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Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for Graduate Medical Education Payment

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Start Preamble Start Printed Page 51476

AGENCY:

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

ACTION:

Final rules.

SUMMARY:

We are revising 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 statutory provisions contained in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act) and other legislation. We also are setting forth the 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.

We are updating the payment policy and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implementing certain statutory changes made by the Affordable Care Act. In addition, we are finalizing an interim final rule with comment period that implements section 203 of the Medicare and Medicaid Extenders Act of 2010 relating to the treatment of teaching hospitals that are members of the same Medicare graduate medical education affiliated groups for the purpose of determining possible full-time equivalent (FTE) resident cap reductions.

DATES:

Effective dates: These final rules are effective on October 1, 2011, except for the provisions of § 412.230(d)(5), which are effective September 1, 2011. Effective July 29, 2011, the interim rule published March 14, 2011, at 76 FR 13515, is confirmed as final without change.

Applicability dates: The 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 is applicable beginning on or after October 1, 2011. The payment policy and the annual payment rates for inpatient hospital services provided by IPPS hospitals and by long-term care hospitals (LTCHs) and for implementing certain statutory changes made by the Affordable Care Act and other legislation are applicable to discharges occurring on or after October 1, 2011 unless otherwise specified in this final rule.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH), and Postacute Care Transfer Issues.

Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Bridget Dickensheets, (410) 786-8670, Rebasing and Revising of the Market Basket for LTCHs Issues.

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

James Poyer, (410) 786-2261, Inpatient Quality Reporting—Program Administration, Validation, and Reconsideration Issues.

Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues.

Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.

Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing Efficiency Measures Issues.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

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).

Tables Available Only Through the Internet on the CMS Web Site

In the past, a majority of the tables referred to throughout this preamble and in the Addendum to this final rule were published in the Federal Register as part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables will no longer be published as part of the annual IPPS and LTCH PPS proposed and final rules. Instead, these tables will be available only through the Internet. The IPPS tables for this final rule are available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/​AcuteInpatientPPS/​01_​overview.asp. Click on the link on the left side of the screen titled, “FY 2012 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2012 final rule are available only through the Internet on the CMS Web site at: http://www.cms.gov/​LongTermCareHospitalPPS/​LTCHPPSRN/​list.asp under the list item for Regulation Number CMS-1518-F. For complete details on the availability of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Nisha Bhat at (410) 786-4487.

Acronyms

3M 3M Health Information System

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 AssociationStart Printed Page 51477

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

CRNA Certified Registered Nurse Anesthetist

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

EDB [Medicare] Enrollment Database

EHR Electronic health record

EMR Electronic medical record

FAH Federation of Hospitals

FDA Food and Drug Administration

FFY Federal fiscal year

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

HICAN Health Insurance Claims Account Number

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

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

ICD-10-CM International Classification of Diseases, Tenth Revision, Clinical Modification

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

ICR Information collection requirement

IGI IHS Global Insight, Inc.

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

IQR Inpatient Quality Reporting

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

MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309

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

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

NTTAA National Technology Transfer and Advancement Act of 1991 (Pub. L. 104-113)

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

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PMSAs Primary metropolitan statistical areas

POA Present on admission

PPACA Patient Protection and Affordable Care Act, Public Law 111-148

PPI Producer price index

PPS Prospective payment system

PRM Provider Reimbursement Manual

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

PRTFs Psychiatric residential treatment facilities

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 ClassificationStart Printed Page 51478

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

UHDDS Uniform hospital discharge data set

Table of Contents

I. Background

A. Summary

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

2. Hospitals and Hospital Units Excluded From the IPPS

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 Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) Applicable to FY 2012

C. Issuance of a Notice of Proposed Rulemaking

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

4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs

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

6. Proposed Changes to the LTCH PPS

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

8. Determining Proposed Prospective Payments Rates for LTCHs

9. Impact Analysis

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

11. Discussion of Medicare Payment Advisory Commission Recommendations

D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS Proposed Rule

E. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes

II. 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. FY 2012 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 and FY 2009 Claims Data

5. Prospective Adjustment 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. Recoupment or Repayment 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. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years

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

a. Background

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

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

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

3. Summary of Policy Changes Made in FY 2011

4. Discussion for FY 2012

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

1. Background

a. Statutory Authority

b. HAC Selection

c. Collaborative Process

d. Application of HAC Payment Policy to MS-DRG Classifications

e. Public Input Regarding Selected and Potential Candidate HACs

f. POA Indicator Reporting

2. Additions and Revisions to the HAC Policy for FY 2012

a. Contrast-Induced Acute Kidney Injury

b. New Diagnosis Codes Added to Existing HACs

c. Revision to HAC Subcategory Title

d. Conclusion

3. RTI Program Evaluation Summary

a. Background

b. FY 2009 Data Analysis

c. FY 2010 Data Analysis

d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.

e. FY 2010 RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs

f. RTI Analysis of Circumstances When Application of HAC Provisions Would Not Result in MS-DRG Reassignment for Current HACs

g. RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs

h. RTI Analysis of Estimated Net Savings for Current HACs

i. Previously Considered Candidate HACs—RTI Analysis of Frequency of Discharges and POA Indicator Reporting

j. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

k. Final Policy Regarding Current HACs and Previously Considered Candidate HACs

G. Changes to Specific MS-DRG Classifications

1. Pre-Major Diagnostic Categories (Pre-MDCs)

a. Noninvasive Mechanical Ventilation

b. Debridement With Mechanical Ventilation Greater Than 96 Hours With Major Operating Room (O.R.) Procedure

c. Autologous Bone Marrow Transplant

2. MDC 1 (Diseases and Disorders of the Nervous System): Rechargeable Dual Array Deep Brain Stimulation System

3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat): Skull Based Surgeries

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

a. Percutaneous Mitral Valve Repair With Implant

b. Aneurysm Repair Procedure Codes

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

a. Artificial Discs

b. Major Joint Replacement or Reattachment of Lower Extremities

c. Combined Anterior/Posterior Spinal Fusion

6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and Breast): Excisional Debridement of Wound, Infection, or Burn

7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders)

a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles

b. Sleeve Gastrectomy Procedure for Morbid Obesity

8. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period): Discharge Status Code 66 (Discharged/Transferred to Critical Access Hospital (CAH))

9. Medicare Code Editor (MCE) Changes

10. Surgical Hierarchies

11. Complications or Comorbidity (CC) Exclusions List

a. Background

b. CC Exclusions List for FY 2012

12. 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 Into 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

13. Changes to the ICD-9-CM Coding System, Including Discussion of the Start Printed Page 51479Replacement of the ICD-9-CM System With the ICD-10-CM and ICD-10-PCS Systems in FY 2014

a. ICD-9-CM Coding System

b. Code Freeze

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient Claims

d. ICD-10 MS-DRGs

14. Other Issues

a. O.R./Non-O.R. Status of Procedures

b. IPPS Recalled Device Policy Clarification

15. Public Comments on Issues Not Addressed in Proposed Rule

H. Recalibration of MS-DRG Weights

I. 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 2012 Status of Technologies Approved for FY 2011 Add-On Payments

a. Spiration® IBV Valve System

b. Cardio WestTM Temporary Artificial Heart System (Cardio WestTM TAH-t)

c. Auto Laser Interstitial Thermal Therapy (AutoLITTTM) System

4. FY 2012 Applications for New Technology Add-On Payments

a. AxiaLIF® 2L+TM System

b. PerfectCLEAN with Micrillon®

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

A. Background

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

C. Occupational Mix Adjustment to the FY 2012 Wage Index

1. Development of Data for the FY 2012 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey

2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index

3. Calculation of the Occupational Mix Adjustment for FY 2012

D. Worksheet S-3 Wage Data for the FY 2012 Wage Index

1. Included Categories of Costs

2. Changes to the Reporting Requirements for Pension Costs for the Medicare Wage Index

a. Background

b. Allowable Pension Cost for the Medicare Wage Index

3. Excluded Categories of Costs

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

E. Verification of Worksheet S-3 Wage Data

F. Method for Computing the FY 2012 Unadjusted Wage Index

1. Steps for Computation

2. Imputed Floor Policy

3. FY 2012 Puerto Rico Wage Index

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2012 Occupational Mix Adjusted Wage Index

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General

2. Effects of Reclassification/Redesignation

3. FY 2012 MGCRB Reclassifications

a. FY 2012 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2013

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

7. Waiving Lugar Redesignation for the Out-Migration Adjustment

8. Other Geographic Reclassification Issues

a. Requested Reclassification for Single Hospital MSAs

b. Requests for Exceptions to Geographic Reclassification Rules

I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Process for Requests for Wage Index Data Corrections

K. Labor-Related Share for the FY 2012 Wage Index

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

A. Hospital Inpatient Quality Reporting Program

1. Background

a. Overview

b. Statutory History and History of Measures Adopted for the Hospital IQR Program

c. Maintenance of Technical Specifications for Quality Measures

d. Public Display of Quality Measures

2. Retirement of Hospital IQR Program Measures

a. Considerations in Retiring Quality Measures from the Hospital IQR Program

b. Retirement of Hospital IQR Program Measures for the FY 2014 Payment Determination and Subsequent Years

3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment Determinations

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

b. Hospital IQR Program Measures for the FY 2014 Hospital IQR Payment Determination

c. Hospital IQR Program Quality Measures for the FY 2015 Payment Determination

4. Possible New Quality Measures and Measure Topics for Future Years

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

a. Background

b. Procedural Requirements for the FY 2012 Payment Determinations and Subsequent Years

c. Procedural Requirements for FY 2013 and Subsequent Years

d. Data Submission Requirements for Chart-Abstracted Measures

e. Sampling and Case Thresholds Beginning With the FY 2015 Payment Determination

f. HCAHPS Requirements for the FY 2013, FY 2014, and FY 2015 Payment Determinations

g. Procedures for Claims-Based Measures

h. Data Submission Requirements for Structural Measures

i. Data Submission and Reporting Requirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

6. Chart Validation Requirements for Chart-Abstracted Measures

a. Changes to the Chart Validation Requirements and Methods for the FY 2012 Payment Determination and Subsequent Years

b. Supplements to the Chart Validation Process for the FY 2014 Payment Determination and Subsequent Years

7. QIO Regulation Changes for Provider Medical Record Deadlines Possibly Including Serious Reportable Events

8. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2012 Payment Determination and Subsequent Years

9. Public Display Requirements for the FY 2014 Payment Determination and Subsequent Years

10. Reconsideration and Appeal Procedures for the FY 2012 Payment Determination

11. Hospital IQR Program Disaster Waivers

12. Electronic Health Records (EHRs)

a. Background

b. HITECH Act EHR Provisions

B. Hospital Value-Based Purchasing (VBP) Program

1. Background

2. Overview of the Hospital VBP Program Proposed Rule

3. FY 2014 Hospital VBP Program Measures

a. Background

b. Efficiency Measure—Medicare Spending per Beneficiary Measure—for the FY 2014 Hospital VBP Program

4. Efficiency Domain (Medicare Spending per Beneficiary Measure) Performance Period and Baseline Period

5. Simultaneous Specification of Additional Measures for the Hospital VBP Program and the Hospital IQR Program

6. Responses to Additional Hospital VBP Program Comments

C. Hospital Readmissions Reduction Program

1. Background

a. Overview

b. Statutory Basis for the Hospital Readmissions Reduction Program

2. Implementation of the Hospital Readmissions Reduction Program

a. Overview

b. Provisions in the FY 2012 IPPS/LTCH PPS Rulemaking

c. Provisions to be Included in the FY 2013 IPPS/LTCH PPS Proposed Rule

d. Expansion of the Applicable Conditions To Be Included in the Future Rulemaking

3. Provisions of the Hospital Readmissions Reduction Program

a. Applicable Conditions for FY 2013 Hospital Readmissions Reduction Program

b. Definition of “Readmissions”

c. Readmission Measures and Related Methodology

D. Rural Referral Centers (RRCs) (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

E. Payment Adjustment for Low-Volume Hospitals (§ 412.101)Start Printed Page 51480

1. Background

2. Temporary Changes for FYs 2011 and 2012

3. Discharge Data Source Used to Identify Qualifying Low-Volume Hospitals and Calculate the Payment Adjustment (Percentage Increase) for FY 2012

F. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2012

G. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME) (§§ 412.105 and 412.106)

1. Background

2. Policy Change Relating to the Exclusion of Hospice Beds and Patient Days From the Calculation of the Medicare DSH Payment Adjustment and the IME Payment Adjustment

a. Background

b. Hospice Inpatient Services

H. Medicare-Dependent, Small Rural Hospitals (MDHs) (§ 412.108)

1. Background

2. Extension of the MDH Program

I. Certified Register Nurse Anesthetists (CRNA) Services Furnished in Rural Hospitals and CAHs (§ 412.113)

J. Additional Payments for Qualifying Hospitals With Lowest per Enrollee Medicare Spending

1. Background

2. Method for Identifying Qualifying Hospitals and Eligible Counties

3. Determination of Annual Payment Amounts

4. Eligible Counties and Qualifying Hospitals

5. Payment Determination and Distributions for FY 2011 and FY 2012

K. Changes in the Inpatient Hospital Update

1. FY 2012 Inpatient Hospital Update

2. FY 2012 Puerto Rico Hospital Update

3. Productivity Adjustment

L. Additional Payments to Hospitals With High Percentage of End-Stage Renal Disease (ESRD) Discharges (§ 412.104)

M. Changes to the Reporting Requirements for Pension Costs for Medicare Cost-Finding Purposes

1. Background

2. Allowable Defined Benefit Pension Plan Cost for Medicare Cost-Finding Purposes

N. Rural Community Hospital Demonstration Program

1. Background

2. Changes to the Demonstration Program Made by the Affordable Care Act

3. FY 2012 Budget Neutrality Adjustment

a. Component of the FY 2012 Budget Neutrality Adjustment that Accounts for Estimated Demonstration Program Costs of the “Pre-Expansion” Participating Hospitals

b. Portion of the FY 2012 Budget Neutrality Adjustment That Accounts for Estimated FY 2012 Demonstration Program Costs for Hospitals Newly Selected to Participate in the Demonstration Program

c. Portion of the FY 2012 Budget Neutrality Adjustment to Offset the Amount by Which the Costs of the Demonstration Program in FYs 2007 and 2008 Exceeded the Amount That Was Identified in the FYs 2007 and 2008 IPPS Final Rules as the Budget Neutrality Offset for FYs 2007 and 2008

O. Bundling of Payments for Services Provided to Outpatients Who Later Are Admitted as Inpatients: 3-Day Payment Window

1. Background

2. Establishment of Condition Code 51 (Attestation of Unrelated Outpatient Nondiagnostic Services)

3. Applicability of the Payment Window Policy to Services Furnished at Physicians' Practices

P. Changes to MS-DRGs Subject to the Postacute Care Transfer Policy

1. Background

2. Changes to the Postacute Care Transfer MS-DRGs

Q. Hospital Services Furnished Under Arrangements

R. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Purposes

1. Background and Provisions of the Interim Final Rule With Comment Period

a. Statutory Authority

b. Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of the Affordable Care Act

c. Treatment of Affiliated Groups Under Section 5503 of the Affordable Care Act

d. Section 203 of the Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309)

2. Summary of the Provisions of the Interim Final Rule With Comment Period

3. Summary of Public Comments, Departmental Responses, and Statements of Final Policies

a. Summary of Public Comments and Departmental Responses

b. Final Policies

4. Collection of Information Requirements

5. Regulatory Impact Statement

a. Statement of Need

b. Overall Impact

c. Anticipated Effects

d. Alternatives Considered

e. Conclusion

6. Comment on Issues Outside of the Scope of the Interim Final Rule With Comment Period

V. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Exception Payments

C. New Hospitals

D. Hospitals Located in Puerto Rico

E. Changes for FY 2012: MS-DRG Documentation and Coding Adjustment

1. Background

2. Prospsective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2012 and Subsequent Years

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

F. Other Proposed Changes for FY 2012

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

B. Critical Access Hospital (CAH) Payment for Ambulance Services

1. Background

2. Requirement for CAH Ambulance Within a 35-Mile Location of a CAH or Entity

C. Report of Adjustment (Exceptions) Payments

VII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2012

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. 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. Changes to the MS-LTC-DRGs for FY 2012

