Part 412, Subpart L, and certain provisions of the Social Security Act that permit hospitals to receive a higher wage index than is calculated for their geographic area. (As discussed above, as a proposed regulatory matter, there also would be a separate within-State budget neutrality adjustment for the imputed and rural floors.) We expect that reclassification budget neutrality at the State level would operate through adjustments to the IPPS payments to hospitals in the State in which the reclassifying hospital is geographically located.

We are seeking public comments regarding MedPAC's recommendations for reforming the wage index, our plan for our contractor's review of the wage index, and the regulatory proposals for modifying the current hospital wage index system. We also welcome additional suggestions for reforming the hospital wage index.

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

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we define hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by OMB and announced in December 2003 (69 FR 49027). For a discussion of OMB's revised definitions of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).

As with the FY 2008 final rule, for FY 2009 we are proposing to provide that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we will determine a wage index for FY 2009 employing wage index data from FY 2005 hospital cost reports and using the CBSA labor market definitions. We consider CBSAs that are MSAs to be urban, and CBSAs that are Micropolitan Statistical Areas as well as areas outside of CBSAs to be rural. In addition, it has been our longstanding policy that where an MSA has been divided into Metropolitan Divisions, we consider the Metropolitan Division to comprise the labor market areas for purposes of calculating the Start Printed Page 23624wage index (69 FR 49029). We are proposing to codify this longstanding policy into our regulations at § 412.64(b)(1)(ii)(A).

On November 20, 2007, OMB announced the revision of titles for eight urban areas (OMB Bulletin No. 08-01). The revised titles are as follows:

  • Hammonton, New Jersey qualifies as a new principal city of the Atlantic City, New Jersey CBSA. The new title is Atlantic City-Hammonton, New Jersey CBSA;
  • New Brunswick, New Jersey, located in the Edison, New Jersey Metropolitan Division, qualifies as a new principal city of the New York-Northern New Jersey-Long Island, New York, New Jersey, Pennsylvania CBSA. The new title for the Metropolitan Division is Edison-New Brunswick, New Jersey CBSA;
  • Summerville, South Carolina qualifies as a new principal city of the Charleston-North Charleston, South Carolina CBSA. The new title is Charleston-North Charleston-Summerville, South Carolina;
  • Winter Haven, Florida qualifies as a new principal city of the Lakeland, Florida CBSA. The new title is Lakeland-Winter Haven, Florida;
  • Bradenton, Florida replaces Sarasota, Florida as the most populous principal city of the Sarasota-Bradenton-Venice, Florida CBSA. The new title is Bradenton-Sarasota-Venice, Florida. The new CBSA code is 14600;
  • Frederick, Maryland replaces Gaithersburg, Maryland as the second most populous principal city in the Bethesda-Gaithersburg-Frederick, Maryland CBSA. The new title is Bethesda-Frederick-Gaithersburg, Maryland;
  • North Myrtle Beach, South Carolina replaces Conway, South Carolina as the second most populous principal city of the Myrtle Beach-Conway-North Myrtle Beach, South Carolina CBSA. The new title is Myrtle Beach-North Myrtle Beach-Conway, South Carolina;
  • Pasco, Washington replaces Richland, Washington as the second most populous principal city of the Kennewick-Richland-Pasco, Washington CBSA. The new title is Kennewick-Pasco-Richland, Washington.

The OMB bulletin is available on the OMB Web site at https://www.whitehouse.gov/​OMB go to “Bulletins” or “Statistical Programs and Standards.” CMS will apply these changes to the IPPS beginning October 1, 2008.

D. Proposed Occupational Mix Adjustment to the Proposed FY 2009 Wage Index

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

1. Development of Data for the Proposed FY 2009 Occupational Mix Adjustment

On October 14, 2005, we published a notice in the Federal Register (70 FR 60092) proposing to use a new survey, the 2006 Medicare Wage Index Occupational Mix Survey (the 2006 survey) to apply an occupational mix adjustment to the FY 2008 wage index. In the proposed 2006 survey, we included several modifications based on the comments and recommendations we received on the 2003 survey, including (1) allowing hospitals to report their own average hourly wage rather than using BLS data; (2) extending the prospective survey period; and (3) reducing the number of occupational categories but refining the subcategories for registered nurses.

