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Proposed Rule

Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates and to the Long-Term Care Hospital Prospective Payment System and Rate Year 2010 Rates

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Start Preamble Start Printed Page 24080

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 of acute care hospitals to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, Pub. L. 110-275) and the American Recovery and Reinvestment Act of 2009 (ARRA, Pub. L. 111-5). 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 acute care hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2009. We also are setting forth the proposed update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The proposed updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2009.

In addition, we are proposing to update the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). In the Addendum to this proposed rule, we also set forth the proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for rate year 2010. These proposed changes would be applicable to discharges occurring on or after October 1, 2009. In this proposed rule, we also note those provisions of the ARRA that amended provisions of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, Pub. L. 110-173) relating to payments to LTCHs and new LTCHs and LTCH satellite facilities, and increases in beds in existing LTCHs and LTCH satellite facilities under the LTCH PPS that will be implemented in the final rule issued for this proposed rule.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. E.S.T. on June 30, 2009.

ADDRESSES:

When commenting on issues presented in this proposed rule, please refer to file code CMS-1406-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 at http://www.regulations.gov. Follow the instructions for “Comment or Submission” and enter the file code CMS-1406-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-1406-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-1406-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:

Tzvi Hefter, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education Payments, EMTALA, Hospital Emergency Services, and Hospital-Within-Hospital Issues.

Michele Hudson, (410) 786-4487, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRGs 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-Acquired Conditions.

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 at 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 Start Printed Page 24081Friday 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 Web page address is http://www.gpoaccess.gov/​), by using local WAIS client software, or by telnet to swais.access.gpo.gov, then log in as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then log in as guest (no password required).

Acronyms

3M 3M Health Information System

AAHKS American Association of Hip and Knee Surgeons

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

AHA American Hospital Association

AHIC American Health Information Community

AHIMA American Health Information Management Association

AHRQ Agency for Healthcare Research and Quality

ALOS Average length of stay

ALTHA Acute Long Term Hospital Association

AMA American Medical Association

AMGA American Medical Group Association

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis Related Group System

ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-5

ASC Ambulatory surgical center

ASCA Administrative Simplification Compliance Act of 2002, Public Law 107-105

ASITN American Society of Interventional and Therapeutic Neuroradiology

BBA Balanced Budget Act of 1997, Public Law 105-33

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

BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 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, Public Law 99-272

COLA Cost-of-living adjustment

CoP [Hospital] condition of participation

CPI  Consumer price index

CY Calendar year

DPP Disproportionate patient percentage

DRA Deficit Reduction Act of 2005, Public Law 109-171

DRG Diagnosis-related group

DSH Disproportionate share hospital

ECI Employment cost index

EMR Electronic medical record

EMTALA Emergency Medical Treatment and Labor Act of 1986, Public Law 99-272

FAH Federation of Hospitals

FDA Food and Drug Administration

FFY Federal fiscal year

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

HCO High-cost outlier

HCRIS Hospital Cost Report Information System

HHA Home health agency

HHS Department of Health and Human Services

HIPAA Health Insurance Portability and Accountability Act of 1996, Public Law 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

ICR Information collection requirement

IHS Indian Health Service

IME Indirect medical education

I-O Input-Output

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

LOS Length of stay

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, Public Law 109-432

MIPPA Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173

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

NALTH National Association of Long Term Hospitals

NCD National coverage determination

NCHS National Center for Health Statistics

NCQA National Committee for Quality Assurance

NCVHS National Committee on Vital and Health Statistics

NECMA New England County Metropolitan Areas

NQF National Quality Forum

NTIS National Technical Information Service

NVHRI National Voluntary Hospital Reporting Initiative

OACT [CMS'] Office of the Actuary

OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509

OES Occupational employment statistics

OIG Office of the Inspector General

OMB Executive Office of Management and Budget

OPM U.S. Office of Personnel Management Start Printed Page 24082

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PIP Periodic interim payment

PLI Professional liability insurance

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

RPL Rehabilitation psychiatric long-term care (hospital)

RRC Rural referral center

RTI Research Triangle Institute, International

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

SSO Short-stay outlier

TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248

TEP Technical expert panel

TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90

TJA Total joint arthroplasty

UHDDS Uniform hospital discharge data set

VAP Ventilator-associated pneumonia

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

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

4. Critical Access Hospitals (CAHs)

5. Payments for Graduate Medical Education (GME)

B. Provisions of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)

C. Provisions of the American Recovery and Reinvestment Act of 2009 (ARRA)

D. 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 for Acute Care Hospitals

3. Proposed Rebasing and Revision of the Hospital Market Basket for Acute Care Hospitals

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

5. FY 2010 Policy Governing the IPPS for Capital-Related Costs

6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

7. Proposed Changes to the LTCH PPS

8. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

9. Determining Proposed Prospective Payments Rates for LTCHs

10. Impact Analysis

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

12. Discussion of Medicare Payment Advisory Commission Recommendations

E. Public Comments Received on Two LTCH PPS Interim Final Rules with Comment Period Issued in 2008

II. Proposed Changes to Medicare Severity Diagnosis-Related Group (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. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90

4. Retrospective Evaluation of FY 2008 Claims Data

5. Proposed Adjustments for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

6. Additional Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

7. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

8. Proposed Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2010 and Subsequent Years

9. Background on the Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

10. Proposed Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

a. Summary of the RTI Study of Charge Compression and CCR Refinement

b. Summary of the Rand Corporation Study of Alternative Relative Weight Methodologies

2. Summary of FY 2009 Changes and Discussion for FY 2010

3. Timeline for Revising the Medicare Cost Report

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

1. Statutory Authority

2. HAC Selection Process

3. Collaborative Process

4. Selected HAC Categories

5. Public Input Regarding Selected and Potential Candidate HACs

6. POA Indicator Reporting

G. Proposed Changes to Specific MS-DRG Classifications

1. MDC 5 (Diseases and Disorders of the Circulatory System): Intraoperative Fluorescence Vascular Angiography (IFVA)

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

3. Proposed Medicare Code Editor (MCE) Changes

a. Diagnoses Allowed for Males Only Edit

b. Manifestation Codes as Principal Diagnosis Edit

c. Invalid Diagnosis or Procedure Code

d. Unacceptable Principal Diagnosis

e. Proposed Creation of New Edit Titled “Wrong Surgeries”

f. Procedures Allowed for Females Only Edit

4. Surgical Hierarchies

5. Complication or Comorbidity (CC) Exclusions List

a. Background

b. CC Exclusions List for FY 2010

6. Review of Procedure Codes in MS-DRGs 981 through 983, 984 through 986, and 987 through 989

a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 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

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

H. Recalibration of MS-DRG Weights

I. 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 2010 Status of Technologies Approved for FY 2009 Add-On Payments

4. FY 2010 Applications for New Technology Add-On Payments

a. The AutoLITTTM System

b. CLOLAR® (clofarabine) Injection

c. LipiScanTM Coronary Imaging System

d. Spiration® IBV® Valve System

e. TherOx Downstream® System

5. Technical Correction

III. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals Start Printed Page 24083

A. Background

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required Under the MIEA-TRHCA

a. Legislative Requirement

b. Interim and Final Reports on Results of Acumen's Study

2. FY 2009 Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA

a. Reclassification Average Hourly Wage Comparison Criteria

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

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

D. Proposed Occupational Mix Adjustment to the Proposed FY 2010 Wage Index

1. Development of Data for the Proposed FY 2010 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey

2. Calculation of the Proposed Occupational Mix Adjustment for FY 2010

E. Worksheet S-3 Wage Data for the Proposed FY 2010 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

G. Method for Computing the Proposed FY 2010 Unadjusted Wage Index

H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2010 Occupational Mix Adjusted Wage Index

I. Revisions to the Wage Index Based on Hospital Redesignations

1. General

2. Effects of Reclassification/Redesignation

3. FY 2010 MGCRB Reclassifications

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

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

6. Reclassifications Under Section 508 of Public Law 108-173

J. Proposed FY 2010 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

K. Process for Requests for Wage Index Data Corrections

IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

A. Background

B. Rebasing and Revising the IPPS Market Basket

1. Development of Cost Categories and Weights

a. Medicare Cost Reports

b. Other Data Sources

2. Final Cost Category Computation

3. Selection of Price Proxies

a. Wages and Salaries

b. Employment Benefits

c. Fuel, Oil, and Gasoline

d. Electricity

e. Water and Sewage

f. Professional Liability Insurance

g. Pharmaceuticals

h. Food: Direct Purchase

i. Food: Contract Services

j. Chemicals

k. Blood and Blood Products

l. Medical Instruments

m. Photographic Supplies

n. Rubber and Plastics

o. Paper and Printing Products

p. Apparel

q. Machinery and Equipment

r. Miscellaneous Products

s. Professional Fees: Labor-Related

t. Administrative and Business Support Services

u. All Other: Labor-Related Services

v. Professional Fees: Nonlabor-Related

w. Financial Services

x. Telephone Services

y. Postage

z. All Other: Nonlabor-Related Services

4. Labor-Related Share

C. Separate Market Basket for Certain Hospitals Presently Excluded From the IPPS

D. Rebasing and Revising the Capital Input Price Index (CIPI)

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

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

1. Background

a. Overview

b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108-173

c. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 109-171

2. Retirement of RHQDAPU Program Measures

3. Quality Measures for the FY 2011 Payment Determination and Subsequent Years

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

b. Proposed RHQDAPU Program Quality Measures for the FY 2011 Payment Determination

3. Possible New Quality Measures for the FY 2012 Payment Determination and Subsequent Years

4. Possible New Quality Measures for the FY 2012 Payment Determination and Subsequent Years

5. Form, Manner, and Timing of Quality Data Submission

a. Proposed RHQDAPU Program Procedures for the FY 2011 Payment Determination

b. RHQDAPU Program Disaster Extensions and Waivers

c. HACHPS Requirements for the FY 2011 Payment Determination

6. Proposed Chart Validation Requirements

a. Proposed Chart Validation Requirements and Methods for the FY 2011 Payment Determination

b. Proposed Chart Validation Requirements and Methods for the FY 2012 Payment Determination and Subsequent Years

c. Possible Supplements to the Chart Validation Process for the FY 2013 Payment Determination and Subsequent Years

7. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2011 Payment Determination and Subsequent Years

8. Public Display Requirements for the FY 2011 Payment Determination and Subsequent Years

9. Proposed Reconsideration and Appeal Procedures for the FY 2010 Payment Determination

10. RHQDAPU Program Withdrawal Deadlines

11. Electronic Health Records

a. Background

b. EHR Testing of Quality Measures Submission

c. HITECH Act EHR Provisions

B. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs): Budget Neutrality Adjustment Factors for FY 2002-Based Hospital-Specific Rate for MDHs

1. Background

2. FY 2002-Based Hospital-Specific Rate

C. Rural Referral Centers (RRCs)

1. Case-Mix Index

2. Discharges

D. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2010

3. IME-Related Proposed Changes in Other Sections of this Proposed Rule

E. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs)

1. Background

2. Proposed Policy Change Relating to the Inclusion of Labor and Delivery Patient Days in the Medicare DSH Calculation

a. Background

b. Proposed Policy Change

3. Proposed Policy Change Relating to Calculation of Inpatient Days in the Medicaid Fraction in the Medicare DSH Calculation

a. Background

b. Proposed Policy Change

4. Proposed Policy Change Relating to the Exclusion of Observation Beds and Patient Days From the Medicare DSH Calculation

a. Background

b. Proposed Policy Change

F. Technical Correction to Regulations on Payments for Anesthesia Services Furnished by Hospital or CAH Employed Nonphysician Anesthetists or Obtained Under Arrangements

G. Payments for Direct Graduate Medical Education (GME) Costs

1. Background

2. Clarification of Definition of New Medical Residency Training Program

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

4. Technical Corrections to Regulations

H. Hospital Emergency Services Under EMTALA

1. Background

2. Proposed Changes Relating to Applicability of Sanctions Under EMTALA

I. Rural Community Hospital Demonstration Program

J. Technical Correction to Regulations Relating to Calculation of the Federal Rate Under the IPPS

VI. Proposed Changes to the IPPS for Capital-Related Costs Start Printed Page 24084

A. Overview

B. Exception Payments

C. New Hospitals

D. Hospitals Located in Puerto Rico

E. Proposed Changes

1. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment

a. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009

b. Proposed Prospective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2010 and Subsequent Years

c. Proposed Documentation and Coding Adjustment to the Puerto Rico-Specific Capital Rate

2. Revision to the FY 2009 IME Adjustment Factor

3. Other Proposed Changes for FY 2010

VII. Proposed Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

B. Criteria for Satellite Facilities of Hospitals

C. Critical Access Hospitals (CAHs)

1. Background

2. Payment for Clinical Diagnostic Laboratory Tests Furnished by CAHs

3. CAH Optional Method of Payment for Outpatient Services

D. Provider-Based Status of Facilities and Organizations: Proposed Policy Changes

1. Background

2. Proposed Changes to the Scope of the Provider-Based Status Regulations for CAHs

a. CAH-Based Clinical Diagnostic Laboratory Facilities

b. CAH-Based Ambulance Services

3. Technical Correction to Regulations

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for RY 2010

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

2. Criteria for Classification as a LTCH

a. Classification as a LTCH

b. Hospitals Excluded from the LTCH PPS

3. Limitation on Charges to Beneficiaries

4. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights

1. Background

2. Patient Classifications Into MS-LTC-DRGs

a. Background

b. Proposed Changes to the MS-LTC-DRGs for RY 2010

3. Development of the Proposed RY 2010 MS-LTC-DRG Relative Weights

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

b. Data

c. Hospital-Specific Relative Value (HSRV) Methodology

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

e. Low-Volume MS-LTC-DRGs

f. Steps for Determining the Proposed RY 2010 MS-LTC-DRG Relative Weights

C. Proposed Changes to the LTCH Payment Rates and Other Changes to the RY 2010 LTCH PPS

1. Overview of Development of the LTCH Payment Rates

2. Market Basket for LTCHs Reimbursed under the LTCH PPS

a. Overview

b. Proposed Market Basket under the LTCH PPS for RY 2010

c. Proposed Market Basket Update for LTCHs for RY 2010

d. Proposed Labor-Related Share under the LTCH PPS for RY 2010

3. Proposed Adjustment for Changes in LTCHs' Case-Mix Due to Changes in Documentation and Coding Practices That Occurred in a Prior Period

a. Background

b. Evaluation of FY 2007 Claims Data

c. Evaluation of FY 2008 Claims Data

d. Proposed RY 2010 Documentation and Coding Adjustment

D. Monitoring

E. Research Conducted by the Research Triangle Institute, International (RTI)

F. Proposed Technical Corrections of LTCH PPS Regulations

IX. MedPAC Recommendations

X. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

C. Additional Information Collection Requirements

1. Present on Admission (POA) Indicator Reporting

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

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

4. Occupational Mix Adjustment to the FY 2010 Index (Hospital Wage Index Occupational Mix Survey)

5. Hospital Applications for Geographic Reclassifications by the MGCRB

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, 2009

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2010

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 to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2010

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 2010

C. Capital Input Price Index

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

V. Proposed Changes to the Payment Rates for the LTCH PPS for RY 2010

A. Proposed LTCH PPS Standard Federal Rate for RY 2010

B. Proposed Adjustment for Area Wage Levels under the LTCH PPS for RY 2010

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

D. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for RY 2010

VI. Tables

Table 1A.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (67.1 Percent Labor Share/32.9 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 1E.—LTCH Standard Federal Prospective Payment Rate

Table 2.—Acute Care Hospitals Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2008; Hospital Wage Indexes for Federal Fiscal Year 2010; Hospital Average Hourly Wages for Federal Fiscal Years 2008 (2004 Wage Data), 2009 (2005 Wage Data), and 2010 (2006 Wage Data); and 3-Year Average of Hospital Average Hourly Wages

Table 3A.—FY 2010 and 3-Year Average Hourly Wage for Acute Care Hospitals in Urban Areas by CBSA

Table 3B.—FY 2010 and 3-Year Average Hourly Wage for Acute Care Hospitals in Rural Areas by CBSA

Table 4A.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State—FY 2010

Table 4B.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State—FY 2010

Table 4C.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State—FY 2010

Table 4D-1.—Rural Floor Budget Neutrality Factors for Acute Care Hospitals—FY 2010

Table 4D-2.—Urban Areas with Acute Care Hospitals Receiving the Statewide Rural Floor or Imputed Floor Wage Index—FY 2010

Table 4E.—Urban CBSAs and Constituent Counties for Acute Care Hospitals—FY 2010

Table 4F.—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals by CBSA—FY 2010

Table 4J.—Out-Migration Adjustment for Acute Care Hospitals—FY 2010 Start Printed Page 24085

Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2010

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 Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​)

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

Table 6J.—Major Complication and Comorbidity (MCC) List (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 2008 MedPAR Update—December 2008 GROUPER V26.0 MS-DRGs

Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2008 MedPAR Update—December 2008 GROUPER V27.0 MS-DRGs

Table 8A.—Proposed Statewide Average Operating Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009

Table 8B.—Proposed Statewide Average Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009

Table 8C.—Proposed Statewide Average Total Cost-to-Charge Ratios (CCRs) for LTCHs—March 2009

Table 9A.—Hospital Reclassifications and Redesignations—FY 2010

Table 9C.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2010

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 2009

Table 11.—Proposed MS-LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and Short-Stay Outlier Threshold for Discharges Occurring from October 1, 2009 through September 30, 2010 under the LTCH PPS

Table 12A.—LTCH PPS Wage Index for Urban Areas for Discharges Occurring from October 1, 2009 through September 30, 2010

Table 12B.—LTCH PPS Wage Index for Rural Ares for Discharges Occurring from October 1, 2009 through September 30, 2010

Appendix A—Regulatory Impact Analysis

I. Overall Impact

II. Objectives of the IPPS

III. Limitations of Our Analysis

IV. Hospitals Included in and Excluded From the IPPS

V. Effects on Hospitals Excluded from the IPPS

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

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects of the Proposed Changes to the MS-DRG Reclassifications and Relative Cost-Based Weights (Column 1)

D. Effects of the Application of Recalibration Budget Neutrality (Column 2)

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

F. Application of the Wage Budget Neutrality Factor (Column 4)

G. Combined Effects of Proposed MS-DRG and Wage Index Changes (Column 5)

H. Effects of MGCRB Reclassifications (Column 6)

I. Effects of the Proposed Rural Floor and Imputed Floor, Including the Transition To Apply Budget Neutrality at the State Level (Column 7)

J. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 8)

K. Effects of All Proposed Changes Prior to Documentation and Coding (or CMI) Adjustment (Column 9)

L. Effects of All Proposed Changes With Documentation and Coding (or CMI) Adjustment (Column 10)

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

N. 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 Policy Change Relating to New Medical Service and Technology Add-On Payments

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

D. Effects of Correcting the FY 2002-Based Hospital-Specific Rates for MDHs

E. Effects of Proposed Policy Changes Relating to DSH Payment Adjustment

F. Effects of Proposed Policy Changes Related to Direct GME

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

H. Effects of Proposed Policy Changes Relating to Payments to CAHs

I. Effects of Proposed Policy Changes Relating to Provider-Based Status of Facilities and Organizations

J. Effects of Proposed Policy Changes Relating to Criteria for Satellite Facilities of Hospitals

K. Effects of Implementation of Rural Community Hospital Demonstration Program

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

B. Results

IX. Effects of Proposed Payment Rate Changes and Policy Changes Under the LTCH PPS

A. Introduction and General Considerations

B. Impact on Rural Hospitals

C. Anticipated Effects of Proposed LTCH PPS Payment Rate Change and Policy Changes

D. Effect on the Medicare Program

E. Effect on Medicare Beneficiaries

X. Alternatives Considered

XI. Overall Conclusion

A. Acute Care Hospitals

B. LTCHs

XII. Accounting Statements

A. Acute Care Hospitals

B. LTCHs

XIII. 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 2010

III. Secretary's Recommendation

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

I. Background

A. Summary

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

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at 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. Start Printed Page 24086This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.

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

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

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

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate 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 highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has no more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. We began phasing out the capital IPPS IME adjustment in FY 2008, as discussed in section VI.B.2. of this preamble. However, section 4301(b)(1) of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5), enacted on February 17, 2009, requires that the 50-percent reduction in the capital IPPS teaching adjustment for FY 2009 specified in the regulations at § 412.322(c) shall not be applied. Section 4301(b)(2) of Public Law 111-5 specifies that, for subsequent years, the change made by section 4301(b)(1) has no effect on the capital teaching adjustment. Therefore, beginning in FY 2010, there will no longer be a capital teaching adjustment under the capital IPPS. The provisions of section 4301(b) of Public Law 111-5 are discussed in sections VI.A. and E. of this preamble. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

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

2. Hospitals and Hospital Units Excluded from the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the proposed annual updates to the LTCH PPS are now included as part of the IPPS annual update document (for RY 2010, in this proposed rule). Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs per discharge.

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

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554. During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for Start Printed Page 24087cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. Beginning with RY 2010, we are issuing the annual updates to the LTCH PPS in the same documents that update the IPPS (73 FR 26797 through 26798).

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

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

B. Provisions of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)

Section 148 of the MIPPA (Pub. L. 110-275) changes the payment rules regarding outpatient clinical diagnostic laboratory tests furnished by a CAH. The statutory change applies to services furnished on or after July 1, 2009. In section VI.C.2. of the preamble of this proposed rule, we discuss our proposal to codify policies in the Medicare regulations to implement this provision.

C. Provisions of the American Recovery and Reinvestment Act of 2009 (ARRA)

Section 4301(b) of the American Recovery and Reinvestment Act of 2009 (AARA), Public Law 111-5, enacted on February 17, 2009, requires that the phase-out of the capital IPPS teaching adjustment at § 412.322(c) (that is, the 50-percent reduction for FY 2009) shall be applied, as if such paragraph had not been in effect. Section 4301(b) of Public Law 111-5 also specifies that there will be no effect on the phase-out of the capital teaching adjustment for subsequent years, such that, for discharges occurring during FY 2010 and thereafter, there will no longer be a teaching adjustment under the capital IPPS as is currently specified at § 412.322(d). We discuss the proposed implementation of these provisions in section VI.A. and E. of the preamble of this proposed rule.

Section 4302 of Public Law 111-5 included several amendments to provisions of section 114 of the MMSEA relating to (1) the 3-year delay in the application of certain provisions of the payment adjustments for short-stay outliers and revision to the RY 2008 standard Federal rate for LTCHs; and (2) the 3-year moratorium on the establishment of new LTCHs and LTCH satellite facilities and on increases in beds in existing LTCHs and LTCH satellite facilities. We discuss the proposed implementation of these provisions in sections I.E. and VIII. of the preamble of this proposed rule.

D. 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 of acute care hospitals in FY 2010. 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 setting forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for RY 2010.

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 of this proposed rule, we are including—

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment to hospital-specific rates for FY 2010 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle International, Inc. (RTI) and RAND Corporation reports and recommendations relating to charge compression, including a solicitation of public comments on the “over” standardization of hospital charges.
  • Proposed recalibrations of the MS-DRG relative weights.

We are also presenting a listing and discussion of hospital-acquired conditions (HACs), including infections, that are subject to the statutorily required quality adjustment in MS-DRG payments for FY 2010.

We are presenting our evaluation and analysis of the FY 2010 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

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

  • Second year of the 3-year transition from national to within-State budget neutrality for the rural floor and imputed floor.
  • Final year of the 2-year transition for changes in the average hourly wage criterion for geographic reclassifications.
  • Changes to the CBSA designations.
  • The proposed FY 2010 wage index update using wage data from cost reporting periods that began during FY 2007.
  • Analysis and implementation of the proposed FY 2010 occupational mix adjustment to the wage index for acute care hospitals, including the use of data from the 2007-2008 occupational mix survey.
  • Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.
  • The proposed adjustment to the wage index for acute care hospitals for FY 2010 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 2010 wage index for acute care hospitals.

3. Proposed Rebasing and Revision of the Hospital Market Basket for Acute Care Hospitals

In section IV. of the preamble of this proposed rule, we are proposing to rebase and revise the acute care hospital operating and capital market baskets to be used in developing the FY 2010 update factor for the operating and capital prospective payment rates and the FY 2010 update factor for the Start Printed Page 24088excluded hospital rate-of-increase limits. We also are setting forth the data sources used to determine the proposed revised market basket relative weights.

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

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

  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Discussion of applying the correct budget neutrality adjustment for the FY 2002-based hospital-specific rates for 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 2010.
  • Proposed changes to the policies governing payments to Medicare disproportionate share hospitals, including proposed policies relating to the inclusion of labor and delivery patient days in the calculation of the DSH payment adjustment, calculation of inpatient days in the Medicaid fraction for the Medicare DSH calculation, and exclusion of observation beds and patient days from the Medicare DSH calculation and from the bed count for the IME adjustment.
  • Proposed changes to the policies governing payment for direct GME.
  • Proposed changes to policies on hospital emergency services under EMTALA relating to the applicability of sanctions under EMTALA.
  • Discussion of the implementation of the Rural Community Hospital Demonstration Program in FY 2010.
  • Proposed technical correction to the regulations governing the calculation of the Federal rate under the IPPS.

5. FY 2010 Policy Governing the IPPS for Capital-Related Costs

In section VI. of the preamble to this proposed rule, we discuss the payment policy requirements for capital-related costs and capital payments to hospitals for FY 2010. We also are proposing to remove a section of the regulations relating to the phase-out of the capital IME adjustment for FY 2009 to implement the provisions of section 4301(b) of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5).

6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VII. of the preamble of this proposed rule, we discuss—

  • Proposed changes to payments to excluded hospitals.
  • Proposed changes to the regulations governing satellite facilities of hospitals.
  • Proposed changes relating to payments to CAHs, including payment for clinical laboratory tests furnished by CAHs and payment for outpatient facility services when a CAH elects the optional payment method.
  • Proposed changes to the rules governing provider-based status of facilities and a proposed technical correction to the regulations governing provider-based entities.

7. Proposed Changes to the LTCH PPS

In section VIII.A. through C. and F. of the preamble of this proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for RY 2010, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for RY 2010, the proposed use of the FY 2002-based RPL market basket for LTCHs, and proposed technical corrections to the LTCH PPS regulations.

In section VIII.D. of the preamble of this proposed rule, we discuss our ongoing monitoring protocols under the LTCH PPS. In section VIII.E., we discuss the Research Triangle Institute, International (RTI) Phase III Report on its evaluation of the feasibility of establishing facility and patient criteria for LTCHs, as recommended by MedPAC in its June 2004 Report to Congress.

8. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2010 prospective payment rates for operating costs and capital-related costs for acute care hospitals. 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 2010 for hospitals excluded from the IPPS.

9. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed RY 2010 prospective standard Federal rate. We also establish the proposed adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

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 acute care hospitals and LTCHs.

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

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2010 for the following:

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

12. 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 hospital inpatient operating costs and capital-related costs under the IPPS, for hospitals and distinct part hospital units excluded from the IPPS, and for LTCHs. We address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2008 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov. Start Printed Page 24089

E. Public Comments Received on Two LTCH PPS Interim Final Rules With Comment Period Issued in 2008

On May 6, 2008 and May 22, 2008, we issued in the Federal Register two interim final rules with comment periods relating to the LTCH PPS (73 FR 24871 and 73 FR 29699, respectively), which implement section 114 of Public Law 110-173 (MMSEA). The May 6, 2008 interim final rule with comment period implemented provisions of section 114 of Public Law 110-173 relating to a 3-year delay in the application of certain provisions of the payment adjustment for short-stay outliers and revisions to the RY 2008 standard Federal rate for LTCHs. The May 22, 2008 interim final rule with comment period implemented certain provisions of section 114 of Public Law 110-173 relating to a 3-year moratorium on the establishment of new LTCHs and LTCH satellite facilities and on increases in beds in existing LTCHs and LTCH satellite facilities. The May 22, 2008 interim final rule with comment period also implemented a 3-year delay in the application of certain payment policies that apply to payment adjustments for discharges from LTCHs and LTCH satellite facilities that were admitted from certain referring hospitals in excess of various percentage thresholds.

Section 4302 of the American Recovery and Reinvestment Act of 2009 (ARRA, Pub. L. 111-5) included several amendments to section 114 of Public Law 110-173. We have issued instructions to the fiscal intermediaries and Medicare administrative contractors (MACs) to interpret these amendments (Change Request 6444). We intend to implement the provisions of section 4302 of Public Law 111-5 by issuing an interim final rule with comment period along with the FY 2010 IPPS and RY 2010 LTCH PPS final rule that is scheduled for publication in August 2009. In the FY 2010 IPPS and RY 2010 LTCH PPS final rule, we also intend to respond to the public comments that we received on the two interim final rules with comment period noted above and finalize those provisions, as appropriate.

II. Proposed Changes to Medicare Severity Diagnosis-Related Group (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 severity of illness into account 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 other DRGs across 13 different clinical areas involving nearly 1.7 million cases. As described in more detail below, these refinements were intermediate steps towards comprehensive reform of both the relative weights and the DRG system 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, based on severity levels of illness, was established (72 FR 47141).

Currently, cases are classified into MS-DRGs for payment under the IPPS based on the following information reported by the hospital: 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 developing 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 formulated 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. 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 2009, cases are assigned to one of 746 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.
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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 13 MS-DRGs to which 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 tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the 13 current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)

MS-DRG 001Heart Transplant or Implant of Heart Assist System with MCC.
MS-DRG 002Heart Transplant or Implant of Heart Assist System without MCC.
MS-DRG 003ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 004Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 005Liver Transplant with MCC or Intestinal Transplant.
MS-DRG 006Liver Transplant without MCC.
MS-DRG 007Lung Transplant.
MS-DRG 008Simultaneous Pancreas/Kidney Transplant.
MS-DRG 009Bone Marrow Transplant.
MS-DRG 010Pancreas Transplant.
MS-DRG 011Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
MS-DRG 012Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
MS-DRG 013Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.

Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. 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 hospital resource consumption. 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 Start Printed Page 24091nature 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 improvements in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our MS-DRG analysis for the FY 2009 final rule was based on data from the March 2008 update of the FY 2007 MedPAR file, which contained hospital bills received through March 31, 2008, for discharges occurring through September 30, 2007. For this proposed rule, for FY 2010, our MS-DRG analysis is based on data from the September 2008 update of the FY 2008 MedPAR file, which contains hospital bills received through September 30, 2008, for discharges occurring through September 30, 2008.

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 comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, comments about MS-DRG classification issues should be submitted 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). Based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 IPPS final rule (71 FR 47906 through 47912), we discussed several concerns raised by commenters regarding the proposal to adopt CS DRGs. We acknowledged the many comments suggesting the logic of Medicare's DRG system should continue to remain in the public domain as it has since the inception of the PPS. We also acknowledged concerns about the impact on hospitals and software vendors of moving to a proprietary system. Several commenters suggested that CMS refine the existing DRG classification system to preserve the many policy decisions that were made over the last 20 years and were already incorporated into the DRG system, such as complexity of services and new device technologies. Consistent with the concerns expressed in the public comments, this option had the advantage of using the existing DRGs as a starting point (which was already familiar to the public) and retained the benefit of many DRG decisions that were made in recent years. We stated our belief that the suggested approach of incorporating severity measures into the existing DRG system was a viable option that would be evaluated.

Therefore, 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 represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs 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 (71 FR 47898), 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 FY 2009, and our proposals for FY 2010 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 Start Printed Page 24092illness 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 2010 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 were 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 discussion of the issue of charge compression and the HSRV cost-weighting methodology for FY 2010.

We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any 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 to make in this proposed rule for FY 2010 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. Proposed FY 2010 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

As we discussed earlier in this preamble, we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008 (currently, 746 DRGs, which include 1 additional MS-DRG created in FY 2009). By increasing the number of DRGs and more fully taking into account patients' severity of illness in Medicare payment rates for acute care hospitals, the use of MS-DRGs encourages hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that 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 additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We phased in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not adjust the FY 2010 −1.8 percent documentation and coding adjustment promulgated in the FY 2008 IPPS final rule with comment period. To comply with section 7(a) of Public Law 110-90, we promulgated a final rule on November 27, 2007 (72 FR 66886) that modified the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly. These revisions were effective on October 1, 2007.

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As discussed in the FY 2009 IPPS final rule (73 FR 48447) and required by statute, we applied a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding Start Printed Page 24093adjustment for FY 2009 was in addition to the −0.6 percent adjustment for FY 2008, yielding a combined effect of −1.5 percent.

2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

Section 7(b)(1)(A) of Public Law 110-90 requires that if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years.

3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90

If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup (or repay) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.

4. Retrospective Evaluation of FY 2008 Claims Data

In order to implement the requirements of section 7 of Public Law 110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that we planned a thorough retrospective evaluation of our claims data. We stated that the results of this evaluation would be used by our actuaries to determine any necessary payment adjustments to the standardized amounts under section 1886(d) of the Act beginning in FY 2010 to ensure the budget neutrality of the MS-DRGs implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 23541 through 23542), we described our preliminary plan for a retrospective analysis of inpatient hospital claims data and invited public input on our proposed methodology.

In that proposed rule, we indicated that we intended to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expected that the two largest parts of this overall national average change would be attributable to underlying changes in actual patient severity and to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we planned 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 MS-DRGs divide the base DRGs into three severity levels (with MCC, with CC and without CC); the previously used CMS DRGs had only two severity levels (with CC and without CC). Under the CMS DRG system, the majority of hospital discharges had a secondary diagnosis which was on the CC list, which led to the higher severity level. The MS-DRGs significantly changed the code lists of what was classified as an MCC or a CC. Many codes that were previously classified as a CC are no longer included on the MS-DRG CC list because the data and clinical review showed these conditions did not lead to a significant increase in resource use. The addition of a new level of high severity conditions, the MCC list, also provided a new incentive to code more precisely in order to increase the severity level. We anticipated that hospitals would examine the MS-DRG MCC and CC code lists and then work with physicians and coders on documentation and coding practices so that coders could appropriately assign codes from the highest possible severity level. We note that there have been numerous seminars and training sessions on this particular coding issue. The topic of improving documentation practices in order to code conditions on the MCC list was also discussed extensively by participants at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Participants discussed their hospitals' efforts to encourage physicians to provide more precise documentation so that coders could appropriately assign codes that would lead to a higher severity level. Because we expected most of the documentation and coding changes under the MS-DRG system would occur in the secondary diagnoses, we believed that the shifts among base DRGs were less likely to be the result of the MS-DRG system and the shifts within base DRGs were more likely to be the result of the MS-DRG system. We also anticipated evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the documentation and coding payment effect and to quantify their impact. This step entailed analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

In that same proposed rule, we also stated that, 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 changes, we might decide, if feasible, to use historical data from our Hospital Payment Monitoring Program (HPMP) to corroborate the within-base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC).

In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for performing 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.

A few commenters, including MedPAC, expressed support for the Start Printed Page 24094analytic approach described in the FY 2009 IPPS proposed rule. A number of other commenters expressed concerns about certain aspects of the approach and/or suggested alternate analyses or study designs. In addition, one commenter recommended that any determination or retrospective evaluation by the actuaries of the impact of the MS-DRGs on case-mix be open to public scrutiny prior to the implementation of the payment adjustments beginning in FY 2010.

We took these comments into consideration as we developed our proposed analysis plan (described in greater detail below) and in this proposed rule are seeking comment on our methodology. We performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries have determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008.

In performing this analysis, we first divided the case-mix index (CMI) obtained by grouping the FY 2008 claims data through the FY 2008 GROUPER (Version 25.0) by the CMI obtained by grouping these same FY 2008 claims through the FY 2007 GROUPER (Version 24.0). This resulted in a value of 1.028. Because these cases are the same FY 2008 cases grouped using the Versions 24.0 and 25.0 of the GROUPER, we attribute this increase primarily to two factors: (1) The effect of changes in documentation and coding under the MS-DRG system; and (2) the measurement effect from the calibration of the GROUPER. We estimated the measurement effect from the calibration of the GROUPER by dividing the CMI obtained by grouping cases in the FY 2007 claims data through the FY 2008 GROUPER by the CMI obtained by grouping cases in these same claims through the FY 2007 GROUPER. This resulted in a value of 1.003. In order to isolate the documentation and coding effect, we then divided the combined effect of the changes in documentation and coding and measurement (1.028) by the measurement effect (1.003) to yield 1.025. Therefore, our estimate of the documentation and coding increase is 2.5 percent.

We then sought to corroborate this 2.5 percent estimate by examining the increases in the within-base DRGs as compared to the increases in the across base DRGs as described earlier in our analysis plan. In other words, we looked for improvements in code selection that would lead to a secondary diagnosis increasing the severity level to either a CC or an MCC level.

We found that the within-base DRG increases were almost entirely responsible for the case-mix change, supporting our conclusion that the 2.5 percent estimate was an accurate reflection of the FY 2008 effect of changes in documentation and coding under the MS-DRG system. In fact, almost every base DRG that was split into different severity levels under the MS-DRG system experienced increases in the within-base DRGs. In Figure 1 below, we show that, between FY 2007 and FY 2008, there was a 5 percentage point increase in the discharges with an MCC from 21 percent to 26 percent and a corresponding decrease of 5 percentage points from 56 percent to 51 percent in discharges without a CC or an MCC.

We then further analyzed the changes in the within-base DRGs to determine which MS-DRGs had the highest contributions to this increase. Consistent with the expectations of our medical coding experts concerning areas with potential for documentation and coding improvements, the top contributors were heart failure, chronic obstructive pulmonary disease, and simple pneumonia and pleurisy. In fact, the coding of heart failure was discussed extensively at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Heart failure is a very common secondary diagnosis among Medicare hospital admissions. The heart failure codes are assigned to all three severity levels. Some are classified as non-CCs, while others are on the CC and MCC lists. By changing physician documentation to more precisely identify the type of heart failure, coders are able to appropriately change the severity level of cases from the lowest level (non-CC) to a higher severity level (CC or MCC). This point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting as coders discussed their work with physicians on this coding issue. Many of the participants indicated that Start Printed Page 24095additional work was still needed with their physicians in order to document conditions in the medical record more precisely.

The results of this analysis provides additional support for our conclusion that the 2.5 percent estimate accurately reflects the FY 2008 increases in documentation and coding under the MS-DRG system.

While we attempted to use the CDAC data to distinguish real increase in case-mix growth from documentation and coding in the overall case-mix number, we found aberrant data and significant variation across the FY 1999-FY 2007 analysis period. It was not possible to distinguish changes in documentation and coding from changes in real case-mix in the CDAC data. Therefore, we concluded that the CDAC data would not support analysis of real case-mix growth that could be used in our retrospective evaluation of the FY 2008 claims data.

Although we could not use the CDAC data, we did examine the overall growth in case-mix using the FY 2007 claims data in which we grouped cases using the FY 2007 GROUPER and the FY 2008 data in which we grouped cases using the FY 2008 GROUPER. We found the overall growth in case-mix was 1.9 percent. The implication of overall FY 2008 case-mix growth of 1.9 percent relative to our estimate of the FY 2008 documentation and coding effect and the GROUPER measurement effect is that real case-mix declined between FY 2007 and FY 2008. After additional data analysis, our actuaries determined that the 1.9 percent growth in overall case-mix was consistent with our 2.5 percent estimate of the FY 2008 documentation and coding effect for reasons that included: (1) Our mathematical model for determining the 2.5 percent documentation and coding effect was corroborated by the amount of case-mix growth attributed to within-DRG improvements in secondary coding of MCCs and CCs; (2) our data analysis confirmed the substitution of specified diagnosis for unspecified diagnoses for such common conditions as heart failure and chronic obstructive pulmonary disease; and (3) there was a relative decline in above average cost short-stay surgical cases that can be performed on an outpatient basis, such as certain high volume pacemaker procedures.