3. Development of the FY 2012 MS-LTC-DRG Relative Weights

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

b. Development of the MS-LTC-DRG Relative Weights for FY 2012

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

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

f. Low-Volume MS-LTC-DRGs

g. Steps for Determining the Proposed FY 2012 MS-LTC-DRG Relative Weights

C. Quality Reporting Program for LTCHs

1. Background and Statutory Authority

2. Quality Measures for the LTCH Quality Reporting Program for FY 2014

a. Considerations in the Selection of the Quality Measures

b. LTCH Quality Measures for FY 2014 Payment Determination

3. Possible LTCH Quality Measures Under Consideration for Future Years

4. Data Submission Methods and Timelines

a. Method of Data Submission for HAIs

b. Timeline for Data Reporting Related to HAIs

c. Method of Data Collection and Submission for the Pressure Ulcer Measure Data

d. Timeline for Data Reporting Related to Pressure Ulcers

5. Public Reporting and Availability of Data Submitted

D. Rebasing and Revising of the Market Basket Used Under the LTCH PPS

1. Background

2. Overview of the FY 2008-Based RPL Market Basket

3. Rebasing and Revising of the RPL Market Basket

a. Development of Cost CategoriesStart Printed Page 51481

b. Final Cost Category Computation

c. Selection of Price Proxies

d. Methodology for Capital Portion of the RPL Market Basket

e. FY 2012 Market Basket Update for LTCHs

f. Labor-Related Share

E. Changes to the LTCH Payment Rates and Other Changes to the FY 2012 LTCH PPS

1. Overview of Development of the LTCH Payment Rates

2. FY 2012 LTCH PPS Annual Market Basket Update

a. Overview

b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act

c. Market Basket Under the LTCH PPS for FY 2012

d. Productivity Adjustment

e. Annual Market Basket Update for LTCHs for FY 2012

3. Budget Neutrality Adjustment for the Changes to the Area Wage Level Adjustment

4. Greater Than 25 Day Average Length of Stay Requirement for LTCHs

a. Determining the Average Length of Stay When There is a Change of Ownership

b. Inclusion of Medicare Advantage (MA) Days in the Average Length of Stay Calculation

F. Application of LTCH Moratorium on the Increase in Beds at Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH Satellite Facilities Established or Classified as Such Under Section 114(d)(2) of Public Law 110-173

VIII. MedPAC Recommendations

IX. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

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

3. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program

4. ICRs for the Occupational Mix Adjustment to the FY 2012 Index (Hospital Wage Index Occupational Mix Survey)

5. Hospital Applications for Geographic Reclassifications by the MGCRB

6. ICRs for the Quality Reporting Program for LTCHs

Regulation Text

Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2011

I. Summary and Background

II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2012

A. Calculation of the Adjusted Standardized Amount

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

C. MS-DRG Relative Weights

D. Calculation of the Prospective Payment Rates

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2012

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

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2012

C. Capital Input Price Index

IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages for FY 2012

V. Changes to the Payment Rates for the LTCH PPS for FY 2012

A. LTCH PPS Standard Federal Rate for FY 2012

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2012

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

D. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2012

VI. Tables Referenced in This Final Rulemaking and Available Through the Internet on the CMS Web Site

Appendix A—Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

B. Need

C. Objectives of the IPPS

D. Limitations of Our Analysis for the IPPS

E. Hospitals Included in and Excluded From the IPPS

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

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

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Policy Changes

1. Effects of Policy on HACs, Including Infections

2. Effects of Policy Changes Relating to New Medical Service and Technology Add-On Payments

3. Effects of Requirements for Hospital Inpatient Quality Reporting (IQR) Program

4. Effects of Additional Hospital Value-Based Purchasing (VBP) Program Requirements

5. Effects of Requirements for Hospital Readmissions Reduction Program

6. Effects of Policy Changes Relating to Payment Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME)

7. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment

8. Effects of Changes Relating to MDHs

9. Effects of Policy Relating to CRNA Services Furnished in Rural Hospitals and CAHs

10. Effects of Changes Relating to ESRD Add-On Payment

11. Effects of Changes Relating to the Reporting Requirements for Pension Costs for Medicare Cost-Finding and Wage Reporting Purposes

12. Effects of Implementation of Rural Community Hospital Demonstration Program

13. Effects of Changes to List of MS-DRGs Subject to the Postacute Care Transfer and DRG Special Pay Policy

14. Effects of Changes Relating to Hospital Services Furnished Under Arrangements

15. Effects of Change Relating to CAH Payment for Ambulance Services

16. Effects of Finalization of Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes

I. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

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

1. Introduction and General Considerations

2. Impact on Rural Hospitals

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

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

K. Alternatives Considered

L. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

M. Accounting Statements and Tables

1. Acute Care Hospitals

2. LTCHs

II. Regulatory Flexibility Act (RFA) Analysis

III. Unfunded Mandate Reform Act (UMRA) Analysis

IV. 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 2012

A. Final FY 2012 Inpatient Hospital Update

B. Final Update for SCHs and MDHs for FY 2012

C. Final FY 2012 Puerto Rico Hospital Update

D. Final Update for Hospitals Excluded From the IPPS

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 Start Printed Page 51482into 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 certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies 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, which is determined from 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, 2012, 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 not 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. 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, Public Law 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 annual updates to the LTCH PPS are now included as part of the IPPS annual update document. 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 (as codified under section 1886(m)(1) of the Act). 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 cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. Beginning Start Printed Page 51483October 1, 2009, we issue 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 Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) Applicable to FY 2012

The Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.”) A number of the provisions of the Affordable Care Act affect the updates to the IPPS and the LTCH PPS and providers and suppliers. The provisions of the Affordable Care Act that were applicable to the IPPS and the LTCH PPS for FYs 2010 and 2011 were implemented in the following documents:

On June 2, 2010, we issued in the Federal Register a notice (75 FR 31118) that contained the final wage indices, hospital reclassifications, payment rates, impacts, and other related tables, effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, which were required by or directly resulted from implementation of provisions of the Affordable Care Act.

On August 16, 2010, we issued in the Federal Register a final rule (75 FR 50042) that implemented provisions of the Affordable Care Act applicable to the IPPS and LTCH/PPS for FY 2011.

In this final rule, we are implementing the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS and LTCH PPS for FY 2012:

  • Section 3001 of Public Law 111-148, which provides for establishment of a hospital value-based purchasing program and applicable measures for value-based incentive payments with respect to discharges occurring during FY 2013.
  • Section 3004 of Public Law 111-148, which provides for the submission of quality data for LTCHs beginning in FY 2013 in order to receive the full annual update to the payment rates beginning with FY 2014 and the establishment of quality data measures by FY 2012 for the FY 2014 payment determination.
  • Section 3025 of Public Law 111-148, which provides for a hospital readmissions reduction program and related quality data reporting measures.
  • Section 3124 of Public Law 111-148, which provides for extension of the Medicare-dependent, small rural hospital (MDH) program through FY 2012.
  • Section 3401 of Public Law 111-148, which provides for the incorporation of productivity improvements into the market basket updates for IPPS hospitals and LTCHs.

In addition, we are continuing in FY 2012 to implement the following provisions, which were initiated in FY 2011:

  • Section 10324 of Public Law 111-148, which provided for a wage adjustment for hospitals located in frontier States.
  • Sections 3401 and 10319 of Public Law 111-148 and section 1105 of Public Law 111-152, which revise certain market basket update percentages for IPPS and LTCH PPS payment rates for FY 2012.
  • Sections 3125 and 10314 of Public Law 111-148, which provide for temporary percentage increases in payment adjustments to low-volume hospitals for discharges occurring in FY 2012.
  • Section 1109 of Public Law 111-152, which provides for additional payments in FY 2012 for qualifying hospitals in the lowest quartile of per capita Medicare spending.
  • Section 5503 of Public Law 111-148, as amended by Public Law 111-152 and section 203 of Public Law 111-309, which provides for the reduction in FTE resident caps for direct GME under Medicare for certain hospitals, and to authorize the “redistribution” of the estimated number of FTE resident slots to other qualified hospitals. In addition, section 5503 requires the application of these provisions to IME in the same manner as the FTE resident caps for direct GME.

C. Issuance of a Notice of Proposed Rulemaking

The May 5, 2011 Federal Register (76 FR 25788) included the proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2012. We also set forth proposed changes relating to payments for IME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2012.

Below is a summary of the major changes that we proposed to make:

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

In section II. of the preamble of the proposed rule, we included—

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2012 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle Institute, International (RTI) reports and recommendations relating to charge compression.
  • Proposed recalibrations of the MS-DRG relative weights.
  • Proposed changes to hospital-acquired conditions (HACs) and a listing and discussion of HACs, including infections, that would be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2012.

We discussed the FY 2012 status of new technologies approved for add-on payments for FY 2011 and presented our evaluation and analysis of the FY 2012 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Public Law 108-173, obtained in a town hall meeting).Start Printed Page 51484

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

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

  • The proposed FY 2012 wage index update using wage data from cost reporting periods beginning in FY 2008.
  • Analysis and implementation of the proposed FY 2012 occupational mix adjustment to the wage index for acute care hospitals, including discussion of the 2010 occupational mix survey.
  • A proposal to change the reporting requirements for pension costs for the Medicare wage index.
  • 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 2012 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 2012 hospital wage index.
  • Determination of the labor-related share for the proposed FY 2012 wage index.

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

In section IV. of the preamble of the proposed rule, we discussed a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 476, including the following:

  • The reporting of hospital quality data under the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full annual payment update increase.
  • The proposed implementation of the Hospital Value-Based Purchasing Program measures.
  • The proposed establishment of hospital readmission measures for reporting of hospital quality data.
  • 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 2012.
  • Proposed payment adjustment for low-volume hospitals.
  • Proposal for counting hospice days in the formula for determining the payment adjustment for disproportionate share hospitals.
  • Proposal for making additional payments for qualifying hospitals with lowest per enrollee Medicare spending for FY 2012.
  • Proposal to clarify ESRD add-on payment requirements based on cost report requirements.
  • Proposal relating to changes to the reporting requirements for pension costs for Medicare cost-finding purposes.
  • Proposal to implement statutory change to the hospital payment update, including incorporation of a productivity adjustment.
  • Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
  • Discussion of August 2010 interim final rule with comment period and further proposed changes relating to the 3-day payment window for payments for services provided to outpatients who are later admitted as inpatients.

4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2012 and the proposed MS-DRG documentation and coding adjustment for FY 2012.

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

In section VI. of the preamble of the proposed rule, we discussed proposed changes to payments to certain excluded hospitals. In addition, we discussed proposed changes relating to payment for TEFRA services furnished under arrangements and payment for ambulance services furnished by CAH-owned and operated entities.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2012, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2012 and the proposed rebasing and revising of the market basket for LTCHs. In addition, we set forth proposals for implementing the quality data reporting program for LTCHs. We also proposed to clarify two policies regarding the calculation of the average length of stay requirement for LTCHs, and proposed a policy to address a LTCH moratorium issue.

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

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2012 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also proposed to establish the threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2012 for certain hospitals excluded from the IPPS.

8. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2012 prospective standard Federal rate. We also proposed to 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.

9. Impact Analysis

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

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

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2012 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.

11. 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 Start Printed Page 51485and makes recommendations on Medicare payment policies. MedPAC's March 2011 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. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2011 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.

D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS Proposed Rule

We received approximately 385 timely pieces of correspondence containing multiple comments on the FY 2012 IPPS/LTCH PPS proposed rule. We note that some of these public comments were outside of the scope of the proposed rule. These out-of-scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those comments are set forth in the various sections of this final rule under the appropriate heading.

E. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes

On March 14, 2011, we issued in the Federal Register (76 FR 13515) an interim final rule with comment period to implement section 203 of the Medicare and Medicaid Extenders Act of 2010 (MMEA), Public Law 111-309, relating to the treatment of teaching hospitals that are members of the same Medicare graduate medical education (GME) affiliated groups for the purpose of determining possible full-time equivalent (FTE) resident cap reductions. We received nine timely pieces of correspondence in response this interim final rule with comment period. In section IV.R. of this document, we are summarizing and responding to these public comments and are finalizing the policies contained in the interim final rule with comment period without modification.

II. 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, Medicare pays 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. (We refer readers to section II.G.11.c. of this final rule for a discussion of our efforts to increase our internal systems capacity to process diagnosis and procedures on hospital claims to 25 diagnosis codes and 25 procedure codes prior to the use of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure coding, effective October 1, 2013.) 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) prior to October 1, 2013. We refer readers to section II.G.11.b. of this final rule for a reference to the replacement of ICD-9-CM, Volumes 1 and 2, including the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and ICD-10-PCS Guidelines for Coding and Reporting, effective October 1, 2013 (FY 2014).

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 Start Printed Page 51486accordance 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 2012, cases will be assigned to one of 751 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.

Major Diagnostic Categories

[MDCs]

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

In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 28.0), 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 Start Printed Page 51487assignment 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 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 41499 and 41500), we discussed a process for considering non-MedPAR data in the recalibration process. We stated that for use of non-MedPAR data to be feasible for purposes of DRG recalibration and reclassification, the data must, among other things: (1) Be independently verified; (2) reflect a complete set of cases (or a representative sample of cases); and (3) enable us to calculate appropriate DRG relative weights and ensure that cases are classified to the “correct” DRG, and to one DRG only, in the recalibration process. Further, 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 depend upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete non-MedPAR 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 2012 proposed rule was based on data from the September 2010 update of the FY 2010 MedPAR file, which contained hospital bills received through September 30, 2010, for discharges occurring through September 30, 2010. For this FY 2012 final rule, our MS-DRG analysis is based on data from the March 2011 update of the FY 2010 MedPAR file, which contained hospital bills received through March 31, 2011, for discharges occurring through September 30, 2010.

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 Start Printed Page 51488of 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 public commenters regarding the proposal to adopt CS DRGs. We acknowledged the many public 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 and our actions for FYs 2008, 2009, 2010, and 2011, and our proposed and final actions for FY 2012 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2012 in other sections of this preamble and in the Addendum to this final 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 reports 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 the extent, if any, to which 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 final rule for a discussion of the issue of charge compression and the cost-weighting methodology for FY 2012.

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 2012 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 Start Printed Page 51489on severity levels of illness (72 FR 47141).

D. FY 2012 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, there are 751 MS-DRGs, which include 4 additional MS-DRGs that we are adopting for FY 2012.) By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that 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 provided for phasing 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 adjustment 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, in the case of underpayments) 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 and FY 2009 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 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 Start Printed Page 51490data 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 of illness 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 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 patient severity of illness.

A few commenters, including MedPAC, expressed support for the analytic 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, and in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092 through 24101), we solicited public comment on our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries 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 the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we updated this analysis with FY 2008 data for claims paid through March 2009, and we noted that the estimates for all IPPS remained essentially the same to those in the proposed rule (42 FR 43770, 43775). Also, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772), we responded to comments on our methodology for the retrospective evaluation of FY 2008 claims data. We refer readers to that final rule for a detailed description of our analysis and prior responses to comments.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068), we performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims. We note that, in the FY 2011 IPPS/LTCH PPS proposed rule, we performed this analysis using FY 2009 claims paid through December 2009. In the FY 2011 IPPS/LTCH PPS final rule, we updated the analysis with FY 2009 claims paid through March 2010, as we discussed in the proposed rule. We note that, for all IPPS hospitals, other than those in Puerto Rico, the estimates were unchanged from those in the proposed rule. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068) for a detailed description of our analysis and prior responses to comments. The results of the analysis for the FY 2011 proposed and final rules provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.