We made the changes to the occupational categories in response to MedPAC comments to the FY 2005 IPPS final rule (69 FR 49036). Specifically, MedPAC recommended that CMS assess whether including subcategories of registered nurses would result in a more accurate occupational mix adjustment. MedPAC believed that including all registered nurses in a single category may obscure significant wage differences among the subcategories of registered nurses, for example, the wages of surgical registered nurses and floor registered nurses may differ. Also, to offset additional reporting burden for hospitals, MedPAC recommended that CMS should combine the general service categories that account for only a small percentage of a hospital's total hours with the “all other occupations” category because most of the occupational mix adjustment is correlated with the nursing general service category.

In addition, in response to the public comments on the October 14, 2005 notice, we modified the 2006 survey. On February 10, 2006, we published a Federal Register notice (71 FR 7047) that solicited comments and announced our intent to seek OMB approval on the revised occupational mix survey (Form CMS-10079 (2006)). OMB approved the survey on April 25, 2006.

The 2006 survey provides for the collection of hospital-specific wages and hours data, a 6-month prospective reporting period (that is, January 1, 2006, through June 30, 2006), the transfer of each general service category that comprised less than 4 percent of total hospital employees in the 2003 survey to the “all other occupations” category (the revised survey focuses only on the mix of nursing occupations), additional clarification of the definitions for the occupational categories, an expansion of the registered nurse category to include functional subcategories, and the exclusion of average hourly rate data associated with advance practice nurses.

The 2006 survey included only two general occupational categories: nursing and “all other occupations.” The nursing category has four subcategories: Registered nurses, licensed practical nurses, aides, orderlies, attendants, and medical assistants. The registered nurse subcategory includes two functional subcategories: management personnel and staff nurses or clinicians. As indicated above, the 2006 survey provided for a 6-month data collection period, from January 1, 2006 through June 30, 2006. However, we allowed flexibility for the reporting period beginning and ending dates to accommodate some hospitals' biweekly payroll and reporting systems. That is, the 6-month reporting period had to begin on or after December 25, 2005, and end before July 9, 2006.

We are proposing to use the entire 6-month 2006 survey data to calculate the occupational mix adjustment for the FY 2009 wage index. The original timelines for the collection, review, and correction of the 2006 occupational mix data were discussed in detail in the FY 2007 IPPS final rule (71 FR 48008). The revision and correction process for all of the data, including the 2006 occupational mix survey data to be used for computing the FY 2009 wage index, is discussed in detail in section III.K. of the preamble of this proposed rule. Start Printed Page 23625

2. Calculation of the Proposed Occupational Mix Adjustment for FY 2009

For FY 2009 (as we did for FY 2008), we are proposing to calculate the occupational mix adjustment factor using the following steps:

Step 1—For each hospital, determine the percentage of the total nursing category attributable to a nursing subcategory by dividing the nursing subcategory hours by the total nursing category's hours (registered nurse management personnel and registered nurse staff nurses or clinicians are treated as separate nursing subcategories). Repeat this computation for each of the five nursing subcategories: registered nurse management personnel; registered nurse staff nurses or clinicians; licensed practical nurses; nursing aides, orderlies, and attendants; and medical assistants.

Step 2—Determine a national average hourly rate for each nursing subcategory by dividing a subcategory's total salaries for all hospitals in the occupational mix survey database by the subcategory's total hours for all hospitals in the occupational mix survey database.

Step 3—For each hospital, determine an adjusted average hourly rate for each nursing subcategory by multiplying the percentage of the total nursing category (from Step 1) by the national average hourly rate for that nursing subcategory (from Step 2). Repeat this calculation for each of the five nursing subcategories.

Step 4—For each hospital, determine the adjusted average hourly rate for the total nursing category by summing the adjusted average hourly rate (from Step 3) for each of the nursing subcategories.

Step 5—Determine the national average hourly rate for the total nursing category by dividing total nursing category salaries for all hospitals in the occupational mix survey database by total nursing category hours for all hospitals in the occupational mix survey database.

Step 6—For each hospital, compute the occupational mix adjustment factor for the total nursing category by dividing the national average hourly rate for the total nursing category (from Step 5) by the hospital's adjusted average hourly rate for the total nursing category (from Step 4).