We also examined the differences in case-mix between the FY 2008 claims data in which cases were grouped through the FY 2008 GROUPER (Version 25.0) and the FY 2009 GROUPER (Version 26.0). This was to help inform analysis of the potential for increase in the documentation and coding effect in FY 2009. In FY 2008, we were transitioning to the fully implemented MS-DRG relative weights and the fully implemented cost-based weights. We found that the use of the transition weights mitigated the FY 2008 documentation and coding effect on expenditures. Using the FY 2009 relative weights, the documentation and coding effect would have been an estimated 3.2 percent in FY 2008 instead of our estimated 2.5 percent. Even assuming no continued improvement in documentation and coding in FY 2009, we estimate that the use of the FY 2009 relative weights will result in an additional 0.7 percent documentation and coding effect in FY 2009. After taking into account the results of our FY 2008 analysis and the expertise of our coding staff, our actuaries continue to estimate that the cumulative overall effect of documentation and coding improvements under the MS-DRG system will be 4.8 percent. However, our actuaries estimate that these improvements will be substantially complete by the end of FY 2009. Therefore, our current estimate of the FY 2009 MS-DRG documentation and coding effect is 2.3 percent.

As in prior years, the FY 2008 MedPAR files are available to the public to allow independent analysis of the FY 2008 documentation and coding effect. Interested individuals may order these files by going to the Web site at http://www.cms.hhs.gov/​LimitedDataSets/​ and clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web page will describe the file and provide directions and further detailed instructions for how to order.

Persons placing an order must send the following: a Letter of Request, the LDS Data Use Agreement and Research Protocol (refer to the Web site for further instructions), the LDS Form, and a check for $3,655 to: Mailing address if using the U.S. Postal Service: Centers for Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520. Mailing address if using express mail: Centers for Medicare & Medicaid Services, OFM/Division of Accounting—RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.

We are seeking public comment on our methodology and analysis. We intend to update our analysis with FY 2008 data on claims paid through March 2008 in the FY 2010 IPPS final rule.

5. Proposed Adjustments for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

The estimated 2.5 percent change in FY 2008 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. Under section 7(B)(1)(a) of Public Law 119-90, the Secretary is required to make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act to the average standardized amounts for subsequent fiscal years in order to eliminate the full effect of the documentation and coding changes. In addition, we note that the Secretary has the authority to make this prospective adjustment in FY 2010 under section 1886(d)(3)(A)(vi) of the Act. As we have consistently stated since the initial implementation of the MS-DRG system, we do not believe it is appropriate for expenditures to increase due to MS-DRG-related changes in documentation and coding that do not reflect real changes in case-mix.

Therefore, we are proposing to change the average standardized amounts under section 1886(d) of the Act in FY 2010 by −1.9 percent, the difference between the changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2008 and the prospective adjustment applied under section 7 of Public Law 110-90. We are proposing to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments not reflective of an increase in real case-mix.

We also estimate that the change in case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009 will be 2.3 percent, which would exceed by 1.4 percentage points the −0.9 percent prospective documentation and coding adjustment for FY 2009 applied under section 7(a) of Public Law 100-90. We have the statutory authority to adjust the FY 2010 rates for this estimated 1.4 percentage point increase. However, given that Public Law 100-90 requires a retrospective claims evaluation for the additional adjustments described in section II.D.6. of this preamble, we believe our Start Printed Page 24096evaluation of the extent of the overall national average changes in case-mix for FY 2009 should also be based on a retrospective evaluation of all FY 2009 claims data. Because we will not receive all FY 2009 claims data prior to publication of the final rule, we will address any difference between the increase in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.

We are seeking public comment on the proposed −1.9 percent prospective adjustment to the standardized amounts under section 1886(d) of the Act to address the effects of documentation and coding changes unrelated to changes in real case-mix in FY 2008. In addition, we are seeking public comments on addressing in the FY 2011 rulemaking cycle any differences between the increase in FY 2009 case-mix due to changes in documentation and coding changes that do not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90.

6. Additional Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

As indicated above, the 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. Our actuaries currently estimate that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion. As described earlier, section 7(b)(1)(B) of Public Law 110-90 requires an additional adjustment for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of this increase in aggregate payments (including interest).

Although section 7(b)(1)(B) of Public Law 110-90 requires us to make this adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to when during this 3 year period we will apply the adjustment. For example, we could make adjustments to the standardized amounts under section 1886(d) of the Act in FY 2010, 2011, and 2012. Alternatively, we could delay offsetting the increase in FY 2008 aggregate payments by applying the adjustment required under section 7(b)(1)(B) of Public Law 110-90 only to FYs 2011 and 2012.

We are not proposing to make an adjustment to FY 2010 to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but intend to address this issue in future rulemaking for FYs 2011 and 2012. That is, we will address recouping the additional expenditures that occurred in FY 2008 as a result of the 1.9 percentage point difference between the actual changes in documentation and coding that do not reflect real changes in case-mix, or 2.5 percent, and the −0.6 percent adjustment applied under Public Law 110-90 in FY 2011 and/or FY 2012, as required by law. While we have the statutory authority to make this −1.9 percent recoupment adjustment entirely in FY 2010, we are proposing to delay the adjustment until FY 2011 and FY 2012 because we do not have any data yet on the magnitude of the documentation and coding effect in FY 2009. If the documentation and coding effect were less in FY 2009 than our current estimates, it could lessen the anticipated recoupment adjustment that we currently estimate we would have to make for FY 2008 and FY 2009 combined. As we have the authority to recoup the aggregate effect of this 1.9 percentage point difference in FY 2008 IPPS payments in FY 2011 or FY 2012 (with interest), delaying this adjustment would have no effect on Federal budget outlays. For this reason, we are proposing to wait until we have a complete year of data on the FY 2009 documentation and coding effect before applying a recoupment adjustment for IPPS spending that occurred in FY 2008 or we estimate will occur in FY 2009.

As discussed above, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data. Because we will not receive all FY 2009 claims data prior to publication of the final rule, we intend to address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we perform a retrospective evaluation of the FY 2009 claims data. Our actuaries currently estimate that this adjustment will be approximately −3.3 percent. This reflects the difference between the estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3 percent for FY 2009) and the cumulative −1.5 percent documentation and coding adjustments applied under section 7(a) of Public Law 110-90 (−0.6 percent in FY 2008 and −0.9 percent in FY 2009). We note that the actual adjustments are multiplicative and not additive. This estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 includes the impact of the changes in documentation and coping first occurring in FY 2008 because we believe hospitals will continue these changes in documentation and coding in subsequent fiscal years. Consequently, these documentation and coding changes will continue to impact payments under the IPPS absent a prospective adjustment to account for the effect of these changes.

We note that unlike the proposed −1.9 adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, any adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 would not be cumulative, but would be removed for subsequent fiscal years once we have offset the increase in aggregate payments for discharges occurring in FY 2008 expenditures and FY 2009 expenditures, if any.

We are seeking public comment on our proposal not to offset the 1.9 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 resulting from the adoption of the MS-DRGs, but to instead address this issue in future rulemaking for FYs 2011 and 2012.

To assist the public in commenting on this issue, the following table shows our estimate of the adjustments required under section 7(b)(1) of Public Law 110-90. Column (A) and Column (C) show the prospective adjustments discussed above in section II.D.5. of this preamble. Column (B) and Column (D) show the retrospective adjustments discussed above in section II.D.6. of this preamble. Column (E) shows the −1.9 percent adjustment from Column (A) that we are proposing for FY 2010. The estimated −6.6 percent adjustment in Column (F) reflects the cumulative effect of the remaining −1.9 adjustment from Column (B), the remaining −1.4 percent adjustment from Column (C), and the remaining −3.3 adjustment from Start Printed Page 24097Column (D) that are required by statute, but that we are not proposing for FY 2010. Column (G) shows the combined effect of the −1.9 percent adjustment in Column (E) that we are proposing for FY 2010 and the −6.6 percent adjustment in Column (F) that we currently estimate we will need to propose in future years. As noted above, we are unable to provide our final estimate of the documentation and coding changes in FY 2009 that do not reflect real changes in case-mix, as we do not have all FY 2009 claims data. The table instead reflects our current estimate of the difference between changes in documentation and coding in FY 2009 that do not reflect real changes in case-mix and the prospective adjustment applied in FY 2009 under section 7(a) of Public Law 110-90. If documentation and coding increases were to exceed current projections for FY 2009, future adjustments would be greater than those shown here. If documentation and coding adjustments were to be less than current projections for FY 2009, future adjustments would be less than those shown here.

FY 2010 MS-DRG Documentation and Coding Adjustment Range

Prospective adjustment for FY 2008Recoupment adjustment for FY 2008Prospective adjustment for FY 2009 *Recoupment adjustment for FY 2009 *Adjustment proposed for FY 2010Estimated remaining adjustment *Total adjustment FY 2010- FY 2012 *
(A)(B)(C)(D)(E)(F)(G)
FY 2010 ProposalProposed for FY 2010Not Proposed for FY 2010Not Proposed for FY 2010Not Proposed for FY 2010
Amount of Adjustment−1.9−1.9−1.4−3.3−1.9−6.6−8.5
* Estimated. The actual percentage adjustment to the national standardized amounts for the purpose of offsetting the estimated $2.2 billion in increased payments under IPPS in FY 2008 will depend on when we apply the adjustment. However, we believe this adjustment will be approximately −1.9 percent, or the difference between the actual changes in documentation and coding that do not reflect real changes in case-mix in FY 2008 and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. Similarly, we based our estimate of the percentage adjustment to the national standardized amounts for the purpose of offsetting the expected increase in payments in FY 2009 on the estimated difference between the cumulative actual changes in documentation and coding that do not reflect real changes in case-mix in FY 2009 and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90, or 3.3 percent. As discussed earlier, we are not permitted to apply a retroactive FY 2009 adjustment until we have performed an analysis of the FY 2009 data.

7. Background on the 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 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; the updated hospital-specific rate based on FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 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 greatest of the FY 1982, FY 1987, or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period (72 FR 47152 through 47188), we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that final rule with comment period, 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 relied on section 1886(d)(3)(A)(vi) of the Act, which provides us with 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 the 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 the 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” under section 1886(d) of the Act and does not mention adjusting the hospital-specific rates.

In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued 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 documentation and coding changes 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 rates should not have the potential to realize increased payments due to documentation and coding changes 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 provision authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In the FY 2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, for the FY 2010 rulemaking, we planned to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. We further indicated that if we found evidence of significant increases in case-mix for patients treated in these hospitals that do not reflect real changes in case-mix, we would consider Start Printed Page 24098proposing 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.

In response to public comments received on the FY 2009 IPPS proposed rule, we stated in the FY 2009 IPPS final rule that we would consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we indicated that we planned to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we found that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 is warranted, we indicated that we would include a proposal to do so in the FY 2010 IPPS proposed rule.

8. Proposed Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2010 and Subsequent Fiscal Years

We performed a retrospective evaluation of the FY 2008 claims data for SCHs and MDHs using the same methodology described earlier for other IPPS hospitals. We found that, independently for both SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 slightly exceeded the 2.5 percent result discussed earlier, but did not significantly differ from that result.

Again, we found that the within-base DRG increases were almost entirely responsible for the case-mix change. In Figure 2 below, we show that, for SCHs, there was a 5 percentage point increase in the discharges with an MCC from 17 percent to 22 percent and a corresponding decrease of 5 percentage points from 59 percent to 54 percent in discharges without a CC or an MCC. In Figure 3 below, we show that, for MDHs, there was a 5 percentage point increase in the discharges with an MCC from 15 percent to 20 percent and a decrease of 6 percentage points from 60 percent to 54 percent in discharges without a CC or an MCC.

Start Printed Page 24099

Start Printed Page 24100

The largest within-base DRG contributors for both types of hospitals are heart failure and shock, chronic obstructive pulmonary disease, and simple pneumonia and pleurisy. For each of these conditions, a significant decrease in the percentage of discharges without a CC or an MCC was observed.

Therefore, consistent with our statements in prior IPPS rules, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act to prospectively adjust the hospital-specific rates by −2.5 percent in FY 2010 to account for our estimated documentation and coding effect in FY 2008 that does not reflect real changes in case-mix. We are proposing to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments for SCHs and MDHs not reflective of an increase in real case-mix. This proposed −2.5 percent adjustment to the hospital-specific rates exceeds the proposed −1.9 percent adjustment to the national standardized amount under section 7(b)(1)(A) of Public Law 110-90 because, unlike the national standardized rates, the FY 2008 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.

Consistent with our proposed approach for IPPS hospitals discussed earlier, we will address in the FY 2011 rulemaking cycle any changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We note that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.

We are seeking public comment on the proposed −2.5 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We intend to update our analysis with FY 2008 data on claims paid through March 2008 for the FY 2010 IPPS final rule.

9. Background on the 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 Secretary 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 changes 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. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico specific standardized amount. In the FY 2009 IPPS final rule (73 FR 48449), we corrected this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates.

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, 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 changes that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs, in the FY 2009 IPPS final rule (73 FR 48449), we indicated that we planned to examine our FY 2008 claims data for hospitals in Puerto Rico. We indicated in the FY 2009 IPPS proposed rule (73 FR 23541), that if we found 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.

10. Proposed Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

We performed a retrospective evaluation of the FY 2008 claims data for Puerto Rico hospitals using the same methodology described earlier for IPPS hospitals paid under the national standardized amounts under section 1886(d) of the Act. We found that, for Puerto Rico hospitals, the increase in payments for discharges occurring during FY 2008 due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 was approximately 1.1 percent. When we calculate the within-base DRG changes and the across-base DRG changes for Puerto Rico hospitals, we find that responsibility for the case-mix change between FY 2007 and FY 2008 is much more evenly shared. Across-base DRG shifts account for 44 percent of the changes, and within-base DRG shifts account for 56 percent. Thus, the change in the percentage of discharges with an MCC is not as large as that for other IPPS hospitals. In Figure 4 below, we show that, for Puerto Rico hospitals, there was a 3 percentage point increase in the discharges with an MCC from 22 percent to 25 percent and a corresponding decrease of 3 percentage points from 58 percent to 55 percent in discharges without a CC or an MCC.

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The top contributing base DRGs to the case-mix change due to the within-base DRG changes differ partially from those of other hospitals. The top three are acute myocardial infarction, major small and large bowel procedures, and chronic obstructive pulmonary disease.

Given these documentation and coding increases, consistent with our statements in prior IPPS rules, we are proposing to use our authority under section 1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-specific standardized amount by −1.1 percent in FY 2010 to account for the FY 2008 documentation and coding increase not due to changes in real case-mix and to leave that adjustment in place for subsequent fiscal years. The proposed −1.1 percent adjustment will be applied to the Puerto Rico-specific rate that accounts for 25 percent of payments to Puerto Rico hospitals, with the remaining 75 percent based on the national standardized amount, which we are proposing to adjust as described above. Consequently, the overall reduction to the payment rates for Puerto Rico hospitals to account for documentation and coding changes will be slightly less than the reduction for IPPS hospitals paid based on 100 percent of the national standardized amount. We note that, as with the hospital-specific rates, the Puerto Rico-specific standardized amount had not previously been reduced based on estimated changes in documentation and coding associated with the adoption of the MS-DRGs.

Consistent with our proposed approach for IPPS hospitals discussed above, we will address in the FY 2011 rulemaking cycle any change in FY 2009 case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We note that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.

We are seeking public comment on the proposed −1.1 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We intend to update our analysis with FY 2008 data on claims paid through March 2008 for the FY 2010 IPPS final rule.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

In the FY 2009 IPPS final rule (73 FR 48450), we continued to implement significant revisions to Medicare's inpatient hospital rates by completing 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 expressed in the public comments we received on the proposal, 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. (We refer readers to the FY 2007 IPPS final rule for details on the HSRVcc methodology and the 3-year transition blend from charge-based relative weights to cost-based relative weights (71 FR 47882 through 47898).)

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.

In FY 2009, the third and final year of the transition from charge-based weights to cost-based weights, we calculated the MS-DRG relative weights based on 100 percent of hospital costs. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a more Start Printed Page 24102detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

a. Summary of the RTI Study of Charge Compression and CCR Refinement

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 January 2007 with its findings on charge compression (which was posted on the CMS Web site at: http://www.cms.hhs.gov/​reports/​downloads/​Dalton.pdf). In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

In its interim draft report, RTI offered a number of recommendations to mitigate the effects of charge compression, including estimating regression-based CCRs to disaggregate the Medical Supplies Charged to Patients, Drugs Charged to Patients, and Radiology cost centers, and 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”. (For more details on RTI's findings and recommendations, we refer readers to the FY 2009 IPPS final rule (73 FR 48452).) Despite receiving public 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 did not adopt RTI's recommendation to create additional regression-based CCRs for several reasons. 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 the OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. RTI's analysis of charge compression has since been expanded to incorporate outpatient services. RTI evaluated the cost estimation process for the OPPS cost-based relative weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. This interim report was made available in April 2008 during the public comment period on the FY 2009 IPPS proposed rule and can be found on RTI's Web site at: http://www.rti.org/​reports/​cms/​HHSM-500-2005-0029I/​PDF/​Refining_​Cost_​to_​Charge_​Ratios_​200804.pdf . The IPPS-specific chapters, which were separately displayed in the April 2008 interim report, as well as the more recent OPPS chapters, were included in the July 3, 2008 RTI final report entitled, “Refining Cost-to-Charge Ratios for Calculating APC [Ambulatory Payment Classification] and DRG Relative Payment Weights,” that became available at the time of the development of the FY 2009 IPPS final rule. The RTI final report can be found on RTI's Web site at: http://www.rti.org/​reports/​cms/​HHSM-500-2005-0029I/​PDF/​Refining_​Cost_​to_​Charge_​Ratios_​200807_​Final.pdf.

RTI's final report distinguished between two types of research findings and recommendations: those pertaining to the accounting or cost report data and those related to statistical regression analysis. Importantly, RTI found that, under the IPPS and the OPPS, accounting improvements to the cost reporting data reduce some of the sources of aggregation bias without having to use regression-based adjustments. In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the OPPS. RTI also suggested that regression-based CCRs could provide a short-term correction until accounting data could be sufficiently refined to support more accurate CCR estimates under both the IPPS and the OPPS.

RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. With regard to APCs and MS-DRGs that contain substantial device costs, RTI cautioned that the other rate adjustments largely offset the effects of charge compression among hospitals that receive these adjustments. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights.

As a result of this research, RTI made 11 recommendations. For a more detailed summary of RTI's findings, recommendations, and public comments we received on the report, we refer readers to the FY 2009 IPPS final rule (73 FR 48452 through 48453).

b. Summary of the RAND Corporation Study of Alternative Relative Weight Methodologies

One of the reasons 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. In the FY 2008 final rule with comment period (72 FR 47197), we stated that we engaged the RAND Corporation as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs, and that we would consider its analysis as we prepared for the FY 2009 IPPS rulemaking process. In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we provided a summary of the RAND report and the public comments we received in response to the FY 2009 IPPS proposed rule. The report may be found on RAND's Web site at: http://www.rand.org/​pubs/​working_​papers/​WR560/​.

RAND evaluated six different methods that could be used to establish relative weights, CMS' current relative weight methodology of 15 national CCRs and 5 alternatives, including a method in which the 15 national CCRs are disaggregated using the regression-based methodology, and a method using hospital-specific CCRs for the 15 cost center groupings. In addition, RAND analyzed our standardization methodologies that account for systematic cost differences across hospitals. The purpose of standardization is to eliminate Start Printed Page 24103systematic facility-specific differences in cost so that these cost differences do not influence the relative weights. The three standardization methodologies analyzed by RAND include: The “hospital payment factor” methodology currently used by CMS, under which a hospital's wage index factor, and IME and/or DSH factor, are divided out of its estimated DRG cost; the HSRV methodology, which standardizes the cost for a given discharge by the hospital's own costliness rather than by the effect of the systematic cost differences across groups of hospitals; and the HSRVcc methodology, which removes hospital-level cost variation by calculating hospital-specific charge-based relative values for each DRG at the cost center level and standardizing them for differences in case-mix. Under the HSRVcc methodology, a national average charge-based relative weight is calculated for each cost center.

Overall, RAND found that none of the alternative methods of calculating the relative weights represented a marked improvement in payment accuracy over the current method, and there was little difference across methods in their ability to predict cost at either the discharge-level or the hospital-level. In their regression analysis, RAND found that after controlling for hospital payment factors, the relative weights are compressed (that is, understated). However, RAND also found that the hospital payment factors are overstated and increase more rapidly than cost. Therefore, while the relative weights are compressed, these payment factors offset the compression such that total payments to hospitals increase more rapidly than hospitals' costs.

RAND found that relative weights using the 19 national disaggregated regression-based CCRs result in significant redistributions in payments among hospital groupings. However, RAND did not believe the regression-based charge compression adjustments significantly improve payment accuracy. With regard to standardization methodologies, while RAND found that there is no clear advantage to the HSRV method or the HSRVcc method of standardizing cost compared to the current hospital payment factor standardization method, its analysis did reveal significant limitations of CMS' current hospital payment factor standardization method. The current standardization method has a larger impact on the relative weights and payment accuracy than any of the other alternatives that RAND analyzed because the method “over-standardizes” by removing more variability for hospitals receiving a payment factor than can be empirically supported as being cost-related (particularly for IME and DSH). RAND found that instead of increasing proportionately with cost, the payment factors CMS currently uses (some of which are statutory) increase more rapidly than cost, thereby reducing payment accuracy. RAND concluded that further analysis is needed to isolate the cost-related component of the IPPS payment adjustments (some of which has already been done by MedPAC), use them to standardize cost, and revise the analysis of payment accuracy to reflect only the cost-related component.

2. Summary of FY 2009 Changes and Discussion for FY 2010

In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, and because of RAND's finding that regression-based adjustments to the CCRs do not significantly improve payment accuracy, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining what should be reported in these respective cost centers, we adopted the commenters' recommendation that hospitals should use revenue codes established by AHA's National Uniform Billing Committee to determine what should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers.

When we developed the FY 2009 IPPS final rule, we considered all of the public comments we received both for and against adopting regression-based CCRs. Also noteworthy is RAND's belief that regression-based CCRs may not significantly improve payment accuracy, and that it is equally, if not more, important to consider revisions to the current IPPS hospital payment factor standardization method in order to improve payment accuracy. We continue to believe that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of the cost weights. Accordingly, we are not proposing to adopt regression-based CCRs for the calculation of the FY 2010 IPPS relative weights.

However, we are concerned about RAND's finding that there are significant limitations of CMS' current hospital payment factor standardization method. As summarized above, RAND found that the current standardization method “over-standardizes” by removing more variability for hospitals receiving a payment factor than can be empirically supported as being cost-related (particularly for IME and DSH). RAND found that instead of increasing proportionately with cost, the payment factors CMS currently uses (some of which are statutory) increase more rapidly than cost, thereby reducing payment accuracy. Further analysis is needed to isolate the cost-related component of the IPPS payment adjustments, use them to standardize cost, and revise the analysis of payment accuracy to reflect only the cost-related component. However, RAND cautions that “re-estimating” these payment factors “raises important policy issues that warrant additional analyses” (page 49 of RAND's report, which is available on the Web site at: http://www.rand.org/​pubs/​working_​papers/​WR560/​), particularly to “determine the analytically justified-levels using the MS-DRGs” (page 86 of the RAND report). In addition, we note that RTI, in its July 2008 final report, also observed that the adjustment factors under the IPPS (the wage index, IME, and DSH adjustments) complicate the determination of cost and these factors “within the rate calculation may offset the effects of understated weights due to charge compression” (page 109 of RTI's final report, which is available at the Web site at: http://www.rti.org/​reports/​cms/​HHSM-500-2005-0029I/​PDF/​Refining_​Cost_​to_​Charge_​Ratios_​200807_​Final.pdf). While it may be more accurate to standardize using the empirically justified levels of the IME and DSH adjustments, consideration needs to be given to the extent to which these payment factors offset the compression of the relative weights.

We understand that MedPAC has performed an analysis to identify empirically justifiable formulas for determining appropriate IME and DSH adjustments. For example, in its March 2007 report (and reiterated in its March 2009 report), MedPAC asserts that the current level of the IME adjustment factor, 5.5 percent for every 10 percent increase in resident-to-bed ratio, overstates IME payments by more than Start Printed Page 24104twice the empirically justified level, resulting in approximately $3 billion in overpayments. The empirical level of the IME adjustment is estimated to be 2.2 percent for every 10 percent increase in the resident-to-bed ratio. We cannot propose to change the IME and DSH factors used for actual payment under the IPPS because these factors are mandated by law. However, under section 1886(d)(4) of the Act, we have the authority to determine the appropriate weighting factor for each MS-DRG (including which factors or method we will employ in making annual adjustments to the MS-DRGs so as to reflect changes in the relative use of hospital resources). In addition, section 1886(d)(7)(B) of the Act precludes judicial review of our methodology for determining the appropriate weighting factors. Therefore, we do have some flexibility in what factors may be used for standardization purposes. For purposes of standardization only, one option may be for CMS to use the empirically justified IME adjustment of 2.2 percent, such that only the cost-related component of teaching hospitals is removed from the claim charges prior to calculating the relative weights. Similarly, for the DSH adjustment, in its March 2007 report, MedPAC found that costs per case increase about 0.4 percent for each 10 percent increase in the low income patient percentage. This is significantly less than the percentage increase expressed by the current factors used in the DSH payment formulas. (According to MedPAC, in FY 2004, about $5.5 billion in DSH payments were made above the empirically justified level.) In looking only at urban hospitals with greater than 100 beds, which manifest the strongest positive correlation between cost and low income patient share, MedPAC found that costs increase about 1.4 percent for every 10 percent increment of the low-income patient percentage. MedPAC did not find a positive cost relationship between low-income patient percentage and costs per case for urban hospitals with less than 100 beds and/or for rural hospitals. Therefore, for purposes of standardizing for the DSH adjustment, an option we may consider is to incorporate an adjustment factor of 1.4 percent for urban hospitals with greater than 100 beds, and to remove the DSH payment adjustment altogether for other hospitals that otherwise currently qualify for DSH payment. While we cannot predict the effect of using the empirical factors for IME and DSH in the standardized methodology on the relative weights without further analysis, dividing out (that is, excluding) reduced IME and DSH payment factors from a hospital's total payment would result in a greater share of teaching and DSH hospitals' costs used in calculating the relative weights. With respect to the wage index, because there are multiple wage index factors, one for each geographic area, determining the true cost associated with geographic location and standardizing for those costs is much more challenging. While we are not proposing changes for FY 2010, in light of the previous discussion of the current IME and DSH adjustments in the standardization process, we are interested in receiving public comments as to how the standardization process can be improved to more precisely remove cost differences across hospitals, thereby improving the accuracy of the relative weights in subsequent fiscal years.

3. Timeline for Revising the Medicare Cost Report

As mentioned in the FY 2009 IPPS final rule (73 FR 48467), we are currently in the process of comprehensively reviewing the Medicare hospital cost report, and the finalized policy from the FY 2009 IPPS final rule to split 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,” as part of our 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 provisions of the Paperwork Reduction Act (PRA), we have been planning to propose the actual changes to the cost reporting form, the attending cost reporting software, and the cost reporting instructions in Chapter 40 of the Medicare Provider Reimbursement Manual (PRM), Part II. Under the effort to update the cost report and eliminate outdated requirements in conjunction with the provisions of the PRA, changes to the cost reporting form and cost reporting instructions would be made available to the public for comment. Thus, the public would have an opportunity to suggest comprehensive reforms (which they had advocated in the FY 2009 IPPS final rule in response to our proposals), and would similarly be able to make suggestions for ensuring that these reforms are made in a manner that is not disruptive to hospitals' billing and accounting systems, and are within the guidelines of GAAP, Medicare principles of reimbursement, and sound accounting practices.

In the FY 2009 IPPS final rule (73 FR 48468), we stated that we expect the revised cost reporting forms that reflect one cost center for “Medical Supplies Charged to Patients” and one cost center for “Implantable Devices Charged to Patients” would not be available until cost reporting periods beginning after the Spring of 2009. At this time, we anticipate that the transmittal to create this new cost center will be issued in June 2009. Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS ratesetting purposes in a given fiscal year or calendar year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2013 IPPS relative weights and the CY 2013 OPPS relative weights. Until the revised cost reporting forms are published, hospitals must include costs and charges of separately chargeable medical supplies and implantable medical devices in the cost center for “Medical Supplies Charged to Patients” (section 2202.8 of the PRM-I), and effective for cost reporting periods specified in the revised cost reporting forms, hospitals must include costs and charges of separately chargeable medical supplies in the cost center for “Medical Supplies Charged to Patients” and of separately chargeable implantable medical devices in the new “Implantable Devices Charged to Patients” cost center.

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

1. Statutory Authority

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. By October 1, 2007, the Secretary was required to select, in consultation with CDC, at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. The list of conditions can be revised from time to time, again in consultation with CDC, as long as the list contains at least two conditions.

Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is present on admission (POA). However, since October 1, 2008, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected Start Printed Page 24105condition is not POA. That is, if there is a HAC, the case is paid as though the secondary diagnosis was not present. However, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate; to cause a lower MS-DRG payment, all CCs/MCCs on the claim must be selected conditions for the HAC payment provision.

Since October 1, 2007, hospitals have been required to submit information on Medicare claims specifying whether diagnoses were POA. The POA indicator reporting requirement and the HAC payment provision apply to IPPS hospitals only. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in Maryland operating under waivers, rural health clinics, federally qualified health centers, RNHCIs, and Department of Veterans Affairs/Department of Defense hospitals, are exempt from POA reporting and the HAC payment provision. Throughout this section, the term “hospital” refers to IPPS hospitals.

2. HAC Selection Process

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 through 24726), we sought 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 selected 8 categories to which the HAC payment provisions would apply.

In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed several additional candidate HACs and proposed refinements to the previously selected HACs. In the FY 2009 IPPS final rule (73 FR 48471), we expanded and refined several of the previously-selected HACs and we selected 2 additional categories of HACs. A complete list of the 10 current categories of HACs is included in section II.F.4. of this preamble.

3. Collaborative Process

CMS experts have worked closely with public health and infectious disease professionals from the CDC to identify the candidate preventable HACs, review comments, and select HACs. CMS and CDC staff have also collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital Medicare claims and on the payment implications of the various POA reporting options.

On December 17, 2007, CMS and CDC hosted a jointly sponsored HAC and POA Listening Session to receive input from interested organizations and individuals. On December 18, 2008, CMS and CDC again hosted a jointly sponsored HAC and POA Listening Session to receive input from interested organizations and individuals. Experts from AHRQ also participated in the event. The agenda, presentations, audio file, and written transcript of the December 18, 2008, Listening Session are available on the CMS Web site at: http://www.cms.hhs.gov/​HospitalAcqCond/​07_​EducationalResources.asp#TopOfPage.

4. Selected HAC Categories

The following table lists the current HACs.

HACCC/MCC (ICD-9-CM code)
Foreign Object Retained After Surgery998.4 (CC), 998.7 (CC).
Air Embolism999.1 (MCC).
Blood Incompatibility999.6 (CC).
Pressure Ulcer Stages III & IV707.23 (MCC), 707.24 (MCC).
Falls and Trauma: —Fracture —Dislocation —Intracranial Injury —Crushing Injury —Burn —Electric ShockCodes within these ranges on the CC/MCC list: 800-829, 830-839, 850-854, 925-929, 940-949, 991-994.
Catheter-Associated Urinary Tract Infection (UTI)996.64 (CC).
Also excludes the following from acting as a CC/MCC: 112.2 (CC), 590.10 (CC), 590.11 (MCC), 590.2 (MCC), 590.3 (CC), 590.80 (CC), 590.81 (CC), 595.0 (CC), 597.0 (CC), 599.0 (CC).
Vascular Catheter-Associated Infection999.31 (CC).
Manifestations of Poor Glycemic Control250.10-250.13 (MCC), 250.20-250.23 (MCC), 251.0 (CC), 249.10-249.11 (MCC), 249.20-249.21 (MCC).
Surgical Site Infections:
Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass Graft (CABG)519.2 (MCC). And one of the following procedure codes: 36.10-36.19.
Surgical Site Infection Following Certain Orthopedic Procedures996.67 (CC), 998.59 (CC).
And one of the following procedure codes: 81.01-81.08, 81.23-81.24, 81.31-81.38, 81.83, 81.85.
Surgical Site Infection Following Bariatric Surgery for ObesityPrincipal Diagnosis—278.01, 998.59 (CC).
And one of the following procedure codes: 44.38, 44.39, or 44.95.
Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures415.11 (MCC), 415.19 (MCC), 453.40-453.42 (MCC). And one of the following procedure codes: 00.85-00.87, 81.51-81.52, or 81.54.

We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule with comment period (73 FR 48474 through 48486) for detailed analyses supporting the selection of each of these HACs.

The list of selected HAC categories is dependent upon CMS' list of diagnoses designated as CC/MCCs. As changes and/or new diagnosis codes are proposed and finalized to the list of CC/MCCs, these changes need to be reflected in the list of selected HAC Start Printed Page 24106categories. We refer readers to Table 6A in the Addendum to this proposed rule for proposed changes. In Table 6A, we are proposing the following changes that reflect the new diagnosis codes that are within the fracture code range for the falls/trauma HAC category:

ICD-9-CM codeCode descriptorProposed CC/MCC designations
813.46Torus fracture of ulnaCC
813.47Torus fracture of radius and ulnaCC

If these proposed CC designations for ICD-9-CM codes 813.46 and 813.47 are finalized, these codes will be adopted within the fracture code range for the falls/trauma HAC category.

5. Public Input Regarding Selected and Potential Candidate HACs

We are not proposing to add or remove categories of HACs at this time. However, we continue to encourage public dialogue about refinements to the HAC list. During and after the December 18, 2008 Listening Session, we received many oral and written stakeholder comments about both previously selected and potential candidate HACs.

Some stakeholders commented on previously selected HACs. For example, one commenter requested a coding change to the Stages III and IV Pressure Ulcer HAC. The commenter recommended that CMS include the following ICD-9-CM codes to further define pressure ulcers as a HAC: (1) 707.20 (Pressure ulcer, unspecified stage); and (2) 707.25 (Pressure ulcer, unstageable). However, these codes are not classified as CCs or MCCs and, therefore, do not meet the statutory requirement of causing a higher paying MS-DRG.

Commenters strongly supported using information gathered from early experience with the HAC payment provision to inform maintenance of the HAC list and consideration of future potential candidate HACs. Now that we have early program data, we are focused on evaluating the impact of the HAC payment provision through a joint program evaluation with CDC and AHRQ. That evaluation process will provide valuable information for future policymaking aimed at preventing HACs. Commenters emphasized during the IPPS FY 2009 rulemaking and during and after the December 18, 2008 Listening Session the need for a robust program evaluation prior to changing the HAC list.

As an early aspect of the program evaluation, we plan to analyze the available POA data. This early analysis may be useful for future HAC policymaking and for other purposes like identifying priorities for the development of HAC prevention guidelines.

6. POA Indicator Reporting

Collection of POA indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision as well as for broader public health uses of Medicare data. Through Change Request No. 5679 (released on June 20, 2007), CMS issued instructions requiring IPPS hospitals to submit POA indicator data for all diagnosis codes on Medicare claims. CMS also issued Change Request No. 6086 (released on June 13, 2008) regarding instructions for processing non-IPPS 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 on the CDC Web site at: http://www.cdc.gov/​nchs/​datawh/​ftpserv/​ftpicd9/​icdguide07.pdf (the POA reporting guidelines begin on page 92). Additional information regarding POA indicator reporting and application of the POA reporting options is available on the CMS Web site at: http://www.cms.hhs.gov/​HospitalAcqCond. CMS has historically not provided coding advice. Rather, CMS collaborates with the American Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. CMS has been collaborating with the AHA to promote the Coding Clinic for ICD-9-CM as the source for coding advice about the POA indicator.

There are five POA indicator reporting options, as defined by the ICD-9-CM Official Guidelines for Coding and Reporting:

IndicatorDescriptor
YIndicates that the condition was present on admission.
WAffirms 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.
NIndicates that the condition was not present on admission.
UIndicates that the documentation is insufficient to determine if the condition was present at the time of admission.
1Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 4010A1. A list of exempt ICD-9-CM diagnosis codes is available in the ICD-9-CM Official Guidelines for Coding and Reporting.

In the FY 2009 IPPS final rule (73 FR 48487), we adopted our proposal to: (1) Pay the CC/MCC MS-DRGs for those HACs coded with “Y” and “W” indicators; and (2) not pay the CC/MCC MS-DRGs for those HACs coded with “N” and “U” indicators. We are not proposing changes to the payment implications of the POA indicator reporting options at this time.

As we have noted in previous IPPS rulemaking documents, most recently in the FY 2009 IPPS final rule (73 FR 48487), 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. Further, Medicare program integrity initiatives closely monitor for inaccurate coding and coding inconsistent with medical record documentation.

G. Proposed Changes to Specific MS-DRG Classifications

1. MDC 5 (Diseases and Disorders of the Circulatory System): Intraoperative Fluorescence Vascular Angiography (IFVA)

We received a request to reassign cases reporting the use of intraoperative fluorescence vascular angiography (IFVA) with coronary artery bypass graft (CABG) procedures from MS-DRGs 235 and 236 (Coronary Bypass without Cardiac Catheterization with and without MCC, respectively) into MS-DRG 233 (Coronary Bypass with Cardiac Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac Catheterization without MCC). Effective October 1, 2007, procedure code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) describes this technology.

IFVA technology consists of a mobile device imaging system with software. The technology is used to test cardiac graft patency and technical adequacy at the time of coronary artery bypass grafting (CABG). While this system does not involve fluoroscopy or cardiac catheterization, it has been suggested by the manufacturer and clinical studies that it yields results that are similar to those achieved with selective coronary Start Printed Page 24107arteriography and cardiac catheterization. Intraoperative coronary angiography provides information about the quality of the anastomosis, blood flow through the graft, distal perfusion and durability. For additional detailed information regarding IFVA technology, we refer readers to the September 28-29, 2006 ICD-9-CM Coordination and Maintenance Committee meeting handout at the following Web site: http://www.cms.hhs.gov/​ICD9ProviderDiagnosticCodes/​03_​meetings.asp#TopOfPage.

We examined data on cases identified by procedure code 88.59 in MS-DRGs 233, 234, 235, and 236 in the FY 2008 MedPAR file. As shown in the table below, for both MS-DRGs 235 and 236, the cases utilizing IFVA technology identified by procedure code 88.59 have a shorter length of stay and lower average costs compared to all cases in MS-DRGs 235 and 236. There were a total of 10,312 cases in MS-DRG 235 with an average length of stay of 11.12 days with average costs of $33,846. There were 88 cases in MS-DRG 235 identified by procedure code 88.59 with an average length of stay of 9.82 days with average costs of $29,258. In MS-DRG 236, there were a total of 24,799 cases with an average length of stay of 6.52 days and average costs of $22,329. There were 159 cases in MS-DRG 236 identified by procedure code 88.59 with an average length of stay of 6.30 days and average costs of $20,404. The data clearly demonstrate that the IFVA cases identified by procedure code 88.59 are assigned appropriately to MS-DRGs 235 and 236. We also examined data on cases identified by procedure code 88.59 in MS-DRGs 233 and 234. Similarly, in MS-DRGs 233 and 234, cases identified by procedure code 88.59 reflect shorter lengths of stay and lower average costs compared to all of the other cases in those MS-DRGs. There were a total of 17,453 cases in MS-DRG 233 with an average length of stay of 13.65 days with average costs of $41,199. There were 60 cases in MS-DRG 233 identified by procedure code 88.59 with an average length of stay of 12.82 days and average costs of $38,842. In MS-DRG 234, there were a total of 27,003 cases with an average length of stay of 8.70 days and average costs of $28,327. There were 69 cases in MS-DRG 234 identified by procedure code 88.59 with an average length of stay of 8.75 days and average costs of $25,308. As a result of our analysis, the data demonstrate that the IFVA cases identified by procedure code 88.59 are appropriately assigned to MS-DRGs 233 and 234.