As in prior years, the FY 2008 and FY 2009 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effect. Interested individuals may still order these files through the Web site at: http://www.cms.hhs.gov/​LimitedDataSets/​ by clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web page describes the file and provides 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.

5. Prospective Adjustment 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

Based on our evaluation of FY 2008 Medicare claims data that were most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, the estimated 2.5 percent change in FY 2008 case-mix due to changes in Start Printed Page 51491documentation 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. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public comment on our proposal to make a −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 the FY 2010 IPPS/RY 2010 LTCH PPS final rule, in response to public comments, we indicated that we fully understood that our proposed adjustment of −1.9 percent would reduce the increase in payments that affected hospitals would have received in FY 2009 in the absence of the adjustment, and we determined that it would be appropriate to postpone adopting documentation and coding adjustments as authorized under section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the Act until a full analysis of case-mix changes could be completed. We refer readers to the FY 2010 IPPS/LTCH PPS final rule (74 FR 43767 through 43777) for a detailed description of our proposal, responses to comments, and finalized policy.

After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50073), we found a total prospective documentation and coding effect of 1.054. After accounting for the −0.6 percent and the −0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we found a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an “appropriate” adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we believe we have some discretion as to the manner in which we apply the prospective adjustment of −3.9 percent. We indicated that applying the full prospective adjustment of −3.9 percent for FY 2011, in combination with the proposed recoupment adjustment of −2.9 percent in FY 2011 (discussed below) would require an aggregate adjustment of −6.8 percent. As we discuss elsewhere in this section II.D., and more extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. As we also discuss below in this section II.D., we are required to implement the remaining adjustment in section 7(b)(1)(B) of Public Law 110-90 no later than the FY 2012 rulemaking period, and accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed a recoupment adjustment under section 7(b)(1)(B) of −2.9 percent for FY 2011 (75 FR 23870 and 23871). Therefore, we stated that we believed it was appropriate to not implement any or all of the −3.9 percent prospective adjustment in FY 2011. Accordingly, we did not propose a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 through 23870) for FY 2011. We note that, as a result, payments in FY 2011 (and in each future year until we implement the requisite adjustment) would be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9 percentage point increase will result in an aggregate payment of approximately $4 billion. We also noted that payments in FY 2010 were also expected to be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90, which our actuaries estimated increased aggregate payments by approximately $4 billion in FY 2010.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25803 and 25804), we indicated that because further delay of this prospective adjustment will result in a continued accrual of unrecoverable overpayments, it was imperative that we proposed a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we proposed a −3.15 percent prospective adjustment to the standardized amount to partially eliminate the full effect of the documentation and coding changes on future payments. Due to the offsetting nature of the remaining recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 (described below in section II.D.6. of this preamble), and after considering other payment adjustments to FY 2012 rates proposed elsewhere within the proposed rule, we indicated that we believe the proposed −3.15 percent adjustment would allow for a significant reduction in potential unrecoverable overpayments, yet would maintain a comparable adjustment level between FY 2011 and FY 2012, reflecting the applicable percentage increase with a documentation and coding adjustment. We stated that we recognize that an additional adjustment of −0.75 (3.9 minus 3.15) percent would be required in future rule making to complete the necessary −3.9 adjustment to meet CMS' statutory requirement under section 7(b)(1)(A) of Public Law 110-90. In the proposed rule, we indicated that we were not at that time proposing a timeline to implement the remainder of this prospective adjustment.

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

As discussed in section II.D.1. of this preamble, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2008 and 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.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule with comment period (74 FR 43773), we estimated 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, exceeding the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. We stated that our actuaries had estimated that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion in FY 2008. We did not propose to make an adjustment to the FY 2010 average standardized amounts to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but stated in the proposed rule that we intended to address this issue in future rulemaking. In the FY 2010 IPPS/RY 2010 LTCH PPS Start Printed Page 51492final rule (74 FR 43774), we stated that because we would not receive all FY 2009 claims data prior to publication of the final rule, we would address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we performed a retrospective evaluation of the FY 2009 claims data. In response to public comments in FY 2010, we indicated that we recognized that any adjustment to account for the documentation and coding effect observed in the FY 2008 and FY 2009 claims data may result in significant future payment reductions for providers. However, we indicated that we are required under section 7(b)(1)(B) of Public Law 110-90 to recover the difference of actual documentation and coding effect in FY 2008 and FY 2009 that is greater than the prior adjustments. We agreed with the commenters who requested that CMS delay any adjustment and, for the reasons stated above, indicated that we expected to address this issue in the FY 2011 rulemaking. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777) for a detailed description of our proposal, responses to comments, and finalized policy.

As we indicated in the FY 2011 IPPS/LTCH PPS final rule, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 and FY 2009 exceeded the −0.6 and −0.9 percent prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90 for those 2 years, respectively, by 1.9 percentage points in FY 2008 and 3.9 percentage points in FY 2009. In total, this change exceeded the cumulative prospective adjustments by 5.8 (1.9 plus 3.9) percentage points. Our actuaries estimated that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. In the FY 2011 IPPS/LTCH PPS final rule, we noted that there may be a need to actuarially adjust the recoupment adjustment to accurately reflect accumulated interest. Therefore, we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012, subject to actuarial adjustment to reflect accumulated interest, would be necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23871), we stated that we intended to take into account the need to reflect accumulated interest in proposing a recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 for FY 2012.

It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to make an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude would allow us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY 2012).

Unlike the permanent prospective adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is not cumulative, and, therefore, would be removed for subsequent fiscal years once we have completely offset the increase in aggregate payments for discharges for FY 2008 and FY 2009 expenditures. In keeping with our practice of moderating payment adjustments when necessary, we stated that we anticipated that the proposal of phasing in the recoupment adjustment will have an additional, and significant, moderating effect on implementing the requirements of section 7(b)(1)(B) of Public Law 110-90 for FY 2012.

In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on our proposal to offset part of the total 5.8 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-DRGs in FY 2011, noting that this proposal would result in a −2.9 percent adjustment to the standardized amount. We received numerous comments on our proposal, especially from national and regional hospital associations, hospital systems, and individual hospitals. MedPAC also commented on our proposal. We refer readers to the FY 2011 IPPS/LTCH PPS final rule with comment period (75 FR 50055 through 50073) for a detailed description of our analysis and prior responses to comments, and finalized policy.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50068), we finalized the proposed adjustment to the standardized amount of −2.9 percent, which represented approximately half of the aggregate recoupment adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. We were persuaded by both the MedPAC's analysis, and our own review of the methodologies recommended by various commenters, that the methodology we employed to determine the required recoupment adjustment was sound. Since the statute required that we implement the entire recoupment adjustment no later than FY 2012, we have sought, as we commonly do, to moderate the potential impact on hospitals by phasing in the required adjustment over more than one year. As we stated in prior rulemaking, a major advantage of making the −2.9 percent adjustment to the standardized amount in FY 2011 was that, because the required recoupment adjustment is not cumulative, we anticipated removing the FY 2011 −2.9 percent adjustment from the rates (in other words, making a positive 2.9 percent adjustment to the rates) in FY 2012, at the same time that the law required us to apply the remaining approximately −2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 −2.9 percent adjustment and then applying the remaining adjustment of approximately −2.9 percent, would effectively cancel each other out. The result of these two steps would be an aggregate adjustment of approximately 0.0 percent. While we stated in the FY 2011 IPPS/LTCH PPS final rule the need to potentially adjust the remaining −2.9 percent estimate to account for accumulated interest, our actuaries have determined that there has been no significant interest accumulation and that no additional adjustment will be required. Therefore, for FY 2012, pursuant to the timeframes set forth by section 7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in the FY 2011 IPPS/LTCH PPS final rule, we proposed to complete the recoupment adjustment by implementing the remaining −2.9 percent adjustment, in addition to removing the effect of the −2.9 percent adjustment to the standardized amount finalized for FY 2011. Because these adjustments will, in effect, balance out, there will be no year-to-year change in the standardized amount due to this recoupment adjustment. As this Start Printed Page 51493adjustment will complete the required recoupment for overpayments due to documentation and coding effects on discharges occurring in FYs 2008 and 2009, we anticipate removing the effect of this adjustment by adding 2.9 percent to the standardized amount in FY 2013. We continue to believe that this is a reasonable and fair approach that satisfies the requirements of the statute while substantially moderating the financial impact on hospitals.

Comment: One commenter, MedPAC, reiterated its general support for the methodology used by our actuaries to estimate the magnitude of documentation and coding effect on IPPS payments due to the adoption of the MS-DRG system. In its letter, MedPAC explained that the methodology used by our actuaries “is akin to comparing two sets of payments: What payments actually were in fiscal year 2009 under the 2009 MS-DRGs and relative weights; and what payments would have been in 2009 if MS-DRGs had not been adopted and CMS had continued to use the prior (2007) CMS DRGs and weights.” MedPAC noted that by taking the difference between these two sets of payments, the methodology is designed to capture “the new GROUPER's interaction with how hospitals changed their documentation and coding. After the adoption of MS-DRGs in 2008, hospitals switched from recording general descriptions of patients' chronic conditions—which no longer affect payments under MS-DRGs—to recording the specific acute manifestations of patients' chronic conditions, which trigger higher payments under MS-DRGs. However, the same changes in diagnosis documentation and coding have little or no effect on the CMI measured using the 2007 CMS-DRGs and weights. This is because in that version of the GROUPER, both acute manifestations of chronic conditions and general descriptions of chronic conditions trigger higher payments. In contrast, when hospitals had little incentive to change documentation and coding—in 2007, for example—the two CMIs are approximately equal.”

Consistent with its comments in prior years, MedPAC's comment noted that its analysis of Medicare hospital inpatient claims for 2007-2009 yielded similar estimates of the documentation and coding effect. MedPAC concluded that “CMS would need to reduce IPPS payments temporarily by 5.8 percent to recover overpayments that occurred in 2008 and 2009. CMS also expected that overpayments equal to 3.9 percent of annual IPPS payments would continue through 2010, 2011, and future years until CMS makes a prospective offsetting adjustment (−3.9 percent) to the IPPS payments rates.”

MedPAC's comment described potential circumstances in which the methodology used both by our actuaries and MedPAC could overestimate the documentation and coding effect, noting that these possible circumstances “could cause only a small change in the estimated effect of documentation changes.”

MedPAC stated, “In response to the new MS-DRGs, hospitals had an incentive to report diagnoses that count as CCs in the new system. MedPAC's argument is that hospitals may also have stopped reporting diagnoses that counted as CCs in the old system, but do not count in the new one.” In short, MedPAC argued that the disappearance of the general chronic condition codes could have caused the CMIs based on the old FY 2007 GROUPER and weights to be understated in FYs 2008 and 2009. Thus, because CMIs based on the 2007 GROUPER and weights are the denominators of the documentation change estimates, understatement would bias the estimates upward. However, understatement would occur only to the extent that hospitals, when coding: (1) Did not replace such general chronic condition codes with corresponding acute manifestation codes and (2) the patient had no other secondary diagnosis code that qualified as a CC in the old GROUPER and are now CCs or MCCs under the MS-DRGs.

MedPAC's analysis concluded that the maximum possible effect of this potential overestimation is 0.36 percent, and “that total overpayments due to documentation changes in 2008 and 2009 may have ranged from 5.1 to 5.8 percent of IPPS payments ($6.0 to $6.9 billion).”

MedPAC recommended that CMS slow the pace of the payment adjustments so that hospitals would receive a net 1 percent update in FY 2012, as it recommend in its March 2011 Report to Congress. Furthermore, MedPAC stated that legislation should be enacted to require the Secretary of Health and Human Services to adjust payments further to recover all overpayments that have occurred or will occur in FYs 2010, 2011, and 2012 because the prospective adjustment was not completed. MedPAC asserted that:

“To allow payments to increase due to documentation and coding changes would undermine Congressional policy on updates. If Congress wants more money to flow into the hospital sector, a higher update is the appropriate mechanism, not cumulative changes in documentation and coding. Indeed, allowing those changes to increase hospital payments through the back door could eventually discourage needed refinements to the case-mix system in a tight budget era. In other words, if more money inevitably leaks into the system every time case-mix is refined, then there may be pressure to stop refining. That would lead to inequities for both providers and patients.”

Response: We appreciate MedPAC's analysis and continued support of the methodology used to determine the documentation and coding effect, and we agree that this methodology appropriately isolates the documentation and coding effect from real case-mix. With the exception of the possible overstatement described above, we note that MedPAC's analysis yielded results similar to CMS' determination of the documentation and coding effect. Based on our evaluation of FY 2008 and FY 2009 claims, we continue to believe that $6.9 billion dollars in overpayments were made during the period of FY 2008 and 2009. We estimate that a recoupment adjustment totaling 5.8 percent is necessary to recover these overpayments, and that operating IPPS rates are currently overstated by 3.9 percent. We also note that section 7(b)(1)(B) of the TMA requires the agency to recover these overpayments by FY 2012 and that section 7(b)(1)(A) of the TMA requires the agency to adjust rates to ensure that aggregate payments do not continue to be overstated.

With regard to MedPAC's analysis regarding the possible overestimate of the documentation and coding effect, we note that MedPAC characterized the potential effect as “small” and provided no corroborating analysis or specific examples of when this scenario may have occurred. We consulted with our medical coding experts and were unable to identify specific examples to support MedPAC's hypothesis. We note that MedPAC stated in its comment letter that the potential for overestimation exists only to the extent that “hospitals (1) did not replace such general chronic condition codes with corresponding acute manifestation codes and (2) the patient had no other secondary diagnosis code that qualified as a CC in the old grouper.” We reviewed coding changes that occurred during the transition to MS-DRGs and were able to identify codes that would result in a CC prior to MS-DRGs but would not result in a CC in the MS-DRG system. However, we were unable to identify an instance where this would necessarily result in a lower MS-DRG assignment because more specific codes were Start Printed Page 51494developed to support the more refined MS-DRG system and we would expect hospitals to use the more specific codes. For instance, congestive heart failure was a CC under CMS DRGs, but is not a CC under MS-DRGs. Under MS-DRGs, we started requiring more specific information on the type of heart failure in order to count this as a CC or MCC. Generally, under the MS-DRG system, the “unspecified” codes in a category no longer result in CCs.

We did not receive any other public comments regarding MedPAC's statements that we may have overestimated the effect of the documentation and coding by considering cases grouped under the MS-DRG system as having a higher severity due to being coded without appropriate CCs under the pre-MS-DRG system.

At this time, we believe it would not be appropriate to revise our estimates based solely on MedPAC's analysis without knowing of any specific examples of the scenario described above. Without this information, we cannot determine whether there was a sufficient volume of cases to cause a potential documentation and coding overestimate. However, we welcome specific examples from the public to possibly inform future rulemaking.

We acknowledge MedPAC's recommendation to provide hospitals with a net 1 percent update. As noted above, the comment restates MedPAC's recommendation from its March 2011 Report to Congress. We address this issue below in our response to comments by the provider community that expressed concern regarding the impact of various payment adjustments on hospitals.

We also acknowledge MedPAC's request that additional statutory authority be granted to the Secretary of Health and Human Services to recover overpayments made during subsequent fiscal years.

Lastly, we agree with MedPAC that it is important to continue refining the methodology of how case mix is measured to ensure payment accuracy. We note that in this final rule we discuss potential refinements to the MS-DRG relative weight system, and CMS' active engagement in implementing the ICD-10 system. These discussions illustrate the efforts the agency is undertaking to improve the ability to measure case mix precisely and to pay hospitals for inpatient services more accurately.