If the hospital's adjusted average hourly rate is less than the national average hourly rate (indicating the hospital employs a less costly mix of nursing employees), the occupational mix adjustment factor would be greater than 1.0000. If the hospital's adjusted average hourly rate is greater than the national average hourly rate, the occupational mix adjustment factor would be less than 1.0000.

Step 7—For each hospital, calculate the occupational mix adjusted salaries and wage-related costs for the total nursing category by multiplying the hospital's total salaries and wage-related costs (from Step 5 of the unadjusted wage index calculation in section III.G. of this preamble) by the percentage of the hospital's total workers attributable to the total nursing category (using the occupational mix survey data, this percentage is determined by dividing the hospital's total nursing category salaries by the hospital's total salaries for “nursing and all other”) and by the total nursing category's occupational mix adjustment factor (from Step 6 above).

The remaining portion of the hospital's total salaries and wage-related costs that is attributable to all other employees of the hospital is not adjusted by the occupational mix. A hospital's all other portion is determined by subtracting the hospital's nursing category percentage from 100 percent.

Step 8—For each hospital, calculate the total occupational mix adjusted salaries and wage-related costs for a hospital by summing the occupational mix adjusted salaries and wage-related costs for the total nursing category (from Step 7) and the portion of the hospital's salaries and wage-related costs for all other employees (from Step 7).

To compute a hospital's occupational mix adjusted average hourly wage, divide the hospital's total occupational mix adjusted salaries and wage-related costs by the hospital's total hours (from Step 4 of the unadjusted wage index calculation in section III.G. of this preamble).

Step 9—To compute the occupational mix adjusted average hourly wage for an urban or rural area, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the area, then sum the total hours for all hospitals in the area. Next, divide the area's occupational mix adjusted salaries and wage-related costs by the area's hours.

Step 10—To compute the national occupational mix adjusted average hourly wage, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the Nation, then sum the total hours for all hospitals in the Nation. Next, divide the national occupational mix adjusted salaries and wage-related costs by the national hours. The proposed FY 2009 occupational mix adjusted national average hourly wage is $32.2252.

Step 11—To compute the occupational mix adjusted wage index, divide each area's occupational mix adjusted average hourly wage (Step 9) by the national occupational mix adjusted average hourly wage (Step 10).

Step 12—To compute the Puerto Rico specific occupational mix adjusted wage index, follow Steps 1 through 11 above. The proposed FY 2009 occupational mix adjusted Puerto Rico specific average hourly wage is $13.7851.

The table below is an illustrative example of the proposed occupational mix adjustment.

Start Printed Page 23626

Start Printed Page 23627

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Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2009 wage index.

For the FY 2008 wage index, if a hospital did not respond to the occupational mix survey, or if we determined that a hospital's submitted data were too erroneous to include in the wage index, we assigned the hospital the average occupational mix adjustment for the labor market area (72 FR 47314). We believed this method had the least impact on the wage index for other hospitals in the area. For areas where no hospital submitted data for purposes of calculating the occupational mix adjustment, we applied the national occupational mix factor of 1.0000 in calculating the area's FY 2008 occupational mix adjusted wage index. We indicated in the FY 2008 IPPS final rule that we reserve the right to apply a different approach in future years, including potentially penalizing nonresponsive hospitals (72 FR 47314).

For the FY 2009 wage index, we are proposing to handle the data for hospitals that did not respond to the occupational mix survey (neither the 1st quarter nor 2nd quarter data) in the same manner as discussed above for the FY 2008 wage index. In addition, if a hospital submits survey data for either the 1st quarter or 2nd quarter, but not for both quarters, we are proposing to use the data the hospital submitted for one quarter to calculate the hospital's proposed FY 2009 occupational mix adjustment factor. Lastly, if a hospital submits a survey(s), but that survey data can not be used because we determine it to be aberrant, we will also assign the hospital the average occupational mix adjustment for its labor market area. For example, if a hospital's individual nurse category average hourly wages are out of range (that is, unusually high or low), and the hospital does not provide sufficient documentation to explain the aberrancy, or the hospital does not submit any registered nurse staff salaries or hours data, we will assign the hospital the average occupational mix adjustment for the labor market area in which it is located.