MS-DRGNumber of casesAverage length of stayAverage cost*
235—All cases10,31211.12$33,846
235—Cases with code 88.59889.8229,258
235—Cases without code 88.5910,22411.1433,886
236—All cases24,7996.5222,329
236—Cases with code 88.591596.3020,404
236—Cases without code 88.5924,6406.5222,341
MS-DRGNumber of casesAverage length of stayAverage cost*
233—All cases17,45313.65$41,199
233—Cases with code 88.596012.8238,842
233—Cases without code 88.5917,39313.6541,207
234—All cases27,0038.7028,327
234—Cases with code 88.59698.7525,308
234—Cases without code 88.5926,9348.7028,334
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based weights were adopted over a 3-year transition period in 1/3 increments between FY 2007 and FY 2009. The average cost represents the average standardized charges on the claims reduced to cost using the cost center-specific CCRs for a specific DRG. The standardization process includes adjustments for IME, DSH, and wage index as applied to individual hospitals. This estimation of cost is the same method used in the computation of the relative weights. We are using cost-based data instead of our historical charge-based data to evaluate proposed MS-DRG classification changes.

We believe that if the cases identified by procedure code 88.59 were proposed to be reassigned from MS-DRGs 235 and 236 to MS-DRGs 233 and 234, they would be significantly overpaid. In addition, because the cases in MS-DRGs 235 and 236 did not actually have a cardiac catheterization performed, a proposal to reassign cases identified by procedure code 88.59 would result in lowering the relative weights of MS-DRGs 233 and 234 where a cardiac catheterization is truly performed.

In summary, the data do not support moving IFVA cases identified by procedure code 88.59 from MS-DRGs 235 and 236 into MS-DRGs 233 and 234. We invite the public to submit comments on our proposal not to make any MS-DRG modifications for cases reporting procedure code 88.59 for FY 2010.

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

We received a request that we examine the issue of patients who have undergone hip or knee replacement procedures that have subsequently become infected and who are then admitted for inpatient services for removal of the prosthesis. The requestor stated that these patients are presented with devastating complications and require extensive resources to treat. The infection often results in the need for multiple re-operations, prolonged use of intravenous and oral antibiotics, extended rehabilitation, and frequent followups. Furthermore, the requestor stated that, even with extensive treatment, the outcomes can still be poor for some of these patients. The requestor stated that patients who are admitted for inpatient services with an infected hip or knee prosthesis must first undergo a procedure to remove the prosthesis and to insert an antibiotic spacer to treat the infection and maintain a space for the new prosthesis. The new prosthesis cannot be inserted until after the infection has been treated. Patients who are admitted for inpatient services with a hip or knee infection and then undergo a removal of the prosthesis are captured by the following procedure codes: Start Printed Page 24108

  • 80.05 (Arthrotomy for removal of prosthesis, hip)
  • 80.06 (Arthrotomy for removal of prosthesis, knee)

In addition, code 84.56 (Insertion or replacement of (cement) spacer) would be used for any insertion of a spacer that would be reported if an antibiotic spacer were inserted.

The issue of hip and knee infections and revisions was discussed in the FY 2009 IPPS final rule (73 FR 48498 through 48507) in response to a more complicated request that we received involving the creation and modification of several joint DRGs. Because data did not support the requestor's suggested changes, we did not make any modifications to the joint DRGs at that time.

The current requestor asked that we move cases involving the removal of hip and knee prostheses (procedure codes 80.05 and 80.06) from their current assignment in MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, without CC/MCC, respectively) and in MS-DRGs 495, 496, and 497 (Local Excision of Internal Fixation Device Except Hip and Femur with MCC, with CC, and with CC/MCC, respectively) and assign them to MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand, for Musculo-Connective Tissue Disease with MCC, with CC, without CC/MCC, respectively). MS-DRGs 463, 464, and 465 include cases that are treated with a debridement for infection. The requestor stated that these cases are clinically similar to those captured by procedure codes 80.05 and 80.06 where the prosthesis is removed and a new prosthesis is not inserted because of an infection.

The requestor specifically asked that we remove the hip arthrotomy code 80.05 from MS-DRGs 480, 481, and 482, and assign it to MS-DRGs 463, 464, and 465. The requestor also recommended that we remove the knee arthrotomy code 80.06 from MS-DRGs 495, 496, and 497 and assign it to MS-DRGs 463, 464, and 465.

If we were to accept the requestor's suggestion, joint replacement cases in which the patients were admitted for inpatient services to remove the prosthesis because of an infection would be assigned to the higher paying debridement MS-DRGs (MS-DRGs 463, 464, and 465). As mentioned earlier, these MS-DRGs contain other cases involving treatment for infections.

We examined hip replacement cases identified by procedure code 80.05 in MS-DRGs 480, 481, and 482, and knee replacement cases identified by procedure code 80.06 in MS-DRGs 495, 496, and 497 using the FY 2008 MedPAR file. Our data support the requestor's suggestion that these cases have similar costs to those in MS-DRGs 463, 464, and 465, and that they are significantly more expensive to treat than those in their current MS-DRG assignments. The following table summarizes those findings:

MS-DRGNumber of casesAverage length of stayAverage cost*
463—All Cases4,83416.59$26,696
464—All Cases4,9349.5215,065
465—All Cases1,6965.459,041
480—All Cases31,1818.8917,168
480—Cases with code 80.0564313.3526,053
480—Cases without code 80.0530,5388.8016,981
481—All Cases72,4065.6811,259
481—Cases with code 80.058718.3417,202
481—Cases without code 80.0571,5355.6511,187
482—All Cases37,4434.659,320
482—Cases with code 80.052826.8213,718
482—Cases without code 80.0537,1614.639,287
495—All Cases2,14010.4018,729
495—Cases with code 80.0651311.5323,508
495—Cases without code 80.061,62710.0417,432
496—All Cases5,5185.7310,827
496—Cases with code 80.061,3466.6714,454
496—Cases without code 80.064,1725.429,657
497—All Cases5,8562.847,148
497—Cases with code 80.066885.0812,234
497—Cases without code 80.065,1682.546,470
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based weights were adopted over a 3-year transition period in 1/3 increments between FY 2007 and FY 2009. The average cost represents the average standardized charges on the claims reduced to cost using the cost center-specific CCRs for a specific DRG. The standardization process includes adjustments for IME, DSH, and wage index as applied to individual hospitals. This estimation of cost is the same method used in the computation of the relative weights. We are using cost-based data instead of our historical charge-based data to evaluate proposed MS-DRG classification changes.

The data show that hip replacement cases with procedure code 80.05 in MS-DRGs 480, 481, and 482 have average costs of $26,053, $17,202, and $13,718, respectively, compared to overall average costs of $17,168 in MS-DRG 480; $11,259 in MS-DRG 481; and $9,320 in MS-DRG 482. The data also show that knee replacement cases with procedure code 80.06 in MS-DRGs 495, 496, and 497 have average costs of $23,508, $14,454, and $12,234, respectively, compared to average costs of all cases of $18,729 in MS-DRG 495, $10,827 in MS-DRG 496, and $7,148 in MS-DRG 497. All cases in MS-DRGs 463, 464, and 465 had average costs of $26,696, $15,065, and $9,041, respectively.

The results of this analysis of data support the reassignment of procedure codes 80.05 and 80.06 to MS-DRGs 463, 464, and 465. Therefore, we are proposing to move procedure codes 80.05 and 80.06 from their current assignments in MS-DRGs 480, 481, and 482 and 495, 496, and 497 and assign them to MS-DRGs 463, 464, and 465. We also are proposing to revise the code title of procedure code 80.05 to read “Arthrotomy for removal of prosthesis without replacement, hip” and the title of procedure code 80.06 to read “Arthrotomy for removal of prosthesis without replacement, knee”, effective October 1, 2009, as is shown in Table Start Printed Page 241096F of the Addendum to this proposed rule.

3. Proposed Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this final 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 2010, we are proposing to make the following changes to the MCE edits:

a. 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.” In the FY 2009 IPPS final rule, we indicated that we were adding the following four codes to this MCE edit:

  • 603.0 (Encysted hydrocele)
  • 603.1 (Infected hydrocele)
  • 603.8 (Other specified types of hydrocele)
  • 603.9 (Hydrocele, unspecified).

We 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 indicated that we were adding these codes for FY 2009. However, through an oversight, we failed to implement the indicated FY 2009 changes to the MCE by adding codes 603.0, 603.1, 603.8, and 603.9 to the MCE edit of diagnosis allowed for males only. In this FY 2010 IPPS proposed rule, we are acknowledging this omission and are again proposing to make the changes.

b. Manifestation Codes as Principal Diagnosis Edit

Manifestation codes describe the manifestation of an underlying disease, not the disease itself. Therefore, manifestation codes should not be used as a principal diagnosis. The National Center for Health Statistics (NCHS) has removed the advice “code first associated disorder” from three codes, thereby making them acceptable principal diagnosis codes. These codes are:

  • 365.41 (Glaucoma associated with chamber angle anomalies)
  • 365.42 (Glaucoma associated with anomalies of iris)
  • 365.43 (Glaucoma associated with other anterior segment anomalies)

In order to make conforming changes to the MCE, we are proposing to remove codes 365.41, 365.42, and 365.43 from the Manifestation Code as Principal Diagnosis Edit.

c. Invalid Diagnosis or Procedure Code

The MCE checks each diagnosis, including the admitting diagnosis, and each procedure against a table of valid ICD-9-CM codes. If an entered code does not agree with any code on the list, it is assumed to be invalid or that the 4th or 5th digit of the code is invalid or missing.

An error was discovered in this edit. ICD-9-CM code 00.01 (Therapeutic ultrasound of vessels of head and neck) was inadvertently left out of the MCE tables. The inclusion of this code in the MCE tables would have generated an error message at the Medicare contractor level, but we had instructed the Medicare contractors to override this edit for discharges on or after October 1, 2008. To make a conforming change to the MCE, we are proposing to add code 00.01 to the table of valid codes.

d. Unacceptable Principal Diagnosis

There are selected codes that describe a circumstance that influences an individual's health status but not a current illness or injury and codes that are not specific manifestations but may describe illnesses due to an underlying cause. These codes are considered unacceptable as a principal diagnosis.

For FY 2008, a series of diagnostic codes were created at subcategory 209, Neuroendocrine Tumors. An instructional note under this subcategory stated that coders were to “Code first any associated multiple endocrine neoplasia syndrome (258.01-258.03)”. Medicare contractors had interpreted this note to mean that none of the codes in subcategory 209 were acceptable principal diagnoses and had entered these codes on the MCE edit for unacceptable principal diagnoses. We later deemed this interpretation to be incorrect. We had not intended that the series of codes at subcategory 209 were only acceptable as secondary diagnoses.

To avoid future misinterpretation, in this proposed rule, we are proposing to remove the following codes from the MCE edit for unacceptable principal diagnoses.

  • 209.00 (Malignant carcinoid tumor of the small intestine, unspecified portion)
  • 209.01 (Malignant carcinoid tumor of the duodenum)
  • 209.02 (Malignant carcinoid tumor of the jejunum)
  • 209.03 (Malignant carcinoid tumor of the ileum)
  • 209.10 (Malignant carcinoid tumor of the large intestine, unspecified portion)
  • 209.11 (Malignant carcinoid tumor of the appendix)
  • 209.12 (Malignant carcinoid tumor of the cecum)
  • 209.13 (Malignant carcinoid tumor of the ascending colon)
  • 209.14 (Malignant carcinoid tumor of the transverse colon)
  • 209.15 (Malignant carcinoid tumor of the descending colon)
  • 209.16 (Malignant carcinoid tumor of the sigmoid colon)
  • 209.17 (Malignant carcinoid tumor of the rectum)
  • 209.20 (Malignant carcinoid tumor of unknown primary site)
  • 209.21 (Malignant carcinoid tumor of the bronchus and lung)
  • 209.22 (Malignant carcinoid tumor of the thymus)
  • 209.23 (Malignant carcinoid tumor of the stomach)
  • 209.24 (Malignant carcinoid tumor of the kidney)
  • 209.25 (Malignant carcinoid tumor of foregut, not otherwise specified)
  • 209.26 (Malignant carcinoid tumor of midgut, not otherwise specified)
  • 209.27 (Malignant carcinoid tumor of hindgut, not otherwise specified)
  • 209.29 (Malignant carcinoid tumor of other sites)
  • 209.30 (Malignant poorly differentiated neuroendocrine carcinoma, any site)
  • 209.40 (Benign carcinoid tumor of the small intestine, unspecified portion)
  • 209.41 (Benign carcinoid tumor of the duodenum)
  • 209.42 (Benign carcinoid tumor of the jejunum)
  • 209.43 (Benign carcinoid tumor of the ileum)
  • 209.50 (Benign carcinoid tumor of the large intestine, unspecified portion)
  • 209.51 (Benign carcinoid tumor of the appendix)
  • 209.52 (Benign carcinoid tumor of the cecum)
  • 209.53 (Benign carcinoid tumor of the ascending colon)
  • 209.54 (Benign carcinoid tumor of the transverse colon)
  • 209.55 (Benign carcinoid tumor of the descending colon)
  • 209.56 (Benign carcinoid tumor of the sigmoid colon)
  • 209.57 (Benign carcinoid tumor of the rectum)
  • 209.60 (Benign carcinoid tumor of unknown primary site)
  • 209.61 (Benign carcinoid tumor of the bronchus and lung)
  • 209.62 (Benign carcinoid tumor of the thymus) Start Printed Page 24110
  • 209.63 (Benign carcinoid tumor of the stomach)
  • 209.64 (Benign carcinoid tumor of the kidney)
  • 209.65 (Benign carcinoid tumor of foregut, not otherwise specified)
  • 209.66 (Benign carcinoid tumor of midgut, not otherwise specified)
  • 209.67 (Benign carcinoid tumor of hindgut, not otherwise specified)
  • 209.69 (Benign carcinoid tumor of other sites)

In the meantime, CMS has issued instructions in the form of an interim working document called a joint signature memorandum to the Medicare contractors to override this edit and process claims containing codes from the subcategory 209 series as acceptable principal diagnoses.

e. Proposed Creation of New Edit Titled “Wrong Surgeries”

On January 15, 2009, CMS issued three National Coverage Decision memoranda on the coverage of erroneous surgeries on Medicare patients: Wrong Surgical or Other Invasive Procedure Performed on a Patient (CAG-00401N); Surgical or Other Invasive Procedure Performed on the Wrong Body Part (CAG-00402N); and Surgical or Other Invasive Procedure Performed on the Wrong Patient (CAG-00403N). We refer readers to the following CMS Web sites to view the memoranda in their entirety: For the decision memorandum on surgery on the wrong body part: https://www.cms.hhs.gov/​mcd/​viewdecisionmemo.asp?​id=​222. For the decision memorandum on surgery on the wrong patient: https://www.cms.hhs.gov/​mcd/​viewdecisionmemo.asp?​id=​221. For the decision memorandum on the wrong surgery performed on a patient: https://www.cms.hhs.gov/​mcd/​viewdecisionmemo.asp?​id=​223.

To conform to these new coverage decisions, in this proposed rule, we are proposing to create a new edit to identify cases in which wrong surgeries occurred. The NCHS has revised the title of one E-code and created two new E-codes to identify cases in which incorrect surgeries have occurred. The revised E-code title is:

  • E876.5 (Performance of wrong operation (procedure) on correct patient).

The two new E-codes are as follows:

  • E876.6 (Performance of operation (procedure) on patient not scheduled for surgery)
  • E876.7 (Performance of correct operation (procedure) on wrong side/body part)

A complete list of all of the E-codes that will be implemented on October 1, 2009, can be found on the CMS Web site home page at: http://www.cms.hhs.gov/​ICD9ProviderDiagnosticCodes/​07_​summarytables.asp#TopOfPage in the download titled “New, Deleted, and Invalid Diagnosis and Procedure Codes.”

Currently, an E-code used as a principal diagnosis will receive the MCE Edit “E-code as principal diagnosis”. This edit will remain in effect. However, we are proposing a change to the MCE so that E-codes E876.5 through E876.7, whether they are in the principal or secondary diagnosis position, will trigger the “Wrong Surgery” edit. Any claim with this edit will be denied and returned to the provider.

f. Procedures Allowed for Females Only Edit

It has come to our attention that code 75.37 (Amnioinfusion) and code 75.38 (Fetal pulse oximetry) were inadvertently omitted from the MCE edit “Procedures Allowed for Females Only.” In order to correct this omission, we are proposing to add codes 75.37 and 75.38 and to the edit for procedures allowed for females only.

4. 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 “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 costs of MS-DRG 1 is higher than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are higher than the average costs 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 costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.

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

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients 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 costs for two surgical classes is very small. We have found that small differences Start Printed Page 24111generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift such that the higher-ordered surgical class has a lower average costs than the class ordered below it.

For FY 2010, we are not proposing any revisions to the surgical hierarchy.

5. Complications or Comorbidity (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 47121 through 47152).

b. CC Exclusions List for FY 2010

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.[2]

For FY 2010, 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, 2009. (See section II.G.7. of the preamble of this proposed rule 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.

Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, which would be effective for discharges occurring on or after October 1, 2009, 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, 2009, 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 of the Addendum to this proposed rule, 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
277.88Tumor lysis syndrome.
670.22Puerperal sepsis, delivered, with mention of postpartum complication.
670.24Puerperal sepsis, postpartum condition or complication.
670.32Puerperal septic thrombophlebitis, delivered, with mention of postpartum complication.
670.34Puerperal septic thrombophlebitis, postpartum condition or complication.
670.80Other major puerperal infection, unspecified as to episode of care or not applicable.
670.82Other major puerperal infection, delivered, with mention of postpartum complication.
670.84Other major puerperal infection, postpartum condition or complication.
756.72Omphalocele.
756.73Gastroschisis.
768.73Severe hypoxic-ischemic encephalopathy.
779.32Bilious vomiting in newborn.
Start Printed Page 24112

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

CodeDescription
768.7Hypoxic-ischemic encephalopathy (HIE).

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

CodeDescription
209.71Secondary neuroendocrine tumor of distant lymph nodes.
209.72Secondary neuroendocrine tumor of liver.
209.73Secondary neuroendocrine tumor of bone.
209.74Secondary neuroendocrine tumor of peritoneum.
209.79Secondary neuroendocrine tumor of other sites.
416.2Chronic pulmonary embolism.
453.50Chronic venous embolism and thrombosis of unspecified deep vessels of lower extremity.
453.51Chronic venous embolism and thrombosis of deep vessels of proximal lower extremity.
453.52Chronic venous embolism and thrombosis of deep vessels of distal lower extremity.
453.6Venous embolism and thrombosis of superficial vessels of lower extremity.
453.71Chronic venous embolism and thrombosis of superficial veins of upper extremity.
453.72Chronic venous embolism and thrombosis of deep veins of upper extremity.
453.73Chronic venous embolism and thrombosis of upper extremity, unspecified.
453.74Chronic venous embolism and thrombosis axillary veins.
453.75Chronic venous embolism and thrombosis of subclavian veins.
453.76Chronic venous embolism and thrombosis of internal jugular veins.
453.77Chronic venous embolism and thrombosis of other thoracic veins.
453.79Chronic venous embolism and thrombosis of other specified veins.
453.81Acute venous embolism and thrombosis of superficial veins of upper extremity.
453.82Acute venous embolism and thrombosis of deep veins of upper extremity.
453.83Acute venous embolism and thrombosis of upper extremity, unspecified.
453.84Acute venous embolism and thrombosis of axillary veins.
453.85Acute venous embolism and thrombosis of subclavian veins.
453.86Acute venous embolism and thrombosis of internal jugular veins.
453.87Acute venous embolism and thrombosis of other thoracic veins.
453.89Acute venous embolism and thrombosis of other specified veins.
569.71Pouchitis.
569.79Other complications of intestinal pouch.
670.10Puerperal endometritis, unspecified as to episode of care or not applicable.
670.12Puerperal endometritis, delivered, with mention of postpartum complication.
670.14Puerperal endometritis, postpartum condition or complication.
670.20Puerperal sepsis, unspecified as to episode of care or not applicable.
670.30Puerperal septic thrombophlebitis, unspecified as to episode of care or not applicable.
768.70Hypoxic-ischemic encephalopathy, unspecified.
768.71Mild hypoxic-ischemic encephalopathy.
768.72Moderate hypoxic-ischemic encephalopathy.
813.46Torus fracture of ulna (alone).
813.47Torus fracture of radius and ulna.

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

CodeDescription
453.8Other venous embolism and thrombosis of other specified veins.

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current MS-DRG Definitions Manual, Version 26.0, is available for $250.00, which includes shipping and handling. 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. Version 27.0 of this manual, which will include the final FY 2010 MS-DRG changes, will be available in CD only for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by obtaining an order form at the Web site: http://www.3MHIS.com. Please specify the revision or revisions requested.

6. Review of Procedure Codes in MS DRGs 981 through 983; 984 through 986; and 987 through 989

Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC). 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 Start Printed Page 24113
  • 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.[3]

For FY 2010, we are not proposing to change the procedures assigned among these MS-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 MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. For FY 2010, 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 MS-DRGs to another of the three MS-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 MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

For FY 2010, we are not proposing to move any procedure codes among these MS-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 2010.

7. 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 $19.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cms.hhs.gov/​ICD9ProviderDiagnosticCodes/​05_​CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no longer available in printed manual form from the Federal Government; it is only available on CD-ROM. Users who need a paper version are referred to one of the many products available from publishing houses.

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

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2010 at a public meeting held on September 24-25, 2008 and finalized the coding changes after consideration of comments received at the meetings and in writing by December 5, 2008. Those coding changes are announced in Tables 6A through 6F in the Addendum to this proposed rule. The Committee held its 2009 meeting on March 11-12, 2009. New codes for which there was a Start Printed Page 24114consensus of public support and for which complete tabular and indexing changes are made by May 2009 will be included in the October 1, 2009 update to ICD-9-CM. Code revisions that were discussed at the March 11-12, 2009 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 and will be marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's September 24-25, 2008 meeting and March 11-12, 2009 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 24-25, 2008 meeting and March 11-12, 2009 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, 2009. 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 FY 2010 IPPS 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, the corresponding new or expanded diagnosis codes are included in Table 6A in the Addendum to this proposed rule. New procedure codes are shown in Table 6B in the Addendum to this proposed rule. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes) in the Addendum to this proposed rule. These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2009. Table 6D in the Addendum to this proposed rule contains invalid procedure codes. These invalid procedure codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2009. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles) in the Addendum to this proposed rule, which also includes the MS-DRG assignments for these revised codes. Table 6F in the Addendum to this proposed rule includes revised procedure code titles for FY 2010.

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 11-12, 2009 Committee meeting that receive consensus and that were finalized by May 2009 will be included in Tables 6A through 6F in the Addendum to the final rule.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

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

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

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee 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 Start Printed Page 24115systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April 1, 2009 implementation of an ICD-9-CM code at the September 24-25, 2008 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2009.

Current addendum and code title information is published on the CMS Web site at: http://www.cms.hhs.gov/​icd9ProviderDiagnosticCodes/​01_​overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding Guidelines, can be found on the Web site at: http://www.cdc.gov/​nchs/​icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is also provided to the AHA for publication in the Coding Clinic for ICD-9-CM. AHA also distributes information to publishers and software vendors.

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

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. 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 fully implemented the cost-based DRG relative weights for FY 2009, which was 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 2010 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 2008 MedPAR data used in this proposed rule include discharges occurring on October 1, 2007, through September 30, 2008, based on bills received by CMS through December 31, 2008, 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 2008 MedPAR file used in calculating the relative weights includes data for approximately 11,648,471 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 2007 Medicare cost report data files from HCRIS (that is, cost reports beginning on or after October 1, 2006, and before October 1, 2007), which represents the most recent full set of cost report data available. We used the December 31, 2008 update of the HCRIS cost report files for FY 2007 in setting the relative cost-based weights.

The methodology we used to calculate the DRG cost-based relative weights from the FY 2008 MedPAR claims data and FY 2007 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the proposed FY 2010 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 2008 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
  • Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.
  • Claims with total charges or total 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 95.9 percent of the providers in the MedPAR file had Start Printed Page 24116charges 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 MS-DRG.
  • Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, the POA indicator field was reset to “Y” for “Yes” just for relative weight-setting purposes for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), then it is not a “HAC,” and the hospital is paid with the higher severity (and, therefore, higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, lower weighted) MS-DRG as a penalty for allowing a Medicare inpatient to contract a “HAC.” While this meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HACs are likely to be higher as well. Thus, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost. To avoid these problems, we are proposing to reset the POA indicator field to “Y” just for relative weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA field. This “forces” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 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, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 15 cost groups so that each MS-DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2007 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.

Start Printed Page 24117

Start Printed Page 24118

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We developed the national average CCRs as follows:

Taking the FY 2007 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland as we are including their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking 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 MS-DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The new cost-based relative weights were then normalized by an adjustment factor of 1.54005 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 2010 are as follows:

GroupCCR
Routine Days0.534
Intensive Days0.469
Drugs0.199
Supplies & Equipment0.344
Therapy Services0.408
Laboratory0.160
Operating Room0.281
Cardiology0.178
Radiology0.161
Emergency Room0.276
Blood and Blood Products0.426
Other Services0.418
Labor & Delivery0.460
Inhalation Therapy0.199
Anesthesia0.134

As we explained in section II.E. of the preamble of this proposed rule, we have completed 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, the relative weights were 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 2010. Using the FY 2008 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. Newborns are unique and require separate MS-DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs listed below are for newborns. In FY 2010, 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 2009 weights by the percentage change in the average weight of the Start Printed Page 24124cases 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 2009 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 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
790Extreme Immaturity or Respiratory Distress Syndrome, NeonateFY 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791Prematurity with Major ProblemsFY 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792Prematurity without Major ProblemsFY 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793Full-Term Neonate with Major ProblemsFY 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794Neonate with Other Significant ProblemsFY 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795Normal NewbornFY 2009 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).

I. 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 that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that the process must apply to a new medical service or technology if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” We note that beginning with FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations implementing these provisions specify three criteria for a new medical service or technology to receive an additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. These three criteria are explained below in the ensuing paragraphs in further detail.

Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a specific medical service or technology will be considered “new” for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. 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 MS-DRG weights. For example, data from discharges occurring during FY 2008 are used to calculate the FY 2010 MS-DRG weights in this proposed rule. Section 412.87(b)(2) of the regulations therefore 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 generally 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 cases of a national noncoverage determination or a 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 MS-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 (as specified under § 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2008 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, 2011 (the start of FY 2012). Because the FY 2012 MS-DRG weights would be calculated using FY 2010 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2012 MS-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 2012 and thereafter.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, Start Printed Page 24125the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. 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 MS-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 MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs, if the new medical service or technology occurs in more than one MS-DRG).

However, section 503(b)(1) of Public Law 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 Public Law 108-173.) Table 10 that was included in the notice published in the Federal Register on October 3, 2008, contains the final thresholds that are being used to evaluate applications for new technology add-on payments for FY 2010 (73 FR 57888).

We note that section 124 of Public Law 110-275 extended, through FY 2009, wage index reclassifications under section 508 of Public Law 108-173 (the MMA) and special exceptions contained in the final rule promulgated in the Federal Register on August 11, 2004 (69 FR 49105 and 49107) and extended under section 117 of Public Law 110-173 (the MMSEA). The wage data affects the standardized amounts (as well as the outlier offset and budget neutrality factors that are applied to the standardized amounts), which we use to compute the cost criterion thresholds. Therefore, the thresholds reflected in Table 10 in the Addendum to the FY 2009 IPPS final rule were tentative. As noted earlier, on October 3, 2008, we published a Federal Register notice (73 FR 57888) that contained a new Table 10 with revised thresholds that reflect the wage index rates for FY 2009 as a result of implementation of section 124 of Public Law 110-275. The revised thresholds also were published on the CMS Web site. The revised thresholds published in Table 10 in the October 3, 2008 Federal Register notice are being used to determine if an applicant for new technology add-on payments discussed in this FY 2010 proposed rule meets the cost criterion threshold for new technology add-on payments for FY 2010.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the 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. Specifically, 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 Register on August 14, 2002, for a full discussion of changes in consent requirements.)

Under the third criterion, § 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. (We refer readers to the September 7, 2001 final rule for a 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 cost to charge ratios (“CCRs”) as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for the case including the new technology exceed Medicare's payment); or (2) 50 percent of the difference between the full DRG payment and the hospital's estimated cost for the case. Unless the discharge qualifies for an outlier payment, Medicare payment is limited to the full MS-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 MS-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, while at the same time estimating the payment effect of changes to the MS-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 Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, following section 503(d)(2) of Public Start Printed Page 24126Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulations at § 412.87 to codify our current practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. We also amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered.

Applicants for add-on payments for new medical services or technologies for FY 2011 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 posted as it becomes available on our Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​08_​newtech.asp. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2011, the Web site also will 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 Public Law 108-173. The Council is co-chaired by the Director of the Office of Clinical Standards and Quality (OCSQ) and the Director of the Center for Medicare Management (CMM), who is also designated as the CTI's Executive Coordinator.

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. At the same time, the CTI also works to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

CMS plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an “innovator's guide” to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.hhs.gov/​CouncilonTechInnov/​Downloads/​InnovatorsGuide8_​25_​08.pdf.

As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any product developers or manufacturers of new medical technologies to contact the agency early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov 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 Public Law 108-173, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement or advancement. The process for evaluating new medical service and technology applications requires the Secretary to—

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

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2010 prior to publication of this proposed rule, we published a notice in the Federal Register on November 28, 2008 (73 FR 72490), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 17, 2009. 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 2010 new medical service and technology add-on payment applications before the publication of the FY 2010 IPPS proposed rule.

Approximately 90 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. Each of the five FY 2010 applicants presented information on its Start Printed Page 24127technology, including a discussion of data reflecting the substantial clinical improvement aspect of the technology. 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 2010 in this proposed rule.

In response to the published notice and the new technology town hall meeting, we received two written comments regarding applications for FY 2010 new technology add-on payments. We have summarized these comments or, if applicable, indicated that there were no comments received, at the end of each discussion of the individual applications. We did not receive any general comments about the application of the substantial clinical improvement criterion.

A further discussion of our evaluation of the applications and the documentation for new technology add-on payments submitted for FY 2010 approval is provided under the specified areas under this section.

3. FY 2010 Status of Technologies Approved for FY 2009 Add-On Payments

We approved one application for new technology add-on payments for FY 2009: CardioWestTM Temporary Total Artificial Heart System (CardioWestTM TAH-t).

SynCardia Systems, Inc. submitted an application for approval of the CardioWest TM temporary Total Artificial Heart system (TAH-t). 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.

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. One of the FDA's post-approval requirements is that the manufacturer agrees to provide a post-approval study demonstrating success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who would be followed up to 1 year, including (but not limited to) the following endpoints: Survival to transplant; adverse events; and device malfunction.

In the past, Medicare did not cover artificial heart devices, including the TAH-t. However, on May 1, 2008, CMS issued a final national coverage determination (NCD) expanding Medicare coverage of artificial hearts when they are implanted as part of a study that is approved by the FDA and is determined by CMS to meet CMS's Coverage with Evidence Development (CED) clinical research criteria. (The final NCD is available on the CMS Web site at: http://www.cms.hhs.gov/​mcd/​viewdecisionmemo.asp?​id=​211.)

We indicated in the FY 2009 IPPS final rule (73 FR 48555) that, because Medicare's previous coverage policy with respect to this device had precluded payment from Medicare, we did not expect the costs associated with this technology to be currently reflected in the data used to determine the relative weights of MS-DRGs. As we have indicated in the past, and as we discussed in the FY 2009 IPPS final rule, 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 represented such a case. We also noted 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) since the time of its FDA approval, because the TAH-t had not been covered under the Medicare program (and, therefore, no Medicare payment had been made for this technology), this code could not be “used with respect to inpatient hospital services for which payment” is made under the IPPS, and thus we assumed that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS-DRG relative weights for FY 2009. For this reason, as discussed in the FY 2009 IPPS final rule, despite the FDA approval date of the technology, we determined that TAH-t would still be eligible to be considered “new” for purposes of the new technology add-on payment because the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the TAH-t and consideration of the public comments we received on the FY 2009 IPPS proposed rule, we approved the TAH-t for new technology add-on payments for FY 2009 (73 FR 48557). We indicated that we believed the TAH-t offered a new treatment option that previously did not exist for patients with end-stage biventricular failure. However, we indicated that we recognized that Medicare coverage of the TAH-t is limited to approved clinical trial settings. The new technology add-on payment status does not negate the restrictions under the NCD nor does it obviate the need for continued monitoring of clinical evidence for the TAH-t. We remain interested in seeing whether the clinical evidence demonstrates that the TAH-t continues to be effective. If evidence is found that the TAH-t may no longer offer a substantial clinical improvement, we reserve the right to discontinue new technology add-on payments, even within the 2 to 3 year period that the device may still be considered to be new.

The new technology add-on payment for the TAH-t for FY 2009 is triggered by the presence of ICD-9-CM procedure code 37.52 (Implantation of total heart replacement system), condition code 30, and the diagnosis code reflecting clinical trial—V70.7 (Examination of participant in clinical trial). For FY 2009 we finalized a maximum add-on payment of $53,000 (that is 50 percent of the estimated operating costs of the device of $106,000) for cases that involve this technology. As noted above, the TAH-t is still eligible to be considered “new” for purposes of the new technology add-on payment because the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008. Therefore, for FY 2010, we are proposing to continue new technology add-on payments for cases involving the TAH-t in FY 2010 with a maximum add-on payment of $53,000. Start Printed Page 24128

4. FY 2010 Applications for New Technology Add-On Payments

We received six applications to be considered for new technology add-on payment for FY 2010. However, one applicant withdrew its application. Emphasys Medical submitted an application for new technology add-on payments for FY 2010 for the Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV). However, Emphasys Medical withdrew its application from further review in December 2008. Since the Zephyr® EBV application was withdrawn prior to the town hall meeting and publication of the FY 2010 IPPS proposed rule, we are not discussing the application in this proposed rule.

A discussion of the remaining five applications is presented below. At the time this proposed rule was developed, some of the technologies had not yet received FDA approval. Consequently, our discussion below of these cases may be limited.

a. The AutoLITT TM System

Monteris Medical submitted an application for new technology add-on payments for FY 2010 for the AutoLITT TM. AutoLITT TM is a minimally invasive, MRI-guided catheter tipped laser designed to destroy malignant brain tumors with interstitial thermal energy and is designed to cause immediate coagulation and necrosis of diseased tissue. The applicant asserts that the AutoLITT TM delivers laser energy to the lesion with a proprietary 3mm diameter probe that directs the energy radially (that is, at right angle to the axis of the probe) toward the targeted tumor tissue in a narrow beam profile and at the same time, a proprietary probe cooling system removes heat from tissue not directly in the path of the laser beam, ostensibly protecting it from thermal damage and enabling the physician to selectively coagulate only targeted tissue. The applicant expects that AutoLITT TM will receive a 510K FDA clearance in early 2009, and the FDA approval will be for use in patients with glioblastoma multiforme brain tumors. Because the technology is not yet approved by the FDA, we will limit our discussion of this technology to data and information 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 the AutoLITT TM may be substantially similar to the device that it listed as its predicate device in its application to the FDA for approval. The applicant identified Visual-ase as its predicate device, which is also used to treat tumors of the brain. Visual-ase was approved by the FDA in 2006. The applicant maintains that AutoLITT TM can be distinguished from the Visual-ase by its mechanism of action (that is, side-firing laser versus elliptical firing).

A new ICD-9-CM procedure code, 17.61 (Laser interstitial thermal therapy [LITT] of lesion or tissue of brain under guidance), was recommended for approval at the September 2008 ICD-9-CM Coordination and Maintenance Committee meeting. If approved, the new code would become effective on October 1, 2009. We welcome comments from the public regarding whether or not the AutoLITT TM is substantially similar to the Visual-ase.

In an effort to demonstrate that AutoLITT TM meets the cost criterion, the applicant used 2006 Medicare data from the Healthcare Cost and Utilization Project (HCUP). We first note that the applicant believes that cases eligible for the AutoLITT TM will map to MS-DRGs 25 (Craniotomy and Endovascular Intracranial Procedures with MCC), 26 (Craniotomy and Endovascular Intracranial Procedures with CC), and 27 (Craniotomy and Endovascular Intracranial Procedures without CC or MCC). The applicant searched HCUP hospital data for cases potentially eligible for the AutoLITT TM that was assigned one of the following ICD-9-CM diagnosis codes: a diagnosis code that begins with a prefix of 191 (Malignant neoplasm of brain); diagnosis code 225.0 (Benign neoplasm of brain and other parts of nervous system); or diagnosis code 239.6 (Neoplasm of the brain of unspecified nature). The applicant found 39,295 cases and weighted the standardized charge per case based on the amount of cases found within each of the diagnosis codes listed above rather than the percentage of cases that would group to different MS-DRGs. Based on this analysis, the average standardized charge per case was $46,754. While the applicant's analysis established a case-weighted average charge per case, it did not determine a case-weighted average standardized charge per case by MS-DRG (as required by the application). Therefore, in order to determine a case-weighted average standardized charge per case by MS-DRG, the applicant used data from a Rand health report [4] to first determine the percentage of cases that would map to MS-DRGs 25, 26, and 27 and combined this analysis with the analysis above to determine a case-weighted average standardized charge per case by MS-DRG. According to its report, Rand used 2006 MedPAR claims data and found 63,876 cases in CMS-DRG 1 (Craniotomy Age Greater Than 17 with CC) and 39,878 cases in CMS-DRG 2 (Craniotomy Age Greater Than 17 without CC) for a total of 103,754 cases. Based on ICD-9-CM procedure and diagnosis codes, Rand converted these cases from CMS-DRGs 1 and 2 to MS-DRGs 25, 26, and 27. Rand determined that, of the 63,876 cases in CMS-DRG 1, 24,116 of these cases would map to MS-DRG 25 (or 23.2 percent of all cases) and 39,760 cases would map to MS-DRG 26 (or 38.4 percent of all cases). All 39,878 cases from CMS-DRG 2 would map to MS-DRG 27 (or 38.4 percent of all cases in CMS-DRGs 1 and 2). Using the percentages from Rand's analysis, the case-weighted average standardized charge per case by MS-DRG was $46,754. We note that, combining the Rand analysis with the HCUP analysis did not change the case-weighted average standardized charge per case from the results from the HCUP analysis (both analyses produced a case-weighted average standardized charge per case of $46,754). The applicant did identify the average standardized charge per case in the aggregate but has yet to identify cases within the MS-DRGs themselves and, therefore, the applicant has not determined the case-weighted average standardized charge per case by MS-DRG.

The applicant also noted that the case-weighted average standardized charge per case of $46,754 did not include charges related to the AutoLITT TM. Therefore, it is necessary to add the charges related to the device to the case-weighted average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of the AutoLITT TM per case, the applicant stated that the cost of the device was proprietary information. Based on a study of charge compression data by RTI [5] and charge master data from Stanford University and University of California, San Francisco, the applicant estimates $24,389 in charges related to the AutoLITT TM (we note that some of the data used a markup of 294 percent of the costs). Adding the estimated charges related to the device to the case-weighted average standardized charge Start Printed Page 24129per case resulted in a case-weighted average standardized charge per case of $71,143 ($46,754 plus $24,389). Using the FY 2010 thresholds published in Table 10 (73 FR 58008), the case-weighted threshold for MS-DRGs 25, 26, and 27 was $58,069 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that the AutoLITT TM would meet the cost criterion.