Comment: Most commenters, including national hospital associations, continued to acknowledge that there were documentation and coding increases in FY 2008 and FY 2009 that were in excess of the statutory 0.6 percent and 0.9 percent adjustments specified in section 7(a) of the TMA. However, as in prior rulemakings on this issue, most commenters again questioned the methodology employed by MedPAC and our actuaries to determine the magnitude of the excess.

We also received Congressional correspondence from numerous members of Congress stating that hospitals had expressed concerns regarding the CMS Actuary's methodology and requesting that CMS ensure that its methodology accurately reflects changes in patient severity prior to finalizing adjustments for documentation and coding in response to hospitals' concerns. Specifically, the correspondence suggested that CMS could consider alternative methodologies for estimating the effect of documentation and coding, including trend-based analysis and chart abstraction.

Several commenters stated that historical case mix trend is inconsistent with our estimate of the effect of the FY 2008 and FY 2009 documentation and coding changes due to the implementation of the MS-DRGs. One commenter stated “Our analysis, which used multiple years of patient claims, clearly shows that a significant portion of the change CMS found is actually the continuation of historical trends, rather than the effect of documentation and coding changes due to implementation of MS-DRGs. This analysis found a cumulative documentation and coding effect of 3.6 percent for FYs 2008 and 2009, as opposed to the 5.4 percent that CMS found.”

Several commenters submitted an historical case-mix trend analysis last year, which showed a documentation and coding effect of 2.3 percent. An analysis submitted by the same commenters this year showed a cumulative documentation and coding increase through FY 2009 of 3.6 percent. The commenters revised their analysis to respond to CMS comments made in last year's rule. Specifically, the national hospital associations stated that, “This year we make several modifications to that trend-based analysis to respond to CMS' critiques as enumerated in the FY 2011 inpatient PPS final rule. Given that we have addressed the agency's concerns, we are hopeful that it will give our methodology fresh consideration.” One hospital association also pointed out that CMS included an assumption regarding real case-mix growth in the adjustment for “changes in case-mix” in the capital update framework at § 412.308(c)(1)(ii) and suggested that the estimate made by our actuaries regarding documentation and coding be reduced by this assumption in order to maintain consistency with the capital update framework.

Commenters also examined the methodology used by our actuaries and MedPAC using index number theory. As stated by these commenters, “the relative case weights in a given grouper are like relative prices in a price index calculation (in fact they are relative prices for the different MS-DRGs) and the quantities of discharges in various MS-DRGs are like the quantities of goods in the price index calculation.” Commenters claimed that, based on index number theory, the methodology employed by MedPAC and our actuaries can only provide upper and lower bounds of the combined effect of documentation and coding and real case-mix change. MedPAC, however, indicated that knowledge of the 2007 MS-DRG GROUPER, the new MS-DRG GROUPER, historical documentation of patients' diagnoses, and the changes CMS made when it created the MS-DRGs can be used to narrow the range of the potential documentation and coding effect as described above, although they noted that these “could cause only a small change in the estimated effect of documentation changes.”

As in past years, several commenters indicated that CMS should use medical records data to distinguish documentation and coding changes from real case-mix changes. MedPAC disagreed with the commenters' rationale that the use of medical records data could determine the effect of both documentation and coding, and stated the following: “Gold-standard coders, however, only see the diagnoses written in the record and therefore are not able to distinguish changes in documentation from real changes in patients' diagnoses. This method of recoding existing documentation only works in situations where hospitals have no incentive to change documentation. That is clearly not the case with the transition to MS-DRGs.”

Response: We disagree that the new analysis presented by the national hospital associations has addressed our concerns with the use of a trend analysis to determine the documentation and coding increase when a more direct measurement of the relevant increase can be obtained using our proposed methodology. In last year's rule, we expressed several concerns with regard to the use of a trend analysis, stating, “We believe that the determination of an appropriate Start Printed Page 51495historical trend is less straightforward than our methodology, which, as described above, simply removes real case-mix growth from the calculation” (75 FR 50066). While we pointed out certain analytical flaws in the trend analysis used last year (for a full discussion, we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50065 through 50066)), we did not state the correction of those flaws would yield a better documentation and coding estimate than the direct estimate obtained under our proposed methodology. In fact, we noted that “changes in case-mix do not necessarily follow a consistent pattern over time.” MedPAC provided analysis in its comment letter which supported CMS' position. MedPAC's analysis demonstrated that CMI growth was modest at best, never exceeding plus or minus 1 percent the decade prior to the introduction of MS-DRGs, and in some years was negative.

The national hospital associations' most significant response to our critique of their previous analysis in the FY 2011 IPPS/LTCH PPS final rule was to expand the time period upon which its trend analysis is based to include years where there were sustained negative changes in actual CMI. This raised their estimate of documentation and coding from 2.3 percent to 3.6 percent. We believe that this increase demonstrates the variability in the estimates that can be obtained using trend analyses. We also stated in last year's final rule that “despite our position that our methodology more directly measures the relevant increase, we did examine the alternative approach favored by commenters for calculating the documentation and classification increase. As a general statement, the approach of examining historical trends to estimate what case-mix would have been in the absence of the adoption of the MS-DRGs should not necessarily yield significantly different results from the analysis done by our actuaries and the MedPAC, if an appropriate historical trend can be determined.”

We reiterate our concerns with the use of historical trends to determine documentation and coding this year, and we do not believe that the modifications to the commenters' analysis address all of these concerns. In particular, we agree with MedPAC that “absent changes in documentation and coding and the shift away from inpatient surgeries, real changes in the CMI in 2008 through 2010 would be completely consistent with historical CMI changes since 2001.” In performing its analysis, MedPAC adjusted for changes in the share of cases with surgery, share of cases with CCs, and the estimated effects of changes in documentation and coding. MedPAC summarized the results of its analysis in the following graph.

Start Printed Page 51496

In summary, with respect to trend analysis, we continue to believe that the determination of an appropriate historical trend is less straightforward than our proposed methodology, which simply removes real case-mix growth from the calculation. In addition, the estimates obtained using our proposed methodology are consistent with the historical case-mix growth, as demonstrated by MedPAC.

We also disagree with commenters who stated that the methodology employed by MedPAC and our actuaries can only provide upper and lower bounds of the combined effect of documentation and coding and real case-mix change and cannot separate documentation and coding effects from real case-mix change. While MedPAC recognized that the potential for a range of estimates may exist, MedPAC disagreed with the conclusion that index number theory, as described above, should be used to determine this range. MedPAC stated that “in this instance at least, the estimated range between the lower and upper bounds based on this approach is so wide that the estimates are useless for policy making.” We agree with MedPAC that the wide range resulting from an index number theory approach renders such an approach useless in this context.

In response to commenters' support for using hospital records to distinguish documentation and coding effect from real case-mix changes, we agree with MedPAC's rationale that such an analysis would fail to capture changes in documentation. MedPAC stated: “In our view, this approach does not work. The reason is that hospitals had an incentive to persuade attending physicians to be more specific in describing patients' acute manifestations of chronic conditions in their medical records. Some hospitals hired documentation specialists with the goal of changing physicians' medical record documentation, not simply to do a better job of coding what they wrote in the record (Hahey 2008). Gold-standard coders, however, only see the diagnoses written in the record and therefore are not able to distinguish changes in documentation from real changes in patients' diagnoses. This method of recoding existing documentation only works in situations where hospitals have no incentive to change documentation. That is clearly not the case with the transition to MS-DRGs. Thus, a very important part of the effect of changes in documentation and coding cannot be detected by the proposed method.”

We also note that as one part of our initial documentation and coding analysis, we attempted to examine coding changes based on hospital chart data from the Medicare Clinical Data Abstraction Center (CDAC). However, as we described in the FY 2010 IPPS/LTCH PPS final rule, it was not possible to perform this analysis due to aberrant CDAC data. We stated, “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.” (74 FR 43769)

Finally, we disagree with the commenters' suggestion that the assumptions in the capital update framework should be applied in our actuaries' estimate of documentation and coding, because the capital update framework is intended for projection purposes and would be inappropriate to use as a proxy for historical trends.

After careful consideration of all of the public comments we received, including alternatives suggested by commenters, we remain confident in the accuracy of our methodology and its appropriateness in determining the required adjustment amounts.

Comment: Numerous commenters expressed concern regarding the potentially severe negative fiscal impact that would be experienced by providers if the proposed documentation and coding improvement adjustment were to Start Printed Page 51497be implemented. As noted above, MedPAC recommended that CMS reduce its proposed −3.15 percent adjustment to be consistent with a net update factor of +1.0 percent, as it recommended in its March 2011 Report to Congress.

As noted previously, we also received Congressional correspondence from numerous members of Congress that requested CMS to reconsider what would be an appropriate adjustment to hospital payments and also requested that CMS reexamine its methodology. This correspondence noted that hospitals would experience payment reductions if the proposed rule were finalized without modification and further stated that hospitals needed “adequate Medicare reimbursement to ensure that patients and communities receive the care they need.”

Response: We recognize the concerns regarding possible financial disruption that may be caused by the proposed documentation and coding improvement payment adjustment. We note, however, that these payment adjustments are necessary to correct past overpayments due solely to documentation and coding improvements. We have already delayed implementation of the required prospective adjustment amount, and we proposed only a portion of the remaining required adjustment to allow hospitals time to adjust to future payment differences and to moderate the effect of this adjustment in any given year. We are required under section 7(b)(1)(B) of the TMA to complete the remaining one-time −2.9 percent recoupment adjustment for FY 2008 and FY 2009 overpayments in FY 2012, and we believe the impact of completing this adjustment to be reasonable considering it will be completely offset by removing the FY 2011 recoupment adjustment by placing a +2.9 percent adjustment back to the standardized amount. In FY 2013, a positive +2.9 percent adjustment will be made, completing the recoupment process.

In the proposed rule, we stated it was imperative that CMS make a significant prospective adjustment amount in FY 2012 to prevent the accumulation of unrecoverable overpayments. As stated in previous responses to comments, we remain confident in the accuracy of the overall methodology and its appropriateness in determining the required adjustment amount. However, after consideration of the public comments, and in keeping with our longstanding policy to mitigate, when possible, the effects of significant downward adjustments on hospitals, we are finalizing a prospective adjustment of −2.0 percent, which is a reduction from our proposed adjustment of −3.15 percent. We note that this adjustment will result in a total update of +1.0 percent, in accordance with MedPAC's recommendation in its March 2011 Report to Congress for hospitals that report quality data consistent with the requirements of the Hospital IQR Program. Specifically, as discussed elsewhere in this final rule, the applicable percentage increase for FY 2012 is +1.9 percent (based on a market basket of +3.0 percent, a multifactor productivity adjustment of −1.0 percentage point, and a statutory adjustment of −0.1 percentage point in accordance with section 3401 of the Affordable Care Act). When combined with the +1.1 adjustment in light of Cape Cod v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011) discussed elsewhere in this final rule, the applicable percentage increase of +1.9 percent and this proposed prospective adjustment of −2.0 percent results in a net total update of +1.0 percent, prior to additional adjustments for budget neutrality and other policy adjustments. We believe that this level of adjustment will help to minimize year to year volatility in payment rates due to the required documentation and coding adjustment. As we stated in the proposed rule, our analysis found that a prospective adjustment of −3.9 percent continues to be necessary. Because we are making a −2.0 percent prospective adjustment for FY 2012, a remaining prospective of adjustment of −1.9 percent will be necessary. While we are not at this time stating when we will make the remaining required −1.9 percent prospective adjustment, we consider it feasible to make all or most of the adjustment in FY 2013, when a +2.9 percent adjustment will be factored into rates to offset the one-time FY 2012 recoupment adjustment.

The table below summarizes the adjustments for FY 2012 for documentation and coding for IPPS hospitals.

FY 2012 MS-DRG Documentation and Coding Adjustment

Required prospective adjustment for FYs 2008-2009Remaining required recoupment adjustment for FYs 2008-2009Total remaining adjustmentProspective adjustment for FY 2012Recoupment adjustment to FY 2012 paymentsRemaining prospective adjustment
Level of Adjustments−3.9%−2.9%−6.8%−2.0%−2.9%−1.9%

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 Start Printed Page 51498rescinded 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 patient 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 patient 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 proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act.

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 was 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 was warranted, we indicated that we would propose to make such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.

8. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule (74 FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we discussed our 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 proposed 2.5 percent result discussed earlier for other IPPS hospitals, but did not significantly differ from that result. We refer readers to those rules for a more complete discussion.

Therefore, consistent with our statements in prior IPPS rules, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act to prospectively adjust the hospital-specific rates by the proposed −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 proposed 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. The proposed −2.5 percent adjustment to the hospital-specific rates exceeded the −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.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), we solicited public comment on this proposal. Consistent with our approach for IPPS hospitals discussed earlier, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed adoption of a documentation and coding adjustment to the hospital-specific rate until FY 2011. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule for a more detailed discussion of our proposal, responses to comments, and finalized policy.

As we have noted previously, because SCHs and MDHs use the same MS-DRG system as all other IPPS hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to a prospective budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. We believe the documentation and coding estimates for all subsection (d) hospitals should be the same. While the findings for the documentation and coding effect for all IPPS hospitals are similar to the effect for SCHs and slightly different to the effect for MDHs, we continue to believe that this is the appropriate policy so as to neither advantage or disadvantage different types of providers. As we discuss in section II.D.4. of this preamble, our best estimate, based on the most recently available data, is that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of the documentation and coding changes on future payments to SCHs and MDHs. Unlike the case of standardized amounts paid to IPPS hospitals, prior to FY 2011, we had not made any previous adjustments to the hospital-specific rates paid to SCHs and MDHs to account for documentation and coding changes. Therefore, the entire −5.4 percent recoupment adjustment needed to be made, as opposed to a −3.9 percent remaining adjustment for IPPS hospitals.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50068 through 50071), we made an adjustment to the standardized Start Printed Page 51499amount for IPPS hospitals of −2.9 percent under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. As we noted in the FY 2011 IPPS/LTCH PPS final rule, in determining the level and pace of adjustments to account for such documentation and coding changes, we believe that it is important to maintain, as much as possible, both consistency and equity among these classes of hospitals. Therefore, we finalized a prospective adjustment of −2.9 percent to the hospital-specific rates paid to SCHs and MDHs. We refer readers to the FY 2011 IPPS/LTCH PPS final rule for a more detailed discussion of our proposal, responses to comments, and finalized policy.

As discussed earlier in this section II.D., in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed a net −3.15 percent documentation and coding adjustment for IPPS hospitals in FY 2012 (−3.15 percent prospective adjustment plus a −2.9 percent recoupment adjustment in FY 2012, offset by the removal of the −2.9 percent recoupment adjustment for FY 2010). The proposed IPPS adjustment exceeded the remaining −2.5 percent documentation and coding adjustment for hospitals receiving a hospital-specific rate (that is, the entire −5.4 percent adjustment, minus the −2.9 percent adjustment finalized for FY 2011). As we indicated in the FY 2011 IPPS/LTCH PPS proposed rule and final rule, we are continuing, as much as possible, consistent with section 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments. We believe that any adjustment to the hospital-specific rate due to documentation and coding effect should be as similar as possible to adjustments to the IPPS rate. Accordingly, we proposed a −2.5 percent payment adjustment to the hospital-specific rate. We believe that proposing the entire remaining prospective adjustment of −2.5 percent would allow CMS to maintain, to the extent possible, similarity and consistency in payment rates for different IPPS hospitals paid using the MS-DRG. As discussed below, we took a similar approach in finalizing an adjustment to the Puerto-Rico specific rate in FY 2011.