In calculating the average occupational mix adjustment factor for a labor market area, we replicated Steps 1 through 6 of the calculation for the occupational mix adjustment. However, instead of performing these steps at the hospital level, we aggregated the data at the labor market area level. In following these steps, for example, for CBSAs that contain providers that did not submit occupational mix survey data, the occupational mix adjustment factor ranged from a low of 0.8968 (CBSA 39820, Redding, CA), to a high of 1.0775 (CBSA 43300, Sherman-Denison, TX). Also, in computing a hospital's occupational mix adjusted salaries and wage-related costs for nursing employees (Step 7 of the calculation), in the absence of occupational mix survey data, we multiplied the hospital's total salaries and wage-related costs by the percentage of the area's total workers attributable to the area's total nursing category. For FY 2009, there was one CBSA for which we did not have occupational mix data for any of its providers (CBSA 12020, Athens-Clark County, GA). In the absence of any data in this labor market area, we applied an occupational mix adjustment factor of 1.0 to all provider(s).

In the FY 2007 IPPS final rule, we also indicated that we would give serious consideration to applying a hospital-specific penalty if a hospital does not comply with regulations requiring submission of occupational mix survey data in future years. We stated that we believe that section 1886(d)(5)(I)(i) of the Act provides us with the authority to penalize hospitals that do not submit occupational mix survey data. That section authorizes us to provide for exceptions and adjustments to the payment amounts under IPPS as the Secretary deems appropriate. We also indicated that we would address this issue in the FY 2008 IPPS proposed rule.

In the FY 2008 IPPS proposed rule, we solicited comments and suggestions for a hospital-specific penalty for hospitals that do not submit occupational mix survey data. In response to the FY 2008 IPPS proposed rule, some commenters suggested a 1-percent to 2-percent reduction in the hospital's wage index value or a set percentage of the standardized amount. We noted that any penalty that we would determine for nonresponsive hospitals would apply to a future wage index, not the FY 2008 wage index.

In the FY 2008 final rule with comment period, we assigned nonresponsive hospitals the average occupational mix adjustment for the labor market area. For areas where no hospital submitted survey data, we applied the national occupational mix adjustment factor of 1.0000 in calculating the area's FY 2008 occupational mix adjusted wage index. We appreciate the suggestions we received regarding future penalties for hospitals that do not submit occupational mix survey data. We stated in the FY 2008 final rule with comment period that we may consider proposing a policy to penalize hospitals that do not submit occupational mix survey data for FY 2010, the first year of the application of the new 2007-2008 occupational mix survey, and that we expected that any such penalty would be proposed in the FY 2009 IPPS proposed rule so hospitals would be aware of the policy before the deadline for submitting the data to the fiscal intermediaries/MAC. At this time, however, we are not proposing a penalty for FY 2010. Rather, we are reserving the right to propose a penalty in the FY 2010 IPPS proposed rule, once we collect and analyze the FY 2007-2008 occupational mix survey data. Hospitals are still on notice that any failure to submit occupational mix data for the FY 2007-2008 survey year may result in a penalty in FY 2010, thus achieving our policy goal of ensuring that hospitals are aware of the consequences of failure to submit data in response to the most recent survey.

3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index

As stated earlier, section 304(c) of Pub. L. 106-554 amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. We used occupational mix data collected on the 2006 survey to compute the proposed occupational mix adjustment for FY 2009. In the FY 2008 IPPS final rule with comment period (72 FR 47315), we discussed how we modified the occupational mix survey. The revised 2007-2008 occupational mix survey provides for the collection of hospital-specific wages and hours data for the 1-year period of July 1, 2007, through June 30, 2008, additional clarifications to the survey instructions, the elimination of the registered nurse subcategories, some refinements to the definitions of the occupational categories, and the inclusion of additional cost centers that typically provide nursing services. The revised 2007-2008 occupational mix survey will be applied beginning with the FY 2010 wage index.

On February 2, 2007, we published in the Federal Register a notice soliciting comments on the proposed revisions to the occupational mix survey (72 FR 5055). The comment period for the notice ended on April 3, 2007. After considering the comments we received, we made a few minor editorial changes Start Printed Page 23629and published the final 2007-2008 occupational mix survey on September 14, 2007 (72 FR 52568). OMB approved the survey without change on February 1, 2008 (OMB Control Number 0938 0907). The 2007-2008 Medicare occupational mix survey (Form CMS-10079 (2008)) is available on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​WIFN/​list.asp#TopOfPage, and through the fiscal intermediaries/MAC. Hospitals must submit their completed surveys to their fiscal intermediaries/MAC by September 1, 2008. The preliminary, unaudited 2007-2008 occupational mix survey data will be released in early October 2008, along with the FY 2006 Worksheet S-3 wage data, for the FY 2010 wage index review and correction process.