We invite public comment on whether or not the AutoLITT TM meets the cost criterion for a new technology add-on payment, particularly in light of the fact that the applicant did not determine a case-weighted average standardized charge per case by MS-DRG (as discussed above).

With respect to the substantial clinical improvement criterion, the applicant maintains that it meets this criterion in its application. Specifically, the applicant stated that several non-AutoLITT TM clinical trials have demonstrated that nonfocused LITT (and more recently, the use of LITT plus MRI) improved survival, quality of life, and recovery in patients with advanced glioblastoma multiforme tumors and advanced metastatic brain tumors that cannot be effectively treated with surgery, radiosurgery, radiation, chemotherapy, or any currently available clinical procedure. In a number of these patients, nonfocused LITT was the treatment of last resort, due to either the unresponsiveness or inability of these therapies to treat the brain tumor (due to tumor location, type, or size, among others). The applicant also maintains that improved clinical outcomes using nonfocused LITT have included reduced recovery time and a reduced rate of complications (that is, infection, brain edema). The applicant stated that these factors, as discussed in the FY 2001 final rule (66 FR 46914 through 46915) demonstrate that the AutoLITT TM meets the new technology criterion for substantial clinical improvement.

The applicant further asserts that AutoLITT TM would represent a substantial clinical improvement over existing standards of care for a number of reasons and should build upon less sophisticated, nonfocused LITT therapies. These clinical improvements cited by the applicant include: a less invasive method of tumor ablation, potentially leading to lower complication rates post procedure (infection, edema); an ability to employ multiple interventions over shorter periods of time and an ability to be used as a treatment of last resort (radiosurgery is limited due to radiation dosing and craniotomy is limited to 1 to 2 procedures); an ability to be used in hard-to-reach brain tumors (the AutoLITT TM may be used as a treatment of last resort); and a shorter recovery time (the possibility for same day surgery, which has been demonstrated above with non-focused LITT).

We appreciate the applicant's summary of why this technology represents a substantial clinical improvement. While we recognize the future potential of this interesting therapy, we have concerns that, besides lacking FDA approval at this time, to date the AutoLITT TM has been used for the treatment of only a few patients as part of a safety evaluation with no comparative efficacy data and, therefore, there may not be sufficient objective clinical evidence to determine if the AutoLITT TM meets the substantial clinical improvement criteria. We invite public comment on whether or not the AutoLITT TM meets the substantial clinical improvement criterion.

We did not receive any written public comments regarding this application for new technology add-on payments concerning the new technology town hall meeting.

b. CLOLAR ® (clofarabine) Injection

Genzyme Oncology submitted an application for new technology add-on payments for FY 2010 for CLOLAR ® (clofarabine) injection. CLOLAR ® is a chemotherapeutic agent that is administered intravenously and is currently being evaluated for the treatment of patients with acute myeloid leukemia (AML). CLOLAR ® was first granted FDA approval in December 2004 for the treatment of pediatric patients (ages 1-21 years), a population not typically eligible for Medicare, with acute lymphoblastic leukemia (ALL) who did not respond to at least two prior treatment attempts. Genzyme Oncology submitted a supplement to its pediatric application (sNDA) to the FDA in November 2008, in which it requested approval for CLOLAR® use in previously untreated adult patients with AML with at least one unfavorable baseline prognostic factor. Unfavorable prognostic factors include: Age greater than or equal to 70 years; antecedent hematologic disorder (AHD); Easter Cooperative Oncology Group (ECOG) performance status (PS) of 2; or intermediate/unfavorable risk karyotype. CLOLAR ® is expecting to receive sNDA approval from the FDA by May 2009. Because the technology is not yet approved by the FDA, we are limiting our discussion of this technology to data that the applicant submitted, rather than making specific proposals with respect to whether the device would meet the new technology add-on payment criteria.

With regard to the newness criterion, we note that, although the applicant has submitted an application to the FDA for an sNDA for the treatment of patients with AML, the FDA approval for the new indication alone does not necessarily demonstrate that CLOLAR ® would meet the newness criterion for purposes of new technology add-on payments. The newness criterion is intended to apply to technologies that have been available to Medicare beneficiaries for no more than 2 to 3 years. Therefore, a technology that applies for a supplemental FDA approval must demonstrate that the new approval is not substantially similar to the prior approval.

As discussed above, the new technology add-on payment is available to new medical services or technologies that satisfy the three criteria set forth in our regulations at § 412.87(b) (that is, newness, high-costs, and substantial clinical improvement). Typically, we begin our analysis with an evaluation of whether an applicant's technology meets what we refer to as the “newness criterion” under § 412.87(b)(2) (that is, whether Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration). Generally, we believe that the costs of a technology begin to be reflected in the hospital charge data used to recalibrate the MS-DRG relative weights when the technology becomes available on the market, usually on or soon after the date on which it receives FDA approval. Unlike the typical applicant for the new technology add-on payment, however, CLOLAR ® is not new to the market but has been available since it was first granted FDA approval in December 2004 for the treatment of pediatric patients with acute lymphoblastic leukemia (ALL). Therefore, we first must determine whether CLOLAR ® nevertheless should be considered a new technology if approved by the FDA for a new indication, specifically for use in adult patients age 70 and above with AML.

Congress provided for the new technology add-on payment in order to ensure that Medicare beneficiaries have access to new technologies. As discussed previously, there often is a lag time of 2 to 3 years before the costs of new technologies are reflected in the recalibration of the relevant MS-DRGs. Because a new technology often has higher costs than existing technologies, Start Printed Page 24130during this lag time the current MS-DRG payment may not adequately reflect the costs of the new technology. The new technology add-on payment addresses this concern by ensuring that hospitals receive an add-on payment under the IPPS for costly new technologies that represent a substantial clinical improvement over existing technologies until such time when the cost of the technology is reflected within the MS-DRG relative weights. When an existing technology receives FDA approval for a new indication, similar concerns may arise. If, prior to the FDA approval for the new indication, the technology has not been used to treat Medicare patients for purposes consistent with the new indication, the relevant MS-DRGs may not reflect the cost of the technology. Consequently, Medicare beneficiaries may not have adequate access to the technology when used for purposes consistent with the new indication. Allowing the new technology add-on payment for the technology when used for the new indication would address this concern. For these reasons, we believe that treating an existing technology as “new” when approved by the FDA for a new indication may be warranted under certain circumstances.

In the September 7, 2001 final Rule (66 FR 46915), we stated that a new use of an existing technology may be eligible for the new technology add-on payment under certain conditions. We believe it is appropriate to consider an existing technology for the new technology add-on payments when its new use is not substantially similar to existing uses of the technology. In the FY 2006 IPPS final rule (70 FR 47351), we explained our policy regarding substantial similarity in detail and its relevance for assessing if the hospital charge data used in the development of the relative weights for the relevant DRGs reflect the costs of the technology. In that final rule, we stated that, for determining substantial similiarity, we consider (1) Whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, and (2) whether a product is assigned to the same or a different DRG are relevant for determining substantial similarity. We indicated that both of the above criteria should be met in order for a technology to be considered “substantially similar” to an existing technology. However, in that same final rule, we also noted that, due to the complexity of issues regarding the substantial similarity component of the newness criterion, it may be necessary to exercise flexibility when considering whether technologies are substantially similar to one another. Specifically, we stated that we may consider additional criteria or factors in some contexts, but not others.

We believe that in determining whether a new use of an existing technology is substantially similar to existing uses of the technology, it may be relevant to consider not only the two criteria discussed in the FY 2006 IPPS final rule, but also certain additional factors. Specifically, we believe it may also be appropriate to analyze whether, as compared to existing uses of the technology, the new use involves the treatment of the same or similar type of disease and the same or similar patient population. Accordingly, we would determine that the new use of an existing technology is substantially similar to one or more existing uses of the technology if (1) the new and existing uses of the technology use the same or a similar mechanism of action to achieve a therapeutic outcome, (2) the new use of the product is assigned to the same MS-DRG(s) as the existing uses, and (3) the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population. If all three criteria are met and the new use is deemed substantially similar to one or more of the existing uses of the technology (that is beyond the newness period), we would conclude that the technology is not new and, therefore is not eligible for the new technology add-on payment. We note that we considered, but rejected, the inclusion of the third factor in the FY 2006 IPPS final rule on the grounds that we believed that it was more relevant to analyze whether the costs of the technology were already reflected in the relative weights of the MS-DRGs. However, upon further consideration, we believe that both the type of disease and patient population for which a technology is used are also relevant in determining whether one indication of a technology is “substantially similar” to another.

We note that the discussion of substantial similarity in the FY 2006 IPPS final rule related to comparing two separate technologies made by different manufacturers. Nevertheless, we believe the criteria discussed in the FY 2006 IPPS final rule also are relevant when comparing the similarity between a new use and existing uses of the same technology (or a very similar technology manufactured by the same manufacturer). In other words, it is necessary to establish that the new indication for which the technology has received FDA approval is not substantially similar to that of the prior indication. Such a distinction is necessary to determine the appropriate start date of the newness period in evaluating whether the technology would qualify for add-on payments (that is, the date of the “new” FDA approval or that of the prior approval), or whether the technology could qualify for separate new technology add-on payments under each indication. We welcome comments on our proposed modification to analyzing whether a technology is substantially similar to another.

With respect to CLOLAR®, it is relevant to consider whether there is a clear distinction between the types of disease that CLOLAR® is intended to treat and the patient populations described in the indications in assessing whether the indication for which a supplemental FDA approval is pending is substantially similar to the indication related to the existing FDA approval for CLOLAR. Accordingly, we have analyzed both the current and pending FDA approvals and indications in order to determine whether or not CLOLAR® for the treatment of ALL in patients ages 1-21 should be deemed substantially similar to CLOLAR® when used for the treatment of AML in patients ages 70 and above. In this case, we compared the two indications against the substantial similarity factors that we outlined in the FY 2006 IPPS final rule (referenced above). We determined that CLOLAR® meets both factors of the substantial similarity criteria that we outlined in the FY 2006 IPPS final rule (that is, the use of CLOLAR® for either indication utilizes the same or a similar mechanism of effect to achieve a therapeutic outcome, and both indications map to the same MS-DRGs). We also analyzed both the current and pending FDA approvals and indications against the two additional factors we described above (that is, whether the new indication as compared to the old indication would involve the use of CLOLAR to treat the same or similar disease and the same or similar patient population). In the course of our analysis, we determined that, although ALL and AML are both types of leukemia, they are separate and distinct hematologic malignancies that typically affect different patient populations. Furthermore, patients ages 1-21 with ALL differ significantly from older patients ages 70 and above with AMI in terms of clinical factors, such as the presence of comorbid conditions, and expected prognosis. Accordingly, because the two indications do not meet the additional factors we included under substantial similarity, we do not Start Printed Page 24131believe that CLOLAR® for the indication of treatment of ALL in patients ages 1-21 should be considered substantially similar to CLOLAR® for the indication of treatment of AML in older patients.

With respect to application of the newness criterion under § 412.87(b)(2), our evaluation also considers whether the data for the relevant MS-DRGs reflect use of the new technology for one or more purposes outside the previously approved indication(s). To the extent that the data suggest that the technology has been used outside the previously approved indication for more than 2 or 3 years (for example, the technology has been used for a purpose that is the basis of the newly approved indication), we believe that the costs of the technology for the new use are reflected in the weights assigned to the relevant MS-DRGs. In this case, we will conclude that the technology does not meet the newness criterion under § 412.87(b)(2) because its costs are already reflected within the relevant MS-DRGs. Therefore, even if we determine that the new use of CLOLAR® is not substantially similar to the existing use of CLOLAR®, we believe it is relevant to assess whether the likelihood that the costs of this drug are included in the data that goes into determining the MS-DRG relative weights because CLOLAR® has not been FDA approved to treat the types of patients that are commonly found in the Medicare population. Regarding this point, the applicant maintains that because of the age group for which CLOLAR® is currently used to treat patients with ALL (that is, pediatric patients who are ages 1-21 years), “it is statistically improbable that claims paid under the relevant MS-DRGs include CLOLAR® costs.” Currently, ICD-9-CM procedure code 99.25 (Injection or infusion of cancer chemotherapeutic substance) would be used to identify the administration of CLOLAR® for the treatment of both ALL and AML. We note that the applicant submitted an application for a unique ICD-9-CM procedure code that was discussed at the March 11, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. In addition, cases involving the use of CLOLAR® for either indication would be expected to routinely map to MS-DRGs 837, 838, and 839 (Chemotherapy with Acute Leukemia as Secondary Diagnosis or High Dose Chemotherapy Agent with MCC, Chemotherapy with Acute Leukemia as Secondary Diagnosis with CC or High Dose Chemotherapy Agent, and Chemotherapy with Acute Leukemia as Secondary Diagnosis without CC/MCC, respectively). Although we generally agree with the applicant's statement that it is statistically improbable that any Medicare patients received CLOLAR® under the currently approved indication for younger patients with ALL, the applicant has not, to date, demonstrated that none of the inpatients who received CLOLAR® for the treatment of patients with ALL were Medicare patients. The applicant maintains that no data are available to identify the exact number of Medicare beneficiaries who are age 21 years or less (that is, those patients whose age identically matches that of the group for whom CLOLAR® is an approved treatment). However, the applicant conducted an analysis of the FY 2007 MedPAR claims data for the MS-DRGs associated with chemotherapy treatment for ALL (CMS-DRG 492 and MS-DRGs 837, 838, and 839) and found that less than 1 percent of all claims that map to those DRGs were for patients who are age 25 years or less. Therefore, the applicant asserts that, given the small number of patients eligible to receive CLOLAR® for its FDA approved indication, it is statistically improbable that claims paid under the relevant DRGs include or adequately reflect the costs of CLOLAR®.

We welcome comments from the public on whether the costs of CLOLAR® are already included in the data used to determine the relative weights for the MS-DRGs to which cases involving CLOLAR® map and on whether the current FDA-approved indication of CLOLAR® is substantially similar to that of the pending one.

In an effort to demonstrate that CLOLAR® meets the cost criterion, the applicant searched the FY 2007 MedPAR file for cases potentially eligible for CLOLAR® that were assigned a combination of the following codes: any principal diagnosis code with a prefix of V58.1 (Encounter for antineoplastic chemotherapy and immunotherapy), or a principal diagnosis code of V67.2 (Chemotherapy follow up examination), or any diagnosis code that begins with a prefix of 205 (Acute promyelocytic leukemia). The applicant found 874 cases (or 30.3 percent of all cases) in MS-DRG 837 (Chemotherapy with Acute Leukemia as Secondary Diagnosis or with High Dose Chemotherapy Agent with MCC), 863 cases (or 29.9 percent of all cases) in MS-DRG 838 (Chemotherapy with Acute Leukemia as Secondary Diagnosis with CC or with High Dose Chemotherapy Agent), and 1,148 cases (or 39.8 percent of all cases) in MS-DRG 839 (Chemotherapy with Acute Leukemia as Secondary Diagnosis without CC/MCC). The average standardized charge per case was $133,428 for MS-DRG 837, $66,997 for MS-DRG 838, and $28,453 for MS-DRG 839, which result in a case-weighted average standardized charge per case of $71,785.

The average standardized charge per case does not include charges related to CLOLAR®; therefore, it is necessary to add the charges related to CLOLAR® to the average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of CLOLAR® per case, the applicant noted that the cost of the drug was proprietary information. The applicant estimates $63,364 in charges related to CLOLAR® (based on a 100-percent charge markup of the cost of the drug). Adding the charges related to the drug to the average standardized charge per case (based on the case distribution from the applicant's FY 2007 MedPAR claims data analysis) resulted in a case-weighted average standardized charge per case of $135,149 ($71,785 plus $63,364). Using the FY 2010 thresholds published in Table 10 (73 FR 58008), the case-weighted threshold for MS-DRGs 837, 838, and 839 was $55,802 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that CLOLAR® would meet the cost criterion. We invite public comment on whether or not CLOLAR® meets the cost criterion.

With regard to the substantial clinical improvement criterion, the applicant asserts that despite significant advances that have been made in the management of AML in younger adults (that is, persons under the age of 60 years), including the benefit of intensive remission induction therapy [often comprised of an anthracycline combined with intermediate or highdose cytarabine (“7 + 3”)] to either achieve or maintain a complete remission (CR) or CR with incomplete platelet recovery (CRp) that has been progressively demonstrated over the past several years, such success has not been achieved in persons over the age of 60 years. The applicant stated that for the older patient population, conventional induction therapy with “7 + 3” is poorly tolerated and often does not benefit older patients with unfavorable baseline prognostic factors. In addition, the applicant stated that older adult patients are also at high risk for early induction mortality. According to the applicant, depending on comorbidity factors, the rate of Start Printed Page 24132induction mortality can be as high as 65 percent within 8 weeks following conventional intensive chemotherapy.

The applicant also presented an analysis of some recent data that has emerged in connection with CLOLAR® use in older patients with AML. A Phase II study comparing single agent CLOLAR® to CLOLAR® combined with low-dose cytarabine (LDAC) in patients age 60 years and older, found that 42 percent of the patients treated with CLOLAR® alone achieved a CR or CR with incomplete peripheral blood count recovery, and found that 59 percent of the patients treated with the combination therapy achieved a CR or CR with incomplete peripheral blood count recovery. Both treatment regimens were tolerated in this patient population without a distinction in terms of toxicity. The safety and efficacy of CLOLAR® was recently reported in another Phase II study of 66 older adult patients (over age 65 years) with untreated AML. All patients were considered unfit for conventional induction therapy due to the presence of one or more unfavorable prognostic factors. In the group of patients with adverse cytogenetic profiles, the overall response rate was 53 percent with a CR rate of 42 percent. In addition, this group had a significantly prolonged median survival (more than 6 months) when compared to a similar group that had received LDAC.

The applicant conducted a pivotal, multicenter clinical trial which serves as the basis for an sNDA to the FDA for approval of CLOLAR® as a treatment for adult AML. According to the applicant, the primary objective of this study was to assess the efficacy of CLOLAR® in previously untreated adults who were at least 60 years old with AML for whom standard induction chemotherapy was unlikely to be of benefit due to at least one unfavorable baseline prognostic factor. The results of this pivotal trial indicate that single agent CLOLAR® is active and well-tolerated when administered to previously untreated adults with AML and at least one adverse prognostic factor. The overall remission rate (CR + CRp = 45 percent) with CLOLAR® compared favorably to historical studies with “7 + 3” regimens. Responses in patients receiving CLOLAR® were consistent regardless of the number or the type of unfavorable prognostic factor including a CR of 43 percent in patients with unfavorable cytogenetics, 50 percent in patients with AHD, 40 percent in patients more than the age of 70, and 38 percent in patients with an Eastern Cooperative Oncology Group (ECOG) PS of 2. In addition, it did not appear that response rates were affected by the presence of multiple adverse prognostic factors (50 percent, 48 percent, and 42 percent in patients with one, two and three risk factors, respectively). The overall response rate was even higher in patients who were less than age 70 years (56 percent), and in patients with an ECOG PS of 0 (64 percent). Thirty-day mortality (for all causes) was 9.6 percent. Drug-related adverse events were consistent with prior reports with single agent CLOLAR®, and were manageable in the patient population studied. Five patients (4 percent) had to discontinue treatment due to toxicity, but many patients were able to receive subsequent consolidation CLOLAR® treatments. The applicant maintains that there is no standard treatment in older adult patients with comorbid conditions or adverse disease characteristics for whom conventional induction therapy is not considered an appropriate option. The applicant further asserts that the absence of treatment options, especially in a disease with onset at a median age of 67, clearly represents a significant unmet medical need.

We are concerned that this drug may offer little to no increased survival benefit in a patient population whose overall prognosis is exceedingly poor. Therefore, it is not clear that the drug represents a substantial clinical improvement over existing therapies, such as increased benefit survival or reduced need for hospitalization or physician visits. (We refer readers to 66 FR 46941 for a more detailed discussion relating to the substantial clinical improvement criterion.) We welcome public comment about whether or not CLOLAR® represents a substantial clinical improvement.

We did not receive any written public comments regarding this application for new technology add-on payments concerning the new technology town hall meeting.

c. LipiScanTM Coronary Imaging System

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2010 for the LipiScanTM Coronary Imaging System (LipiScanTM). The LipiScanTM device is a diagnostic tool that uses Intravascular Near Infrared Spectroscopy (INIRS) during an invasive coronary catheterization to scan the artery wall in order to determine coronary plaque composition. The purpose of the device is to identify lipid-rich areas in the artery because such areas have been shown to be more prone to rupture. The procedure does not require flushing or occlusion of the artery. INIRS identifies the chemical content of plaque by focusing near infrared light at the vessel wall and measuring reflected light at different wavelengths (that is, spectroscopy). The LipiScanTM system collects approximately 1,000 measurements per 12.5 mm of pullback, with each measurement interrogating an area of 1 to 2 mm2 of lumen surface perpendicular to the longitudinal axis of the catheter. When the catheter is in position, the physician activates the pullback and rotation device and the scan is initiated providing 360 degree images of the length of the artery. The rapid acquisition speed for the image freezes the motion of the heart and permits scanning of the artery in less than 2 minutes. When the catheter pullback is completed, the console displays the scan results, which is referred to as a “chemogram” image. The chemogram image requires reading by a trained user, but, according to the applicant was designed to be simple to interpret.

With regard to the newness criterion, the LipiScanTM received a 510K FDA clearance for a new indication on April 25, 2008, and was available on the market immediately thereafter. On June 23, 2006, InfraReDx, Inc. was granted a 510K FDA clearance for the “InfraReDx Near Infrared (NIR) Imaging System.” Both devices are under the common name of “Near Infrared Imaging System” according to the 510K summary document from the FDA. However, the InfraReDx NIR Imaging System device that was approved by the FDA in 2006 was approved “for the near infrared imaging of the coronary arteries,” whereas the LipiscanTM device cleared by the FDA in 2008 is for a modified indication. The modified indication specified that LipiscanTM is “intended for the near-infrared examination of coronary arteries * * *, the detection of lipid-core-containing plaques of interest * * * [and] for the assessment of coronary artery lipid core burden.”

We have concerns regarding whether LipiscanTM is substantially similar to its predicate device that was approved by FDA in 2006. Specifically, it appears that the two devices, which are manufactured by the same company, do not differ in either design or functionality, according to the approval order documents from the FDA. In the 2008 approval order, the FDA stated, “The LipiScan Coronary Imaging System utilizes the same basic catheter design as the predicate, the InfraReDx NIR Imaging System (June 23, 2006). These devices have a similar intended use, use the same operating principal, incorporate the same basic catheter design, have the same shelf life, and are Start Printed Page 24133packaged using the same materials and processes. The modifications from the lnfraReDx NIR Imaging System to the LipiScan Coronary Imaging System are the improved catheter design, improved user interface (including PBR and console), and the additional testing required to support an expanded indication for use.” Therefore, it appears that the only difference between the two approvals may be a modification of the intended use.

As mentioned earlier in our discussion of the CLOLAR® application in section II.I.4.b. of this proposed rule, our policy regarding substantial similarity discussed in the FY 2006 final rule (70 FR 47351 through 47532) outlined two criteria as it relates to two separate technologies that are made by different manufacturers that were used to guide our determination of whether two technologies were substantially similar to one another. Although the LipicanTM is a diagnostic device and not a therapeutic device we believe that the substantial similarity component of the newness criterion still applies.

Both the prior and the new FDA indications for LipiScanTM use the same or a similar mechanism of action to achieve a desired therapeutic outcome, and both treat patients that would generally be assigned to the same MS-DRG. Similarly, both indications of LipiScanTM are intended to treat the same disease in the same patient population. Consequently, we have concerns as to whether or not the two intended uses are substantially similar, especially considering that the technologies appear essentially identical. We welcome public comment on whether or not the latest 510K FDA clearance should be considered “substantially similar” to its predicate technology approved by the FDA in 2006.

We note that the LipiscanTM technology is identified by ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which became effective October 1, 2008, and cases involving the use of this device generally map to MS-DRG 246 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent without MCC).

In an effort to demonstrate that the technology meets the cost criterion, the applicant used the FY 2009 After Outliers Removed (AOR) file (posted on the CMS Web site) for cases potentially eligible for LipiscanTM. The applicant believes that every case within DRGs 246, 247, 248, 249, 250, and 251 are eligible for LipiscanTM. In addition, the applicant believes that LipiscanTM will be evenly distributed across patients in each of the six MS-DRGs (16.6 percent within each MS-DRG). Using data from the AOR file, the applicant found the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was $65,364, $42,162, $58,754, $37,048, $61,016, and $35,878 respectively, equating to an average standardized charge per case of $50,037. The applicant indicated that the average standardized charge per case does not include charges related to LipiscanTM; therefore, it is necessary to add the charges related to the device to the average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of LipiscanTM per case, the applicant noted that the cost of the device was proprietary information. Based on a sampling of two hospitals that have used the device, the applicant used a markup of 120 percent of the costs and estimates $5,280 in charges related to LipiscanTM. Because the applicant lacked a significant sample of cases to determine the charges associated with the device, we have concerns as to whether or not the estimate of $5,280 in charges related to the device is a valid estimate. Adding the estimated charges related to the drug to the average standardized charge per case (based on the case distribution from the applicant's 2009 AOR analysis) results in a case-weighted average standardized charge per case of $55,317 ($50,037 plus $5,280). Using the FY 2010 thresholds published in Table 10 (73 FR 58008), the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 was $53,847 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that LipiscanTM would meet the cost criterion. We invite public comment on whether or not LipiscanTM meets the cost criterion.

With regard to substantial clinical improvement, the applicant maintains that the device meets this criterion for the following reasons. The applicant noted that the September 1, 2001 final rule states that one facet of the criterion for substantial clinical improvement is “the device offers the ability to diagnose a medical condition in a patient population where the medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient” (66 FR 46914). The applicant believes that LipiscanTM meets all facets of this criterion. The applicant asserted that the device is able to detect a condition that is not currently detectable. The applicant explained that LipiScanTM is the first device of its kind to be able to detect lipid-core-containing plaques of interest and to assess of coronary artery lipid core burden. The applicant further noted that FDA, in its approval documentation, has indicated that “This is the first device that can help assess the chemical makeup of coronary artery plaques and help doctors identify those of particular concern.”

In addition, the applicant stated that the LipiScanTM chemogram permits a clinician to detect lipid-core-containing plaques in the coronary arteries compared to other currently available devices that do not have this ability. The applicant explained that the angiogram, the conventional test for coronary atherosclerosis, shows only minimal coronary narrowing. However, the applicant indicated that the LipiScanTM chemogram has the ability to reveal when an artery contains extensive lipid-core-containing plaque at an earlier stage.

The applicant also noted that the device has the ability to make a diagnosis that better affects the management of the patient. Specifically, the applicant explained that the chemogram results are available to the interventional cardiologist during the PCI procedure, and have been found to be useful in decision-making. Physicians have reported changes in therapy based on LipiScanTM findings in 20 to 50 percent of patients. The most common use of LipiScanTM results has been for selection of the length of artery to be stented. In some cases a longer stent has been used when there is a lipid-core-containing plaque adjacent to the area that is being stented because a flow-limiting stenosis is present. Therefore, the applicant contends that the use of LipiScanTM by clinicians to select the length of artery to be stented and as an aid in selection of intensity of lipid-altering therapy, demonstrates that Start Printed Page 24134LipiScanTM affects the management of patients.

While we recognize that the identification of lipid-rich plaques in the coronary vasculature holds promise in the management of coronary artery disease, we are concerned that statements in the FDA approval documents, as well as statements made by investigators in the literature, suggest that the clinical implications of identifying these lipid-rich plaques are not yet certain and that further studies need to be done to understand the clinical implications of obtaining this information. We are also concerned that there are no outcome data regarding the use of the LipiScanTM technology.

The applicant also submitted commentary from Interventional Cardiologists (a group of clinicians who currently utilize the LipiScanTM device) explaining the clinical benefits of the device. The applicant further noted that the device may have other potential uses that would be of clinical benefit, and studies are currently being conducted to investigate these other potential uses. The applicant explained that LipiScanTM offers promise as a means to enhance progress against the two leading problems in coronary disease management: (1) The unacceptably high rate of second events that occur even after catheterization, revascularization, and the institution of optimal medical therapy; and (2) the failure to diagnose coronary disease early, which results in sudden death or myocardial infarction being the first sign of the disease in most patients. The applicant further stated that the identification of coronary lipid-core-containing plaques, which can most readily be done in those already undergoing catheterization, is likely to be of benefit in the prevention of second events. In the longer term, the applicant stated that the identification of lipid-core-containing plaques by LipiScanTM may contribute to the important goal of primary prevention of coronary events, which, in the absence of adequate diagnostic methods, continue to cause extensive morbidity, mortality and health care expenditures in Medicare beneficiaries and the general population.

We welcome public comment regarding whether or not the LipiScanTM technology represents a substantial clinical improvement in the Medicare population.

Below we summarize the written comments we received in response to the town hall meeting.

Comment: The manufacturer of LipiScanTM stated that, prior to the availability of LipiScanTM, current methods of diagnosis could not detect that a patient has a lipid-core plaque prior to the occurrence of a myocardial infarction. In April 2008, the FDA approved the LipiScanTM Coronary Imaging System for identification of these lipid-core plaques in patients undergoing coronary angiography, thereby allowing the detection of this condition in patients prior to the occurrence of a myocardial infarction.

The manufacturer stated that, since its FDA approval, LipiScanTM has been used in over 110 patients and has identified lipid-core plaques that were previously undetectable, thereby revealing earlier stages of the disease. The manufacturer noted that physicians have used this diagnostic information to provide clinical benefits to their patients, including improved identification of the length of the artery to be stented and selection of the appropriate intensity of pharmacologic therapy designed to alter plasma lipids.

In addition to these early diagnostic uses, the manufacturer believes that LipiScanTM opens the possibility of eventual detection and treatment of lipid-core plaques before they cause a stenosis and/or a clinical event. The manufacturer added that the use of this technology could lead to prevention of myocardial infarction, which in turn would reduce the occurrence of heart failure and arrhythmias—two conditions responsible for severe morbidity and massive health care expenditures.

In addition, the manufacturer reiterated its assertion that LipiScanTM meets the newness criterion. The manufacturer explained that FDA, in its approval documentation, has indicated that “This is the first device that can help assess the chemical makeup of coronary artery plaques and help doctors identify those of particular concern.” The manufacturer further noted that, while LipiScanTM is equivalent to the predicate intravascular ultrasound (IVUS) device, the features of the LipiScanTM system produce different information because it permits the physician to detect lipid-core plaques of interest and the lipid burden index.

The manufacturer also noted that the case-weighted average standardized charge per case exceeds the case-weighted threshold (as discussed above) and, therefore, the manufacturer believes that the technology meets the cost criterion. In addition, the manufacturer reasserted that it meets the substantial clinical improvement criterion by the arguments it put forth in its application regarding substantial clinical improvement (which are presented above in this section of the preamble).

Finally, in its comment, the manufacturer concluded that LipiScanTM is a novel diagnostic method that meets the three criteria for a new technology add-on payment and that more frequent utilization of LipiScanTM would occur with additional reimbursement resulting in possible improved outcomes for patients undergoing stenting. The manufacturer stated that LipiScanTM has the added potential of contributing to the prevention of acute coronary syndromes.

Response: We thank the manufacturer for its comments that were submitted concerning the town hall meeting. We have considered these comments in our evaluation of the technology in this proposed rule. As stated above, we invite additional public comment relating to objective data regarding the assertions presented by the manufacturer.

d. Spiration® IBV® Valve System

Spiration, Inc. submitted an application for new technology add-on payments for FY 2010 for the Spiration® IBV® Valve System (Spiration® IBV®). The Spiration® IBV® is a device that is used to place, via bronchoscopy, small, one-way valves into selected small airways in the lung in order to limit airflow into selected portions of lung tissue that have prolonged air leaks following surgery while still allowing mucus, fluids, and air to exit, thereby reducing the amount of air that enters the pleural space. The device is intended to control prolonged air leaks following three specific surgical procedures: lobectomy; segmentectomy; or lung volume reduction surgery. According to the applicant, an air leak that is present on postoperative day 7 is considered “prolonged” unless present only during forced exhalation or cough. In order to help prevent valve migration, there are five anchors with tips that secure the valve to the airway. The implanted valves are intended to be removed no later than 6 weeks after implantation.

With regard to the newness criterion, the Spiration® IBV® received a Humanitarian Device Exemption (HDE) approval from the FDA on October 24, 2008. We are unaware of any previously FDA-approved predicate devices, or otherwise similar devices, that could be considered substantially similar to the Spiration® IBV®. However, the applicant asserted that the FDA has precluded the device from being used in the treatment of any patients until Institutional Review Board (IRB) Start Printed Page 24135approvals regarding its study sites. Therefore, it would appear that the Spiration® IBV® would meet the newness criterion once it has obtained at least one IRB approval because the device would then be available on the market to treat Medicare beneficiaries. We welcome public comments about the date on which the newness period should begin for this technology should it meet the other criteria to be approved for new technology add-on payments. We note that the Spiration® IBV® is currently described by ICD-9-CM procedure code 33.71 (Endoscopic insertion or replacement of bronchial valve(s)). At the September 2008 ICD-9-CM Coordination and Maintenance Committee meeting, we discussed a proposal to revise the existing code and create a new code for endoscopic bronchial valve insertion in single and multiple lobes.

In an effort to demonstrate that the technology meets the cost criterion, the applicant searched the FY 2007 MedPAR file for cases potentially eligible for use of the Spiration® IBV®. Specifically, the applicant searched for cases with one of the following procedure codes: 32.4 (Lobectomy of lung); 32.3 (Segmental resection of lung); or 32.22 (Long volume reduction surgery). The applicant found 4,225 cases (or 21.6 percent of all cases) in MS-DRG 163 (Major Chest Procedure with MCC), 8,960 cases (or 45.8 percent of all cases) in MS-DRG 164 (Major Chest Procedure with CC), and 6,358 cases (or 32.5 percent of all cases) in MS-DRG 165 (Major Chest Procedure without CC/MCC). The average standardized charge per case was $88,326 for MS-DRG 163, $48,494 for MS-DRG 164, and $38,463 for MS-DRG 165, equating to a case-weighted average standardized charge per case of $53,842.

The average standardized charge per case does not include charges related to the Spiration® IBV®; therefore, it is necessary to add the charges related to the device to the average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of the Spiration® IBV® per case, the applicant noted that the cost of the device was proprietary information. The applicant estimates $21,450 in charges related to the Spiration® IBV® (based on a 100-percent charge markup of the cost of the device). The applicant based this amount on seven actual cases that received the device. Because the applicant lacked a significant sample of cases to determine the charges associated with the device, we have concerns as to whether or not the $21,450 in charges related to the device is a valid estimate. In addition, based on the seven cases, the applicant made an estimate of the number of valves used per case (the applicant noted that the number of valves used per case is proprietary). We also have concerns that the applicant lacked a significant sample of cases to determine a valid estimate of the number of valves per case. Adding the estimated charges related to the device to the average standardized charge per case (based on the case distribution from the applicant's FY 2007 MedPAR claims data analysis) resulted in a case-weighted average standardized charge per case of $75,292 ($53,842 plus $21,450). Using the FY 2010 thresholds published in Table 10 (73 FR 58008), the case-weighted threshold for MS-DRGs 163, 164, and 165 was $54,715 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that the Spiration® IBV® would meet the cost criterion. We invite public comment on whether or not the Spiration® IBV® meets the cost criterion.

With respect to how the device would meet the substantial clinical improvement criterion, the applicant submitted information that was based on the Summary of Safety and Probable Benefit (SSPB) from the FDA's HDE approval order for the device. The clinical results indicate the Spiration® IBV® can be deployed in the intended airway reasonably safely with a minimally invasive bronchoscopy procedure. There have been a limited number of device complications and no occurrences of device erosion or migration. The Spiration® IBV® can be removed using a bronchoscope. Laboratory results indicate that the Spiration® IBV® significantly reduces airflow to the lung tissue beyond the treated airway. A significant reduction in distal airflow is anticipated to augment the resolution of air leaks of the lung. Therefore, the applicant asserts, it is reasonable to conclude that the probable benefit to health associated with using the device for the target population outweighs the risk of illness or injuries, taking into account the probable risks and benefits of currently available devices or alternative forms of treatment when used as indicated in accordance with the directions for use.

We recognize that prolonged air leaks after these types of lung surgery can be a significant problem, and that Spiration® IBV® therapy may represent a new alternative in treating properly selected patients. However, we have concerns that the outcome data presented is from a sample set of only seven patients, and the FDA HDE did not require demonstration of either safety or effectiveness. Therefore, we welcome public comment as to whether or not the Spiration® IBV® represents a substantial clinical improvement for Medicare beneficiaries.

We did not receive any written public comments regarding this application for new technology add-on payments concerning the new technology town hall meeting.

e. TherOx Downstream® System

TherOx, Inc. submitted an application for new technology add-on payments for FY 2010 for the TherOx Downstream® System. The TherOx 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 TherOx 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 laboratory area averages 100 minutes. The applicant claimed that the SSO2 therapy duration lasts 90 minutes and requires an additional 10 minutes post-procedure preparation for transfer time. We note that the TherOx DownStream® System is currently identified by ICD-9-CM procedure code 00.49 (Supersaturated oxygen therapy). TherOx, Inc. submitted an application for new technology add-on payments for FY 2009 for this technology. However, although FDA approval was expected in the second quarter of 2008, it had not received FDA approval at the time the proposed rule for FY 2009 was published. Because the technology was Start Printed Page 24136not approved by the FDA during the development of the proposed rule, we limited 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.

For its FY 2010 new technology add on payment application, the applicant has indicated to CMS that it expects to receive FDA approval in the second quarter of 2009. However, because the technology has not yet received approval by the FDA, we are limiting our discussion of this technology to data that the applicant submitted rather than making specific proposals with respect to whether the device would meet the new technology add-on payment criteria in this proposed rule.

In an effort to demonstrate that TherOx Downstream® System would meet the cost criterion, the applicant submitted two analyses. The applicant stated that it believed that the cases that would be eligible for the TherOx 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 remaining five cases grouped to MS-DRGs that the technology would not frequently group to and, therefore, are not included in this analysis.) The data showed that 32 of these patients were 65 years old or older. There were 12 cases (or 15.4 percent of the 78 cases) in MS-DRG 246, 56 cases (or 71.8 percent of the 78 cases) in MS-DRG 247, 2 cases (or 2.6 percent of the 78 cases) in MS-DRG 248, and 8 cases (or 10.3 percent of the 78 cases) in MS-DRG 249. The average standardized charge per case for MS-DRGs 246, 247, 248, and 249 was $71,955, $60,790, $55,238, and $42,723, respectively, equating to a case-weighted average standardized charge per case of $60,512. The average standardized charge per case does not include charges related to the TherOx Downstream® System. Therefore, it is necessary to add the charges related to the device to the average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of the TherOx Downstream® System per case, the applicant noted that the cost of the device was proprietary information. The applicant estimates $22,739.40 in charges related to the TherOx Downstream® System (based on a 100-percent charge markup of the cost of the drug). Adding the charges related to the device to the average standardized charge per case resulted in a case-weighted average standardized charge per case of $83,251 ($60,512 plus $22,739). Based on the FY 2010 threshold from Table 10 (73 FR 58008), the case-weighted threshold for the four MS-DRGs listed above was $51,564 (all calculations above were performed using unrounded numbers).