Comment: Numerous commenters requested that CMS rescind its proposed documentation and coding adjustment for SCHs and MDHs and questioned CMS' statutory authority to apply this adjustment to providers receiving a hospital-specific rate. The commenters argued that because section 1886(d)(3)(A)(vi) of the Act only authorizes application of a documentation and coding adjustment to the standardized amount, Congress' specific instruction as to the applicability of this type of adjustment makes it impermissible for CMS to apply the adjustment to the hospital-specific rates. Furthermore, commenters contend that, due to their critical role in isolated communities, any negative documentation and coding adjustment to SCHs and MDHs would endanger their ability to provide the type of care that Congress specifically sought to protect by establishing their special Medicare payment systems.

Response: We continue to disagree with the commenters that the Secretary's broad authority to make exceptions and adjustment to payment amounts under section 1886(d)(3)(A)(vi) of the Act cannot be applied in this instance. We have discussed the basis for applying such an adjustment in prior rules (in the FY 2009 proposed rule (73 FR 23540), the FY 2009 IPPS final rule (73 FR 48448), and the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24098)) and do not agree that the language in section 1886(d)(3)(A)(vi) of the Act limits our authority under section 1886(d)(5)(I)(i) of the Act to make such an adjustment. We recognize that SCHs and MDHs are entitled, through legislation, to receive the hospital-specific rate in order to compensate for their unique service requirements in the provider community. Similar to our approach with IPPS hospitals, we are implementing a phase-in of the documentation and coding adjustment over an appropriate period, beginning in FY 2011. We will continue to separately analyze SCH and MDH claims data to ensure than any future adjustment is appropriate for these provider types.

Comment: MedPAC responded to our request for comments regarding the level of adjustment for special categories of hospitals, such as hospitals paid under the hospital-specific payment rate, by pointing out hospitals have the same financial incentives for documentation and coding improvements and the same ability to benefit from the resulting change in case-mix, and by recommending that “all IPPS hospitals should be treated the same.” At the same time, MedPAC also stated that “delaying prevention of overpayments * * * creates a problem because overpayments will continue to accumulate in 2010 and later years until the effect of documentation and coding improvement is fully offset in the payment rates.” In setting forward its multi-year recommendation to CMS for complying with the requirements of section 7 of Public Law 110-90, MedPAC emphasized “minimizing the accumulation of overpayments.”

Response: We appreciate MedPAC's comments and agree that it is appropriate to conclude that hospitals paid under the hospital-specific rate have experienced a 5.4-percent increase documentation and coding in FYs 2008 and 2009, insofar as these hospitals had the same financial incentives to improve documentation and coding in those years as other IPPS hospitals. We further agree with MedPAC that it is appropriate to focus on minimizing the accumulation of overpayments, and we interpret this to mean that MedPAC recommends that CMS move forward as quickly as possible with prospective adjustments at an appropriate level. We appreciate MedPAC's guidance that “all hospitals be treated the same,” and stress the importance of consistent treatment of various classes of similarly situated hospitals in our payment policy determinations.

We continue to believe that any adjustment to the hospital-specific rate due to documentation and coding effect should be as similar as possible to adjustments to the standardized amount. Accordingly, because we are finalizing a prospective adjustment to the standardized amount of −2.0 percent for FY 2012, we are also finalizing a prospective adjustment to the hospital-specific rate of −2.0 percent for FY 2012, instead of our proposed adjustment of −2.5 percent. Making this level of adjustment allows CMS to maintain, for FY 2012, consistency in payment rates for different IPPS hospitals paid using the MS-DRG. Because this −2.0 percent adjustment no longer reflects the entire remaining requirement adjustment amount of −2.5 percent, an additional −0.5 percent adjustment to the hospital-specific payment rates will be required in future rulemaking.

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

a. Background

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 Start Printed Page 51500adjust “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 (that is, we made a positive 0.6 percent adjustment, increasing the 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 patient 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 to apply 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.

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

For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, 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. However, as we noted earlier for IPPS hospitals and hospitals receiving hospital-specific rates, if the estimated documentation and coding effect determined based on a full analysis of FY 2009 claims data was more or less than our then current estimates, it would change, possibly lessen, the anticipated cumulative adjustments that we had estimated we would have to make for the FY 2008 and FY 2009 combined adjustment. Therefore, we believed that it would be more prudent to delay implementation of the documentation and coding adjustment to allow for a more complete analysis of FY 2009 claims data for Puerto Rico hospitals.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we indicated that, given these documentation and coding increases, consistent with our statements in prior IPPS rules, we would use our authority under section 1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-specific rate and solicited public comment on the proposed −1.1 percent prospective adjustment. However, in parallel to our decision to postpone adjustments to the Federal standardized amount, we also indicated that we were adopting a similar policy for the Puerto Rico-specific rate for FY 2010 and would consider the phase-in of this adjustment over an appropriate time period through future rulemaking. We noted that, as with the hospital-specific rates, the Puerto Rico-specific standardized amount had not previously been adjusted based on estimated changes in documentation and coding associated with the adoption of the MS-DRGs.

Consistent with our approach for IPPS hospitals for FY 2010, we indicated that we would 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.

As we have noted above, similar to SCHs and MDHs, hospitals in Puerto Rico use the same MS-DRG system as all other hospitals and we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to the prospective budget neutrality adjustment that we intend to apply to prospective payment rates for IPPS hospitals, including SCHs and MDHs, in order to eliminate the full effect of the documentation and coding changes associated with implementation of the MS-DRG system.

As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 through 50073), using the same methodology we applied to estimate documentation and coding changes under IPPS for non-Puerto Rico hospitals, our best estimate, based on the then most recently available data (FY 2009 claims paid through March 2010), was that, for documentation and coding that occurred over FY 2008 and FY 2009, a cumulative adjustment of −2.6 percent was required to eliminate the full effect of the documentation and coding changes on future payments from the Puerto Rico-specific rate. As we stated above, we believe it important to maintain both consistency and equity among all hospitals paid on the basis of the same MS-DRG system. At the same time, however, we recognize that the estimated cumulative impact on aggregate payment rates resulting from implementation of the MS-DRG system was smaller for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and MDHs. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23876), we proposed an adjustment to eliminate the full effect of the documentation and coding changes on the portion of future payments to Puerto Rico hospitals based on the Puerto Rico-specific rate. We stated that we believed that a full prospective adjustment was the most appropriate means to take into full account the effect of documentation and coding changes on payments, while maintaining equity as much as possible between hospitals paid on the basis of different prospective rates. We noted that our updated data analysis in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50072 through 50073) showed that this adjustment would be −2.6 percent. The previous estimate in the proposed rule was a −2.4 percent adjustment.

One reason we proposed the full prospective adjustment for the Puerto Rico-specific rate in FY 2011 was to Start Printed Page 51501maintain equity as much as possible in the documentation and coding adjustments applied to various hospital rates in FY 2011. Because our proposal was to make an adjustment that represents the full adjustment that is warranted for the Puerto Rico-specific rate, we indicated that we did not anticipate proposing any additional adjustments to this rate for documentation and coding effects.

Therefore, because the Puerto Rico-specific rate received a full prospective adjustment of −2.6 percent in FY 2011, we proposed no further adjustment in the proposed rule for FY 2012.

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 detailed 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.

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

As we transitioned to cost-based relative weights, some public 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”. 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 more details on RTI's findings and recommendations, we refer readers to the FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its analysis of charge compression beyond inpatient services to include 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 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 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. 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. For a more detailed Start Printed Page 51502summary 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).

3. Summary of Policy Changes Made in FY 2011

In the FY 2009 IPPS/LTCH PPS 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 refer readers to the Web site: http://www.rand.org/​pubs/​working_​papers/​WR560/​, and the FY 2009 IPPS/LTCH PPS final rule for details on the RAND report (73 FR 48453 through 48457).) 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 FY 2009 IPPS/LTCH PPS 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. Accordingly, a new subscripted line 55.30 for “Implantable Devices Charged to Patients” was created in July 2009 as part of CMS' Transmittal 20 update to the existing cost report Form CMS-2552-96. This new subscripted cost center has been available for use for cost reporting periods beginning on or after May 1, 2009.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create standard cost centers for CT scans, MRI, and cardiac catheterization, and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS 2552-10. As we discussed in the FY 2009 IPPS/LTCH PPS and CY 2009 OPPS/ASC proposed and final rules, RTI found that the costs and charges of CT scans, MRI, and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and OPPS relative weights would better estimate the costs of those services if CMS were to add standard costs centers for CT scans, MRI, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the cost from charges on claims data. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a more detailed discussion on the reasons for the creation of standard cost centers for CT scans, MRI, and cardiac catheterization.) The new standard cost centers for MRI, CT scans, and cardiac catheterization are effective for cost report periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10. CMS issued the new hospital cost report Form CMS-2552-10 on December 30, 2010. The new cost report form can be accessed at the CMS Web site at: https://www.cms.gov/​Manuals/​PBM/​itemdetail.asp?​filterType=​none&​filterByDID=​-99&​sortByDID=​1&​sortOrder=​ascending&​itemID=​CMS021935&​intNumPerPage=​10. Once at this Web site, users should double click on “Chapter 40.”

4. Discussion for FY 2012

In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48468), we stated that, due to what is typically a 3-year lag between the reporting of cost report data and the availability for use in ratesetting, we anticipated that we might be able to use data from the new “Implantable Devices Charged to Patients” cost center to develop a CCR for Implantable Devices Charged to Patients in the FY 2012 or FY 2013 IPPS rulemaking cycle. Specifically, we stated, “Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS rate-setting purposes in a given fiscal year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2012 or FY 2013 IPPS relative weights and the CY 2012 or CY 2013 OPPS relative weights” (73 FR 48468). However, as noted in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43782), due to delays in the issuance of the revised cost report CMS 2552-10, a new CCR for Implantable Devices Charged to Patients may not be available until FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for MRI, CT scans, and cardiac catheterization, we explained that data from any new cost centers that may be created will not be available until at least 3 years after they are first used (75 FR 50077). That is, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50077), we stated that the data from the standard cost centers for MRI, CT scans, and cardiac catheterization respectively, would not even be available for possible use in calculating the relative weights earlier than 3 years after Form CMS-2552-10 becomes available. We further stated that, at that time, we would analyze the data and determine if it is appropriate to use those data to create distinct CCRs from these cost centers for use in the relative weights for the respective payment systems. We also reassured public commenters that there was no need for immediate concern regarding possible negative payment impacts on MRI and CT scans under the IPPS and the OPPS because the cost report data that would be used for the calculation of the relative weights were at least 3 years from being available. We stated that we will first thoroughly analyze and run impacts on the data and provide the public with the opportunity to comment before distinct CCRs for MRI and CT scans would be finalized for use in the calculation of the relative weights. We also urged all hospitals to properly report their costs and charges for MRI, CT scans, and all other services so that, in several years' time, we will have reliable data from all hospitals on which to base a decision as to whether to incorporate additional CCRs into the relative weight calculation (75 FR 50077).

Accordingly, in preparation for the FY 2012 IPPS/LTCH PPS proposed rule, we assessed the availability of data in the “Implantable Devices Charged to Patients” cost center. In order to develop a robust analysis regarding the use of cost data from the “Implantable Devices Charged to Patients” cost center, it was necessary to have a critical mass of cost reports filed with data in this cost center. The cost center for “Implantable Devices Charged to Patients” is effective for cost reporting periods beginning on or after May 1, 2009. While developing the FY 2012 IPPS/LTCH PPS proposed rule, we checked the availability of FY 2009 cost reports in the December 31, 2010 quarter ending update of HCRIS, which was the latest upload of FY 2009 cost report data that we could use for the proposed rule. We determined that there were only 437 hospitals (out of approximately 3,500 IPPS hospitals) Start Printed Page 51503that completed the “Implantable Devices Charged to Patients” cost center. We did not believe that this was a sufficient amount of data from which to generate a meaningful analysis in this particular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for Implantable Devices Charged to Patients for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would reassess the availability of data for the “Implantable Devices Charged to Patients” cost center, and the “MRI, CT Scans, and Cardiac Catheterization” cost centers, for the FY 2013 IPPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

Comment: Commenters requested that CMS reconsider its position to not use the data from the implantable device cost center to calculate the MS-DRG relative weights for FY 2012. The commenter noted that during the development of the proposed rule, CMS found that only 437 hospitals out of approximately 3,500 IPPS hospitals reported data in the “Implantable Devices Charged to Patients” cost center of the Medicare hospital cost report based on the December 2010 update of FY 2009 HCRIS. One commenter found, while reviewing the March 2011 update of FY 2009 HCRIS, that there are approximately 800 hospitals that are reporting cost information in the implantable medical device cost center.

Another commenter stated that, based on the December 2010 update of FY 2009 HCRIS, 804 hospitals reported data on either line 55 (Medical Supplies Charged to Patients) or line 55.30 (Implantable Devices Charged to Patients), and in the March 2011 update of FY 2009 HCRIS, approximately 1,600 hospitals were reporting data on either of those lines. As such, the commenters believed there is now a sufficient amount of data to use the implantable device CCR to calculate the relative weights and improve accuracy of the payment rates. Commenters also noted that if we do not use the implantable device cost center to calculate the FY 2012 relative weights, there will be enough data to develop an implantable device CCR for FY 2013.

One commenter suggested that CMS adopt regression-based CCRs to calculate the FY 2012 MS-DRG relative weights because CMS does not yet have sufficient cost report data to develop the implantable device CCR. This would allow CMS to address charge compression immediately and improve payment accuracy for medical devices and implantables.

Response: In the FY 2012 IPPS/LTCH PPS proposed rule, we indicated that we did not have sufficient cost report data to develop the kind of robust analysis that we assured the public we would provide prior to implementing a new CCR for implantable medical devices. Therefore, we stated that we will reassess the availability of data for FY 2013. We have reviewed the availability of FY 2009 cost reports in the March 31, 2011 quarter ending update of HCRIS, which is the latest upload of FY 2009 cost report data that we currently have available. We have determined that, for cost reporting periods beginning on or after May 1, 2009, the effective date of line 55.30 (Implantable Devices Charged to Patients), there are 961 hospitals (out of approximately 3,500 IPPS hospitals) that have completed the “Implantable Devices Charged to Patients” cost center. This represents an increase of 524 compared to the 437 entries that we found when developing the FY 2012 proposed rule. Regardless of the number of hospitals currently reporting data in the “Implantable Devices Charged to Patients” cost center, the data that were available at the time we were developing our proposed policies for FY 2012 were insufficient, and we believe it would be inappropriate to finalize a specific CCR for implantable devices charged to patients for FY 2012 without an opportunity for the public to review and comment on our analysis. Rather, we believe that it is appropriate to wait until FY 2013, when we hope to be able to provide a proper impact analysis of the addition of a CCR for implantable devices charged to patients in the relative weights calculation. Accordingly, we are not implementing a regression-based CCR for implantable devices at this time. Therefore, we are not implementing any new CCRs for use in the relative weights calculation for FY 2012.

Comment: Commenters urged CMS to increase education efforts to encourage faster hospital adoption of the use of the implantable medical device cost center. Commenters noted that, at the time of the development of the FY 2012 IPPS/LTCH PPS proposed rule, only 437 hospitals had completed the implantable device cost center, and this demonstrated that CMS needs to undertake additional outreach to hospitals to ensure that they appropriately complete the Medicare hospital cost report.

Response: We agree that it is important that hospitals understand how to accurately report data in the “Implantable Devices Charged to Patients” cost center, and we have worked to add more clarity to the cost report instructions. However, we do believe that the December 31, 2010 update of HCRIS reflected relatively few entries for this cost center because the corresponding cost center line was only available for use for cost reporting periods beginning on or after May 1, 2009. This effective date was somewhat awkward in terms of timing and would not have applied to a large number of hospitals whose data would not be evident to CMS until the March 31, 2011 update to HCRIS.