E. Worksheet S-3 Wage Data for the Proposed FY 2009 Wage Index

The proposed FY 2009 wage index values (to be effective for hospital discharges occurring on or after October 1, 2008, and before October 1, 2009) in section II.B. of the Addendum to this proposed rule are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2005 (the FY 2008 wage index was based on FY 2004 wage data).

1. Included Categories of Costs

The proposed FY 2009 wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):

  • Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty).
  • Home office costs and hours.
  • Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315).
  • Wage-related costs, including pensions and other deferred compensation costs. We note that, on March 28, 2008, CMS published a technical clarification to the cost reporting instructions for pension and deferred compensation costs (sections 2140 through 2142.7 of the Provider Reimbursement Manual, Part I). These instructions are used for developing pension and deferred compensation costs for purposes of the wage index, as discussed in the instructions for Worksheet S-3, Part II, Lines 13 through 20 and in the FY 2006 final rule (70 FR 47369).

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2008, the proposed wage index for FY 2009 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The proposed FY 2009 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).

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

Data collected for the IPPS wage index are also currently used to calculate wage indices applicable to other providers, such as SNFs, home health agencies, and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note that, in the IPPS rules, we do not address comments pertaining to the wage indices for non-IPPS providers. Such comments should be made in response to separate proposed rules for those providers.

F. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2009 wage index were obtained from Worksheet S-3, Parts II and III of the FY 2005 Medicare cost reports. Instructions for completing Worksheet S-3, Parts II and III are in the Provider Reimbursement Manual (PRM), Part II, sections 3605.2 and 3605.3. The data file used to construct the proposed wage index includes FY 2005 data submitted to us as of February 29, 2008. As in past years, we performed an intensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

We asked our fiscal intermediaries/MAC to revise or verify data elements that resulted in specific edit failures. For the proposed FY 2009 wage index, we identified and excluded 37 providers with data that was too aberrant to include in the proposed wage index, although if data elements for some of these providers are corrected, we intend to include some of these providers in the FY 2009 final wage index. We instructed fiscal intermediaries/MACs to complete their data verification of questionable data elements and to transmit any changes to the wage data no later than April 14, 2008. We believe all unresolved data elements will be resolved by the date the final rule is issued. The revised data will be reflected in the FY 2009 IPPS final rule.

In constructing the proposed FY 2009 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2005; inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we removed 20 hospitals that converted to CAH status between February 16, 2007, the cut-off date for CAH exclusion from the FY 2008 wage index, and February 18, 2008, the cut-off date for CAH exclusion from the FY 2009 wage index. After removing hospitals with aberrant data and hospitals that converted to CAH status, the proposed FY 2009 wage index is calculated based on 3,533 hospitals.

1. Wage Data for Multicampus Hospitals

In the FY 2008 final rule with comment period (72 FR 47317), we discussed our policy for allocating a multicampus hospital's wages and hours data, by full-time equivalent (FTE) staff, among the different labor market areas where its campuses are located. During the FY 2009 wage index desk review process, we requested fiscal intermediaries/MACs to contact multicampus hospitals that had campuses in different labor market areas to collect the data for the allocation. The proposed FY 2009 wage index in this proposed rule includes separate wage data for campuses of three multicampus hospitals.

As with the FY 2008 wage index, we allowed hospitals the option of allocating their wages and hours for the FY 2009 wage index based on either FTE staff or discharge data. Again, we Start Printed Page 23630are providing this option until a revised cost report is available that will allow a multicampus hospital to report the number of FTEs by location of its different campuses. Two of the three multicampus hospitals chose to have their wage data allocated by their Medicare discharge data. One of the hospitals provided FTE staff data for the allocation. The average hourly wage associated with each geographical location of a multicampus hospital is reflected in Table 2 of the Addendum to this proposed rule.

2. New Orleans' Post-Katrina Wage Index

Since 2005 when Hurricane Katrina dev