The applicant also searched the FY 2007 MedPAR file to identify cases that would be eligible for the TherOx 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 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 12,345 cases within MS-DRGs 246, 247, 248, and 249 distributed as follows: 1,591 cases (or 12.9 percent of cases) in MS-DRG 246; 6,203 cases (or 50.2 percent of cases) in MS-DRG 247; 1,132 cases (or 9.2 percent of cases) in MS-DRG 248; and 3,419 cases (or 27.7 percent of cases) in MS-DRG 249. Not including the charges associated with the technology, the average standardized charge per case for MS-DRGs 246, 247, 248, and 249 was $65,967, $46,828, $56,807 and $40,107, respectively, equating to a case-weighted average standardized charge per case of $48,348. The applicant estimated that it was necessary to add an additional $22,739 in charges to the total case-weighted average standardized charge per case (as described above). In the additional charge amount, 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. The inclusion of these charges would result in a total case-weighted average standardized charge per case of $71,087. The case-weighted threshold for MS-DRGs 246, 247, 248, and 249 (from Table 10 (73 FR 58008)) was $51,073 (all calculations above were performed using unrounded numbers). Because the total case-weighted average standardized charge per case from the first analysis of clinical trial patients and the case-weighted standardized charge per case from the second analysis of the FY 2006 MedPAR claims data exceeds the applicable case-weighted thresholds, the applicant maintained the TherOx Downstream® System would meet the cost criterion.

We invite public comment on whether or not the TherOx Downstream® System meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant asserts that their technology represents a substantial clinical improvement in the treatment of acute anterior myocardial infarction in conjunction with percutaneous coronary intervention (PCI) with stent placement within 6 hours of onset of symptoms compared to PCI and stent placement alone. Specifically, the applicant asserts that there is a 6.5 percent absolute reduction in infarct size using the TherOx Downstream® System as assessed using Tc-99m Sestamibi SPECT nuclear imaging in the Acute Myocardial Infarction Hyperbaric Oxygen Treatment (AMIHOT) II clinical trial, and such a reduction has been correlated with both short-term (less than 30 day) and long-term (greater than 30 day) mortality reductions.

Although the TherOx Downstream® System remains investigational and has not yet received approval from the FDA at this time, we do recognize that a clear reduction of infarct size in acute anterior myocardial infarction may represent a substantial clinical improvement. However, we have concerns that the data presented by the applicant in the application are derived from a Bayesian methodology, which includes data from a subgroup of an earlier trial (AMIHOT I), that showed no overall benefit of using the technology, and that the AMIHOT II trial has yet to be published in any peer reviewed literature. We also are concerned that there were a higher number of adverse bleeding events in patients who had been treated in the group of AMIHOT II clinical trial, and the study did not demonstrate any specific improved clinical outcomes.

We invite public comment on whether or not the TherOx Downstream® System meets the Start Printed Page 24137substantial clinical improvement criterion.

Below we summarize the written comments we received concerning the town hall meeting.

Comment: The physician who presented information at the town hall meeting on behalf of the applicant also submitted additional written comments in response to questions raised during the town hall meeting. Specifically, the physician addressed questions relating to the study of additional functional endpoints, such as ejection fraction a year after a patient received therapy using the TherOx Downstream® System or New York Heart Association (NYHA) functional class, and why the AMIHOT I study design included patients who presented up to 24 hours after infarction (instead of up to 6 hours). With regard to studying ejection fraction out to one year, the physician acknowledged that such an endpoint was considered during the design of the AMIHOT II trial, but that it was ultimately rejected because it was not required by the FDA.

The physician further acknowledged that the AMIHOT I trial failed to meet its overall primary efficacy endpoint, but asserted that when analyzing the subset of 105 patients from the trial who had an anterior myocardial infarction and were reperfused within 6 hours, “substantial clinical benefit” was observed. The physician noted that, although some people may have considered the subset of the anterior myocardial infarction patients a “post hoc” analysis, the subset was actually a “pre-specified data set.” In addition, the physician maintained that the analysis of the subset of data was the basis for the second randomized trial (AMIHOT II), and that the FDA “was unambiguous in its contention that infarct size by single photon emission computed tomography (SPECT) imaging had been thoroughly validated as a surrogate endpoint* * *.”

Finally, the physician emphasized information regarding the technology's efficacy that was presented in its application. First, the physician stated that patients with an ejection fraction of less than 40 percent who received supersaturated oxygen therapy had an absolute difference in infarct size of 12.5 percent when compared to the control arm. The physician further asserted that such outcomes support that “among the sickest acute MI patients* * * supersaturated oxygen is of the greatest benefit.” Secondly, the physician noted that the pooled, adjusted data for AMIHOT II and the anterior MI patients from AMIHOT I show that there were nearly twice as many supersaturated oxygen patients with an imperceptible infarct compared to controls (18.2 percent versus 10.3 percent, respectively). The physician described an “imperceptible” infarct as that which is nearly undetectable upon SPECT imaging after an acute myocardial infarction patient undergoes primary coronary intervention at the hospital.

Response: In response to the physician's statements regarding the FDA rejecting the use of ejection fraction as a primary endpoint for the AMIHOT II trial, we note that the standards used in the determination of whether a new technology is “safe and effective” (FDA standards for approval) are not necessarily equivalent to the standards that are used to determine whether a new technology represents a substantial clinical improvement to the Medicare beneficiary patient population over existing technologies. While we welcome insight and data obtained during the FDA approval process, we are charged with going beyond the “safe and effective” standards of FDA for purposes of deeming that a new technology represents a substantial clinical improvement to the Medicare beneficiary patient population.

We have considered the comments concerning the town hall meeting and in response to questions raised at the town hall meeting in our evaluation of this technology in this proposed rule. As stated above, we invite additional public comment on objective data regarding the assertions presented by the physician.

5. Technical Correction to the Regulations

In the FY 2009 IPPS final rule, when we revised the regulations at § 412.87 to incorporate changes relating to the announcement of determinations and deadline for consideration of new medical service or technology applications, we made a change to paragraph (b)(1) (73 FR 48755). In paragraph (b)(1), we inadvertently used the incorrect word “relating” in the provision that read “A new medical service or technology represents an advance that substantially improves, relating to technologies previously available, the diagnosis or treatment of Medicare beneficiaries” (emphasis added). The correct word should have been “relative”. We are proposing to make this technical change to § 412.87(b)(1).

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

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 2010 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 2010 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 2010 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, 2009 (the FY 2010 wage Start Printed Page 24138index) 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

a. Legislative Requirement

Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required MedPAC 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 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 to 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 (BLS) 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 the FY 2009 IPPS final rule (73 FR 48563 through 48567), we discussed the MedPAC's study and recommendations, the CMS contract with Acumen, L.L.C. for assistance with impact analysis and study of wage index reform, and public comments we received on the MedPAC recommendations and the CMS/Acumen study and analysis.

b. Interim and Final Reports on Results of Acumen's Study

(1) Interim Report on Impact Analysis of Using MedPAC's Recommended Wage Index

In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we discussed the analysis conducted by Acumen comparing use of the MedPAC recommended wage indices to the current CMS wage index. We refer readers to section III.B.1.e. of that final rule for a full discussion of the impact analysis as well as to Acumen's interim report available on the Web site: http://www.acumenllc.com/​reports/​cms.

(2) Acumen's Final Report on Analysis of the Wage Index Data and Methodology

Acumen's final report addressing the issues in section 106(b)(2) of the MIEA-TRHCA is divided into two parts. The first part analyzes the strengths and weaknesses of the data sources used to construct the MedPAC and CMS indexes. This part of Acumen's study is complete and will be published immediately after the publication of this proposed rule. The second part, which is expected to be released after the publication of the FY 2010 IPPS final rule, will focus on the methodology of wage index construction and covers issues related to the definition of wage areas and methods of adjusting for differences among neighboring wage areas, as well as reasons for differential impacts of shifting to a new index. Both reports, when available, will be accessible at the Web site: http://www.acumenllc.com/​reports/​cms.

The following is a description of the analyses for both parts of Acumen's final report.

Part I: Wage Data Analysis

  • Differences between the BLS data and the CMS wage data—Acumen assessed the strengths and weaknesses of the data used to construct the CMS wage index and the MedPAC compensation index by examining the differences between the BLS and the CMS wage data. Acumen also evaluated the importance of accounting for self-employed workers, part-time workers, and industry wage differences.
  • Employee benefit (wage-related) cost—Acumen considered whether benefit costs need to be included in the hospital wage index and discussed the differences between Worksheet A benefits data (proposed by MedPAC to use with BLS wage data) and Worksheet S-3 benefit data. Acumen also analyzed the possibility of using BLS' Employer Costs for Employee Compensation (ECEC) series as an alternative to Worksheet A or Worksheet S-3 benefits data that would pose less of a data collection burden for providers.
  • Impact of the fixed national occupational weights—Acumen assessed MedPAC's and CMS' methods for adjusting for occupational mix differences. While the proposed MedPAC compensation index uses fixed weights for occupations representative of the hospital industry nationally, the CMS wage index incorporates an occupational mix adjustment (OMA) from a separate data collection.
  • Year-to-year volatility in the CMS and BLS wage data—Acumen calculated the extent of volatility in the CMS and BLS wage indexes using several measures of volatility. Acumen also explored potential causes of volatility, such as the number of hospitals and the annual change in the number of hospitals in a wage area. Finally, Acumen evaluated the impact on annual volatility of using a 2-year rolling average of CMS wage index values.

Part II: Wage Index Construction

  • Alternative wage area definitions—Acumen will explore the conceptual basis for defining wage areas and investigate alternative wage area definitions that have been considered in prior literature to reduce differences between areas.
  • Differences between and within contiguous wage areas—Acumen will estimate different methods for smoothing wage index values between geographically proximate areas and examine the justification for and sensitivity to assumptions used by MedPAC in its smoothing method.
  • Reasons for differential impacts of shifting to a new index—Acumen will analyze the impact on hospitals if CMS were to adopt MedPAC's proposed compensation index, with a focus on hospitals that would no longer qualify for exceptions such as geographic reclassification and the rural floor. Acumen will also determine if there are identifiable reasons for the different impacts.

As of the publication date of this proposed rule, Acumen has not completed its analysis for the second part of its final report.

We indicated in the FY 2009 IPPS final rule that, in developing any proposal(s) for additional wage index reform that may be included in the FY Start Printed Page 241392010 IPPS proposed rule, we would consider all of the public comments on the MedPAC recommendations that we had received in that proposed rulemaking cycle, along with the interim and final reports to be submitted to us by Acumen. As Acumen's study is not yet complete, we are not proposing any additional changes to the hospital wage index for acute care hospitals in this proposed rule.

2. FY 2009 Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA

To implement the requirements of section 106(b) of the MIEA-TRHCA and respond to MedPAC's recommendations in its June 2007 report to Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574), we made the following policy changes relating to the hospital wage index. (We refer readers to the FY 2009 IPPS final rule for a full discussion of the basis for the proposals, the public comments received, and the FY 2009 final policy.)

a. Reclassification Average Hourly Wage Comparison Criteria

In the FY 2009 IPPS final rule, we adopted the policy to adjust the reclassification average hourly wage standard, comparing a reclassifying hospital's (or county hospital group's) average hourly wage relative to the average hourly wage of the area to which it seeks reclassification. We provided for a phase-in of the adjustment over 2 years. For applications for reclassification for the first transitional year, FY 2010, the average hourly wage standards were set at 86 percent for urban hospitals and group reclassifications and 84 percent for rural hospitals. For applications for reclassification for FY 2011 (for which the application deadline is September 1, 2009) and for subsequent fiscal years, the average hourly wage standards will be 88 percent for urban and group reclassifications and 86 percent for rural hospitals (§§ 412.230, 412.232, and 412.234 of the regulations). As stated above, these policies were adopted in the FY 2009 IPPS final rule.

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

In the FY 2009 IPPS final rule, we adopted State level budget neutrality (rather than the national budget neutrality adjustment) for the rural and imputed floors, to be effective beginning with the FY 2009 wage index. The transition from the national budget neutrality adjustment to the State level budget neutrality adjustment is being phased in over a 3-year period. In FY 2009, hospitals received a blended wage index that was 20 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 80 percent of a wage index with the national budget neutrality adjustment. In FY 2010, the blended wage index will reflect 50 percent of the State level adjustment and 50 percent of the national adjustment. In FY 2011, the adjustment will be completely transitioned to the State level methodology.

In the FY 2009 IPPS final rule, we incorporated this policy in our regulation at § 412.64(e)(4). Specifically, we provided that CMS makes an adjustment to the wage index to ensure that aggregate payments after implementation of the rural floor under section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and the imputed rural floor under § 412.64(h)(4) are made in a manner that ensures that aggregate payments to hospitals are not affected and that, beginning October 1, 2008, CMS would transition from a nationwide adjustment to a statewide adjustment, with a statewide adjustment fully in place by October 1, 2010. We note that the imputed floor expires on September 30, 2011 (as discussed in section III.H. of this preamble).

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 2009 final rule, for FY 2010, we are proposing to provide that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we are proposing to determine a wage index for FY 2010 employing wage index data from hospital cost reports for cost reporting periods beginning during FY 2006 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 wage index (69 FR 49029) (regulations at § 412.64(b)(1)(ii)(A)).

On November 20, 2008, OMB announced three Micropolitan Statistical Areas that now qualify as MSAs (OMB Bulletin No. 09-01). The new urban CBSAs are as follows:

  • Cape Girardeau-Jackson, Missouri-Illinois (CBSA 16020). This CBSA is comprised of the principal cities of Cape Girardeau and Jackson, Missouri in Alexander County, Illinois; Bollinger County, Missouri, and Cape Girardeau County, Missouri.
  • Manhattan, Kansas (CBSA 31740). This CBSA is comprised of the principal city of Manhattan, Kansas in Geary County, Pottawatomie County, and Riley County.
  • Mankato-North Mankato, Minnesota (CBSA 31860). This CBSA is comprised of the principal cities of Mankato and North Mankato, Minnesota in Blue Earth County and Nicollet County.

OMB also changed the principal cities and titles of a number of CBSAs and a Metropolitan Division, as follows:

  • Broomfield, Colorado qualifies as a new principal city of the Denver-Aurora, Colorado CBSA. The new title is Denver-Aurora-Broomfield, Colorado CBSA.
  • Chapel Hill, North Carolina qualifies as a new principal city of the Durham, North Carolina CBSA. The new title is Durham-Chapel Hill, North Carolina CBSA.
  • Chowchilla, California qualifies as a new principal city of the Madera, California CBSA. The new title is Madera-Chowchilla, California CBSA.
  • Panama City Beach, Florida qualifies as a new principal city of the Panama City-Lynn Haven, Florida CBSA. The new title is Panama City-Lynn Haven-Panama City Beach, Florida CBSA.
  • East Wenatchee, Washington qualifies as a new principal city of the Wenatchee, Washington CBSA. The new title is Wenatchee-East Wenatchee, Washington CBSA.
  • Rockville, Maryland replaces Gaithersburg, Maryland as the third most populous city of the Bethesda-Frederick-Gaithersburg, Maryland Metropolitan Division. The new title is Bethesda-Frederick-Rockville, Maryland Metropolitan Division.

The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/​OMB—go to “Bulletins” or “Statistical Programs and Start Printed Page 24140Standards.” CMS will apply these changes to the IPPS beginning October 1, 2009.

D. Proposed Occupational Mix Adjustment to the Proposed FY 2010 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 2010 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey

As provided for under section 1886(d)(3)(E) of the Act, we collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. For the FY 2009 hospital wage index, we used data from the 2006 Medicare Wage Index Occupational Mix Survey (the 2006 survey) to calculate the occupational mix adjustment. In the 2006 survey, we included several modifications to the original occupational mix survey, 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.

The 2006 survey provided 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 focused 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 had four subcategories: Registered nurses, licensed practical nurses, aides, orderlies, attendants, and medical assistants. The registered nurse subcategory included 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. To allow flexibility for the reporting period beginning and ending dates to accommodate some hospitals' biweekly payroll and reporting systems, we modified the 6-month data collection period for the 2006 survey from January 1, 2006 through June 30, 2006, to a 6-month reporting period that began on or after December 25, 2005, and end before July 9, 2006. OMB approved the revised 2006 occupational mix survey (Form CMS-10079 (2006)) on April 25, 2006. 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).

For the proposed FY 2010 hospital wage index, we are using occupational mix data collected on a revised 2007-2008 Medicare Wage Index Occupational Mix Survey (the 2007-2008 survey) to compute the proposed occupational mix adjustment for FY 2010. In the FY 2008 IPPS final rule with comment period (72 FR 47315), we discussed how we modified the 2006 occupational mix survey. The revised 2007-2008 occupational mix survey provided 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.

On February 2, 2007, we published in the Federal Register a notice soliciting comments on the proposed revisions to the 2006 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 and 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/MACs. Hospitals were required to submit their completed surveys to their fiscal intermediaries/MACs by September 2, 2008. The preliminary, unaudited 2007-2008 occupational mix survey data was 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.

2. Calculation of the Proposed Occupational Mix Adjustment for FY 2010

For FY 2010 (as we did for FY 2009), 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. Repeat this computation for each of the four nursing subcategories: Registered nurses; 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 four 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 Start Printed Page 24141Step 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 is 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 is 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 2010 occupational mix adjusted national average hourly wage is $33.4935.

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 2010 occupational mix adjusted Puerto Rico specific average hourly wage is $14.2555.

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

Start Printed Page 24142

Start Printed Page 24143

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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 2010 wage index. For the FY 2007-2008 survey, the response rate was 89 percent.

In computing the proposed FY 2010 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. 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 proposed occupational mix adjustment, we applied the national occupational mix factor of 1.0000 in calculating the area's proposed FY 2010 occupational mix adjusted wage index. (We indicated in the FY 2008 and FY 2009 IPPS final rules that we reserve the right to apply a different approach in future years, including potentially penalizing nonresponsive hospitals (72 FR 47314).) In addition, if a hospital submitted a survey, but that survey data cannot be used because we determine it to be aberrant, we also are proposing to 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 were out of range (that is, unusually high or low), and the hospital did not provide sufficient documentation to explain the aberrancy, or the hospital did not submit any registered nurse salaries or hours data, we are proposing to 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 0.8452 (CBSA 17780, College Station-Bryan, TX), to a high of 1.0939 (CBSA 29700, Laredo, 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 2010, there are 8 CBSAs (that include 16 hospitals) for which we did not have occupational mix data for any of its hospitals. The CBSAs are:

  • CBSA 16220—Casper, WY (one hospital)
  • CBSA 21940—Fajardo, PR (one hospital)
  • CBSA 22140—Farmington, NM (one hospital)
  • CBSA 25020—Guayama, PR (three hospitals)
  • CBSA 36140—Ocean City, NJ (one hospital)
  • CBSA 38660—Ponce, PR (six hospitals)
  • CBSA 41900—San German-Cabo Rojo, PR (two hospitals)
  • CBSA 49500—Yauco, PR (one hospital)

Since the FY 2007 IPPS final rule, we have periodically discussed applying a hospital-specific penalty to hospitals that fail to submit occupational mix survey data (71 FR 48013 through 48014; 72 FR 47314 through 47315; and 73 FR 48580). During the FY 2008 rulemaking cycle, some commenters suggested a penalty equal to a 1- to 2-percent reduction in the hospital's wage index value or a set percentage of the standardized amount. During the FY 2009 rulemaking cycle, several commenters reiterated their view that full participation in the occupational mix survey is critical, and that CMS should develop a methodology that encourages hospitals to report occupational mix survey data but does not unfairly penalize neighboring hospitals. However, to date, we have not adopted a penalty for hospitals that fail to submit occupational mix data.

After review of the data for the proposed FY 2010 wage index, we became concerned about the increasing number of hospitals that fail to submit occupational mix data and the impact it may have on area wage indices. The survey response rate has dropped significantly from 93.8 percent for the 2003 survey to 90.7 percent for the 2006 survey and 89 percent for the 2007-2008 survey. In 43 areas, the response rate was only 66.7 percent or less. In addition, for 46 areas, including New York-White Plains-Wayne, New York-New Jersey (35644), Oklahoma City, Oklahoma (36420), Rural Georgia (11), and Rural Oklahoma (37), the area response rate decreased 20 percent or more between the 2006 survey and the 2007-2008 survey. In all of Puerto Rico, only 21.6 percent of hospitals submitted 2007-2008 survey data. If we had proposed to apply a penalty for nonresponsive hospitals for the FY 2010 wage index, Puerto Rico hospitals would have been significantly adversely affected in both the proposed national and Puerto Rico-specific wage indices. While we are not proposing a penalty at this time, we will consider the public comments we previously received, as well as any public comments on this proposed rule, as we develop the proposed FY 2011 wage index. One approach that we will explore is to assign any nonresponsive hospital the occupational mix factor deriving from the survey that would result in the greatest negative adjustment to the hospital's wage index. We also will consider applying the same penalty to hospitals that submit unusable occupational mix data. Although we would apply this penalty factor in establishing the hospital's payment rate, we would not use this factor in computing the area's wage index. Rather, in computing the area wage index, we would apply the same methodology as described above (that is, assign the nonresponsive hospital the average occupational mix adjustment factor for the labor market area) so that other hospitals in the area are minimally impacted by the hospital's failure to submit occupational mix data. Again, we note that we reserve the right to penalize nonresponsive hospitals in the future. We welcome public comments on this matter and look forward to addressing this issue in next year's IPPS proposed rule.

E. Worksheet S-3 Wage Data for the Proposed FY 2010 Wage Index

The proposed FY 2010 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2006 (the FY 2009 wage index was based on FY 2005 wage data).

1. Included Categories of Costs

The proposed FY 2010 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 Start Printed Page 24145physician 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 IPPS final rule (70 FR 47369).

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2009, the proposed wage index for FY 2010 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 2010 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, other than for LTCHs. (Beginning with the FY 2010 IPPS rule, for the RY 2010, we are including in the same document updates to the LTCH PPS.) 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 2010 wage index were obtained from Worksheet S-3, Parts II and III of the FY 2006 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 wage index includes FY 2006 data submitted to us as of March 2, 2009. 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/MACs to revise or verify data elements that resulted in specific edit failures. For the proposed FY 2010 wage index, we identified and excluded 34 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 2010 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 15, 2009. 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 2010 IPPS final rule.

In constructing the proposed FY 2010 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2006, 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 11 hospitals that converted to CAH status between February 18, 2008, the cut-off date for CAH exclusion from the FY 2009 wage index, and February 16, 2009, the cut-off date for CAH exclusion from the FY 2010 wage index. After removing hospitals with aberrant data and hospitals that converted to CAH status, the proposed FY 2010 wage index is calculated based on 3,521 hospitals.

In the FY 2008 final rule with comment period (72 FR 47317) and the FY 2009 IPPS final rule (73 FR 48582), 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 2010 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 2010 wage index in this proposed rule includes separate wage data for campuses of three multicampus hospitals.

For FY 2010, we are again allowing hospitals to use FTE or discharge data for the allocation of a multicampus hospital's wage data among the different labor market areas where its campuses are located. The Medicare cost report was updated in May 2008 to provide for the reporting of FTE data by campus for multicampus hospitals. Because the data from cost reporting periods that begin in FY 2008 will not be used in calculating the wage index until FY 2012, a multicampus hospital will still have the option, through the FY 2011 wage index, to use either FTE or discharge data for allocating wage data among its campuses by providing the information from the applicable cost reporting period to CMS through its fiscal intermediary/MAC. Two of the three multicampus hospitals chose to have their wage data allocated by their Medicare discharge data for the FY 2010 wage index. 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.

G. Method for Computing the Proposed FY 2010 Unadjusted Wage Index

The method used to compute the proposed FY 2009 wage index without an occupational mix adjustment follows:

Step 1—As noted above, we are basing the proposed FY 2010 wage index on wage data reported on the FY 2006 Medicare cost reports. We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period beginning on or after October 1, 2005, and before October 1, 2006. In addition, we included data from some hospitals that had cost reporting periods beginning Start Printed Page 24146before October 2005 and reported a cost reporting period covering all of FY 2005. These data are included because no other data from these hospitals would be available for the cost reporting period described above, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as FY 2005 data. We note that, if a hospital had more than one cost reporting period beginning during FY 2006 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2005, and before October 1, 2006), we included wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation.

Step 2—Salaries—The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. (We note that, beginning with FY 2008 (72 FR 47315), we include Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services in the wage index. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation for FY 2010 is to compute a “revised” Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In calculating a hospital's average salaries plus wage-related costs, we subtract from Line 1 (total salaries) the GME and CRNA costs reported on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3, 5 and 5.01, home office salaries reported on Line 7, and exclude salaries reported on Lines 8 and 8.01 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract from Line 1 the salaries for which no hours were reported. To determine total salaries plus wage-related costs, we add to the net hospital salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 9 and 10), home office salaries and wage-related costs reported by the hospital on Lines 11 and 12, and nonexcluded area wage-related costs (Lines 13, 14, and 18).

We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 18) are excluded if no corresponding salaries are reported for those employees on Line 4.

Step 3—Hours—With the exception of wage-related costs, for which there are no associated hours, we compute total hours using the same methods as described for salaries in Step 2.

Step 4—For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the ratio of excluded area hours (sum of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours (Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts of overhead salaries and hours to be allocated to excluded areas by multiplying the above ratio by the total overhead salaries and hours reported on Line 13 of Worksheet S-3, Part III. Next, we compute the amounts of overhead wage-related costs to be allocated to excluded areas using three steps: (1) We determine the ratio of overhead hours (Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent wage index calculations, we are excluding the sum of lines 22.01, 26.01, and 27.01 from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 22.01, 26.01, and 27.01 require that associated wage-related costs be combined with wages on the respective contract labor lines.); (2) we compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 13, 14, and 18; and (3) we multiply the computed overhead wage-related costs by the above excluded area hours ratio. Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3.

Step 5—For each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2003, through April 15, 2005, for private industry hospital workers from the BLS' Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringes) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We also note that, since April 2006 with the publication of March 2006 data, the BLS' ECI uses a different classification system, the North American Industrial Classification System (NAICS), instead of the Standard Industrial Codes (SICs), which no longer exist. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket and do not propose to make any changes to the usage for FY 2010. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated below.

Midpoint of Cost Reporting Period

AfterBeforeAdjustment factor
10/14/200511/15/20051.04966
11/14/200512/15/20051.04632
12/14/200501/15/20061.04296
01/14/200602/15/20061.03955
02/14/200603/15/20061.03610
03/14/200604/15/20061.03269
04/14/200605/15/20061.02936
05/14/200606/15/20061.02613
06/14/200607/15/20061.02298
07/14/200608/15/20061.01990
08/14/200609/15/20061.01688
09/14/200610/15/20061.01391
10/14/200611/15/20061.01098
11/14/200612/15/20061.00808
12/14/200601/15/20071.00526
01/14/200702/15/20071.00257
02/14/200703/15/20071.00000
03/14/200704/15/20070.99745

For example, the midpoint of a cost reporting period beginning January 1, 2006, and ending December 31, 2006, is June 30, 2006. An adjustment factor of 1.02298 would be applied to the wages Start Printed Page 24147of a hospital with such a cost reporting period. In addition, for the data for any cost reporting period that began in FY 2006 and covered a period of less than 360 days or more than 370 days, we annualize the data to reflect a 1-year cost report. Dividing the data by the number of days in the cost report and then multiplying the results by 365 accomplishes annualization.

Step 6—Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area.

Step 7—We divide the total adjusted salaries plus wage-related costs obtained under both methods in Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area.

Step 8—We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Using the data as described above, the proposed national average hourly wage (unadjusted for occupational mix) is $33.5184.

Step 9—For each urban or rural labor market area, we calculate the hospital wage index value, unadjusted for occupational mix, by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8.

Step 10—Following the process set forth above, we develop a separate Puerto Rico-specific wage index for purposes of adjusting the Puerto Rico standardized amounts. (The national Puerto Rico standardized amount is adjusted by a wage index calculated for all Puerto Rico labor market areas based on the national average hourly wage as described above.) We add the total adjusted salaries plus wage-related costs (as calculated in Step 5) for all hospitals in Puerto Rico and divide the sum by the total hours for Puerto Rico (as calculated in Step 4) to arrive at an overall proposed average hourly wage (unadjusted for occupational mix) of $14.2462 for Puerto Rico. For each labor market area in Puerto Rico, we calculate the Puerto Rico-specific wage index value by dividing the area average hourly wage (as calculated in Step 7) by the overall Puerto Rico average hourly wage.

Step 11—Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 4D-2 of the Addendum to this proposed rule.

In the FY 2005 IPPS final rule (69 FR 49109), we adopted the “imputed” floor as a temporary 3-year measure to address a concern by some individuals that hospitals in all-urban States were disadvantaged by the absence of rural hospitals to set a wage index floor in those States. The imputed floor was originally set to expire in FY 2007, but we extended it an additional year in the FY 2008 IPPS final rule with comment period (72 FR 47321). In the FY 2009 IPPS final rule (73 FR 48570 through 48574 and 48584), we extended the imputed floor for an additional 3 years, through FY 2011.

H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2010 Occupational Mix Adjusted Wage Index

As discussed in section III.D. of this preamble, for FY 2010, we are proposing to apply the occupational mix adjustment to 100 percent of the FY 2010 wage index. We calculated the proposed occupational mix adjustment using data from the 2007-2008 occupational mix survey data, using the methodology described in section III.D.3. of this preamble.

Using the occupational mix survey data and applying the occupational mix adjustment to 100 percent of the proposed FY 2010 wage index results in a proposed national average hourly wage of $33.4935 and a Puerto-Rico specific average hourly wage of $14.2555. After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2006 Worksheet S-3 cost report data for use in calculating the proposed FY 2010 wage index, we calculated the proposed FY 2010 wage index using the occupational mix survey data from 3,135 hospitals. Using the Worksheet S-3 cost report data of 3,521 hospitals and occupational mix survey data from 3,135 hospitals represents an 89-percent survey response rate. The proposed FY 2010 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

Occupational mix nursing subcategoryAverage hourly wage
National RN$36.067749019
National LPN and Surgical Technician20.908955714
National Nurse Aide, Orderly, and Attendant14.610222480
National Medical Assistant16.358327509
National Nurse Category30.484719916

The proposed national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $30.484719916. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the July 2007 through June 2008 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) that the national percentage of hospital employees in the nurse category is 44.32 percent, and the national percentage of hospital employees in the all other occupations category is 55.68 percent. At the CBSA level, the percentage of hospital employees in the nurse category ranged from a low of 29.08 percent in one CBSA, to a high of 70.76 percent in another CBSA.

We compared the proposed FY 2010 occupational mix adjusted wage indices for each CBSA to the proposed unadjusted wage indices for each CBSA. As a result of applying the occupational mix adjustment to the wage data, the proposed wage index values for 205 (46.8 percent) urban areas and 33 (70.2 percent) rural areas would increase. One hundred and nine (24.9 percent) urban areas would increase by 1 percent or more, and 5 (1.1 percent) urban areas would increase by 5 percent or more. Nineteen (40.4 percent) rural areas would increase by 1 percent or more, and no rural areas would increase by 5 percent or more. However, the proposed wage index values for 185 (42.2 percent) urban areas and 14 (29.8 percent) rural areas would decrease. Eighty-nine (20.3 percent) urban areas would decrease by 1 percent or more, and 1 (0.23 percent) urban area would decrease by 5 percent or more. Six (12.8 percent) rural areas would decrease by 1 percent or more, Start Printed Page 24148and no rural areas would decrease by 5 percent or more. The largest positive impacts are 7.86 percent for an urban area and 2.98 percent for a rural area. The largest negative impacts are 5.68 percent for an urban area and 2.07 percent for a rural area. One urban area would be unaffected. These results indicate that a larger percentage of rural areas (70.2 percent) benefit from the occupational mix adjustment than do urban areas (46.8 percent). While these results are more positive overall for rural areas than under the previous occupational mix adjustment that used survey data from 2006, approximately one-third (29.8 percent) of rural CBSAs would still experience a decrease in their wage indices as a result of the occupational mix adjustment.

We also compared the proposed FY 2010 wage data adjusted for occupational mix from the 2007-2008 survey to the proposed FY 2010 wage data adjusted for occupational mix from the 2006 survey. This analysis illustrates the effect on area wage indices of using the 2007-2008 survey data compared to the 2006 survey data; that is, it shows whether hospitals' wage indices are increasing or decreasing under the current survey data as compared to the prior survey data. Our analysis shows that the FY 2010 proposed wage index values for 186 (47.6 percent) urban areas and 18 (38.3 percent) rural areas would increase. Sixty-three (16.1 percent) urban areas would increase by 1 percent or more, and no urban areas would increase by 5 percent or more. One (2.1 percent) rural area would increase by 1 percent or more, and no rural areas would increase by 5 percent or more. However, the proposed wage index values for 201 (51.4 percent) urban areas and 28 (59.6 percent) rural areas would decrease using the 2007-2008 data. Fifty-six (14.3 percent) urban areas would decrease by 1 percent or more, and one (0.26 percent) urban area would decrease by 5 percent or more. Four (8.5 percent) rural areas would decrease by 1 percent or more, and no rural areas would decrease by 5 percent or more. The largest positive impacts using the 2007-2008 data compared to the 2006 data are 4.36 percent for an urban area and 2.39 percent for a rural area. The largest negative impacts are 6.46 percent for an urban area and 4.39 percent for a rural area. Four urban areas and one rural area would be unaffected. These results indicate that a larger percentage of urban areas (47.6 percent) would benefit from the 2007-2008 occupational mix survey as compared to the 2006 survey than would rural areas (38.3 percent). Further, the wage indices of more CBSAs overall (52.3 percent) would be decreasing due to application of the 2007-2008 occupational mix survey data as compared to the 2006 survey data to the wage index. However, as noted in the analysis above, a greater percentage of rural areas (70.2 percent) would benefit from the application of the occupational mix adjustment than would urban areas.

The proposed wage index values for FY 2010 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act) included in Tables 4A, 4B, 4C, and 4F of the Addendum to this proposed rule include the proposed occupational mix adjustment.

Tables 3A and 3B in the Addendum to this proposed rule list the 3-year average hourly wage for each labor market area before the redesignation of hospitals based on FYs 2008, 2009, and 2010 cost reporting periods. Table 3A lists these data for urban areas and Table 3B lists these data for rural areas. In addition, Table 2 in the Addendum to this proposed rule includes the adjusted average hourly wage for each hospital from the FY 2004 and FY 2005 cost reporting periods, as well as the FY 2006 period used to calculate the proposed FY 2010 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described previously) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period. The average hourly wages in Tables 2, 3A, and 3B in the Addendum to this proposed rule include the occupational mix adjustment. The proposed wage index values in Tables 4A, 4B, 4C, and 4D-1 also include the proposed State-specific rural floor and imputed floor budget neutrality adjustments.

I. Revisions to the Wage Index Based on Hospital Redesignations

1. General

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280.

Section 1886(d)(10)(D)(v) of the Act provides that, beginning with FY 2001, a MGCRB decision on a hospital reclassification for purposes of the wage index is effective for 3 fiscal years, unless the hospital elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of the Act provides that the MGCRB must use average hourly wage data from the 3 most recently published hospital wage surveys in evaluating a hospital's reclassification application for FY 2003 and any succeeding fiscal year.

Section 304(b) of Public Law 106-554 provides that the Secretary must establish a mechanism under which a statewide entity may apply to have all of the geographic areas in the State treated as a single geographic area for purposes of computing and applying a single wage index, for reclassifications beginning in FY 2003. The implementing regulations for this provision are located at 42 CFR 412.235.

Section 1886(d)(8)(B) of the Act requires the Secretary to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the labor market area to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an urban area under the standards for designating MSAs and if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of all contiguous MSAs. In light of the CBSA definitions and the Census 2000 data that we implemented for FY 2005 (69 FR 49027), we undertook to identify those counties meeting these criteria. Eligible counties are discussed and identified under section III.I.5. of this preamble.

2. Effects of Reclassification/Redesignation

Section 1886(d)(8)(C) of the Act provides that the application of the wage index to redesignated hospitals is dependent on the hypothetical impact that the wage data from these hospitals would have on the wage index value for the area to which they have been redesignated. These requirements for determining the wage index values for Start Printed Page 24149redesignated hospitals are applicable both to the hospitals deemed urban under section 1886(d)(8)(B) of the Act and hospitals that were reclassified as a result of the MGCRB decisions under section 1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C) of the Act, the wage index values were determined by considering the following:

  • If including the wage data for the redesignated hospitals would reduce the wage index value for the area to which the hospitals are redesignated by 1 percentage point or less, the area wage index value determined exclusive of the wage data for the redesignated hospitals applies to the redesignated hospitals.
  • If including the wage data for the redesignated hospitals reduces the wage index value for the area to which the hospitals are redesignated by more than 1 percentage point, the area wage index determined inclusive of the wage data for the redesignated hospitals (the combined wage index value) applies to the redesignated hospitals.
  • If including the wage data for the redesignated hospitals increases the wage index value for the urban area to which the hospitals are redesignated, both the area and the redesignated hospitals receive the combined wage index value. Otherwise, the hospitals located in the urban area receive a wage index excluding the wage data of hospitals redesignated into the area.

Rural areas whose wage index values would be reduced by excluding the wage data for hospitals that have been redesignated to another area continue to have their wage index values calculated as if no redesignation had occurred (otherwise, redesignated rural hospitals are excluded from the calculation of the rural wage index). The wage index value for a redesignated rural hospital cannot be reduced below the wage index value for the rural areas of the State in which the hospital is located.

CMS also has adopted the following policies:

  • The wage data for a reclassified urban hospital is included in both the wage index calculation of the urban area to which the hospital is reclassified (subject to the rules described above) and the wage index calculation of the urban area where the hospital is physically located.
  • In cases where hospitals have reclassified to rural areas, such as urban hospitals reclassifying to rural areas under 42 CFR 412.103, the hospital's wage data are: (a) Included in the rural wage index calculation, unless doing so would reduce the rural wage index; and (b) included in the urban area where the hospital is physically located. The effect of this policy, in combination with the statutory requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural areas may receive a wage index based upon the highest of: (1) Wage data from hospitals geographically located in the rural area; (2) wage data from hospitals geographically located in the rural area, but excluding all data associated with hospitals reclassifying out of the rural area under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3) wage data associated with hospitals geographically located in the area plus all hospitals reclassified into the rural area.

In addition, in accordance with the statutory language referring to “hospitals” in the plural under sections 1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider reclassified hospitals as a group when deciding whether to include or exclude them from both urban and rural wage index calculations.

3. FY 2010 MGCRB Reclassifications

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in 42 CFR 412.230 through 412.280.

At the time this proposed rule was constructed, the MGCRB had completed its review of FY 2010 reclassification requests. Based on such reviews, there were 292 hospitals approved for wage index reclassifications by the MGCRB for FY 2010. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2010, hospitals reclassified during FY 2008 or FY 2009 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications. There were 313 hospitals approved for wage index reclassifications in FY 2008 and 271 hospitals approved for wage index reclassifications in FY 2009. Of all of the hospitals approved for reclassification for FY 2008, FY 2009, and FY 2010, based upon the review at the time of the proposed rule, 876 hospitals are in a reclassification status for FY 2010.

Under 42 CFR 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of a proposed rule. Generally stated, the request for withdrawal of an application for reclassification or termination of an existing 3-year reclassification that would be effective in FY 2010 must be received by the MGCRB within 45 days of the publication of the proposed rule. Hospitals may also cancel prior reclassification withdrawals or terminations in certain circumstances. For further information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer the reader to 42 CFR 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 50065).