Comment: Commenters suggested that CMS monitor the accuracy of the data reported in the implantable device cost center on the Medicare hospital cost report. Commenters urged CMS to impress the importance upon the Medicare Administrative Contractors (MACs) of establishing a mechanism to audit the implantable device cost center to ensure that the costs and charges are appropriately reported. One commenter suggested that CMS require MACs to require hospitals to explain why they had not reported in the implantable device cost center. In addition, the commenters suggested that CMS reissue instructions, similar to Transmittal 321, dated February 28, 2009, to the MACs with recommendations that MACs develop an audit program for line 55 (Medical Supplies Charged to Patients) and line 55.30 (Implantable Devices Charged to Patients). Commenters noted that potential audit mechanisms include identifying the presence of revenue codes 274, 275, 276 and 624 reported on the PS&R used to settle the cost report, and comparing the CCR based on line 55.30 to the CCR based on line 55. In addition, one commenter suggested that the cost reporting software be modified to create a level 1 error in the case where no data is reported on line 55.30 (Implantable Devices Charged to Patients) to compel hospitals to report that information.

Response: We agree with the commenters that the cost reporting lines, whether they are for Implantable Devices Charged to Patients, MRI, CT scans, cardiac catheterization, or any others, should be subject to greater audit scrutiny from the Medicare contractors. The new Medicare cost report form CMS-2552-10, on line 121 of Worksheet S-2, Part I, asks “Did this facility incur and report costs for implantable devices charged to a patient? Enter in column 1 “Y” for yes or “N” for no.” All hospital types, including non-IPPS hospitals, CAHs, and Maryland inpatient short-term acute hospitals, are required to properly report their costs and charges, and if the answer to this question is Y for any type of hospital, then line 72, column 26, of Start Printed Page 51504Worksheet B, Part I must be greater than 0, with an accurate amount that reflects the hospital's costs for implantable devices charged to patients. In addition, we note that a Level 1 edit on the CMS-2552-10 form already exists that ensures that line 72, column 26, of Worksheet B, Part I (Implantable Devices Charged to Patients on Worksheet A of the CMS-2552-10 form) is greater than 0 if Worksheet S-2, Part I, line 121 is “Y”. The edit is also set up for the reverse scenario; that is, if there is an amount on Worksheet B, Part I, line 72, column 26, then the response on Worksheet S-2, Part I, line 121 must be “Y.”

Comment: Some commenters supported not making major refinements to the calculation of MS-DRG relative weights. Commenters valued the consistency, transparency, and predictability of the calculation of the MS-DRG relative weights.

Response: We appreciate the commenters' support for our proposal of not making major refinements to the MS-DRG relative weights in the absence of sufficient data from which to create new CCRs. We also value consistency, transparency, and predictability in the calculation of the MS-DRG relative weights.

Comment: One commenter supported our decision to create standard cost centers for CT, MRI, and cardiac catheterization for hospitals to report their costs and charges on the Medicare hospital cost report. In addition, the commenter supported urgently adopting the use of the CT, MRI, and cardiac catheterization cost centers in calculating the MS-DRG relative weights.

Response: We appreciate the commenter's support. As we stated in the proposed rule, we will reassess the availability of data for the “Implantable Devices Charged to Patients” cost center, and the “MRI, CT Scans, and Cardiac Catheterization” cost centers, for the FY 2013 IPPS rulemaking cycle, and, if appropriate, we will propose to create distinct CCRs for these cost centers at that time.

Comment: One commenter noted that allogeneic stem cell acquisition charges are reported using revenue code 0819 for “Other Organ Acquisition.” However, the commenter added, this revenue code is not part of the 15 national cost center CCRs used in the calculation of the MS-DRG relative weights. In addition, the commenter stated, the Medicare hospital cost report does not specifically identify a cost center for bone marrow acquisition costs. The commenter requested direction on capturing these acquisition costs and how those costs and charges are accounted for in the MS-DRG relative weight calculation.

Response: We appreciate this comment, but note that it is not within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS proposed rule regarding the calculation of the MS-DRG relative weights. However, we also note that allogeneic bone marrow transplant charges are included in the 15 CCRs, specifically as part of the Blood and Blood Products CCR and that CCR's associated cost centers on the cost report.

Comment: One commenter stated that CMS should specifically exclude sleeve gastrectomy charges derived from the Medicare claims data and sleeve gastrectomy costs from the Medicare hospital cost report data from the MS-DRG weight recalibrations. The commenter noted that CMS excludes Medicare claims for services that are non-covered for Medicare beneficiaries from the MS-DRG relative weight calculation and, therefore, sleeve gastrectomy charges should be excluded. In addition, the commenter recommended that CMS remind providers that Medicare cost reports should exclude charges and costs associated with the sleeve gastrectomy procedure, as it is a noncovered service.

Response: We appreciate this comment, but note that it is not within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS proposed rule regarding the calculation of the MS-DRG relative weights. We will take this issue into consideration for future rulemaking.

Comment: One commenter suggested that CMS evaluate the MedPAR claims database to ensure that it is not using Medicare managed care claims data to calculate the MS-DRG relative weights, as CMS has proposed to only use fee-for-service claims to calculate the MS-DRG relative weights.

Response: We appreciate this comment, but note that it is not within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS proposed rule regarding the calculation of the MS-DRG relative weights. However, we note that it is already our policy to exclude managed care claims from the MS-DRG relative weights calculation.

After consideration of the public comments received, we are not implementing any new CCRs for use in the relative weights calculation for FY 2012.

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

1. Background

a. Statutory Authority

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (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. Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with CDC, from time to time as long as the list contains at least two conditions.

Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, effective with discharges occurring on or after October 1, 2007, submit information on Medicare claims specifying whether diagnoses were present on admission (POA). Section 1886(d)(4)(D)(i) of the Act specifies that, effective for discharges occurring on or after October 1, 2008, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not POA. Thus, if a selected condition that was not POA manifests during the hospital stay, it is considered a HAC and the case is paid as though the secondary diagnosis was not present. However, even if a HAC manifests during the hospital stay, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate. Under the HAC payment policy, all CCs/MCCs on the claim must be HACs in order to generate a lower MS-DRG payment. In addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is 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 Start Printed Page 51505term “hospital” refers to an IPPS hospital.

The HAC provision found in section 1886(d)(4)(D) of the Act is part of an array of Medicare tools that we are using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. The application of these tools, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

This effort is highly compatible with the underlying purposes as well as existing structural features of Medicare's IPPS. Under the IPPS, hospitals are encouraged to treat patients efficiently because they receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would otherwise receive for cases without these conditions. To this extent, the IPPS encourages hospitals to avoid complications.

However, the treatment of certain conditions can generate higher Medicare payments in two ways. First, if a hospital incurs exceptionally high costs treating a patient, the hospital stay may generate an outlier payment. Because the outlier payment methodology requires that hospitals experience large losses on outlier cases before outlier payments are made, hospitals have an incentive to prevent outliers. Second, under the MS-DRG system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain conditions can generate higher payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 259 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. The presence of a CC or an MCC generally results in a higher payment. However, since we implemented the HAC provisions, if a secondary diagnosis acquired during a hospital stay is a HAC and no other CCs or MCCs are present, the hospital receives a payment under the MS-DRGs as if the HACs were not present. (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).)

b. HAC Selection

Beginning in FY 2007, we have set forth proposals, and solicited and responded to public comments, to implement section 1886(d)(4)(D) of the Act through the IPPS annual rulemaking process. For specific policies addressed in each rulemaking cycle, we direct readers to the following publications: The FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547) and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43782); and the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080). A complete list of the 10 current categories of HACs is included in section II.F.2. of this preamble.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through 50101), we did not add any categories of additional HACs or make any changes to policies already established under the authority of section 1886(d)(4)(D) of the Act.

c. Collaborative Process

In establishing the HAC payment policy under section 1886(d)(4)(D) of the Act, our experts have worked closely with public health and infectious disease professionals from across the Department of Health and Human Services, including CDC, the Agency for Healthcare Research and Quality (AHRQ), and the Office of Public Health and Science (OPHS), to identify the candidate preventable HACs, review comments, and select HACs. CMS and CDC also have 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. In addition, as discussed below, we have used rulemaking and Listening Sessions to obtain public input.

d. Application of HAC Payment Policy to MS-DRG Classifications

As described above, in certain cases, application of the HAC payment policy provisions can result in MS-DRG reassignment to a lower paying MS-DRG. The following diagram portrays the logic of the HAC payment policy provision as adopted in the FY 2008 IPPS final rule with comment period (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR 48471):

Start Printed Page 51506

e. Public Input Regarding Selected and Potential Candidate HACs

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through 50101), we did not add or remove categories of HACs, nor did we make any changes to previously established policies. However, we continue to encourage public dialogue about refinement of the HAC list.

Given the timeliness of the HAC discussion, particularly when considered within the context of recent legislative health care reform initiatives, we remain eager to engage in an ongoing public dialogue about the various aspects of this policy. We plan to continue to include updates and findings from the Research Triangle Institute, International (RTI) evaluation on CMS' Hospital-Acquired Conditions and Present on Admission Indicator Web site available at: http://www.cms.hhs.gov/​HospitalAcqCond/​.

f. 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. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23381) (and as noted in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50081)), we listed the instructions and change requests that were issued to IPPS hospitals and also to non-IPPS hospitals regarding the submission of POA indicator data for all diagnosis codes on Medicare claims and the processing of non-PPS claims We also indicated that specific instructions on how to select the correct POA indicator for each diagnosis code were included in the ICD-9-CM Official Guidelines for Coding and Reporting, available on the CDC Web site at: http://www.cdc.gov/​nchs/​data/​icd9/​icdguide10.pdf. We reiterate that additional information regarding POA indicator reporting and application of the POA reporting options is available on the CMS Web site at: http://www.cms.gov/​HospitalAcqCond/​.

In preparation for the transition to the ICD-10-CM/PCS code set effective October 1, 2013, further information regarding the use of the POA indictor with the ICD-10-CM/PCS classification as it pertains to the HAC policy will be discussed in future rulemaking. In the meantime, we encourage readers to review the educational materials and draft code sets currently available for ICD-10-CM/PCS at the CMS Web site at: http://www.cms.gov/​ICD10/​. In addition, the draft ICD-10-CM/PCS coding guidelines can be viewed at the CDC Web site at: http://www.cdc.gov/​nchs/​data/​icd9/​10cmguidelines2011.

Historically, we have not provided coding advice. Rather, we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. We will continue to collaborate with the AHA to promote the Coding Clinic for ICD-9-CM as the source for coding advice about the POA indicator.

As discussed in previous IPPS proposed and final rules, 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 hospital has determined that, based on data and clinical judgment, 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 48486 through 48487), we adopted final payment policies 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 Start Printed Page 51507HACs coded with “N” and “U” indicators.

Beginning on or after January 1, 2011, hospitals are required to begin reporting POA indicators using the 5010 electronic transmittal standards format. The 5010 format removes the need to report a POA indicator of “1” for codes that are exempt from POA reporting. However, for claims that continue to be submitted using the 4010 electronic transmittal standards format, the POA indicator of “1” is still necessary because of reporting restrictions from the use of the 4010 electronic transmittal standards format.

Hospitals that began reporting with the 5010 format on and after January 1, 2011, can no longer report a POA indicator of “1” for POA exempt codes. The POA field should instead be left blank for codes exempt from POA reporting. We have issued CMS instructions on this reporting change as a One-Time Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 7024, effective on August 13, 2010. These instructions, entitled “5010 Implementation-Changes to Present on Admission (POA) Indicator `1' and the K3 Segment,” can be located at the following link on the CMS Web site: http://www.cms.gov/​manuals/​downloads/​Pub100_​20.pdf.

We are continuing our efforts to clarify instructions regarding use of the POA indicator. As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50088), we received public comments in response to the FY 2011 IPPS/LTCH PPS proposed rule that expressed concern about the accuracy of reporting of POA indicators for HACs related to intracranial injury with loss of consciousness. The codes for loss of consciousness are listed in the Falls and Trauma HAC category, within the “Intracranial Injury” subcategory. Because loss of consciousness is a component of intracranial injuries rather than a separate condition, we agreed that the POA guidelines that instructed coders to assign an “N” indicator if any part of the combination code was not present on admission did not apply to the loss of consciousness codes. As a member of the Editorial Advisory Board for the Coding Clinic for ICD-9-CM, we worked with the American Hospital Association (AHA), American Health Information Management Association (AHIMA), and CDC to provide additional clarification on how these conditions should be reported. Additional guidance on how these cases should be reported can be found in AHA's Coding Clinic for ICD-9-CM, 2nd Quarter 2010, “Frequently Asked POA Questions” section. That publication clarified the POA reporting for patients in whom a single code captures the fact that the patient was admitted as a result of a head injury and then subsequently lost consciousness after the admission. For these cases, we clarified that the POA indicator assigned should be “Y,” indicating that the head injury and resulting loss of consciousness occurred prior to (and was present on) admission.

We expect that this clarification will lead to greater consistency and accuracy in POA indicator reporting for these conditions. We look forward to continuing our efforts as part of the AHA's Editorial Advisory Board for Coding Clinic for ICD-9-CM to provide guidance on accuracy of coding and the reporting of POA indicators. Hospitals look to this publication to provide detailed guidance on ICD-9-CM coding and POA reporting. We encourage hospitals to send any other questions about ICD-9-CM codes or POA indicator selection to the AHA so that the Editorial Advisory Board can continue its role of providing instruction on the accurate selection and reporting of both ICD-9-CM codes and POA indicators.

2. Additions and Revisions to the HAC Policy for FY 2012

a. Contrast-Induced Acute Kidney Injury

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 and 25814), we discussed our analysis for a proposed new condition as a possible candidate for selection for FY 2012 under section 1886(d)(4)(D) of the Act. As described in more detail in section II.F.1.a. of this preamble, each HAC must be: (1) High cost, high volume, or both; (2) 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 (3) could reasonably have been prevented through the application of evidence-based guidelines. We also discussed other considerations relating to the selection of a HAC, including any administrative or operational issues associated with a proposed condition. For example, the condition may only be able to be identified by multiple codes, thereby requiring the development of special GROUPER logic to also exclude similar or related ICD-9-CM codes from being classified as a CC or an MCC. Similarly, a condition acquired during a hospital stay may arise from another condition that the patient had prior to admission, making it difficult to determine whether the condition was reasonably preventable. We invited public comment on clinical, coding, and prevention issues on our proposal to add contrast-induced acute kidney injury as a condition subject to the HAC payment provision for FY 2012 (for discharges occurring on or after October 1, 2011).

Contrast-induced acute kidney injury is a significant complication of the use of iodinated contrast media and accounts for a large number of cases of hospital-acquired acute kidney injury cases. A published study has shown that renal failure associated with contrast administration is correlated with up to 11 percent of cases of renal failure that occur in hospitals (Nash, K., Hafeez, A., et al: “Hospital-Acquired Renal Insufficiency,” American Journal on Kidney Disease, 2002, Vol. 39, No. 5, pp. 930-936). Patients who experience acute kidney injury have an increased risk of inhospital mortality even after adjustments for disease comorbidities (McCullough, J.: “Contrast-Induced Acute Kidney Injury,” Journal of the American College of Cardiology, 2008, Vol. 51, No. 15, pp. 1419-1428). Data suggest that the risk for mortality extends beyond the period of hospitalization, resulting in 1-year and 5-year mortality rates significantly higher than those patients who have not developed acute kidney injury. In addition, contrast-induced acute kidney injury is associated with an increased incidence of myocardial infarction, bleeding requiring transfusion, and prolonged hospital stays (McCullough, J.: American Journal of Medicine, 1997, Vol. 103, pp. 368-375). We note that “acute kidney injury” is a new terminology endorsed by the National Kidney Foundation to replace “acute renal failure.”