Changes to the wage index that result from withdrawals of requests for reclassification, wage index corrections, appeals, and the Administrator's review process will be incorporated into the wage index values published in the FY 2010 IPPS final rule. These changes affect not only the wage index value for specific geographic areas, but also the wage index value redesignated hospitals receive; that is, whether they receive the wage index that includes the data for both the hospitals already in the area and the redesignated hospitals. Further, the wage index value for the area from which the hospitals are redesignated may be affected.

Applications for FY 2011 reclassifications are due to the MGCRB by September 1, 2009 (the first working day of September 2009). We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under 42 CFR 412.273(d). Applications and other information about MGCRB reclassifications may be obtained, beginning in mid-July 2009, via the CMS Internet Web site at: http://cms.hhs.gov/​providers/​prrb/​mgcinfo.asp, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

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

Section 1886(d)(8)(B) of the Act requires us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA if certain criteria are met. Effective beginning FY 2005, we use OMB's 2000 CBSA standards and the Census 2000 data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area. Hospitals located in these counties have been known as “Lugar” hospitals and the counties themselves are often referred to as “Lugar” counties. We provide the FY 2010 chart below with the listing of the rural counties containing the hospitals designated as urban under section Start Printed Page 241501886(d)(8)(B) of the Act. For discharges occurring on or after October 1, 2009, hospitals located in the rural county in the first column of this chart will be redesignated for purposes of using the wage index of the urban area listed in the second column.

Rural Counties Containing Hospitals Redesignated as Urban under Section 1886(d)(8)(B) of the Act

[Based on CBSAs and Census 2000 Data]

Rural CountyCBSA
Cherokee, ALRome, GA.
Macon, ALAuburn-Opelika, AL.
Talladega, ALAnniston-Oxford, AL.
Hot Springs, ARHot Springs, AR.
Windham, CTHartford-West Hartford-East Hartford, CT.
Bradford, FLGainesville, FL.
Hendry, FLWest Palm Beach-Boca Raton-Boynton, FL.
Levy, FLGainesville, FL.
Walton, FLFort Walton Beach-Crestview-Destin, FL.
Banks, GAGainesville, GA.
Chattooga, GAChattanooga, TN-GA.
Jackson, GAAtlanta-Sandy Springs-Marietta, GA.
Lumpkin, GAAtlanta-Sandy Springs-Marietta, GA.
Morgan, GAAtlanta-Sandy Springs-Marietta, GA.
Peach, GAMacon, GA.
Polk, GAAtlanta-Sandy Springs-Marietta, GA.
Talbot, GAColumbus, GA-AL.
Bingham, IDIdaho Falls, ID.
Christian, ILSpringfield, IL.
DeWitt, ILBloomington-Normal, IL.
Iroquois, ILKankakee-Bradley, IL.
Logan, ILSpringfield, IL.
Mason, ILPeoria, IL.
Ogle, ILRockford, IL.
Clinton, INLafayette, IN.
Henry, INIndianapolis-Carmel, IN.
Spencer, INEvansville, IN-KY.
Starke, INGary, IN.
Warren, INLafayette, IN.
Boone, IAAmes, IA.
Buchanan, IAWaterloo-Cedar Falls, IA.
Cedar, IAIowa City, IA.
Allen, KYBowling Green, KY.
Assumption Parish, LABaton Rouge, LA.
St. James Parish, LABaton Rouge, LA.
Allegan, MIHolland-Grand Haven, MI.
Montcalm, MIGrand Rapids-Wyoming, MI.
Oceana, MIMuskegon-Norton Shores, MI.
Shiawassee, MILansing-East Lansing, MI.
Tuscola, MISaginaw-Saginaw Township North, MI.
Fillmore, MNRochester, MN.
Dade, MOSpringfield, MO.
Pearl River, MSGulfport-Biloxi, MS.
Caswell, NCBurlington, NC.
Davidson, NCGreensboro-High Point, NC.
Granville, NCDurham, NC.
Harnett, NCRaleigh-Cary, NC.
Lincoln, NCCharlotte-Gastonia-Concord, NC-SC.
Polk, NCSpartanburg, SC.
Los Alamos, NMSanta Fe, NM.
Lyon, NVCarson City, NV.
Cayuga, NYSyracuse, NY.
Columbia, NYAlbany-Schenectady-Troy, NY.
Genesee, NYRochester, NY.
Greene, NYAlbany-Schenectady-Troy, NY.
Schuyler, NYIthaca, NY.
Sullivan, NYPoughkeepsie-Newburgh-Middletown, NY.
Wyoming, NYBuffalo-Niagara Falls, NY.
Ashtabula, OHCleveland-Elyria-Mentor, OH.
Champaign, OHSpringfield, OH.
Columbiana, OHYoungstown-Warren-Boardman, OH-PA.
Cotton, OKLawton, OK.
Linn, ORCorvallis, OR.
Adams, PAYork-Hanover, PA.
Clinton, PAWilliamsport, PA.
Greene, PAPittsburgh, PA.
Monroe, PAAllentown-Bethlehem-Easton, PA-NJ.
Schuylkill, PAReading, PA.
Susquehanna, PABinghamton, NY.
Clarendon, SCSumter, SC.
Lee, SCSumter, SC.
Oconee, SCGreenville, SC.
Union, SCSpartanburg, SC.
Meigs, TNCleveland, TN.
Bosque, TXWaco, TX.
Falls, TXWaco, TX.
Fannin, TXDallas-Plano-Irving, TX.
Grimes, TXCollege Station-Bryan, TX.
Harrison, TXLongview, TX.
Henderson, TXDallas-Plano-Irving, TX.
Milam, TXAustin-Round Rock, TX.
Van Zandt, TXDallas-Plano-Irving, TX.
Willacy, TXBrownsville-Harlingen, TX.
Buckingham, VACharlottesville, VA.
Floyd, VABlacksburg-Christiansburg-Radford, VA.
Middlesex, VAVirginia Beach-Norfolk-Newport News, VA.
Page, VAHarrisonburg, VA.
Shenandoah, VAWinchester, VA-WV.
Island, WASeattle-Bellevue-Everett, WA.
Mason, WAOlympia, WA.
Wahkiakum, WALongview, WA.
Jackson, WVCharleston, WV.
Roane, WVCharleston, WV.
Green, WIMadison, WI.
Green Lake, WIFond du Lac, WI.
Jefferson, WIMilwaukee-Waukesha-West Allis, WI.
Walworth, WIMilwaukee-Waukesha-West Allis, WI.

As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are also eligible to be reclassified to a different area by the MGCRB. Affected hospitals are permitted to compare the reclassified wage index for the labor market area in Table 4C in the Addendum to this proposed rule into which they have been reclassified by the MGCRB to the wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB reclassification within 45 days of the publication of this proposed rule.

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

As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar hospitals are treated like reclassified hospitals for purposes of determining their applicable wage index and receive the reclassified wage index for the urban area to which they have been redesignated. Because Lugar hospitals are treated like reclassified hospitals, when they are seeking reclassification by the MGCRB, they are subject to the rural reclassification rules set forth at 42 CFR 412.230. The procedural rules set forth at § 412.230 list the criteria that a hospital must meet in order to reclassify as a rural hospital. Lugar hospitals are subject to the proximity criteria and payment thresholds that apply to rural hospitals. Specifically, the hospital must be no more than 35 miles from the area to which it seeks reclassification Start Printed Page 24151(§ 412.230(b)(1)); and the hospital must show that its average hourly wage is at least 106 percent of the average hourly wage of all other hospitals in the area in which the hospital is located (§ 412.230(d)(1)(iii)(C)). In accordance with policy adopted in the FY 2009 IPPS final rule (73 FR 48568 and 48569), beginning with reclassifications for the FY 2010 wage index, a Lugar hospital must also demonstrate that its average hourly wage is equal to at least 84 percent (for FY 2010 reclassifications) and 86 percent (for reclassifications for FY 2011 and subsequent fiscal years) of the average hourly wage of hospitals in the area to which it seeks redesignation (§ 412.230(d)(1)(iv)(C)).

Hospitals not located in a Lugar county seeking reclassification to the urban area where the Lugar hospitals have been redesignated are not permitted to measure to the Lugar county to demonstrate proximity (no more than 15 miles for an urban hospital, and no more than 35 miles for a rural hospital or the closest urban or rural area for RRCs or SCHs) in order to be reclassified to such urban area. These hospitals must measure to the urban area exclusive of the Lugar County to meet the proximity or nearest urban or rural area requirement. We treat New England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to FY 2008 IPPS final rule with comment period (72 FR 47337) for a discussion of this policy.)

6. Reclassifications Under Section 508 of Public Law 108-173

Section 508 of Public Law 108-173 allowed certain qualifying hospitals to receive wage index reclassifications and assignments that they otherwise would not have been eligible to receive under the law. Although section 508 originally was scheduled to expire after a 3-year period, Congress extended the provision several times, as well as certain special exceptions that would have otherwise expired. For a discussion of the original section 508 provision and its various extensions, we refer readers to the FY 2009 IPPS final rule (73 FR 48443). The most recent extension of the provision was included in section 124 of Public Law 110-275 (MIPPA). Section 124 extended, through FY 2009, section 508 reclassifications as well as certain special exceptions. Because the latest extension of these provisions expires on September 30, 2009, and will not be applicable in FY 2010, in this proposed rule, we are not proposing to make any changes related to these provisions.

J. Proposed FY 2010 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with the broad discretion under section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Such adjustments to the wage index are effective for 3 years, unless a hospital requests to waive the application of the adjustment. A county will not lose its status as a qualifying county due to wage index changes during the 3-year period, and counties will receive the same wage index increase for those 3 years. However, a county that qualifies in any given year may no longer qualify after the 3-year period, or it may qualify but receive a different adjustment to the wage index level. Hospitals that receive this adjustment to their wage index are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. Adjustments under this provision are not subject to the budget neutrality requirements under section 1886(d)(3)(E) of the Act.

Hospitals located in counties that qualify for the wage index adjustment are to receive an increase in the wage index that is equal to the average of the differences between the wage indices of the labor market area(s) with higher wage indices and the wage index of the resident county, weighted by the overall percentage of hospital workers residing in the qualifying county who are employed in any labor market area with a higher wage index. Beginning with the FY 2008 wage index, we use post-reclassified wage indices when determining the out-migration adjustment (72 FR 47339).

For the FY 2010 wage index, we are proposing to calculate the out-migration adjustment using the same formula described in the FY 2005 IPPS final rule (69 FR 49064), with the addition of using the post-reclassified wage indices, to calculate the out-migration adjustment. This adjustment is calculated as follows:

Step 1—Subtract the wage index for the qualifying county from the wage index of each of the higher wage area(s) to which hospital workers commute.

Step 2—Divide the number of hospital employees residing in the qualifying county who are employed in such higher wage index area by the total number of hospital employees residing in the qualifying county who are employed in any higher wage index area. For each of the higher wage index areas, multiply this result by the result obtained in Step 1.

Step 3—Sum the products resulting from Step 2 (if the qualifying county has workers commuting to more than one higher wage index area).

Step 4—Multiply the result from Step 3 by the percentage of hospital employees who are residing in the qualifying county and who are employed in any higher wage index area.

These adjustments will be effective for each county for a period of 3 fiscal years. For example, hospitals that received the adjustment for the first time in FY 2009 will be eligible to retain the adjustment for FY 2010. For hospitals in newly qualified counties, adjustments to the wage index are effective for 3 years, beginning with discharges occurring on or after October 1, 2009.

Hospitals receiving the wage index adjustment under section 1886(d)(13)(F) of the Act are not eligible for reclassification under sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-migration adjustment. Consistent with our FY 2005, 2006, 2007, 2008, and 2009 IPPS final rules, we are specifying that hospitals redesignated under section 1886(d)(8) of the Act or reclassified under section 1886(d)(10) of the Act will be deemed to have chosen to retain their redesignation or reclassification. Section 1886(d)(10) hospitals that wish to receive the out-migration adjustment, rather than their reclassification adjustment, should follow the termination/withdrawal procedures specified in 42 CFR 412.273 and section III.I.3. of the preamble of this proposed rule. Otherwise, they will be deemed to have waived the out-migration adjustment. Hospitals redesignated under section 1886(d)(8) of the Act will be deemed to have waived the out-migration adjustment unless they explicitly notify CMS within 45 days from the publication of this proposed rule that they elect to receive the out-migration adjustment instead. These notifications should be sent to the following address: Centers for Medicare and Medicaid Services, Center for Medicare Management, Attention: Wage Index Adjustment Waivers, Division of Start Printed Page 24152Acute Care, room C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Table 4J in the Addendum to this proposed rule lists the proposed out-migration wage index adjustments for FY 2010. Hospitals that are not otherwise reclassified or redesignated under section 1886(d)(8) or section 1886(d)(10) of the Act will automatically receive the listed adjustment. In accordance with the procedures discussed above, redesignated/reclassified hospitals will be deemed to have waived the out-migration adjustment unless CMS is otherwise notified within the necessary timeframe. In addition, hospitals eligible to receive the out-migration wage index adjustment and that withdraw their application for reclassification would automatically receive the wage index adjustment listed in the final Table 4J in the Addendum to this proposed rule.

K. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the FY 2010 wage index were made available on October 6, 2008, through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​WIFN/​list.asp#TopOfPage.

In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional public use file on our Web site that reflects the actual data that are used in computing the proposed wage index. The release of this new file does not alter the current wage index process or schedule. We notified the hospital community of the availability of these data as we do with the current public use wage data files through our Hospital Open Door forum. We encourage hospitals to sign up for automatic notifications of information about hospital issues and the scheduling of the Hospital Open Door forums at: http://www.cms.hhs.gov/​OpenDoorForums/​.

In a memorandum dated October 6, 2008, we instructed all fiscal intermediaries/MACs to inform the IPPS hospitals they service of the availability of the wage index data files and the process and timeframe for requesting revisions (including the specific deadlines listed below). We also instructed the fiscal intermediaries/MACs to advise hospitals that these data were also made available directly through their representative hospital organizations.

If a hospital wished to request a change to its data as shown in the October 6, 2008 wage and occupational mix data files, the hospital was to submit corrections along with complete, detailed supporting documentation to its fiscal intermediary/MAC by December 8, 2008. Hospitals were notified of this deadline and of all other possible deadlines and requirements, including the requirement to review and verify their data as posted on the preliminary wage index data files on the Internet, through the October 6, 2008 memorandum referenced above.

In the October 6, 2008 memorandum, we also specified that a hospital requesting revisions to its first and/or second quarter occupational mix survey data was to copy its record(s) from the CY 2007-2008 occupational mix preliminary files posted to our Web site in October, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete documentation to its fiscal intermediary/MAC no later than December 8, 2008.

The fiscal intermediaries/MACs notified the hospitals by mid-February 2009 of any changes to the wage index data as a result of the desk reviews and the resolution of the hospitals' early-December revision requests. The fiscal intermediaries/MACs also submitted the revised data to CMS by mid-February 2009. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 23, 2009. In a memorandum also dated February 23, 2009, we instructed fiscal intermediaries/MACs to notify all hospitals regarding the availability of the proposed wage index public use files and the criteria and process for requesting corrections and revisions to the wage index data. Hospitals had until March 10, 2009, to submit requests to the fiscal intermediaries/MACs for reconsideration of adjustments made by the fiscal intermediaries/MACs as a result of the desk review, and to correct errors due to CMS's or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the wage index data. Hospitals also were required to submit sufficient documentation to support their requests.

After reviewing requested changes submitted by hospitals, fiscal intermediaries/MACs are to transmit any additional revisions resulting from the hospitals' reconsideration requests by April 15, 2009. The deadline for a hospital to request CMS intervention in cases where the hospital disagrees with the fiscal intermediary's (or, if applicable, the MAC's) policy interpretations is April 15, 2009.

Hospitals should also examine Table 2 in the Addendum to this proposed rule. Table 2 in the Addendum to this proposed rule contains each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2006 data used to construct the proposed FY 2010 wage index. We noted that the hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data and transmitted to CMS by March 2, 2009.

We will release the final wage index data public use files in early May 2009 on the Internet at http://www.cms.hhs.gov/​AcuteInpatientPPS/​WIFN/​list.asp#TopOfPage. The May 2009 public use files will be made available solely for the limited purpose of identifying any potential errors made by CMS or the fiscal intermediary/MAC in the entry of the final wage index data that resulted from the correction process described above (revisions submitted to CMS by the fiscal intermediaries/MACs by April 15, 2009). If, after reviewing the May 2009 final files, a hospital believes that its wage or occupational mix data are incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital should send a letter to both its fiscal intermediary/MAC and CMS that outlines why the hospital believes an error existed and to provide all supporting information, including relevant dates (for example, when it first became aware of the error). CMS and the fiscal intermediaries (or, if applicable, the MACs) must receive these requests no later than June 8, 2009.

Each request also must be sent to the fiscal intermediary/MAC. The fiscal intermediary/MAC will review requests upon receipt and contact CMS immediately to discuss any findings.

At this point in the process, that is, after the release of the May 2009 wage index data files, changes to the wage and occupational mix data will only be made in those very limited situations involving an error by the fiscal intermediary/MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the fiscal intermediary/MAC nor CMS will approve the following types of requests:

  • Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by fiscal intermediaries or the MACs on or before April 15, 2009.
  • Requests for correction of errors that were not, but could have been, identified during the hospital's review Start Printed Page 24153of the February 23, 2009 wage index public use files.
  • Requests to revisit factual determinations or policy interpretations made by the fiscal intermediary or the MAC or CMS during the wage index data correction process.

Verified corrections to the wage index data received timely by CMS and the fiscal intermediaries or the MACs (that is, by June 8, 2009) will be incorporated into the final wage index in the FY 2010 IPPS final rule, which will be effective October 1, 2009.

We created the processes described above to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2010 payment rates. Accordingly, hospitals that did not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the fiscal intermediary's (or, if applicable the MAC's) decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the Provider Reimbursement Review Board, the failure of CMS to make a requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 2000 final rule (64 FR 41513) for a discussion of the parameters for appealing to the PRRB for wage index data corrections.

Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the fiscal intermediary's (or, if applicable, the MAC's) attention. Moreover, because hospitals will have access to the final wage index data by early May 2009, they have the opportunity to detect any data entry or tabulation errors made by the fiscal intermediary or the MAC or CMS before the development and publication of the final FY 2010 wage index by August 1, 2009, and the implementation of the FY 2010 wage index on October 1, 2009. If hospitals availed themselves of the opportunities afforded to provide and make corrections to the wage and occupational mix data, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after June 8, 2009, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with 42 CFR 412.64(k)(1) of our existing regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) The fiscal intermediary or the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, “before the beginning of the fiscal year” means by the June 8 deadline for making corrections to the wage data for the following fiscal year's wage index. This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the fiscal intermediaries or the MAC notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the fiscal intermediary (or if applicable the MAC) and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 8, 2009 deadline for the FY 2010 wage index); and (3) CMS agreed that the fiscal intermediary (or if applicable, the MAC) or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.

In those circumstances where a hospital requested a correction to its wage index data before CMS calculates the final wage index (that is, by the June 8, 2009 deadline), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; and it can only be used for the current Federal fiscal year. In other situations where our policies would allow midyear corrections, we continue to believe that it is appropriate to make prospective-only corrections to the wage index.

We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a judicial decision reverses a CMS denial of a hospital's wage index data revision request.

IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care Hospitals

A. Background

Effective for cost reporting periods beginning on or after July 1, 1979, we developed and adopted a hospital input price index (that is, the hospital market basket for operating costs). Although “market basket” technically describes the mix of goods and services used in providing hospital care, this term is also commonly used to denote the input price index (that is, cost category weights and price proxies combined) derived from that market basket. Accordingly, the term “market basket” as used in this document refers to the hospital input price index.

The percentage change in the market basket reflects the average change in the price of goods and services hospitals purchase in order to provide inpatient care. We first used the market basket to adjust hospital cost limits by an amount that reflected the average increase in the prices of the goods and services used to provide hospital inpatient care. This approach linked the increase in the cost limits to the efficient utilization of resources.

Since the inception of the IPPS, the projected change in the hospital market basket has been the integral component of the update factor by which the prospective payment rates are updated every year. An explanation of the hospital market basket used to develop the prospective payment rates was Start Printed Page 24154published in the Federal Register on September 1, 1983 (48 FR 39764). We also refer readers to the FY 2006 IPPS final rule (70 FR 47387) in which we discussed the most recent previous rebasing of the hospital input price index.

The hospital market basket is a fixed-weight, Laspeyres-type price index that is constructed in three steps. A Laspeyres price index measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (that is, intensity) purchased over time are not measured.

The index itself is constructed in three steps. First, a base period is selected (in this proposed rule, the base period is FY 2006) and total base period expenditures are estimated for a set of mutually exclusive and exhaustive spending categories based upon type of expenditure. Then the proportion of total operating costs that each category represents is determined. These proportions are called cost or expenditure weights. Second, each expenditure category is matched to an appropriate price or wage variable, referred to as a price proxy. In nearly every instance, these price proxies are price levels derived from publicly available statistical series that are published on a consistent schedule (preferably at least on a quarterly basis). Finally, the expenditure weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the expenditure weights multiplied by their price levels) for all cost categories yields the composite index level of the market basket in a given period. Repeating this step for other periods produces a series of market basket levels over time. Dividing an index level for a given period by an index level for an earlier period produces a rate of growth in the input price index over that timeframe.

The market basket is described as a fixed-weight index because it represents the change in price over time of the same mix (quantity and intensity) of goods and services purchased to provide hospital services in a base period. The effects on total expenditures resulting from changes in the mix of goods and services purchased subsequent to the base period are not measured. For example, shifting a traditionally inpatient type of care to an outpatient setting might affect the volume of inpatient goods and services purchased by the hospital, but would not be factored into the price change measured by a fixed-weight hospital market basket. In this manner, the market basket measures pure price change only. Only when the index is rebased would changes in the quantity and intensity be captured in the cost weights. Therefore, we rebase the market basket periodically so the cost weights reflect recent changes in the mix of goods and services that hospitals purchase (hospital inputs) to furnish inpatient care between base periods. We last rebased the hospital market basket cost weights effective for FY 2006 (70 FR 47387), with FY 2002 data used as the base period for the construction of the market basket cost weights.

We are inviting public comments on our proposed methodological changes to both the IPPS operating market basket and the capital input price index (CIPI). We note that this section addresses only the rebasing and revision of the IPPS market basket and CIPI for acute care hospitals and for children's and cancer hospitals and RNHCIs, which are excluded from the IPPS. We address the proposed market basket that would be applicable to LTCHs in section VIII.C.2. of the preamble of this proposed rule. Separate documents will address the market basket for other hospitals that are excluded from the IPPS.

B. Rebasing and Revising the IPPS Market Basket

The terms “rebasing” and “revising,” while often used interchangeably, actually denote different activities. “Rebasing” means moving the base year for the structure of costs of an input price index (for example, in this proposed rule, we are shifting the base year cost structure for the IPPS hospital index from FY 2002 to FY 2006). “Revising” means changing data sources, or price proxies, used in the input price index. As published in the FY 2006 IPPS final rule (70 FR 47387), in accordance with section 404 of Public Law 108-173, CMS determined a new frequency for rebasing the hospital market basket. We established a rebasing frequency of every 4 years and, therefore, for the FY 2010 IPPS update, we are proposing to rebase and revise the IPPS market basket and the CIPI.

1. Development of Cost Categories and Weights

a. Medicare Cost Reports

The major source of expenditure data for developing the rebased and revised hospital market basket cost weights is the FY 2006 Medicare cost reports. As was done in previous rebasings, these cost reports are from IPPS hospitals only (hospitals excluded from the IPPS and CAHs are not included) and are based on IPPS Medicare-allowable operating costs. IPPS Medicare-allowable operating costs are costs that are eligible to be paid for under the IPPS. For example, the IPPS market basket excludes home health agency (HHA) costs as these costs would be paid under the HHA PPS and, therefore, these costs are not IPPS Medicare-allowable costs.

The IPPS cost reports yield seven major expenditure or cost categories—the same as in the FY 2002-based hospital market basket: Wages and salaries, employee benefits, contract labor, pharmaceuticals, professional liability insurance (malpractice), blood and blood products, and a residual “all other.” The cost weights that were obtained directly from the Medicare cost reports are reported in Chart 1. These Medicare cost report cost weights are then supplemented with information obtained from other data sources to derive the proposed IPPS market basket cost weights.

Chart 1.—Major Cost Categories and Their Respective Cost Weights Found in the Medicare Cost Reports

Major cost categoriesFY 2002-based market basketProposed 2006-based market basket
Wages and salaries45.59045.156
Employee benefits11.18911.873
Contract labor3.2142.598
Professional liability insurance (malpractice)1.5891.661
Pharmaceuticals5.8555.380
Blood and blood products1.0821.078
All other31.48132.254
Start Printed Page 24155

b. Other Data Sources

In addition to the Medicare cost reports, the other data source we used to develop the IPPS market basket cost weights was the Benchmark Input-Output (I-O) Tables created by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce. The BEA Benchmark I-O data are scheduled for publication every 5 years. The most recent data available are for 2002. BEA also produces Annual I-O estimates; however, the 2002 Benchmark I-O data represent a much more comprehensive and complete set of data that are derived from the 2002 Economic Census. The Annual I-O is simply an update of the Benchmark I-O tables. For the FY 2006 market basket rebasing, we used the 1997 Benchmark I-O data. We are proposing to use the 2002 Benchmark I-O data in the FY 2006-based IPPS market basket, to be effective for FY 2010. Instead of using the less detailed, less accurate Annual I-O data, we aged the 2002 Benchmark I-O data forward to FY 2006. The methodology we used to age the data forward involves applying the annual price changes from the respective price proxies to the appropriate cost categories. We repeat this practice for each year.

The “all other” cost category obtained directly from the Medicare cost reports is divided into other hospital expenditure category shares using the 2002 Benchmark I-O data. Therefore, the “all other” cost category expenditure shares are proportional to their relationship to “all other” totals in the 2002 Benchmark I-O data. For instance, if the cost for telephone services was to represent 10 percent of the sum of the “all other” Benchmark I-O (see below) hospital expenditures, then telephone services would represent 10 percent of the IPPS market basket's “all other” cost category. Following publication of this FY 2010 IPPS proposed rule, and in an effort to provide greater transparency, we will be posting on the CMS market basket Web page at http://www.cms.hhs.gov/​MedicareProgramRatesStats/​05_​MarketBasketResearch.asp#TopOfPage an illustrative spreadsheet that shows how the detailed cost weights (that is, those not calculated using Medicare cost reports) are determined using the 2002 Benchmark I-O data.

2. Final Cost Category Computation

As stated previously, for this rebasing we used the Medicare cost reports to derive seven major cost categories. The proposed FY 2006-based IPPS market basket includes three additional cost categories that were not broken out separately in the FY 2002-based IPPS market basket. The first is lifted directly from the Medicare cost reports: Blood and blood products. The remaining two are derived using the Benchmark I-O data: Administrative and business support services and financial services. We are proposing to break out the latter two categories so we can better match their respective expenses with price proxies. A thorough discussion of our rationale for each of these cost categories is provided in the section IV.B.3. of this proposed rule. Also, the proposed FY 2006-based IPPS market basket excludes one cost category: Photo supplies. The 2002 Benchmark I-O weight for this category is considerably smaller than the 1997 Benchmark I-O weight, presently accounting for less than one-tenth of one percentage point of the IPPS market basket. Therefore, we are proposing to include the photo supplies costs in the chemical cost category weight with other similar chemical products.

We are not proposing to change our definition of the labor-related share. However, we are proposing to rename our aggregate cost categories from “labor-intensive” and “non-labor-intensive” services to “labor-related” and “nonlabor-related” services. As discussed in more detail below and similar to the previous rebasing, we classify a cost category as labor-related and include it in the labor-related share if the cost category is defined as being labor-intensive and its cost varies with the local labor market. In previous regulations, we grouped cost categories that met both of these criteria into labor-intensive services. We believe the proposed new labels more accurately reflect the concepts that they are intended to convey. We are not proposing to change to our definition of the labor-related share because we continue to classify a cost category as labor-related if the costs are labor-intensive and vary with the local labor market.

3. Selection of Price Proxies

After computing the FY 2006 cost weights for the proposed rebased hospital market basket, it was necessary to select appropriate wage and price proxies to reflect the rate of price change for each expenditure category. With the exception of the proxy for professional liability, all the proxies are based on Bureau of Labor Statistics (BLS) data and are grouped into one of the following BLS categories:

  • Producer Price Indexes—Producer Price Indexes (PPIs) measure price changes for goods sold in markets other than the retail market. PPIs are preferable price proxies for goods and services that hospitals purchase as inputs because these PPIs better reflect the actual price changes faced by hospitals. For example, we use a special PPI for prescription drugs, rather than the Consumer Price Index (CPI) for prescription drugs, because hospitals generally purchase drugs directly from a wholesaler. The PPIs that we use measure price changes at the final stage of production.
  • Consumer Price Indexes—Consumer Price Indexes (CPIs) measure change in the prices of final goods and services bought by the typical consumer. Because they may not represent the price faced by a producer, we used CPIs only if an appropriate PPI was not available, or if the expenditures were more similar to those faced by retail consumers in general rather than by purchasers of goods at the wholesale level. For example, the CPI for food purchased away from home is used as a proxy for contracted food services.
  • Employment Cost Indexes—Employment Cost Indexes (ECIs) measure the rate of change in employee wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and strictly measure the change in wage rates and employee benefits per hour. Appropriately, they are not affected by shifts in employment mix.

We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Timeliness implies that the proxy is published regularly, preferably at least once a quarter. Availability means that the proxy is publicly available. Finally, relevance means that the proxy is applicable and representative of the cost category weight to which it is applied. The CPIs, PPIs, and ECIs selected meet these criteria.

Chart 2 sets forth the proposed FY 2006-based IPPS market basket including cost categories, weights, and price proxies. For comparison purposes, the corresponding FY 2002-based IPPS market basket is listed as well. A summary outlining the choice of the various proxies follows the chart.Start Printed Page 24156

Chart 2.—Proposed FY 2006-Based IPPS Hospital Market Basket Cost Categories, Weights, and Price Proxies with FY 2002-Based IPPS Market Basket Included for Comparison

Cost categoriesFY 2002-based hospital market basket cost weightsProposed rebased FY 2006-based hospital market basket cost weightsProposed rebased FY 2006-based hospital market basket price proxies
1. Compensation59.99359.627
A. Wages and Salaries (1)48.17147.213ECI for Wages and Salaries, Civilian Hospital Workers.
B. Employee Benefits (1)11.82212.414ECI for Benefits, Civilian Hospital Workers.
2. Utilities1.2512.180
A. Fuel, Oil, and Gasoline0.2060.418PPI for Petroleum Refineries.
B. Electricity0.6691.645PPI for Commercial Electric Power.
C. Water and Sewage0.3760.117CPI-U for Water & Sewerage Maintenance.
3. Professional Liability Insurance1.5891.661CMS Professional Liability Insurance Premium Index.
4. All Other37.16736.533
A. All Other Products20.33619.473
(1) Pharmaceuticals5.8555.380PPI for Pharmaceutical Preparations (Prescriptions).
(2) Food: Direct Purchases1.6643.982PPI for Processed Foods & Feeds.
(3) Food: Contract Services1.1800.575CPI-U for Food Away From Home.
(4) Chemicals (2)2.0961.538Blend of Chemical PPIs.
(5) Blood and Blood Products (3)1.078PPI for Blood and Organ Banks.
(6) Medical Instruments1.9322.762PPI for Medical, Surgical, and Personal Aid Devices.
(7) Photographic Supplies0.183
(8) Rubber and Plastics2.0041.659PPI for Rubber & Plastic Products.
(9) Paper and Printing Products1.9051.492PPI for Converted Paper & Paperboard Products.
(10) Apparel0.3940.325PPI for Apparel.
(11) Machinery and Equipment0.5650.163PPI for Machinery & Equipment.
(12) Miscellaneous Products (3)2.5580.519PPI for Finished Goods less Food and Energy.
B. Labor-related Services9.7387.435
(1) Professional Fees: Labor-related (4)5.5103.616ECI for Compensation for Professional and Related Occupations.
(2) Administrative and Business Support Services (5)n/a0.626ECI for Compensation for Office and Administrative Services.
(3) All Other: Labor-Related Services (5)4.2283.193ECI for Compensation for Private Service Occupations.
C. Nonlabor-Related Services7.0939.625
(1) Professional Fees: Nonlabor-Related (4)n/a5.814ECI for Compensation for Professional and Related Occupations.
(2) Financial Services (6)n/a1.281ECI for Compensation for Financial Activities.
(3) Telephone Services0.4580.627CPI-U for Telephone Services.
(4) Postage1.3000.963CPI-U for Postage.
(5) All Other: Nonlabor-Related Services (6)5.3350.940CPI-U for All Items less Food and Energy.
Total100.000100.000
Note: Detail may not add to total due to rounding.
(1) Contract labor is distributed to wages and salaries and employee benefits based on the share of total compensation that each category represents.
(2) To proxy the “chemicals” cost category, we are proposing to use a blended PPI composed of the PPI for industrial gases, the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail about this proxy, see section IV.B.3.j. of the preamble of this proposed rule.
(3) The “blood and blood products” cost category was contained within “miscellaneous products” cost category in the FY 2002-based IPPS market basket.
(4) The “professional fees: labor-related” and “professional fees: nonlabor-related” cost categories were included in one cost category called “professional fees” in the FY 2002-based IPPS market basket. For more detail about how these new categories were derived, we refer readers to sections IV.B.3.s. and v. of the preamble of this proposed rule, on the labor-related share.
(5) The “administrative and business support services” cost category was contained within “all other: labor-intensive services” cost category in the FY 2002-based IPPS market basket. The “all other: labor-intensive services” cost category is renamed the “all other: labor-related services” cost category for the proposed FY 2006-based IPPS market basket.
(6) The “financial services” cost category was contained within the “all other: non-labor intensive services” cost category in the FY 2002-based IPPS market basket. The “all other: nonlabor intensive services” cost category is renamed the “all other: nonlabor-related services” cost category for the proposed FY 2006-based IPPS market basket.

a. Wages and Salaries

We are proposing to use the ECI for wages and salaries for hospital workers (all civilian) (series code #CIU1026220000000I) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

b. Employee Benefits

We are proposing to use the ECI for employee benefits for hospital workers (all civilian) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

c. Fuel, Oil, and Gasoline

For the FY 2002-based market basket, this category only included expenses classified under North American Industry Classification System (NAICS) Start Printed Page 2415721 (Mining). We proxied this category using the PPI for commercial natural gas (series code #WPU0552). For the proposed FY 2006-based market basket, we are proposing to add costs to this category that had previously been grouped in other categories. The added costs include petroleum-related expenses under NAICS 324110 (previously captured in the miscellaneous category), as well as petrochemical manufacturing classified under NAICS 325110 (previously captured in the chemicals category). These added costs represent 80 percent of the hospital industry's fuel, oil, and gasoline expenses (or 80 percent of this category). Because the majority of the industry's fuel, oil, and gasoline expenses originate from petroleum refineries (NAICS 324110), we are proposing to use the PPI for petroleum refineries (series code #PCU324110) as the proxy for this cost category.

d. Electricity

We are proposing to use the PPI for commercial electric power (series code #WPU0542). This same proxy was used in the FY 2002-based IPPS market basket.

e. Water and Sewage

We are proposing to use the CPI for water and sewerage maintenance (all urban consumers) (series code #CUUR0000SEHG01) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

f. Professional Liability Insurance

We are proposing to proxy price changes in hospital professional liability insurance premiums (PLI) using percentage changes as estimated by the CMS Hospital Professional Liability Index. To generate these estimates, we collect commercial insurance premiums for a fixed level of coverage while holding nonprice factors constant (such as a change in the level of coverage). This method is also used to proxy PLI price changes in the Medicare Economic Index (68 FR 63244). This same proxy was used in the FY 2002-based IPPS market basket.

g. Pharmaceuticals

We are proposing to use the PPI for pharmaceutical preparations (prescription) (series code #PCU32541DRX) to measure the price growth of this cost category. This is a special index produced by BLS and is the same proxy used in the FY 2002-based IPPS market basket.

h. Food: Direct Purchases

We are proposing to use the PPI for processed foods and feeds (series code #WPU02) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

i. Food: Contract Services

We are proposing to use the CPI for food away from home (all urban consumers) (series code #CUUR0000SEFV) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

j. Chemicals

We are proposing to use a blended PPI composed of the PPI for industrial gases (NAICS 325120), the PPI for other basic inorganic chemical manufacturing (NAICS 325180), the PPI for other basic organic chemical manufacturing (NAICS 325190), and the PPI for soap and cleaning compound manufacturing (NAICS 325610). Using the 2002 Benchmark I-O data, we found that these NAICS industries accounted for approximately 90 percent of the hospital industry's chemical expenses. Therefore, we are proposing to use this blended index because we believe its composition better reflects the composition of the purchasing patterns of hospitals than does the PPI for industrial chemicals (series code #WPU061), the proxy used in the FY 2002-based IPPS market basket. Chart 3 below shows the weights for each of the four PPIs used to create the blended PPI, which we determined using the 2002 Benchmark I-O data.

Chart 3—Blended Chemical PPI Weights

NameWeights (in percent)NAICS
PPI for Industrial Gases35325120
PPI for Other Basic Inorganic Chemical Manufacturing25325180
PPI for Other Basic Organic Chemical Manufacturing30325190
PPI for Soap and Cleaning Compound Manufacturing10325610

k. Blood and Blood Products

In the FY 2002-based IPPS market basket, we classified blood and blood products into the miscellaneous products category and used the PPI for finished goods less food and energy to proxy the price changes associated with these expenses. At the time of the rebasing of the FY 2002-based IPPS market basket, we noticed an apparent divergence between the PPI for blood and blood derivatives, the price proxy used in the FY 1997-based IPPS market basket, and blood costs faced by hospitals over the recent time period. A thorough discussion of this analysis is found in the FY 2006 IPPS final rule (70 FR 47390).

Since the last rebasing of the market basket, BLS began collecting data and publishing an industry PPI for blood and organ banks (NAICS 621991). For the proposed FY 2006-based IPPS market basket, we are proposing to incorporate this series (series code #PCU621991) into the market basket and use it to proxy the blood and blood products cost category.

l. Medical Instruments

We are proposing to use the PPI for medical, surgical, and personal aid devices (series code #WPU156) to measure the price growth of this cost category. In the 1997 Benchmark I-O data, approximately half of the expenses classified in this category were for surgical and medical instruments. Thus, we used the PPI for surgical and medical instruments and equipment (series code #WPU1562) to proxy this category in the FY 2002-based IPPS market basket. The 2002 Benchmark I-O data show that this category now represents only 33 percent of these expenses and the largest expense category is surgical appliance and supplies manufacturing (corresponding to series code #WPU1563). Due to this reallocation of costs over time, we are proposing to change the price proxy for this cost category to the more aggregated PPI for medical, surgical, and personal aid devices.

m. Photographic Supplies

We are proposing to eliminate the cost category specific to photographic supplies for the proposed FY 2006-based IPPS market basket. These costs will now be included in the chemicals cost category because the costs are presently reported as all other chemical products. Notably, although we are eliminating the specific cost category, these costs will still be accounted for within the IPPS market basket.

n. Rubber and Plastics

We are proposing to use the PPI for rubber and plastic products (series code #WPU07) to measure price growth of this cost category. This same proxy was Start Printed Page 24158used in the FY 2002-based IPPS market basket.

o. Paper and Printing Products

We are proposing to use the PPI for converted paper and paperboard products (series code #WPU0915) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

p. Apparel

We are proposing to use the PPI for apparel (series code #WPU0381) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

q. Machinery and Equipment

We are proposing to use the PPI for machinery and equipment (series code #WPU11) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

r. Miscellaneous Products

We are proposing to use the PPI for finished goods less food and energy (series code #WPUSOP3500) to measure the price growth of this cost category. Using this index removes the double-counting of food and energy prices, which are already captured elsewhere in the market basket. This same proxy was used in the FY 2002-based IPPS market basket.

s. Professional Fees: Labor-Related

We are proposing to use the ECI for compensation for professional and related occupations (private industry) (series code #CIS2020000120000I) to measure the price growth of this category. It includes occupations such as legal, accounting, and engineering services. This same proxy was used in the FY 2002-based IPPS market basket.

t. Administrative and Business Support Services

We are proposing to use the ECI for compensation for office and administrative support services (private industry) (series code #CIU2010000220000I) to measure the price growth of this category. Previously these costs were included in the “all other: Labor-intensive cost” category (now renamed the “all other: Labor-related cost” category), and were proxied by the ECI for compensation for service occupations. We believe that this compensation index better reflects the changing price of labor associated with the provision of administrative services and its incorporation represents a technical improvement to the market basket.

u. All Other: Labor-Related Services

We are proposing to use the ECI for compensation for service occupations (private industry) (series code #CIU2010000300000I) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

v. Professional Fees: Nonlabor-Related

We are proposing to use the ECI for compensation for professional and related occupations (private industry) (series code #CIS2020000120000I) to measure the price growth of this category. This is the same price proxy that we are proposing to use for the professional fees: Labor-related cost category.

w. Financial Services

We are proposing to use the ECI for compensation for financial activities (private industry) (series code #CIU201520A000000I) to measure the price growth of this cost category. Previously these costs were included in the “all other: Nonlabor-intensive cost” category (now renamed the “all other: nonlabor-related cost” category), and were proxied by the CPI for all items. We believe that this compensation index better reflects the changing price of labor associated with the provision of financial services and its incorporation represents a technical improvement to the market basket.

x. Telephone Services

We are proposing to use the CPI for telephone services (series code #CUUR0000SEED) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

y. Postage

We are proposing to use the CPI for postage (series code #CUUR0000SEEC01) to measure the price growth of this cost category. This same proxy was used in the FY 2002-based IPPS market basket.

z. All Other: Nonlabor-Related Services

We are proposing to use the CPI for all items less food and energy (series code #CUUR0000SA0L1E) to measure the price growth of this cost category. Previously these costs were proxied by the CPI for all items in the FY 2002-based IPPS market basket. We believe that using the CPI for all items less food and energy will remove any double-counting of food and energy prices, which are already captured elsewhere in the market basket. Consequently, we believe that the incorporation of this proxy represents a technical improvement to the market basket.

Chart 4 compares both the historical and forecasted percent changes in the FY 2002-based IPPS market basket and the proposed FY 2006-based IPPS market basket.

Chart 4—FY 2002-Based and Proposed FY 2006-Based Prospective Payment Hospital Operating Index Percent Change, FY 2004 Through FY 2012

Fiscal year (FY)FY 2002-based IPPS market basket operating index percent changeProposed FY 2006-based IPPS market basket operating index percent change
Historical data:
FY 20044.04.0
FY 20054.33.9
FY 20064.34.0
FY 20073.43.6
FY 20084.34.0
Average FYs 2004-20084.13.9
Forecast:
FY 20092.02.5
FY 20102.32.1
FY 20112.92.8
FY 20123.13.0
Start Printed Page 24159
Average FYs 2009-20122.62.6
Source: IHS Global Insight, Inc.1st Quarter 2009, USMACRO/CONTROL0209@CISSIM/TL0505.SIM.

The differences between the FY 2002-based and the proposed FY 2006-based IPPS market basket increases are mostly stemming from the proposal to revise the proxy used for the chemicals cost category. As stated earlier, we are proposing to adopt a blended chemical index that is comprised of four industry-based chemical price proxies that represent approximately 90 percent of the hospital's industry chemical expenses. The FY 2002-based IPPS market basket used the PPI for industrial chemicals. The PPI for industrial chemicals attributes more weight to direct petroleum expenses, which is not consistent with a hospital's most recent purchasing pattern according to the 2002 Benchmark I-O data. The lower weight for direct petroleum expenses in the blended chemical index results in less volatile price movements. We believe the proposed blended index represents a technical improvement because it better reflects the purchasing patterns of hospitals.

Also contributing to the differences between the FY 2002-based and the proposed FY 2006-based IPPS market basket increases is the larger weight associated with the professional fees category. In both market baskets, these expenditures are proxied by the ECI for compensation for professional and related services. The weight for professional fees in the FY 2002-based IPPS market basket is 5.5 percent compared to 9.4 percent in the proposed FY 2006-based IPPS market basket.

4. Labor-Related Share

Under section 1886(d)(3)(E) of the Act, the Secretary estimates from time to time the proportion of payments that are labor-related. “The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs of the DRG prospective payment rates * * * .” We refer to the proportion of hospitals' costs that are attributable to wages and wage-related costs as the “labor-related share.”

The labor-related share is used to determine the proportion of the national PPS base payment rate to which the area wage index is applied. We continue to classify a cost category as labor-related if the costs are labor-intensive and vary with the local labor market. Given this, based on our definition of the labor-related share, we are proposing to include in the labor-related share the national average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, the labor-related portion of professional fees, administrative and business support services, and all other: Labor-related services (previously referred to in the FY 2002-based IPPS market basket as labor-intensive). Consistent with previous rebasings, the “all other: Labor-related services” cost category is mostly comprised of building maintenance and security services (including, but not limited to, commercial and industrial machinery and equipment repair, nonresidential maintenance and repair, and investigation and security services). Because these services tend to be labor-intensive and are mostly performed at the hospital facility (and, therefore, unlikely to be purchased in the national market), we believe that they meet our definition of labor-related services.

For the rebasing of the FY 2002-based IPPS market basket in the FY 2006 IPPS final rule, we included in the labor-related share the national average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, professional fees, and labor-intensive services (70 FR 47393). For the proposed FY 2006-based IPPS market basket rebasing, the proposed inclusion of the administrative and business support services cost category into the labor-related share remains consistent with the current labor-related share because this cost category was previously included in the labor-intensive cost category. As previously stated, we are proposing to establish a separate administrative and business support service cost category so that we can use the ECI for compensation for office and administrative support services to more precisely proxy these specific expenses.

For the FY 2002-based IPPS market basket, we assumed that all nonmedical professional services (including accounting and auditing services, engineering services, legal services, and management and consulting services) were purchased in the local labor market and, therefore, all of their associated fees varied with the local labor market. As a result, we previously included 100 percent of these costs in the labor-related share. In an effort to more accurately determine the share of professional fees that should be included in the labor-related share, we surveyed hospitals regarding the proportion of those fees that go to companies that are located beyond their own local labor market (the results are discussed below).

We continue to look for ways to refine our market basket approach to more accurately account for the proportion of costs influenced by the local labor market. To that end, we conducted a survey of hospitals to empirically determine the proportion of contracted professional services purchased by the industry that are attributable to local firms and the proportion that are purchased from national firms. We notified the public of our intent to conduct this survey on December 9, 2005 (70 FR 73250) and received no comments (71 FR 8588).

With approval from the OMB, we contacted the industry and received responses to our survey from 108 hospitals. Using data on FTEs to allocate responding hospitals across strata (region of the country and urban/rural status), we calculated poststratification weights. Based on these weighted results, we determined that hospitals purchase, on average, the following portions of contracted professional services outside of their local labor market:

  • 34 percent of accounting and auditing services;
  • 30 percent of engineering services;
  • 33 percent of legal services; and
  • 42 percent of management consulting services.

We applied each of these percentages to its respective Benchmark I-O cost category underlying the professional Start Printed Page 24160fees cost category. This is the methodology that we used to separate the FY 2006-based IPPS market basket professional fees category into professional fees: Labor-related and professional fees: Nonlabor-related cost categories. In addition to the professional services listed above, we also classified expenses under NAICS 55, Management of Companies and Enterprises, into the professional fees cost category as was done in previous rebasings. The NAICS 55 data are mostly comprised of corporate, subsidiary, and regional managing offices, or otherwise referred to as home offices. Formerly, all of the expenses within this category were considered to vary with, or be influenced by, the local labor market and were thus included in the labor-related share. Because many hospitals are not located in the same geographic area as their home office, we analyzed data from a variety of sources in order to determine what proportion of these costs should be appropriately included in the labor-related share.

Using data primarily from the Medicare cost reports and a CMS database of Home Office Medicare Records (HOMER) (a database that provides city and state information (addresses) for home offices), we were able to determine that 27 percent of hospitals that had home offices had those home offices located in their respective local labor markets—defined as being in the same MSA.

The Medicare cost report requires hospitals to report their home office provider numbers. Using the HOMER database to determine the home office location for each home office provider number, we compared the location of the hospital with the location of the hospital's home office. We then placed hospitals into one of the following three groups:

  • Group 1—Hospital and home office are located in different States;
  • Group 2—Hospital and home office are located in the same State and same city; and
  • Group 3—Hospital and home office are located in the same State and different city.

We found that 54 percent of the hospitals with home offices were classified into Group 1 (that is, different State) and, thus, these hospitals were determined to not be located in the same local labor market as their home office. Although there were a very limited number of exceptions (that is, hospitals located in different States but the same MSA as their home office), the 54 percent estimate was unchanged.

We found that 13 percent of all hospitals with home offices were classified into Group 2 (that is, same State and same city and, therefore, the same MSA). Consequently, these hospitals were determined to be located in the same local labor market as their home offices.

We found that 33 percent of all hospitals with home offices were classified into Group 3 (that is, same State and different city). Using data from the Census Bureau to determine the specific MSA for both the hospital and its home office, we found that 14 percent of all hospitals with home offices were identified as being in the same State, a different city, but the same MSA.

Pooling these results, we were able to determine that approximately 27 percent of hospitals with home offices had home offices located within their local labor market (that is, 13 percent of hospitals with home offices had their home offices in the same State and city (and, thus, the same MSA), and 14 percent of hospitals with home offices had their home offices in the same State, a different city, but the same MSA). We are proposing to apportion the NAICS 55 expense data by this percentage. Thus, we are proposing to classify 27 percent of these costs into the professional fees: labor-related cost category and the remaining 73 percent into the professional fees: nonlabor-related cost category.

Below is a chart comparing the proposed FY 2006-based and the FY 2002-based labor-related share.

Chart 5—Comparison of the Proposed FY 2006-Based Labor-Related Share and the FY 2002-Based Labor-Related Shares

FY 2002-based market basket cost weightsProposed FY 2006-based market basket cost weights
Wages and Salaries48.17147.213
Employee Benefits11.82212.414
Professional Fees: Labor-Related5.5103.616
Administrative and Business Support Services0.626
All Other: Labor-Related Services4.2283.193
Total Labor-Related Share69.73167.062

Using the proposed cost category weights from the proposed FY 2006-based IPPS market basket, we calculated a labor-related share of 67.062 percent, approximately 3 percentage points lower than the current labor-related share of 69.731.

We continue to believe, as we have stated in the past, that these operating cost categories are related to, influenced by, or vary with the local markets. Therefore, our definition of the labor-related share continues to be consistent with section 1886(d)(3) of the Act.

Using the cost category weights that we determined in section IV.B.1. of this preamble, we calculated a labor-related share of 67.062 percent, using the proposed FY 2006-based IPPS market basket. Accordingly, we are proposing to implement a labor-related share of 67.1 percent for discharges occurring on or after October 1, 2009. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this employment “would result in lower payments than would otherwise be made.”

We also are proposing to update the labor-related share for Puerto Rico. Consistent with our methodology for determining the national labor-related share, we add the Puerto Rico-specific relative weights for wages and salaries, employee benefits, and contract labor. Because there are no Puerto Rico-specific relative weights for professional fees and labor intensive services, we use the national weights. Below is a chart comparing the proposed FY 2006-based Puerto Rico-specific labor-related share and the FY 2002-based Puerto Rico-specific labor-related share.Start Printed Page 24161

Chart 6—Comparison of the Proposed FY 2006-Based Puerto Rico-Specific Labor-Related Share and FY 2002-Based Puerto Rico-Specific Labor-Related Share

FY 2002-based market basket cost weightsProposed FY 2006-based market basket cost weights
Wages and Salaries40.20144.221
Benefits8.7828.691
Professional Fees: Labor-Related5.5103.616
Administrative and Business Support Services0.626
All Other: Labor-Related Services4.2283.193
Total Labor-Related Share58.72160.347

Using the proposed FY 2006-based Puerto Rico cost category weights, we calculated a labor-related share of 60.347 percent, approximately 2 percentage points higher than the current Puerto-Rico specific labor-related share of 58.721. Accordingly, we are proposing to adopt an updated Puerto Rico labor-related share of 60.3 percent.

C. Separate Market Basket for Certain Hospitals Presently Excluded from the IPPS

In the FY 2006 IPPS final rule (70 FR 47396), we adopted the use of the FY 2002-based IPPS operating market basket to update the target amounts for children's and cancer hospitals and religious nonmedical health care institutions (RNHCIs). Children's and cancer hospitals and RNHCIs are still reimbursed solely under the reasonable cost-based system, subject to the rate-of-increase limits. Under these limits, an annual target amount (expressed in terms of the inpatient operating cost per discharge) is set for each hospital based on the hospital's own historical cost experience trended forward by the applicable rate-of-increase percentages.

Under the broad authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 1871 of the Act and section 4454 of the BBA, consistent with our use of the IPPS operating market basket percentage increase to update target amounts, we are proposing to use the proposed FY 2006-based IPPS operating market basket percentage increase to update the target amounts for children's and cancer hospitals and RNHCIs.

Due to the small number of children's and cancer hospitals and RNHCIs that receive, in total, less than 1 percent of all Medicare payments to hospitals and because these hospitals provide limited Medicare cost report data, we are unable to create a separate market basket specifically for these hospitals. Based on the limited data available, we believe that the proposed FY 2006-based IPPS operating market basket most closely represents the cost structure of children's and cancer hospitals and RNHCIs. Therefore, we believe that the percentage change in the FY 2006-based IPPS operating market basket is the best available measure of the average increase in the prices of the goods and services purchased by cancer and children's hospitals and RNHCIs in order to provide care.

D. Rebasing and Revising the Capital Input Price Index (CIPI)

The CIPI was originally described in the FY 1993 IPPS final rule (57 FR 40016). There have been subsequent discussions of the CIPI presented in the IPPS proposed and final payment rules. The FY 2006 IPPS final rule (70 FR 47387) discussed the most recent rebasing and revision of the CIPI to a FY 2002 base year, which reflected the capital cost structure of the hospital industry in that year.

We are proposing to rebase and revise the CIPI to a FY 2006 base year to reflect the more current structure of capital costs in hospitals. As with the FY 2002-based index, we have developed two sets of weights in order to calculate the proposed FY 2006-based CIPI. The first set of weights identifies the proportion of hospital capital expenditures attributable to each expenditure category, while the second set of weights is a set of relative vintage weights for depreciation and interest. The set of vintage weights is used to identify the proportion of capital expenditures within a cost category that is attributable to each year over the useful life of the capital assets in that category. A more thorough discussion of vintage weights is provided later in this section.

Both sets of weights are developed using the best data sources available. In reviewing source data, we determined that the Medicare cost reports provided accurate data for all capital expenditure cost categories. We used the FY 2006 Medicare cost reports for IPPS hospitals to determine weights for all three cost categories: depreciation, interest, and other capital expenses.

Lease expenses are unique in that they are not broken out as a separate cost category in the CIPI, but rather are proportionally distributed among the cost categories of depreciation, interest, and other, reflecting the assumption that the underlying cost structure of leases is similar to that of capital costs in general. As was done in previous rebasings of the CIPI, we first assumed 10 percent of lease expenses represents overhead and assigned them to the other capital expenses cost category accordingly. The remaining lease expenses were distributed across the three cost categories based on the respective weights of depreciation, interest, and other capital not including lease expenses.

Depreciation contains two subcategories: (1) Building and fixed equipment; and (2) movable equipment. The apportionment between building and fixed equipment and movable equipment was determined using the Medicare cost reports. This methodology was also used to compute the apportionment used in the FY 2002-based index.

The total interest expense cost category is split between government/nonprofit interest and for-profit interest. The FY 2002-based CIPI allocated 75 percent of the total interest cost weight to government/nonprofit interest and proxied that category by the average yield on domestic municipal bonds. The remaining 25 percent of the interest cost weight was allocated to for-profit interest and was proxied by the average yield on Moody's Aaa bonds (70 FR 47387).

For this rebasing, we derived the split using the relative FY 2006 Medicare cost report data on interest expenses for government/nonprofit and for-profit hospitals. Based on these data, we calculated an 85/15 split between government/nonprofit and for-profit interest. We believe it is important that Start Printed Page 24162this split reflects the latest relative cost structure of interest expenses.

Chart 7 presents a comparison of the proposed FY 2006-based CIPI cost weights and the FY 2002-based CIPI cost weights.

Chart 7—Proposed FY 2006-Based CIPI Cost Categories, Weights, and Price Proxies With FY 2002-Based CIPI Included for Comparison

Cost categoriesFY 2002 weightsProposed FY 2006 weightsPrice proxy
Total100.00100.00
Total depreciation74.58375.154
Building and fixed equipment depreciation36.23435.789BEA chained price index for nonresidential construction for hospitals and special care facilities—vintage weighted (25 years).
Movable equipment depreciation38.34939.365PPI for machinery and equipment—vintage weighted (12 years).
Total interest19.86317.651
Government/nonprofit interest14.89615.076Average yield on domestic municipal bonds (Bond Buyer 20 bonds)—vintage-weighted (25 years).
For-profit interest4.9672.575Average yield on Moody's Aaa bonds—vintage-weighted (12 years).
Other5.5547.195CPI-U for residential rent.

Because capital is acquired and paid for over time, capital expenses in any given year are determined by both past and present purchases of physical and financial capital. The vintage-weighted CIPI is intended to capture the long-term consumption of capital, using vintage weights for depreciation (physical capital) and interest (financial capital). These vintage weights reflect the proportion of capital purchases attributable to each year of the expected life of building and fixed equipment, movable equipment, and interest. We used the vintage weights to compute vintage-weighted price changes associated with depreciation and interest expense. Following publication of this FY 2010 IPPS proposed rule, and in order to provide greater transparency, we will be posting on the CMS market basket Web page at http://www.cms.hhs.gov/​MedicareProgramRatesStats/​05_​MarketBasketResearch.asp#TopOfPage an illustrative spreadsheet that contains an example of how the vintage-weighted price indexes are calculated.

Vintage weights are an integral part of the CIPI. Capital costs are inherently complicated and are determined by complex capital purchasing decisions, over time, based on such factors as interest rates and debt financing. In addition, capital is depreciated over time instead of being consumed in the same period it is purchased. The CIPI accurately reflects the annual price changes associated with capital costs, and is a useful simplification of the actual capital investment process. By accounting for the vintage nature of capital, we are able to provide an accurate, stable annual measure of price changes. Annual nonvintage price changes for capital are unstable due to the volatility of interest rate changes and, therefore, do not reflect the actual annual price changes for Medicare capital-related costs. The CIPI reflects the underlying stability of the capital acquisition process and provides hospitals with the ability to plan for changes in capital payments.

To calculate the vintage weights for depreciation and interest expenses, we needed a time series of capital purchases for building and fixed equipment and movable equipment. We found no single source that provides a uniquely best time series of capital purchases by hospitals for all of the above components of capital purchases. The early Medicare cost reports did not have sufficient capital data to meet this need. Data we obtained from the American Hospital Association (AHA) do not include annual capital purchases. However, AHA does provide a consistent database back to 1963. We used data from the AHA Panel Survey and the AHA Annual Survey to obtain a time series of total expenses for hospitals. We then used data from the AHA Panel Survey supplemented with the ratio of depreciation to total hospital expenses obtained from the Medicare cost reports to derive a trend of annual depreciation expenses for 1963 through 2006.

In order to estimate capital purchases using data on depreciation expenses, the expected life for each cost category (building and fixed equipment, movable equipment, and interest) is needed to calculate vintage weights. We used FY 2006 Medicare cost reports to determine the expected life of building and fixed equipment and of movable equipment. The expected life of any piece of equipment can be determined by dividing the value of the asset (excluding fully depreciated assets) by its current year depreciation amount. This calculation yields the estimated useful life of an asset if depreciation were to continue at current year levels, assuming straight-line depreciation. From the FY 2006 Medicare cost reports, the expected life of building and fixed equipment was determined to be 25 years, and the expected life of movable equipment was determined to be 12 years. The FY 2002-based CIPI was based on an expected life of building and fixed equipment of 23 years. It used 11 years as the expected life for movable equipment.

We are proposing to use the building and fixed equipment and movable equipment weights derived from FY 2006 Medicare cost reports to separate the depreciation expenses into annual amounts of building and fixed equipment depreciation and movable equipment depreciation. Year-end asset costs for building and fixed equipment and movable equipment were determined by multiplying the annual depreciation amounts by the expected life calculations from the FY 2006 Medicare cost reports. We then calculated a time series back to 1963 of annual capital purchases by subtracting the previous year asset costs from the current year asset costs. From this capital purchase time series, we were able to calculate the vintage weights for building and fixed equipment and for movable equipment. Each of these sets of vintage weights is explained in more detail below.

For building and fixed equipment vintage weights, we used the real annual capital purchase amounts for building and fixed equipment to capture the Start Printed Page 24163actual amount of the physical acquisition, net of the effect of price inflation. This real annual purchase amount for building and fixed equipment was produced by deflating the nominal annual purchase amount by the building and fixed equipment price proxy, BEA's chained price index for nonresidential construction for hospitals and special care facilities. Because building and fixed equipment have an expected life of 25 years, the vintage weights for building and fixed equipment are deemed to represent the average purchase pattern of building and fixed equipment over 25-year periods. With real building and fixed equipment purchase estimates available back to 1963, we averaged nineteen 25-year periods to determine the average vintage weights for building and fixed equipment that are representative of average building and fixed equipment purchase patterns over time. Vintage weights for each 25-year period are calculated by dividing the real building and fixed capital purchase amount in any given year by the total amount of purchases in the 25-year period. This calculation is done for each year in the 25-year period, and for each of the nineteen 25-year periods. We used the average of each year across the nineteen 25-year periods to determine the average building and fixed equipment vintage weights for the proposed FY 2006-based CIPI.

For movable equipment vintage weights, the real annual capital purchase amounts for movable equipment were used to capture the actual amount of the physical acquisition, net of price inflation. This real annual purchase amount for movable equipment was calculated by deflating the nominal annual purchase amounts by the movable equipment price proxy, the PPI for machinery and equipment. Based on our determination that movable equipment has an expected life of 12 years, the vintage weights for movable equipment represent the average expenditure for movable equipment over a 12-year period. With real movable equipment purchase estimates available back to 1963, thirty-two 12-year periods were averaged to determine the average vintage weights for movable equipment that are representative of average movable equipment purchase patterns over time. Vintage weights for each 12-year period are calculated by dividing the real movable capital purchase amount for any given year by the total amount of purchases in the 12-year period. This calculation was done for each year in the 12-year period and for each of the thirty-two 12-year periods. We used the average of each year across the thirty-two 12-year periods to determine the average movable equipment vintage weights for the proposed FY 2006-based CIPI.

For interest vintage weights, the nominal annual capital purchase amounts for total equipment (building and fixed, and movable) were used to capture the value of the debt instrument. Because we have determined that hospital debt instruments have an expected life of 25 years, the vintage weights for interest are deemed to represent the average purchase pattern of total equipment over 25-year periods. With nominal total equipment purchase estimates available back to 1963, nineteen 25-year periods were averaged to determine the average vintage weights for interest that are representative of average capital purchase patterns over time. Vintage weights for each 25-year period are calculated by dividing the nominal total capital purchase amount for any given year by the total amount of purchases in the 25-year period. This calculation is done for each year in the 25-year period and for each of the nineteen 25-year periods. We used the average of each year across the nineteen 25-year periods to determine the average interest vintage weights for the proposed FY 2006-based CIPI. The vintage weights for the FY 2002-based CIPI and the proposed FY 2006-based CIPI are presented in Chart 8.

Chart 8—FY 2002 Vintage Weights and Proposed FY 2006 Vintage Weights for Capital-Related Price Proxies

YearBuilding and fixed equipmentMovable equipmentInterest
FY 2002 23 yearsProposed FY 2006 25 yearsFY 2002 11 yearsProposed FY 2006 12 yearsFY 2002 23 yearsProposed FY 2006 25 years
10.0210.0210.0650.0630.0100.010
20.0220.0230.0710.0670.0120.012
30.0250.0250.0770.0710.0140.014
40.0270.0270.0820.0750.0160.016
50.0290.0290.0860.0790.0190.018
60.0310.0310.0910.0820.0230.020
70.0330.0320.0950.0850.0260.023
80.0350.0330.1000.0860.0290.025
90.0380.0360.1060.0900.0330.028
100.0400.0380.1120.0930.0360.031
110.0420.0400.1170.1020.0390.034
120.0450.0420.1060.0430.038
130.0470.0440.0480.041
140.0490.0450.0530.044
150.0510.0460.0560.047
160.0530.0470.0590.050
170.0560.0480.0620.053
180.0570.0500.0640.057
190.0580.0500.0660.059
200.0600.0500.0700.060
210.0600.0480.0710.060
220.0610.0480.0740.062
230.0610.0470.0760.063
240.0490.068
250.0480.069
Start Printed Page 24164
Total1.0001.0001.0001.0001.0001.000
Note: Detail may not add to total due to rounding.

After the capital cost category weights were computed, it was necessary to select appropriate price proxies to reflect the rate-of-increase for each expenditure category. We are proposing to use the same price proxies for the proposed FY 2006-based CIPI that were used in the FY 2002-based CIPI with the exception of the Boeckh Construction Index. We are proposing to replace the Boeckh Construction Index with BEA's chained price index for nonresidential construction for hospitals and special care facilities. The BEA index represents construction of facilities such as hospitals, nursing homes, hospices, and rehabilitation centers. Although these price indices move similarly over time, we believe that it is more technically appropriate to use an index that is more specific to the hospital industry. We believe these are the most appropriate proxies for hospital capital costs that meet our selection criteria of relevance, timeliness, availability, and reliability. The rationale for selecting the price proxies, excluding the building and fixed equipment price proxy, was explained more fully in the FY 1997 IPPS final rule (61 FR 46196). The price proxies are presented in Chart 7.

Chart 9 below compares both the historical and forecasted percent changes in the FY 2002-based CIPI and the proposed FY 2006-based CIPI.

Chart 9—Comparison of FY 2002-Based and Proposed FY 2006-Based Capital Input Price Index, Percent Change, FY 2004 Through FY 2012

Fiscal yearCIPI, FY 2002-basedCIPI, proposed FY 2006-based
FY 20040.50.8
FY 20050.60.9
FY 20060.91.1
FY 20071.21.3
FY 20081.41.4
Forecast:
FY 20091.61.5
FY 20101.51.2
FY 20111.61.5
FY 20121.61.5
Average:
FYs 2004-20090.91.1
FYs 2010-20121.61.4
Source: IHS Global Insight, Inc, 1st Quarter 2009; USMACRO/CONTROL0209@CISSIM/TL0209.SIM.

IHS Global Insight, Inc. forecasts a 1.2 percent increase in the proposed FY 2006-based CIPI for FY 2010, as shown in Chart 9. The underlying vintage-weighted price increases for depreciation (including building and fixed equipment and movable equipment) and interest (including government/nonprofit and for-profit) are included in Chart 10.

Chart 10—CMS Capital Input Price Index Percent Changes, Total and Depreciation and Interest Components, FYs 2004 Through 2012

Fiscal yearTotalDepreciationInterest
FY 20040.81.5−2.6
FY 20050.91.7−3.1
FY 20061.12.0−3.2
FY 20071.32.1−3.4
FY 20081.42.1−2.6
Forecast:
FY 20091.52.0−1.8
FY 20101.21.7−1.7
FY 20111.51.8−0.3
FY 20121.51.7−0.2

Rebasing the CIPI from FY 2002 to FY 2006 decreased the percent change in the FY 2010 forecast by 0.3 percentage point, from 1.5 to 1.2, as shown in Chart 9. The difference in the forecast of the proposed FY 2010 market basket increase is primarily due to the proposed change in the price proxy for building and fixed equipment as well as the proposed change in the vintage weights applied to the price proxy for interest. As mentioned above, we are proposing to change the price proxy used for building and fixed equipment to BEA's chained price index for nonresidential construction for hospitals and special care facilities. We believe this proposed change represents a technical improvement as the BEA price index is an index that is more representative of the hospital industry. For the proposed FY 2010 update, the result of this proposed change is a forecasted price change in total depreciation of 1.7 percent in the proposed FY 2006-based CIPI compared to 1.9 percent in the FY 2002-based CIPI. The other primary factor contributing to the difference is the proposed change in the vintage weights used to calculate the vintage-weighted price proxy for interest. The forecasted price change in total interest is −1.7 Start Printed Page 24165percent in the proposed FY 2006-based CIPI compared to −1.2 percent in the FY 2002-based CIPI. This is a result of changing the expected life of hospital debt instruments from 23 years to 25 years.

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

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

1. Background

a. Overview

CMS is seeking to promote higher quality and more efficient health care for Medicare beneficiaries. This effort is supported by the adoption of an increasing number of widely-agreed upon quality measures. CMS has worked with relevant stakeholders to define measures of quality in almost every setting and currently measures some aspect of care for almost all Medicare beneficiaries. These measures assess structural aspects of care, clinical processes, patient experiences with care, and, increasingly, outcomes.

CMS has implemented quality measure reporting programs for multiple settings of care. The Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program implements a quality reporting program for hospital inpatient services. In addition, CMS has implemented quality reporting programs for hospital outpatient services, the Hospital Outpatient Quality Data Reporting Program (HOP QDRP), and for physicians and other eligible professionals, the Physician Quality Reporting Initiative (PQRI). CMS has also implemented quality reporting programs for home health agencies and skilled nursing facilities that are based on conditions of participation, and an end-stage renal disease quality reporting program that is based on conditions for coverage.

b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108-173

Section 501(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108-173, added section 1886(b)(3)(B)(vii) of the Act. This section established the authority for the RHQDAPU program and revised the mechanism used to update the standardized payment amount for inpatient hospital operating costs. Specifically, section 1886(b)(3)(B)(vii)(I) of the Act, before it was amended by section 5001(a) of Public Law 109-171, provided for a reduction of 0.4 percentage points to the update percentage increase (also known as the market basket update) for FY 2005 through FY 2007 for any subsection (d) hospital that did not submit data on a set of 10 quality indicators established by the Secretary as of November 1, 2003. It also provides that any reduction would apply only to the fiscal year involved, and would not be taken into account in computing the applicable percentage increase for a subsequent fiscal year. The statute thereby established an incentive for IPPS hospitals to submit data on the quality measures established by the Secretary, and also built upon the previously established Voluntary Hospital Quality Data Reporting Program that we described in the FY 2009 IPPS final rule (73 FR 48598).

We implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005 IPPS final rule (69 FR 49078) and codified the applicable percentage change in § 412.64(d) of our regulations. We adopted additional requirements under the RHQDAPU program in the FY 2006 IPPS final rule (70 FR 47420).

c. Hospital Quality Data Reporting under Section 5001(a) of Public Law 109-171

Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public Law 109-171, further amended section 1886(b)(3)(B) of the Act to revise the mechanism used to update the standardized payment amount for hospital inpatient operating costs, in particular, by adding new section 1886(b)(3)(B)(viii) to the Act. Specifically, sections 1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment update for FY 2007 and each subsequent fiscal year be reduced by 2.0 percentage points for any subsection (d) hospital that does not submit quality data in a form and manner, and at a time, specified by the Secretary. Section 1886(b)(3)(B)(viii)(I) of the Act also provides that any reduction in a hospital's payment update will apply only with respect to the fiscal year involved, and will not be taken into account for computing the applicable percentage increase for a subsequent fiscal year. In the FY 2007 IPPS final rule (71 FR 48045), we amended our regulations at § 412.64(d)(2) to reflect the 2.0 percentage point reduction in the payment update for FY 2007 and subsequent fiscal years for subsection (d) hospitals that do not comply with requirements for reporting quality data, as provided for under section 1886(b)(3)(B)(viii) of the Act.

(1) Quality Measures

Section 1886(b)(3)(B)(viii)(III) of the Act requires that the Secretary expand the “starter set” of 10 quality measures that was established by the Secretary as of November 1, 2003, as the Secretary determines to be appropriate for the measurement of the quality of care furnished by a hospital in inpatient settings. In expanding this set of measures, section 1886(b)(3)(B)(viii)(IV) of the Act requires that, effective for payments beginning with FY 2007, the Secretary begin to adopt the baseline set of performance measures as set forth in a report issued by the Institute of Medicine (IOM) of the National Academy of Sciences under section 238(b) of Public Law 108-173.[6]

The IOM measures include: 21 Hospital Quality Alliance (HQA) quality measures (including the “starter set” of 10 quality measures); the Hospital Consumer Assessment of Health Providers and Systems (HCAHPS) patient experience of care survey; and 3 structural measures.[7] The structural measures are: (1) Adoption of computerized provider order entry for prescriptions; (2) staffing of intensive care units with intensivists; and (3) evidence-based hospital referrals. These structural measures constitute the Leapfrog Group's original “three leaps,” and are part of the National Quality Forum's (NQF's) 30 Safe Practices for Better Healthcare.

Section 1886(b)(3)(B)(viii)(V) of the Act requires that, effective for payments beginning with FY 2008, the Secretary add other quality measures that reflect consensus among affected parties, and to the extent feasible and practicable, have been set forth by one or more national consensus building entities. The NQF is a voluntary consensus standard-setting organization with a diverse representation of consumer, purchaser, provider, academic, clinical, and other health care stakeholder organizations. NQF was established to standardize health care quality measurement and reporting through its consensus development process. We have generally adopted NQF-endorsed Start Printed Page 24166measures. However, we believe that consensus among affected parties also can be reflected by other means, including, consensus achieved during the measure development process, consensus shown through broad acceptance and use of measures, and consensus through public comment.

Section 1886(b)(3)(B)(viii)(VI) of the Act authorizes the Secretary to replace any quality measures or indicators in appropriate cases, such as where all hospitals are effectively in compliance with a measure, or the measures or indicators have been subsequently shown to not represent the best clinical practice. Thus, the Secretary is granted broad discretion to replace measures that are no longer appropriate for the RHQDAPU program.

In the FY 2007 IPPS final rule, we began to expand the RHQDAPU program measures by adding 11 quality measures to the 10-measure starter set to establish an expanded set of 21 quality measures for the FY 2007 payment determination (71 FR 48033 through 48037, 48045).

In the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted six additional quality measures for the FY 2008 payment determination, for a total of 27 measures. Two of these measures (30-Day Risk Standardized Mortality Rates for Heart Failure and 30-Day Risk Standardized Mortality Rates for AMI) were calculated using existing administrative Medicare claims data; thus, no additional data submission by hospitals was required for these two measures. The measures used for the FY 2008 payment determination included, for the first time, the HCAHPS patient experience of care survey.

In the FY 2008 IPPS final rule (72 FR 47348 through 47358) and the CY 2008 OPPS/ASC final rule with comment period (72 FR 66875 through 66877), we added three additional process measures to the RHQDAPU program measure set. (These three measures are SCIP-Infection-4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose, SCIP-Infection-6: Surgery Patients with Appropriate Hair Removal, and Pneumonia 30-day mortality (Medicare patients).) The addition of these three measures brought the total number of RHQDAPU program measures to be used for the FY 2009 payment determination to 30 (72 FR 66876). The 30 measures used for the FY 2009 annual payment determination are listed in the FY 2009 IPPS final rule (73 FR 48600 through 48601).

For the FY 2010 payment determination, we added 15 new measures to the RHQDAPU program measure set and retired one. Of the new measures, 13 were adopted in the FY 2009 IPPS final rule (73 FR 48602 through 48611) and two additional measures were finalized in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68780 through 68781). This resulted in an expansion of the RHQDAPU program measures from 30 measures for the FY 2009 payment determination to 44 measures for the FY 2010 payment determination. The RHQDAPU program measures for the FY 2010 payment determination consist of: 26 chart-abstracted process measures, which measure care provided for Acute Myocardial Infarction (AMI), Heart Failure (HF), Pneumonia (PN), or Surgical Infection Prevention (SCIP); 6 claims-based measures, which evaluate 30-day mortality or 30-day readmission rates for AMI, HF, or PN; 9 AHRQ claims-based patient safety/inpatient quality indicator measures; 1 claims-based nursing sensitive measure; 1 structural measure that assesses participation in a systematic database for cardiac surgery; and the HCAHPS patient experience of care survey. The measures are listed below.

TopicRHQDAPU program quality measures for the FY 2010 payment determination
Acute Myocardial Infarction (AMI)
• AMI-1 Aspirin at arrival.
• AMI-2 Aspirin prescribed at discharge.
• AMI-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic dysfunction.
• AMI-4 Adult smoking cessation advice/counseling.
• AMI-5 Beta blocker prescribed at discharge.
• AMI-6 Beta blocker at arrival.
• AMI-7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival.
• AMI-8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
Heart Failure (HF)
• HF-1 Discharge instructions.
• HF-2 Left ventricular function assessment.
• HF-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic dysfunction.
• HF-4 Adult smoking cessation advice/counseling.
Pneumonia (PN)
• PN-2 Pneumococcal vaccination status.
• PN-3b Blood culture performed before first antibiotic received in hospital.
• PN-4 Adult smoking cessation advice/counseling.
• PN-5c Timing of receipt of initial antibiotic following hospital arrival.
• PN-6 Appropriate initial antibiotic selection.
• PN-7 Influenza vaccination status.
Surgical Care Improvement Project (SCIP)
• SCIP-1 Prophylactic antibiotic received within 1 hour prior to surgical incision.
• SCIP-3 Prophylactic antibiotics discontinued within 24 hours after surgery end time.
• SCIP-VTE-1: Venous thromboembolism (VTE) prophylaxis ordered for surgery patients.
• SCIP-VTE-2: VTE prophylaxis within 24 hours pre/post surgery.
• SCIP-Infection-2: Prophylactic antibiotic selection for surgical patients.
• SCIP-Infection-4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.
• SCIP-Infection-6: Surgery Patients with Appropriate Hair Removal.
• SCIP-Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to Arrival Who Received a Beta Blocker During the Perioperative Period.
Mortality Measures (Medicare Patients)
• MORT-30-AMI: Acute Myocardial Infarction 30-day mortality—Medicare patients.
Start Printed Page 24167
• MORT-30-HF: Heart Failure 30-day mortality—Medicare patients.
• MORT-30-PN: Pneumonia 30-day mortality—Medicare patients.
Patients' Experience of Care
• HCAHPS patient survey.
Readmission Measure (Medicare Patients)
• READ-30-HF: Heart Failure 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-PN: Pneumonia 30-Day Risk Standardized Readmission Measure (Medicare patients).
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures
• PSI 04: Death among surgical patients with treatable serious complications.
• PSI 06: Iatrogenic pneumothorax, adult.
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• Mortality for selected surgical procedures (composite).
• Complication/patient safety for selected indicators (composite).
• Mortality for selected medical conditions (composite).
Nursing Sensitive
• Failure to Rescue (Medicare claims only).
Cardiac Surgery
• Participation in a Systematic Database for Cardiac Surgery.