There is not a unique code that identifies kidney injury. However, kidney injury can be identified as a subset of discharges with ICD-9-CM diagnosis code 584.9 (Acute kidney failure, unspecified). As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule, our clinical advisors believe that diagnosis code 584.9, in combination with the associated procedure codes listed below, can accurately identify contrast-induced acute kidney injury:

  • 88.40 (Arteriography using contrast material, unspecified site)
  • 88.41 (Arteriography of cerebral arteries)
  • 88.42 (Aortography)
  • 88.43 (Arteriography of pulmonary arteries)
  • 88.44 (Arteriography of other intrathoracic vessels)
  • 88.45 (Arteriography of renal arteries)
  • 88.46 (Arteriography of placenta)
  • 88.47 (Arteriography of other intra-abdominal arteries)Start Printed Page 51508
  • 88.48 (Arteriography of femoral and other lower extremity arteries)
  • 88.49 (Arteriography of other specified sites)
  • 88.50 (Angiocardiography, not otherwise specified)
  • 88.51 (Angiocardiography of venae cavae)
  • 88.52 (Angiocardiography of right heart structures)
  • 88.53 (Angiocardiography of left heart structures)
  • 88.54 (Combined right and left heart angiocardiography)
  • 88.55 (Coronary arteriography using a single catheter)
  • 88.56 (Coronary arteriography using two catheters)
  • 88.57 (Other and unspecified coronary arteriography)
  • 88.58 (Negative-contrast cardiac roentgenography)
  • 88.59 (Intra-operative coronary fluorescence vascular angiography)
  • 88.60 (Phlebography using contrast material, unspecified site)
  • 88.61 (Phlebography of veins of head and neck using contrast material)
  • 88.62 (Phlebography of pulmonary veins using contrast materal)
  • 88.63 (Phlebography of other intrathoracic veins using contrast material)
  • 88.64 (Phlebography of the portal venous system using contrast material)
  • 88.65 (Phlebography of other intra-abdominal veins using contrast material)
  • 88.66 (Phlebography of femoral and other lower extremity veins using contrast material)
  • 88.67 (Phlebography of other specified sites using contrast material)
  • 87.71 (C.A.T. of kidney)
  • 87.72 (Other nephrotomogram)
  • 87.73 (Intravenous pyelogram)
  • 87.74 (Retrograde pyelogram)
  • 87.75 (Percutaneous pyelogram)

We proposed to identify contrast-induced acute kidney injury with diagnosis code 584.9 in combination with one or more of the above associated procedure codes.

We also considered identifying contrast-induced acute kidney injury through the use of external injury codes, or E-codes. Code E947.8 (Other drugs and medicinal substances) has an inclusion term “Contrast media used for diagnostic x-ray procedures” to identify the use of contrast. However, as we noted in the proposed rule, we do not currently require the reporting of E-codes for the HAC payment provisions under the IPPS. Therefore, we were unable to rely on the identification of contrast-induced acute kidney injury through E-codes on Medicare IPPS HACs claims.

Section 1886(d)(4)(D) of the Act requires that a HAC be a condition that is “high cost, high volume, or both.” In FY 2009, there were 38,324 inpatient discharges coded with acute renal failure as specified by ICD-9-CM diagnosis code 584.9 reported as not present on admission (POA status = N) when reported with one of the above procedure codes submitted through Medicare claims. The cases had an average charge of $29,122 for the entire hospital stay. Studies suggest the additional average cost per day for a patient who has acquired contrast-induced acute kidney injury is $2,654. Other data report patients stays increases by 3.75 days once they have acquired the diagnosis (Subramanian, S.: “Economic Burden of Contrast-Induced Nephropathy: Implications for Prevention Strategies,” Journal of Medical Economics, 2007, Vol. 10, pp. 119-134).

There are widely recognized guidelines for the prevention of acute kidney injury that address the prevention of contrast-induced acute kidney injury, and we believe the condition is reasonably preventable. One of these guidelines can be found at: http://www.renal.org/​Clinical/​GuidelinesSection/​AcuteKidneyInjury.aspx.

The condition of contrast-induced acute kidney injury as specified in our proposal is a CC under the MS-DRGs.

We indicated in the proposed rule that we had not identified any additional administrative or operational difficulties with proposing this condition as a HAC. We invited public comment on whether contrast-induced acute kidney injury meets the requirements set forth under section 1886(d)(4)(D) of the Act, as well as other coding and prevention issues associated with our proposal to add this injury as a condition subject to the HAC payment provision for FY 2012 (for discharges occurring on or after October 1, 2011). We also indicated that we were particularly interested in receiving comments on the degree to which contrast-induced acute kidney injury is reasonably preventable through the application of evidence-based guidelines.

Comment: One commenter supported CMS' proposal to add contrast-induced acute kidney injury as a HAC under section 1886(d)(4)(D) of the Act. The commenter applauded the inclusion of contrast-induced acute kidney injury to the HAC policy for FY 2012, and encouraged CMS to continue to expand and refine the HACs and categories.

Response: We appreciate the commenter's support.

Comment: Many commenters discussed their concerns regarding the specificity and sensitivity of the ICD-9-CM codes proposed to identify the proposed new contrast-induced acute kidney injury HAC. The commenters believed that these codes would not solely capture contrast-induced acute kidney injury and would capture other conditions as well. The commenters expressed concern about the specificity of the current ICD-9-CM code 584.9 in reliably identifying cases of acute kidney injury that occurred due to a specific diagnosis instead of acute kidney injury that is believed to occur secondary to being correlated with exposure to contrast. The commenter stated that, for example, a patient admitted to a hospital could experience drug-induced kidney injury that has resolved; later during that hospital stay, the patient has a subsequent angiographic procedure. Under our proposed methodology, the commenter added, this patient would be erroneously identified as having contrast-induced acute kidney injury.

Some commenters suggested that CMS use E-codes, which identify injuries, while others did not support the use of E-codes because they are not consistently coded for Medicare billing purposes. Commenters further noted that the list of ICD-9-CM procedure codes proposed to assist in identifying the use of contrast as the reason for the acute kidney injury occurring are often not reported on hospital claims. The commenters explained that most of the codes do not represent procedures affecting payment, are not required, and, therefore, are not reported.

Other commenters recommended waiting to finalize this proposed candidate condition until the ICD-10 code set is implemented. The commenters suggested that a unique code to identify and describe contrast-induced acute kidney injury could be proposed in ICD-10, and this would eliminate the coding limitations that currently exist for this condition in ICD-9-CM.

Response: We acknowledge the commenters' concerns regarding the current ICD-9-CM coding issues surrounding contrast-induced acute kidney injury, and that our proposal could inadvertently include claims for beneficiaries who experience acute kidney injury that may not be contrast-induced. We note that, as discussed in the FY 2008 IPPS final rule with comment period (72 FR 47216), under 42 CFR 412.60(d), a hospital has 60 days after the date of the notice of the initial Start Printed Page 51509assignment of a discharge to a DRG to request a review of that assignment. The hospital may submit additional information as a part of its request. A hospital that believes a discharge was assigned to the incorrect DRG as a result of application of the payment adjustment for HACs may request review of the DRG assignment by its fiscal intermediary or MAC. However, we also recognize that it is important to be as precise as possible in specifying which codes to use to identify a HAC, and that a lack of precision could increase hospitals' administrative burden in pursuing these appeals.

In addition, we recognize that E-codes do capture injuries and could offer more precision in identifying contrast-induced acute kidney injury than our proposal. We also agree with the commenters who pointed out that E-codes are currently not required for Medicare billing purposes and, therefore, are inconsistently reported on claims. We note further that because these codes are not required for Medicare IPPS payment purposes, MS-DRG assignments do not currently take E-codes into account.

We also appreciate the comments that pointed out that the procedure codes identified in our proposal are often not reported. We note that commenters asserted that these codes were not reported because they did not affect payment. We are concerned that the potential for reduced payment would create a further disincentive to include these procedure codes on Medicare claims. As we stated earlier, we recognize that it is important to be as precise as possible in the interest of payment accuracy in specifying which codes to use to identify a HAC.

We also agree that ICD-10 will offer a greater degree of specificity. Currently, no code exists within ICD-10 that would exclusively capture contrast-induced acute kidney injury. We note that, as discussed in the FY 2012 IPPS/LTCH proposed rule (76 FR 25843), and in section II.G.13.b. of this final rule, a partial code freeze was discussed at multiple meetings of the ICD-9-CM Coordination and Maintenance Committee, and public comment was actively solicited. At the September 15-16, 2010 meeting, an announcement was made that the ICD-9-CM Coordination and Maintenance Committee will implement a partial freeze of the ICD-9-CM and ICD-10 (ICD-10-CM and ICD-10-PCS) codes prior to the implementation of ICD-10 on October 1, 2013. There was considerable support for this partial freeze. The partial freeze will be implemented as follows:

  • The last regular, annual updates to both ICD-9-CM and ICD-10 code sets will be made on October 1, 2011.
  • On October 1, 2012, there will be only limited code updates to both the ICD-9-CM and ICD-10 code sets to capture new technologies and diseases as required by section 503(a) of Public Law 108-173.
  • On October 1, 2013, there will be only limited code updates to ICD-10 code sets to capture new technologies and diagnoses as required by section 503(a) of Public Law 108-173. There will be no updates to ICD-9-CM, as it will no longer be used for reporting.
  • On October 1, 2014, regular updates to ICD-10 will begin.

The ICD-9-CM Coordination and Maintenance Committee will continue to meet twice a year during the partial freeze. At these meetings, the public will be asked to comment on whether or not requests for new diagnosis or procedure codes should be created based on the criteria of the need to capture a new technology or disease. Any code requests that do not meet the criteria will be evaluated for implementation within ICD-10 on and after October 1, 2014, once the partial freeze has ended.

In summary, we agree with the commenters' recommendations regarding coding and are deferring decision making regarding the inclusion of contrast-induced acute kidney injury as a HAC until such a time when improved coding is available.

Comment: Several commenters submitted comments pertaining to the sufficiency or strength of the evidence-based guidelines in terms of providing information or direction that would lead to the prevention of contrast-induced acute kidney injury 100 percent of the time. The commenters stated that evidence-based guidelines are based on varying levels of evidence, from expert consensus based on opinion (the “weakest” level) to expert consensus based on data produced in randomized controlled trials (the “strongest” level). According to the commenters, in many cases, the guidelines do not address all patient populations. Commenters also stated that current evidence-based guidelines for decreasing the incidence of contrast-induced acute kidney injury are limited. The commenters also noted that new guidelines addressing the topic of contrast-induced acute kidney injury are being published in late summer of 2011 by an international organization, Kidney Disease Improving Global Outcomes (KDIGO), after a multiyear development process. They noted that CMS should take these guidelines into consideration when they become available.

Response: We acknowledge that different types of evidence-based guidelines exist. However, we believe that the inclusion of contrast-induced acute kidney injury in the current evidence-based guidelines for Acute Kidney Injury supports the inclusion of contrast-induced acute kidney injury as a condition on the HAC list. We agree that any new evidence-based guidelines for contrast-induced acute kidney injury should be considered when they become available.

Comment: A few commenters expressed concern about the proposal potentially creating an incentive for practitioners to avoid necessary contrast use in patients with high risk of acute kidney disease.

Response: We acknowledge and are sensitive to the theoretical possibility of patient access to care being restricted. We are unaware of significant data supporting this assertion, but we will continue to monitor the situation for potential unintended consequences with regard to this concern.

Comment: Some commenters recommended that CMS not reduce payment for this condition, but to instead develop a quality measure that would track it. The commenters noted that such a measure could track whether the appropriate evidence-based steps to prevent contrast-induced acute kidney injury have been performed and documented.

Response: We appreciate the commenters' recommendation. We note that we did not propose to develop a quality measure for contrast-induced acute kidney injury in the proposed rule. Thus, we consider this comment to be outside of the scope of the provisions discussed in the proposed rule. However, this subject area represents an area of continued interest and opportunity for the agency, and we will take this recommendation into consideration during the development of future rulemaking.

In conclusion, after consideration of the public comments we received, we are deferring the decision making on the addition of contrast-induced acute kidney injury as a HAC until future rulemaking, and such a time when improved coding is available for the reasons described above. We note that the reduction of contrast-induced acute kidney injury represents an area of continued interest for the agency, and we believe that substantial opportunity exists for hospitals to improve quality in this area.Start Printed Page 51510

b. Additional New Diagnosis Codes for Existing HACs

As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25814), as changes to diagnosis codes and new diagnosis codes are proposed and finalized for the list of CCs and MCCs, we modify the list of selected HACs to reflect these changes. We included in Table 6A of the proposed rule (which was made available via the Internet) the five new ICD-9-CM diagnosis codes that we proposed to add to three of the current HAC categories. We proposed to add two new codes for the Falls and Trauma HAC category, two new codes for the Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category, and one new code for the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category. The two new diagnosis codes that we proposed to add to the Falls and Trauma HAC category were code 808.44 (Multiple closed pelvic fractures without disruption of pelvic circle) and code 808.54 (Multiple open pelvic fractures without disruption of pelvic circle). These codes fall within the range of the fracture code subcategory (800 through 829). The two new diagnosis codes that we proposed to add to the Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category were code 539.01 (Infection due to gastric band procedure) and code 539.81 (Infection due to other bariatric procedure). We stated our belief that these diagnosis codes are appropriate for inclusion in the existing category when reported as a secondary diagnosis with the specified principal diagnosis code of morbid obesity (code 278.01) and one of the designated bariatric procedure codes (code 44.38, 44.39, or 44.95). Lastly, the one new diagnosis code that we proposed to add to the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category was code 415.13 (Saddle embolus of pulmonary artery). Diagnosis code 415.13 would be applicable when reported along with one of the following procedures codes describing certain orthopedic procedures: 00.85 through 00.87, 81.51, 81.52, or 81.54. Shown in the table below are these five new diagnosis codes with their corresponding descriptions and their proposed CC/MCC designations.

ICD-9-CM codeCode descriptorProposed CC/MCC designation
539.01Infection due to gastric band procedureCC
539.81Infection due to other bariatric procedureCC
415.13Saddle embolus of pulmonary arteryMCC
808.44Multiple closed pelvic fractures without disruption of pelvic circleCC
808.54Multiple open pelvic fractures without disruption of pelvic circleMCC

We invited public comments on the proposed adoption of these five new ICD-9-CM diagnosis codes as CC/MCCs that are listed above, which, if finalized, would be added to the current Falls and Trauma HAC category, Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category and Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category and would be subject to the HAC payment provision for FY 2012.

Comment: Several commenters supported CMS' proposal to adopt the five new ICD-9-CM diagnosis codes with their proposed CC/MCC designations for addition to the current Falls and Trauma HAC category, Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category, and Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category and to subject them to the HAC payment provision for FY 2012.

Response: We appreciate the commenters' support.

Comment: One commenter expressed concern regarding the appropriateness of adding ICD-9-CM diagnosis code 415.13 as a condition that, when reported along with the designated procedure codes describing certain orthopedic procedures (00.85 through 00.87, 81.51, 81.52, or 81.54) in the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category, be subject to the HAC payment provision. The commenter stated that HAC selection should be based on conditions considered to be reasonably preventable with adherence to evidence-based practice guidelines. The commenter further believed that a saddle embolus of the pulmonary artery, when reported with the cited orthopedic procedure codes, is not a condition that is “reasonably preventable” and that patients undergoing total knee replacement and total hip replacement in the Medicare population are at the highest risk for developing a DVT/PE.