On December 31, 2008, CMS advised hospitals that they would no longer be required to submit data for the RHQDAPU program measure AMI-6 Beta blocker at arrival, beginning with discharges occurring on April 1, 2009. This change was based on the evolving evidence regarding AMI patient care, as well as changes in the American College of Cardiology/American Heart Association (ACC/AHA) practice guidelines for ST-segment elevation myocardial infarction and non-ST segment elevation myocardial infarction, upon which AMI-6 is based. The new guideline recommends that early intravenous beta-blockers specifically should be avoided in certain patient populations due to increased mortality risk. These patients are identified by a complex set of contraindications that we believe would make revision of the measure impractical and might result in unintended consequences, including harm to patients based on misinterpretation of an overly complex measure in the clinical setting. Based on the new studies, the ACC/AHA Task Force on Performance Measures removed this measure from the set of AMI performance measures as of November 10, 2008 and did not replace the measure. CMS took action to remove the measure from reporting initiatives based on the lack of support by the measure developer and the considerations identified above.

We discussed considerations relating to retiring or replacing measures in the FY 2008 final rule with comment period and the FY 2009 IPPS final rule, including the “topping out” of hospitals' performance under a measure (72 FR 47358-47359, and 73 FR 48603-48604). In this instance, however, the measure no longer “represent[s] the best clinical practice,” an additional basis under section 1886(b)(3)(B)(viii)(VI) of the Act for retiring a measure. For the FY 2010 payment determination and subsequent payment determinations, we have formally retired the AMI-6 measure from the RHQDAPU program. Therefore, hospitals participating in the RHQDAPU program are not required to submit data on the AMI-6 measure beginning with April 1, 2009 discharges. However, we are seeking public comment on the retirement of the AMI-6 measure.

(2) Maintenance of Technical Specifications for Quality Measures

The technical specifications for each RHQDAPU program measure are listed in the CMS/Joint Commission Specifications Manual for National Hospital Inpatient Quality Measures (Specifications Manual). This Specifications Manual is posted on the CMS QualityNet Web site at https://www.QualityNet.org/​. We maintain the technical specifications by updating this Specifications Manual semiannually, or more frequently in unusual cases, and include detailed instructions and calculation algorithms for hospitals to use when collecting and submitting data on required measures. We are inviting public comment on our process of notifying the public about the technical specifications for RHQDAPU program quality measures and whether it can be improved to enable more meaningful public comment on our proposed measures. We also are inviting public comment on whether the information posted on the https://www.QualityNet.org Web site—including the frequency with which this information is updated—provides hospitals enough information and time to implement the collection of data necessary for these required quality measures.

(3) Public Display of Quality Measures

Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the Secretary establish procedures for making quality data available to the public after ensuring that a hospital has the opportunity to review its data before these data are made public. Data from the RHQDAPU program are included on the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov. The RHQDAPU program includes process of care measures, risk adjusted outcome measures, the HCAHPS patient experience of care survey, and a structural measure regarding cardiac surgery registry participation. This Web site assists beneficiaries and the general public by providing information on hospital quality of care to consumers who need to select a hospital. It further serves to encourage consumers to work with their doctors and hospitals to Start Printed Page 24168discuss the quality of care hospitals provide to patients, thereby providing an additional incentive to hospitals to improve the quality of care that they furnish.

2. Retirement of RHQDAPU Program Measures

As stated above, we retired AMI-6 from the RHQDAPU program measure set on December 1, 2008 because we believed, based on new evidence, that the continued use of the measure raised specific patient safety concerns. In situations such as this, we do not believe that it is appropriate to wait for the annual rulemaking cycle. Rather, we propose to promptly retire the measure and notify hospitals and the public of the retirement of the measure and the reasons for its retirement through the usual hospital and QIO communication channels used for the RHQDAPU program, which include e-mail blasts to hospitals and the dissemination of Standard Data Processing System (SDPS) memoranda to QIOs, as well as posting the information on the QualityNet Web site. We propose to confirm the retirement of the measure in the next IPPS rulemaking. In other circumstances where we do not believe that continued use of a measure raises specific patient safety concerns, we intend to use the regular rulemaking process to retire a measure.

We are inviting public comment on whether any other RHQDAPU program measures should be retired from the RHQDAPU program, as well as on the criteria that should be used in retiring measures. To the extent that performance has improved because of the collection and public display of quality measures, we also are inviting public comment on how performance could be maintained on the topped out measures once they are retired. We note that many of the measures in the existing program have experienced improved performance rates over the years. On our Web site, http://www.cms.hhs.gov/​HospitalQualityInits/​, we have posted the performance rates for the existing measures over the years that they have been collected through the RHQDAPU program. However, thus far, only one measure, the pneumonia oxygenation assessment measure, has reached such a high level of compliance (nearly 100 percent for the vast majority of hospitals) that we retired the measure.

3. Quality Measures for the FY 2011 Payment Determination and Subsequent Years

a. Considerations in Expanding and Updating Quality Measures under the RHQDAPU Program

In the FY 2009 IPPS proposed rule, we solicited comments on several considerations related to expanding and updating quality measures, including how to reduce the burden on the hospitals participating in the RHQDAPU program and which approaches to measurement and collection would be most useful while minimizing burden (73 FR 23653 through 23654).

In the FY 2009 IPPS final rule, we responded to public comments we received on these issues (73 FR 48613 through 48616). We also stated that in future expansions and updates to the RHQDAPU program measure set, we would be taking into consideration several important goals. These goals include: (a) Expanding the types of measures beyond process of care measures to include an increased number of outcome measures, efficiency measures, and patients' experience-of-care measures; (b) expanding the scope of hospital services to which the measures apply; (c) considering the burden on hospitals in collecting chart-abstracted data; (d) harmonizing the measures used in the RHQDAPU program with other CMS quality programs to align incentives and promote coordinated efforts to improve quality; (e) seeking to use measures based on alternative sources of data that do not require chart abstraction or that utilize data already being reported by many hospitals, such as data that hospitals report to clinical data registries, or all-payer claims data bases; and (f) weighing the relevance and utility of the measures compared to the burden on hospitals in submitting data under the RHQDAPU program. Specifically, we give priority to quality measures that assess performance on: (a) Conditions that result in the greatest mortality and morbidity in the Medicare population; (b) conditions that are high volume and high cost for the Medicare program; and (c) conditions for which wide cost and treatment variations have been reported, despite established clinical guidelines. We have used and continue to use these criteria to guide our decisions regarding what measures to add to the RHQDAPU program measure set.

Although RHQDAPU program payment decisions were initially based solely on a hospital's submission of chart-abstracted quality measure data, in recent years we have adopted measures, including structural and claims-based quality measures that do not require a hospital to submit chart-abstracted clinical data. This supports our stated goal to expand the measures for the RHQDAPU program while minimizing the burden on hospitals and, in particular, without significantly increasing the chart abstraction burden.

In addition to claims-based measures, we are considering registries [8] and electronic health records (EHRs) as alternative ways to collect data from hospitals. Many hospitals submit data to and participate in existing registries. In addition, registries often capture outcome information and provide ongoing quality improvement feedback to registry participants. Instead of requiring hospitals to submit the same data to CMS that they are already submitting to registries, we believe that we could collect the data directly from the registries, thereby enabling us to expand the RHQDAPU program measure set without increasing the burden of data collection for those hospitals participating in the registries. Examples of registries actively used by hospitals include the Society of Thoracic Surgeons (STS) Cardiac Surgery Registry (with approximately 90 percent participation by cardiac surgery programs), the AHA Stroke Registry (with approximately 1200 hospitals participating), and the American Nursing Association (ANA) Nursing Sensitive Measures Registry (with approximately 1400 hospitals participating). In the FY 2009 IPPS final rule, we adopted the first RHQDAPU program measure related to registries: Participation in a Systematic Database for Cardiac Surgery. We continue to evaluate whether it is feasible to adopt measures that rely on one or more registries as a source for data collection.

We also stated our intention to explore mechanisms for data submission using EHRs (73 FR 48614). Establishing such a system will require interoperability between EHRs and CMS data collection systems, additional infrastructure development on the part of hospitals and CMS and the adoption of standards for the capturing, formatting, and transmission of data elements that make up the measures. However, once these activities are accomplished, the adoption of measures that rely on data obtained directly from EHRs will enable us to expand the RHQDAPU program measure set with less cost and burden to hospitals.Start Printed Page 24169

In the FY 2009 IPPS final rule, we adopted nine AHRQ measures for the RHQDAPU program. Although we stated that we would initially calculate the measures using Medicare claims data (73 FR 48608), we also stated that we remained interested in using all-payer claims data to calculate them and that we might propose to collect such data in the future. We invite input and suggestions on how all-payer claims data can be collected and used by CMS to calculate these measures, as well as on additional AHRQ measures that we should consider adopting for future RHQDAPU program payment determinations.

We continue to use these criteria to guide our decisions on what measures to propose for the RHQDAPU program measure set. Therefore, in commenting on the new quality measures we have proposed to include in future payment years and on measures to retire, we are inviting public comments on these criteria.

b. Proposed RHQDAPU Program Quality Measures for the FY 2011 Payment Determination

(1) Proposed Retention of Existing RHQDAPU Program Quality Measures

For the FY 2011 payment determination, we are proposing to retain the following RHQDAPU program quality measures that we are using for the FY 2010 payment determination:

TopicRHQDAPU program quality measures for FY 2010 payment determination proposed for FY 2011 payment determination
Acute Myocardial Infarction (AMI)• AMI-1 Aspirin at arrival.
• AMI-2 Aspirin prescribed at discharge.
• AMI-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic dysfunction.
• AMI-4 Adult smoking cessation advice/counseling.
• AMI-5 Beta blocker prescribed at discharge.
• AMI-7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival.
• AMI-8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
Heart Failure (HF)
• HF-1 Discharge instructions.
• HF-2 Left ventricular function assessment.
• HF-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic dysfunction.
• HF-4 Adult smoking cessation advice/counseling.
Pneumonia (PN)
• PN-2 Pneumococcal vaccination status.
• PN-3b Blood culture performed before first antibiotic received in hospital.
• PN-4 Adult smoking cessation advice/counseling.
• PN-5c Timing of receipt of initial antibiotic following hospital arrival.
• PN-6 Appropriate initial antibiotic selection.
• PN-7 Influenza vaccination status.
Surgical Care Improvement Project (SCIP)
• SCIP-1 Prophylactic antibiotic received within 1 hour prior to surgical incision.
• SCIP-3 Prophylactic antibiotics discontinued within 24 hours after surgery end time.
• SCIP-VTE-1: Venous thromboembolism (VTE) prophylaxis ordered for surgery patients.
• SCIP-VTE-2: VTE prophylaxis within 24 hours pre/post surgery.
• SCIP-Infection-2: Prophylactic antibiotic selection for surgical patients.
• SCIP-Infection-4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.
• SCIP-Infection-6: Surgery Patients with Appropriate Hair Removal.
• SCIP-Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to Arrival Who Received a Beta Blocker During the Perioperative Period.
Mortality Measures (Medicare Patients)
• MORT-30-AMI: Acute Myocardial Infarction 30-day mortality—Medicare patients.
• MORT-30-HF: Heart Failure 30-day mortality—Medicare patients.
• MORT-30-PN: Pneumonia 30-day mortality—Medicare patients.
Patients' Experience of Care
• HCAHPS patient survey.
Readmission Measure (Medicare Patients)
• READ-30-HF: Heart Failure 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-PN: Pneumonia 30-Day Risk Standardized Readmission Measure (Medicare patients).
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures.
• PSI 06: Iatrogenic pneumothorax, adult.
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• Mortality for selected surgical procedures (composite).
• Complication/patient safety for selected indicators (composite).
• Mortality for selected medical conditions (composite).
Cardiac Surgery
Start Printed Page 24170
• Participation in a Systematic Database for Cardiac Surgery.

As we discussed above, we retired AMI-6 Beta blocker at arrival from the RHQDAPU program measure set for the FY 2010 payment determination and subsequent years. In addition, as discussed below, we propose to harmonize two current RHQDAPU program measures for the FY 2011 payment determination: PSI 04: Death among surgical patients with treatable serious complications; and Nursing Sensitive—Failure to Rescue.

(2) NQF Harmonization of Two Existing RHQDAPU Program Measures

In May 2008, the NQF reviewed the specifications for two of the RHQDAPU program measures that we adopted for the FY 2010 payment determination: PSI 04-Death among surgical patients with treatable serious complications; and Nursing Sensitive—Failure to rescue (Medicare claims only). This was part of an NQF project titled “National Voluntary Consensus Standards for Hospital Care 2007: Performance Measures.” As a result of this project by the NQF, these two measures now have the same name: “Death among surgical inpatients with serious, treatable complications” and share a single set of measure specifications.

In order to maintain consistency with national voluntary consensus standards with respect to referencing the measure, we are proposing to combine PSI 04-Death among surgical patients with treatable serious complications; and Nursing Sensitive—Failure to rescue (Medicare claims only) into a single measure, Death among surgical inpatients with serious, treatable complications, and to list the measure under proposed topic name—AHRQ PSI and Nursing Sensitive Care. This measure, as well as its specifications, would replace, for purposes of hospital reporting, the two RHQDAPU program measures that we adopted for the FY 2010 payment determination: PSI 04: Death among surgical patients with treatable serious complications; and Nursing Sensitive—Failure to rescue (Medicare claims only). However, we may continue to publicly report the measure in two different topics areas on Hospital Compare—Nursing Sensitive Care and AHRQ PSIs, IQIs and Composite Measures. We are inviting public comment on this proposal.

(3) Proposed New Chart-Abstracted Measures

For the FY 2011 payment determination, we are proposing to add two new chart-abstracted measures. These proposed new measures, SCIP-Infection-9 Postoperative Urinary Catheter Removal on Post Operative Day 1 or 2, and SCIP-Infection-10: Perioperative Temperature Management, are additions to the existing SCIP measure set. The SCIP Infection measures are designed to assess practices that reduce the risk of infections that surgical patients could acquire in the hospital. They have high relevance to the Medicare population, and address the growing concern regarding hospital acquired infections.[9]

Although these two measures require that hospitals abstract data from medical records, they add to the scope of the existing SCIP measurement set. Hospitals currently collect and report data elements for eight SCIP measures. Additional data elements required for these two proposed new SCIP measures are minimal, and would be abstracted from the same records hospitals use to abstract data for the other SCIP measures. Therefore, we expect the additional burden on hospitals to be minimal. The two measures are NQF-endorsed. We are inviting public comment on our proposal to include SCIP-Infection-9 and SCIP-Infection-10 as RHQDAPU program measures to be used for the FY 2011 payment determination. The collection of new chart-abstracted measures for the FY 2011 payment determination would begin with 1st calendar quarter 2010 discharges, for which the submission deadline would be August 15, 2010.

(4) Proposed New Structural Measures

We also are proposing to adopt two additional structural measures for the FY 2011 payment determination. Structural measures assess the characteristics and capacity of the provider to deliver quality health care. We are proposing to add two additional registry participation measures. The two structural measures are: (1) Participation in a Systematic Clinical Database Registry for Stroke Care; and (2) Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care. These measures are specific applications for the inpatient setting of a structural measure entitled “Participation by a physician or other clinician in a systematic clinical database registry that includes consensus endorsed measures,” which received NQF endorsement under a project titled “National Voluntary Consensus Standards for Health IT: Structural Measures 2008.” The proposed measures are appropriate applications of the NQF-endorsed measure because the NQF has endorsed measures for Stroke Care and Nursing Sensitive Care which are currently being collected by widely used stroke and nursing sensitive care registries. Therefore, we believe that the proposed Stroke Registry Participation structural measure and Nursing Sensitive Care Registry Participation structural measure meet the consensus requirement in section 1886(b)(3)(B)(viii)(V) of the Act.

As we have previously stated, we also believe that participation in registries reflects a commitment to assessing the quality of care provided and identifying opportunities for improvement. Many registries also collect outcome data and provide feedback to hospitals about their performance. Moreover, registries offer a potential future data source from which we can collect quality data.

The Participation in a Systematic Clinical Database Registry for Stroke structural measure would require each hospital that participates in the RHQDAPU program to indicate whether it is participating in a systematic qualified clinical database registry for inpatient stroke care and, if so, to identify the registry.

The Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care structural measure would similarly require each hospital participating in the RHQDAPU program to indicate whether it is participating in a systematic qualified clinical database registry measuring nursing sensitive care quality for inpatient care and, if so, to identify the registry.

We are soliciting public comment on these registry structural measures. Specifically, we are inviting public comment on whether “systematic qualified clinical database registry” is adequately defined and, if not, how it should be defined. In defining Start Printed Page 24171“systematic qualified clinical database registry,” should registries that do not collect outcome measures and/or do not provide feedback to hospitals about their performance be excluded? Are there other registries that we should consider in future rulemakings, beyond stroke and nursing sensitive registries, particularly for conditions where there is high mortality/morbidity in the Medicare population, high cost to the health care system, and widespread treatment variations despite established clinical guidelines? Finally, we welcome more precise data on what percentage of hospitals already participate in a stroke registry or a nursing sensitive registry.[10] Because we also retire measures when performance has reached a sufficiently high level, we are inviting public comment on whether reporting on stroke registry and nursing sensitive care registry structural measures has sufficient relevance and utility to justify the reporting burden, if a substantial proportion of hospitals already participate in these registries.

Both proposed structural measures can be submitted using a Web-based collection tool that we will make available on the QualityNet Web site. We are inviting public comment on our proposal to adopt these two structural measures for the FY 2011 payment determination.

In summary, we are proposing for the FY 2011 payment determination to retain 41 of the measures we adopted for the FY 2010 payment determination. With respect to the other three measures we adopted for the FY 2010 payment determination, we retired AMI-6 Beta blocker at arrival measure and are proposing to harmonize an AHRQ measure and a Nursing Sensitive measure by combining these measures into a single measure entitled Death among surgical inpatients with serious, treatable complications. Finally, we are proposing to add four measures (two SCIP Infection measures and two structural measures) to the RHQDAPU program measure set. Set out below are the 46 RHQDAPU program quality measures proposed for the FY 2011 payment determination:

TopicProposed RHQDAPU program quality measures for the FY 2011 payment determination
Acute Myocardial Infarction (AMI)
• AMI-1 Aspirin at arrival.
• AMI-2 Aspirin prescribed at discharge.
• AMI-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic dysfunction.
• AMI-4 Adult smoking cessation advice/counseling.
• AMI-5 Beta blocker prescribed at discharge.
• AMI-7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival.
• AMI-8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
Heart Failure (HF)
• HF-1 Discharge instructions.
• HF-2 Left ventricular function assessment.
• HF-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic dysfunction.
• HF-4 Adult smoking cessation advice/counseling.
Pneumonia (PN)
• PN-2 Pneumococcal vaccination status.
• PN-3b Blood culture performed before first antibiotic received in hospital.
• PN-4 Adult smoking cessation advice/counseling.
• PN-5c Timing of receipt of initial antibiotic following hospital arrival.
• PN-6 Appropriate initial antibiotic selection.
• PN-7 Influenza vaccination status.
Surgical Care Improvement Project (SCIP)
• SCIP-1 Prophylactic antibiotic received within 1 hour prior to surgical incision.
• SCIP-3 Prophylactic antibiotics discontinued within 24 hours after surgery end time.
• SCIP-VTE-1: Venous thromboembolism (VTE) prophylaxis ordered for surgery patients.
• SCIP-VTE-2: VTE prophylaxis within 24 hours pre/post surgery.
• SCIP-Infection-2: Prophylactic antibiotic selection for surgical patients.
• SCIP-Infection-4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.
• SCIP-Infection-6: Surgery Patients with Appropriate Hair Removal.
• SCIP-Infection-9: Postoperative Urinary Catheter Removal on Post Operative Day 1 or 2.*
• SCIP-Infection-10: Perioperative Temperature Management.*
• SCIP-Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to Arrival Who Received a Beta Blocker During the Perioperative Period.
Mortality Measures (Medicare Patients)
• MORT-30-AMI: Acute Myocardial Infarction 30-day mortality—Medicare patients.
• MORT-30-HF: Heart Failure 30-day mortality—Medicare patients.
• MORT-30-PN: Pneumonia 30-day mortality—Medicare patients.
Patients' Experience of Care
• HCAHPS patient survey.
Readmission Measure (Medicare Patients)
• READ-30-HF: Heart Failure 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients).
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• READ-30-PN: Pneumonia 30-Day Risk Standardized Readmission Measure (Medicare patients).
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures.
• PSI 06: Iatrogenic pneumothorax, adult.
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• Mortality for selected surgical procedures (composite).
• Complication/patient safety for selected indicators (composite).
• Mortality for selected medical conditions (composite).
AHRQ PSI and Nursing Sensitive Care**
• Death among surgical inpatients with serious, treatable complications.
Cardiac Surgery
• Participation in a Systematic Database for Cardiac Surgery.
Stroke Care
• Participation in a Systematic Clinical Database Registry for Stroke Care.*
Nursing Sensitive Care
• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care.*
* Proposed new measure for FY 2011 payment determination.
** Proposed harmonized measure. This measure may be publicly reported under two topics—the AHRQ PSIs, IQIs, and Composite Measures topic and the Nursing Sensitive Care topic.

4. Possible New Quality Measures for the FY 2012 Payment Determination and Subsequent Years

We are inviting public comment on the following quality measures and topics that we might consider adopting beginning with the FY 2012 payment determination. We also are seeking suggestions and rationales to support the adoption of measures and topics for the RHQDAPU program that are not included in this list.

Measure topicMeasure description
AMIStatin at discharge.
ED—ThroughputMedian time from admit decision time to time of departure from the emergency department for emergency department patients admitted to inpatient status.
ED—ThroughputMedian time from emergency department arrival to time of departure from the emergency room for patients admitted to the facility from the emergency department.
ComplicationsLower Extremity Bypass Complications.
ComplicationsComorbidity Adjusted Complication Index.
PCIPCI mortality rate for patients without ST segment elevation myocardial infarction (STEMI) and without cardiogenic shock.
StrokePatients with an ischemic stroke or a hemorrhagic stroke and who are non-ambulatory should start receiving DVT prophylaxis by end of hospital day two.
StrokePatients with an ischemic stroke prescribed antithrombotic therapy at discharge.
StrokePatients with an ischemic stroke with atrial fibrillation discharged on anticoagulation therapy.
StrokeAcute ischemic stroke patients who arrive at the hospital within 120 minutes (2 hours) of time last known well and for whom IV t-PA was initiated at this hospital within 180 minutes (3 hours) of time last known well.
StrokePatients with ischemic stroke who receive antithrombotic therapy by the end of hospital day two.
StrokeIschemic stroke patients with LDL >/= 100 mg/dL, or LDL not measured, or, who were on cholesterol reducing therapy prior to hospitalization are discharged on a statin medication.
StrokePatients with ischemic or hemorrhagic stroke or their caregivers who were given education or educational materials during the hospital stay addressing all of the following: personal risk factors for stroke, warning signs for stroke, activation of emergency.
StrokePatients with an ischemic stroke or hemorrhagic stroke who were assessed for rehabilitation services.
VTEThis measure assesses the number of patients that receive VTE prophylaxis or have documentation why no VTE prophylaxis was given within 24 hours after the initial admission (or transfer) to the Intensive Care Unit (ICU) or surgery end time.
VTEPatients who received parenteral and warfarin therapy (overlap therapy):
(1) For at least 5 days, with an INR greater than or equal to 2 prior to discontinuation of parenteral therapy OR (2) For more than 5 days, with an INR less than 2, but were discharged on overlap therapy OR (3) Who were discharged in less than five days on overlap therapy.
VTEThis measure assesses the number of patients receiving intravenous (IV) UFH therapy with documentation that the dosages and platelet counts are monitored by protocol (or nomogram).
VTEThis measure assesses the number of VTE patients that are discharged home, home care, or home hospice on warfarin with written discharge instructions that addresses all four criteria: Follow-up Monitoring; Compliance Issues; Dietary Restrictions; and, Potential for Adverse Drug Reactions/Interactions.
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VTEThis measure assesses the number of patients that were diagnosed with VTE during hospitalization (not present at admission) that did not receive VTE prophylaxis.
Cardiac SurgeryPost-operative Renal Failure.
Cardiac SurgerySurgical Re-exploration.
Cardiac SurgeryAnti-Platelet Medication at Discharge.
Cardiac SurgeryBeta Blockade at Discharge.
Cardiac SurgeryAnti-Lipid Treatment Discharge.
Cardiac SurgeryRisk-Adjusted Operative Mortality for CABG.
Cardiac SurgeryRisk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR).
Cardiac SurgeryRisk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair (MVR).
Cardiac SurgeryRisk-Adjusted Operative Mortality MVR+CABG Surgery.
Cardiac SurgeryRisk-Adjusted Operative Mortality for AVR+CABG.
Cardiac SurgeryPre-Operative Beta Blockade.
Cardiac SurgeryDuration of Prophylaxis for Cardiac Surgery Patients.
Cardiac SurgeryProlonged Intubation (ventilation).
Cardiac SurgeryDeep Sternal Wound Infection Rate.
Cardiac SurgeryStroke/Cerebrovascular Accident.
Nursing SensitivePatient Falls: All documented falls with or without injury, experienced by patients on an eligible unit in a calendar month.
Nursing SensitiveFalls with Injury: All documented patient falls with an injury level of minor or greater.
Nursing Sensitive/HAICatheter Associated Urinary Tract Infection.
Nursing Sensitive/HAICentral Line Associated Blood Stream Infection in the ICU and high risk neonatal intensive care unit.
Nursing Sensitive/HAIVentilator Associated Pneumonia in the ICU.
Nursing SensitivePressure Ulcer Prevalence.
Nursing SensitiveRestraint Prevalence (vest and limb).
Nursing SensitiveSkill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/Agency.
Nursing SensitiveHours per patient day worked by RN, LPN, and UAP.
Nursing SensitivePractice Environment Scale-Nursing Work Index.
Nursing SensitiveVoluntary turnover for RN, APN, LPN, UAP.
OutcomesPSI 03: Decubitus Ulcer.
OutcomesPSI 07: Infection Due to Medical Care.
OutcomesPSI 08: Post Operative Hip Fracture.
OutcomesPSI 09: Post Operative Hemorrhage or Hematoma*.
OutcomesPSI 10: Post Operative Physiologic Metabolic Derangement*.
OutcomesPSI 11: Post Operative Respiratory Failure.
OutcomesPSI 12: Post Operative PE or DVT.
OutcomesPSI 13: Post Operative Sepsis.
OutcomesIQI 08: In-hospital Mortality for Esophageal Resection.
OutcomesIQI 09: In-hospital Mortality for Pancreatic Resection.
OutcomesIQI 12: In-hospital Mortality for CABG.
OutcomesIQI 13: In-hospital Mortality for Craniotomy*.
OutcomesIQI 14: In-hospital Mortality for Hip Replacement.
OutcomesIQI 15: In-hospital Mortality for AMI.
OutcomesIQI 16: In-hospital Mortality for CHF.
OutcomesIQI 17: In-hospital Mortality for Stroke.
OutcomesIQI 18: In-hospital Mortality for GI Hemorrhage*.
OutcomesIQI 20: In-hospital Mortality for Pneumonia.
SCIPShort Half-Life prophylactic administered preoperatively redosed within 4 hours after preoperative dose.
PCI ReadmissionHospital-specific 30-day risk-standardized readmission rate following Percutaneous Coronary Intervention (PCI) among patients aged 18 years or older.
PCI Mortality for STEMI/shock patients: Hospital-specific 30-day all-cause risk-standardized mortality rate following Percutaneous Coronary Intervention (PCI) among patients aged 18 years or older with ST segment elevation myocardial infarction (STEMI) or cardiogenic shock at the time of procedure.
PCI MortalityPCI Mortality for non-STEMI/non-shock patients: Hospital-specific 30-day all-cause risk-standardized mortality rate following Percutaneous Coronary Intervention (PCI) among patients aged 18 years or older without ST segment elevation myocardial infarction (STEMI) and without cardiogenic shock at the time of procedure.
ICD ComplicationsHospital-specific risk-standardized complication rate following implantable cardioverter defibrillator (ICD) implantation among patients aged 18 years or older.
Hospital Acquired InfectionsMethicillin-Resistant Staphylococcus Aureus (MRSA).
Hospital Acquired InfectionsClostridium Difficile Associated Diseases (CDAD).
* AHRQ is currently working with to improve and refine these measures, after which they will be updated to reflect the most current evidence learned as a result of validation efforts and empirical analyses.

We are inviting public comment on these measures for potential future use in the RHQDAPU program, as well as suggestions and supporting rationales for additional measures to consider using in the program at a future time.

5. Form, Manner, and Timing of Quality Data Submission

Section 1886(b)(3)(B)(viii)(I) of the Act requires that subsection (d) Start Printed Page 24174hospitals submit data on measures selected under that clause with respect to the applicable fiscal year. In addition, section 1886(b)(3)(B)(viii)(II) of the Act requires that each subsection (d) hospital submit data on measures selected under that clause to the Secretary in a form and manner, and at a time, specified by the Secretary. The data submission requirements, Specifications Manual, and submission deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org. CMS requires that hospitals submit data in accordance with the specifications for the appropriate discharge periods.

Hospitals submit quality data through the secure portion of the QualityNet Web site (formerly known as QualityNet Exchange) (http://www.QualityNet.org). This Web site meets or exceeds all current Health Insurance Portability and Accountability Act requirements for security of protected health information.

a. Proposed RHQDAPU Program Procedures for the FY 2011 Payment Determination

For the FY 2011 payment determination, we are proposing that the following procedures will apply to hospitals participating in the RHQDAPU program. These procedures are, for the most part, the same as the procedures that apply to the FY 2010 payment determination. We identify below where we have proposed to modify a procedure.

  • Register with QualityNet, before participating hospitals initially begin reporting data, regardless of the method used for submitting data.
  • Identify a QualityNet Administrator who follows the registration process located on the QualityNet Web site (http://www.qualitynet.org).
  • Notice of Participation. New subsection (d) hospitals and existing hospitals that wish to participate in the RHQDAPU program for the first time must complete a revised “Reporting Hospital Quality Data for Annual Payment Update Notice of Participation” form (Notice of Participation form) that includes the name and address of each hospital campus that shares the same CMS Certification Number (CCN).

We are proposing that any hospital that receives a new CCN on or after October 15, 2009 (including new subsection (d) hospitals and hospitals that have merged) that wishes to participate in the RHQDAPU program and has not otherwise submitted a Notice of Participation form using that CCN must submit a completed Notice of Participation form no later than 180 days from the date identified as the “open date” on the approved CMS Online System Certification and Reporting (OSCAR) system. We believe that this deadline will give these hospitals a sufficient amount of time to get their operations up and running while simultaneously providing CMS with clarity regarding whether they intend to participate in the RHQDAPU program for FY 2011.

We also are proposing that hospitals having an open date (as noted on the approved CMS OSCAR system) before October 15, 2009 that did not participate in the RHQDAPU program in FY 2010 but that wish to participate in the RHQDAPU program for the FY 2011 payment determination must submit a completed Notice of Participation form to CMS on or before December 31, 2009. These hospitals, unlike hospitals that receive a new CCN, do not need to get their operations up and running. Therefore, we believe this is a reasonable deadline that will enable these hospitals to decide whether they want to participate in the RHQDAPU program while also enabling CMS to collect enough data from them to make an accurate FY 2011 payment determination.

We note that under our current requirements, hospitals must begin submitting RHQDAPU program data starting with the first day of the quarter following the date when the hospital registers to participate in the program. For purposes of meeting this requirement, we interpret the registration date to be the date that the hospital submits a completed Notice of Participation form. As proposed previously in this section, hospitals must also register with QualityNet and identify a QualityNet Administrator who follows the QualityNet registration process before submitting RHQDAPU program data.

  • Collect and report data for each of the quality measures under the topic areas that require chart abstraction. For the FY 2011 payment determination, these topic areas are AMI, HF, PN, and SCIP. Hospitals must report these data by each quarterly deadline. Hospitals must submit the data to the QIO Clinical Warehouse using the CMS Abstraction & Reporting Tool (CART), The Joint Commission ORYX ® Core Measures Performance Measurement System, or another third-party vendor tool that meets the measurement specification requirements for data transmission to QualityNet. All submissions will be executed through My QualityNet, the secure part of the QualityNet Web site. Because the information in the QIO Clinical Warehouse is considered QIO information, it is subject to the stringent QIO confidentiality regulations in 42 CFR Part 480. The QIO Clinical Warehouse will submit the data to CMS on behalf of the hospitals.
  • Submit complete data for each quality measure that requires chart abstraction in accordance with the joint CMS/Joint Commission sampling requirements located on the QualityNet Web site. These requirements specify that hospitals must submit a random sample or complete population of cases for each of the topics covered by the quality measures. Hospitals must meet the sampling requirements for these quality measures for discharges in each quarter.
  • Submit to CMS on a quarterly basis aggregate population and sample size counts for Medicare and non-Medicare discharges for the topic areas for which chart-abstracted data must be submitted (currently AMI, HF, PN, and SCIP). However, in order to reduce the burden on hospitals that treat a low number of patients in a RHQDAPU program topic area, a hospital that has five or fewer discharges (Medicare and non-Medicare combined) in a topic area during a quarter in which data must be submitted is not required to submit patient-level data for that topic area for the quarter. The hospital must still submit its aggregate population and sample size counts for Medicare and non-Medicare discharges for the four topic areas each quarter. We also note that hospitals meeting the five or fewer patient discharge exception may voluntarily submit these data.
  • Continuously collect and submit HCAHPS data in accordance with the HCAHPS Quality Assurance Guidelines, V4.0 (the most current version of the guidelines), located at the Web site http://www.hcahpsonline.org. The QIO Clinical Warehouse will accept zero HCAHPS-eligible discharges. However, in order to reduce the burden on hospitals that treat a low number of patients that would be otherwise covered by the HCAHPS submission requirements, a hospital that has five or fewer HCAHPS-eligible discharges during a month is not required to submit HCAHPS surveys for that month. However, hospitals that meet this exception may voluntarily submit this data. The hospital must still submit its total number of HCAHPS-eligible cases for that month as part of its quarterly HCAHPS data submission.
  • The quarterly data submission deadline for hospitals to submit patient level data for the proposed measures that require chart abstraction is 41/2 months following the last discharge date in the calendar quarter. CMS will post the quarterly submission deadline Start Printed Page 24175schedule on the QualityNet Web site (http://www.QualityNet.org). The collection of new chart-abstracted measures for FY 2011 payment determination would begin with 1st calendar quarter 2010 discharges, for which the submission deadline would be August 15, 2010.
  • The data submission deadline for hospitals to submit aggregate population and sample size count data for the measures requiring chart abstraction is four months following the last discharge date in the calendar quarter. This requirement allows CMS to advise hospitals regarding their submission status in enough time for them to make appropriate revisions before the data submission deadline. We will post the aggregate population and sample size count data submission deadlines on the QualityNet Web site (http://www.QualityNet.org).

CMS strongly recommends that hospitals review the QIO Clinical Warehouse Feedback Reports and the RHQDAPU Program Provider Participation Reports that are available after patient level data are submitted to the QIO Clinical Warehouse. CMS generally updates these reports on a daily basis to provide accurate information to hospitals about their submissions. These reports enable hospitals to ensure that their data were submitted on time and accepted into the QIO Clinical Warehouse.

Hospitals are encouraged to regularly check the QualityNet Web site, http://www.QualityNet.org for program updates and information.

  • The following RHQDAPU program claims-based measures will be calculated using Medicare claims:
TopicFY 2011 Payment determination: proposed claims-based quality measures (no hospital data submission required)
Mortality Measures (Medicare Patients)
• MORT-30-AMI Acute Myocardial Infarction 30-day mortality—Medicare patients.
• MORT-30-HF Heart Failure 30-day mortality—Medicare patients.
• MORT-30-PN Pneumonia 30-day mortality—Medicare patients.
Readmission Measures (Medicare Patients)
• READ-30-HF Heart Failure (HF) 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-AMI Acute Myocardial Infarction (AMI) 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ-30-PN Pneumonia (PN) 30-Day Risk Standardized Readmission Measure (Medicare patients).
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures
• PSI 06: Iatrogenic pneumothorax, adult.
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• Mortality for selected surgical procedures (composite).
• Complication/patient safety for selected indicators (composite).
• Mortality for selected medical conditions (composite).
AHRQ Patient Safety Indicator (PSI) and Nursing Sensitive Care
• Death among surgical inpatients with serious, treatable complications.

For the claims-based RHQDAPU program measures listed in the table above, hospitals are not required to submit the data to the QIO Clinical Warehouse. CMS uses the existing Medicare fee-for-service claims to calculate the measures. For the FY 2011 payment determination, CMS will use three years of discharges from July 1, 2006 through June 30, 2009 for the 30-day mortality and 30-day readmission measures. For the AHRQ PSI, IQI and Composite measures (including the AHRQ PSI and Nursing Sensitive Care measure, Death among surgical inpatients with serious, treatable complications), we will use one year of claims from July 1, 2008 through June 30, 2009 to calculate these measures.

  • We are proposing that hospitals report the information needed to calculate the three proposed structural measures directly onto the QualityNet Web site on a quarterly basis starting with 1st calendar quarter 2010. The quarterly submission deadline for reporting these measures will be 41/2 months following the last date in the quarter covered by the data report. For example, the reporting deadline for these structural measures covering 1st calendar quarter 2010 is August 15, 2010. The 41/2 month lag between the end of the quarter and the reporting deadline is intended to provide hospitals with sufficient time to collect the information needed to accurately report the proposed structural measures, and aligns with the quarterly submission deadlines for the measures for which chart-abstraction is required.

The following is the list of three structural measures proposed for the FY 2011 payment determination:

TopicFY 2011 Payment determination: proposed structural measures
Cardiac Surgery
• Participation in a Systematic Database for Cardiac Surgery.
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Stroke Care
• Participation in a Systematic Clinical Database Registry for Stroke Care.
Nursing Sensitive Care
• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care.

We will add a link on the QualityNet Web site to the Web page(s) hospitals can use to report the proposed structural measures after we issue the FY 2010 IPPS final rule.

b. RHQDAPU Program Disaster Extensions and Waivers

We are soliciting public comment about rules we could adopt that would enable hospitals to request either an extension or a waiver of various RHQDAPU program requirements in the event of a disaster (such as a hurricane that damages or destroys the hospital).

Specifically, we welcome public comment on the following issues:

  • Recommendations for rules that we could follow when considering whether to grant an extension or waiver of RHQDAPU program requirements in the event of a disaster, including suggested criteria that we should take into account (for example, specific hospital infrastructure damage, hospital closure time period, degree of destruction of medical records, impact on data vendors, long-term evacuation of discharged patients impacting HCAHPS survey participation).
  • The role that QIOs and QIO support contractors should play in the event of a disaster, including communicating with affected hospitals, communicating with State hospital associations, and collecting information directly from hospitals.
  • How CMS extension or waiver decisions should be communicated to affected hospitals.
  • Any other issues commenters deem relevant to a hospital's request for an extension or waiver of RHQDAPU program requirements in the event of a disaster.

c. HCAHPS Requirements for the FY 2011 Payment Determination

We are proposing that, for the FY 2011 payment determination, the RHQDAPU program HCAHPS requirements we adopted for FY 2010 would continue to apply. Under these requirements, a hospital must continuously collect and submit HCAHPS data in accordance with the current HCAHPS Quality Assurance Guidelines and the quarterly data submission deadlines, both of which are posted at http://www.hcahpsonline.org. In order for a hospital to participate in the collection of HCAHPS data, a hospital must either: (1) Contract with an approved HCAHPS survey vendor that will conduct the survey and submit data on the hospital's behalf to the QIO Clinical Warehouse; or (2) self-administer the survey without using a survey vendor provided that the hospital attends HCAHPS training and meets Minimum Survey Requirements as specified on the Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors can be found on the HCAHPS Web site at: http://www.hcahpsonline.org.

Every hospital choosing to contract with a survey vendor should provide the sample frame of HCAHPS-eligible discharges to its survey vendor with su