The commenter also stated that the current structure of the MS-DRG system does not specifically risk-adjust for these conditions in the MS-DRGs related to primary total hip replacement (code 81.51) or primary total knee replacement (code 81.54). The commenter believed that risk adjustment is an indispensible component of an equitable HAC policy. The commenter suggested that CMS account for the patient-specific risk factors that affect preventability and reported that many hospitalized patients have comorbidities and other patient characteristics that put them at an increased risk of complications. The commenter suggested that CMS take these factors into account in creating a policy that is reasonable and equitable, in order to minimize incentives for limiting access for patients who are at higher risk for complications.

This same commenter also expressed support of CMS' efforts to encourage the adoption of evidence-based treatment guidelines that could improve the quality of care for patients. However, while the commenter noted that evidence-based guidelines can reduce events, the commenter asserted that CMS selected one of the patient populations at highest risk for DVT/PE, diverging from the concept of “reasonably preventable.”

Response: We appreciate the commenter's detailed comments on the proposal to add diagnosis code 415.13 as a condition that, when reported along with the designated procedure codes described above, is subject to the HAC payment provision. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we discussed the evidence based guidelines regarding DVT/PE and agreed with commenters that this is reasonably preventable. In the FY 2009 IPPS final rule (73 FR 48481), we addressed commenters' concerns regarding the preventability of DVT/PE and noted that the statute does not require that a condition be “always preventable”' in order to qualify as an Start Printed Page 51511HAC, but rather that it be “reasonably preventable,” which necessarily implies something less than 100 percent.

With regard to the commenter's assertion that risk adjustment is an indispensible component of an equitable HAC policy, we refer readers to the FY 2009 IPPS final rule and the FY 2010 IPPS/RY 2010 LTCH PPS final rule. In the FY 2009 IPPS final rule (73 FR 48487 through 48488), we discussed risk adjustment of payments related to HACs. We addressed this issue again in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43785), where we noted that a risk adjustment methodology may lead to greater precision of HAC payment determinations. As part of the RTI evaluation of the HAC-POA program, the concept of risk adjustment continues to be an important area of interest and study for the agency. We will consider the results of RTI's evaluation when it is complete and, if appropriate, make a proposal and solicit public comment in future rulemaking.

After consideration of the public comments we received, we are finalizing the adoption of the five new ICD-9-CM diagnosis codes described above as CC/MCCs to be added to their respective HAC categories as proposed. Therefore, effective October 1, 2011 (FY 2012), procedure codes 808.44 and 808.54 describing multiple pelvic fractures will be added to the Falls and Trauma HAC category, procedure codes 539.01 and 539.81 describing infections related to gastric procedures will be added to the Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category, and procedure code 415.13 describing a type of pulmonary embolus will be added to the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category. All of these conditions will be subject to the HAC payment provision for FY 2012.

c. Revision to HAC Subcategory Title

After publication of the FY 2011 IPPS/LTCH PPS final rule, we received a comment stating that the subcategory title “Electric Shock” that is included in the Falls and Trauma HAC category was misleading. The commenter stated that this subcategory title did not accurately describe the CC/MCC ICD-9-CM diagnoses codes (991 through 994) contained within this subcategory. The commenter requested that CMS develop a new title that would more accurately describe this group of codes.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25814), we stated that we agreed with the commenter that the HAC subcategory title “Electric Shock” is potentially misleading because the codes included within these ranges contain a variety of injuries, including the following:

  • Category 991 (Effects of Reduced Temperature)
  • Category 992 (Effects of Heat and Light)
  • Category 993 (Effects of Air Pressure)
  • Category 994 (Effects of Other External Causes)

We proposed to change the title of this HAC subcategory from “Electric Shock” to “Other Injuries” because it includes a variety of injury codes. The subcategory will continue to include the codes within the 991 through 994 code ranges appearing on the CC/MCC list. We did not propose any changes to the list of codes in this subcategory; we simply proposed to rename the subcategory title. We invited public comments on the proposed title change to the HAC subcategory from “Electric Shock” to “Other Injuries” for FY 2012.

Comment: Several commenters supported CMS' proposal to change the title of this HAC subcategory from “Electric Shock” to “Other Injuries” because it includes a variety of injury codes. The commenters stated that this title change would better describe the conditions included in the range of codes.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to change the title of the HAC subcategory from “Electric Shock” to “Other Injuries.” The subcategory will continue to include the codes within the 991 through 994 code ranges appearing on the CC/MCC list. In addition, we are not making any changes to the list of codes in this subcategory; the subcategory title will simply be renamed effective FY 2012.

d. Conclusion

In the FY 2012 IPPS/LTCH PPS proposed rule, we listed the current HAC categories and the ICD-9-CM codes that identify the conditions and have been finalized through FY 2011. For FY 2012, we proposed that these conditions continue to be subject to the HAC payment provision, along with the creation of a new HAC category for contrast-induced acute kidney injury. (We note that, as discussed in section II.F.2.a. of the preamble of the proposed rule and this final rule, we are not adopting our proposal to add a new HAC category for contrast-induced acute kidney injury for FY 2012.) In addition, we proposed to add five new ICD-9-CM diagnosis codes and to revise the title of the “Electric Shock” subcategory in the Falls and Trauma HAC category.

Comment: Several commenters supported maintaining the current HAC categories and the ICD-9-CM codes that identify those conditions. These commenters agreed that the conditions should continue to be subject to the HAC payment provision for FY 2012.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are adopting the following list of HAC categories and the ICD-9-CM codes that identify the conditions that have been finalized through FY 2011 and that we are finalizing in this final rule for FY 2012.

HACCC/MCC (ICD-9-CM Code)
Foreign Object Retained After Surgery998.4 (CC)
998.7 (CC)
Air Embolism999.1 (MCC)
Blood Incompatibility999.60 (CC)
999.61 (CC)
999.62 (CC)
999.63 (CC)
999.69 (CC)
Pressure Ulcer Stages III & IV707.23 (MCC)
707.24 (MCC)
Falls and Trauma:Codes within these ranges on the CC/MCC list:
—Fracture800-829
—Dislocation830-839
Start Printed Page 51512
—Intracranial Injury850-854
—Crushing Injury925-929
—Burn940-949
—Other Injuries991-994
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—278.01 539.01 (CC)
539.81 (CC)
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) 415.13 (MCC) 415.19 (MCC)
453.40-453.42 (CC)
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 (73 FR 48474 through 48486) for detailed analyses supporting the selection of each of the HACs selected through FY 2012.

3. RTI Program Evaluation Summary

a. Background

On September 30, 2009, a contract was awarded to Research Triangle Institute, International (RTI) to evaluate the impact of the Hospital-Acquired Condition-Present on Admission (HAC-POA) provisions on the changes in the incidence of selected conditions, effects on Medicare payments, impacts on coding accuracy, unintended consequences, and infection and event rates. This is an intra-agency project with funding and technical support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also examine the implementation of the program and evaluate additional conditions for future selection.

RTI's evaluation of the HAC-POA provisions is divided into several parts. In the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101), we summarized the analyses by RTI that had been completed at that time. These RTI analyses of POA indicator reporting, frequencies and net savings associated with current HACs, and frequencies of previously considered candidate HACs reflected MedPAR claims from October 2008 through September 2009.

b. FY 2009 Data Analysis

As we describe in section II.F.1.f. of this preamble, we have provided instructions to IPPS hospitals and non-IPPS hospitals regarding the submission of POA indicator data for all diagnosis codes on Medicare claims and the processing of non-PPS claims (75 FR 23381) and note that specific instructions on how to select the correct POA indicator for each diagnosis code were included in the ICD-9-CM Official Guidelines for Coding and Reporting, available on the CDC Web site at: http://www.cdc.gov/​nchs/​data/​icd9/​icdguide10.pdf. After publication of the FY 2011 IPPS/LTCH PPS final rule, we identified a discrepancy between the claims data that hospitals submitted and the CMS data file used to calculate the HAC measures. Specifically, this error led to incorrect HAC assignments in cases where a hospital reported an external cause of injury (E-code). Since then, we have corrected this error in the data file.

As a result, the RTI analysis of the HAC-POA program that was conducted using FY 2009 claims data was updated using the corrected data file. The corrected data do not appear to have a Start Printed Page 51513material impact on our previous findings for FY 2009. Revised data tables were made publicly available on the CMS Web site at http://www.cms.gov/​HospitalAcqCond/​01_​Overview.asp and the RTI Web site at http://www.rti.org/​reports/​cms/​ after publication of the FY 2012 IPPS/LTCH PPS proposed rule.

c. FY 2010 Data Analysis

RTI's analysis of the FY 2010 MedPAR data file for the HAC-POA program evaluation was prepared for publication in the FY 2012 IPPS/LTCH PPS proposed rule. We indicated in the proposed rule that we would provide the results from the study on the CMS Web site at http://www.cms.gov/​HospitalAcqCond/​01_​Overview.asp and on the RTI Web site at http://www.rti.org/​reports/​cms/​ when it became available. We also stated that we anticipated that the examination of FY 2010 MedPAR data would be completed soon after publication of the proposed rule. We invited public comment on RTI's analysis of the FY 2010 MedPAR data for the HAC-POA program.

Since publication of the FY 2012 IPPS/LTCH proposed rule, we determined that it would be beneficial to the public if we provided a summary of the results of RTI's HAC-POA program evaluation of the FY 2010 MedPAR data in this FY 2012 IPPS/LTCH final rule, in addition to making these results available on both the CMS and RTI Web sites mentioned above. Below we present a summary of these results.

d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.

To better understand the impact of HACs on the Medicare program, it is necessary to first examine the incidence of POA indicator reporting across all eligible Medicare discharges. As mentioned previously, only IPPS hospitals are required to submit POA indicator data for all diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals were excluded, as well as providers in waiver States (Maryland) and territories other than Puerto Rico.

Using MedPAR claims data from October 2009 through September 2010, RTI found a total of approximately 74.38 million secondary diagnoses across approximately 10.2 million discharges. As shown in Chart A below, the majority of all secondary diagnoses (80.94 percent) were reported with a POA indicator of “Y,” meaning the condition was POA.

Chart A—POA Code Distribution Across All Secondary Diagnoses

NumberPercentage
Total Discharges in Final File10,189,168
Total Number of Secondary Diagnoses Across Total Discharges74,382,681100.00
POA Indicator Description:
Y   Condition present on admission60,206,59380.94
W   Status cannot be clinically determined13,1450.02
N    Condition not present on admission5,001,1386.72
U    Documentation not adequate to determine if condition was present on admission2,223,3182.99
1   Exempted ICD-9-CM code6,938,4879.33
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.

Following the initial analysis of POA indicator reporting for all secondary diagnoses, RTI then evaluated POA indicator reporting for specific HAC-associated secondary diagnoses. The term “HAC-associated secondary diagnosis” refers to those diagnoses that are on the selected HAC list and were reported as a secondary diagnosis. Chart B below shows a summary of the HAC categories with the frequency in which each HAC was reported as a secondary diagnosis and the corresponding POA indicators assigned on the claims. It is important to note that, because more than one HAC-associated diagnosis code can be reported per discharge (that is, on a single claim), the frequency of HAC-associated diagnosis codes may be more than the actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis. Below we discuss the frequency of each HAC-associated diagnosis code and the POA indicators assigned to those claims.

RTI analyzed the frequency of each reported HAC-associated secondary diagnosis (across all approximately 10.2 million discharges) and the POA indicator assigned to the claim. Chart B below shows that the most frequently reported conditions were in the Falls and Trauma HAC category, with a total of 189,231 HAC-associated diagnosis codes being reported for that HAC category. Of these 189,231 diagnoses, 5,762 reported a POA indicator of “N” and 326 reported a POA indicator of “U” for not POA. Similarly, 183,048 diagnoses reported a POA indicator of “Y” for POA and 95 diagnoses reported a POA indicator of “W.” The lowest frequency appears in the Surgical Site Infection (SSI) Following Bariatric Surgery for Obesity HAC category with only 18 HAC-associated secondary diagnosis codes (and procedure codes) reported, where 17 diagnoses were reported with a POA indicator of “N” and 1 diagnosis was reported with a POA indicator of “Y.”

Chart B—POA Status of Current HACS: October 2009 Through September 2010

Selected HACFrequency as a secondary diagnosisTreated as hospital acquired conditionsNot treated as Hospital acquired conditions
POA = NPOA = UPOA = YPOA = W
NumberPercentNumberPercentNumberPercentNumberPercent
1. Foreign Object Retained After Surgery (CC)56527849.210.228650.600.0
2. Air Embolism (MCC)422969.000.01331.000.0
3. Blood Incompatibility (CC)351234.300.02365.700.0
4. Pressure Ulcer Stages III & IV (MCC)120,5821,4071.2810.1119,06598.7290.0
Start Printed Page 51514
5. Falls and Trauma (MCC & CC)189,2315,7623.03260.2183,04896.7950.1
6. Catheter-Associated UTI (CC)18,2473,87721.2240.114,31978.5270.1
7. Vascular Catheter-Associated Infection (CC)10,0664,34643.2250.25,67356.4220.2
8. Poor Glycemic Control (MCC)16,4685653.4140.115,88896.510.0
9A. Surgical Site Infection Mediastinitis CABG (CC)403690.000.0410.000.0
9B. Surgical Site Infection Following Certain Orthopedic Procedures (CC)36522060.310.314439.500.0
9C. Surgical Site Infection Following Bariatric Surgery for Obesity (CC)181794.400.015.600.0
10. Pulmonary Embolism & DVT Orthopedic (MCC)3,8203,13282.0160.464817.0240.6
Total*359,47919,6815.54880.1339,11294.31980.1

As described in section II.F.1.f. of this preamble, in the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted final payment policies 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 also discussed the comments we received urging CMS to consider changing the policy and to pay for those HACs assigned a POA indicator of “U” (documentation is insufficient to determine if the condition was present at the time of admission). We stated we would monitor the extent to which and under what circumstances the “U” POA reporting option is used. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43784 and 43785), we also discussed and responded to comments regarding HACs coded with the “U” indicator. As shown in Chart B above, RTI's analysis provides data on a total of 488 HAC-associated secondary diagnoses reported with a POA indicator of “U.” These 488 diagnoses represented 2.4 percent of the 20,169 diagnoses that were considered not POA (that is, POA indicator of “N” or “U”). Approximately 3 of the 10 conditions reported no diagnoses with POA indicators of “U”: Air embolism, Blood Incompatibility, and two of the three surgical site infections (Mediastinitis after CABG and SSI after bariatric surgery for obesity). For the two most frequently occurring conditions, the Falls and Trauma HAC category and Stage III and/or IV Pressure Ulcers, diagnoses with a POA indicator of “U” represented a small proportion of diagnoses that were considered not POA (that is, POA indicator of “N” or “U”). For the Falls and Trauma HAC category, 5.7 percent of diagnoses (326 cases) considered not POA were reported with a POA indicator of “U.” For Stage III and/or IV Pressure Ulcers, 5.4 percent of diagnoses (81 cases) considered not POA were reported with a POA indicator of “U.” These two categories also represented the conditions where diagnoses with a POA indicator of “U” were the highest proportion of diagnoses considered not POA. We consider the range of 0 to 5.7 percent to indicate that “U” is not used with great frequency for these 10 conditions. In the proposed rule, we stated that we did not contemplate a proposal to change our policy under which CMS does not pay at the higher CC/MCC amount when a selected HAC diagnosis code is reported with a POA indicator of “U.” The data analysis described above continues to support our policy.

We encourage readers to further review the RTI detailed report which demonstrates the frequency of each individual HAC-associated diagnosis code within the HAC categories. As an example, we note that in the Foreign Object Retained After Surgery HAC category, there are two unique ICD-9-CM diagnosis codes used to identify that condition: diagnosis code 998.4 (Foreign body accidentally left during a procedure) and diagnosis code 998.7 (Acute reaction to foreign substance accidentally left during a procedure). In the detailed RTI report, readers can view that diagnosis code 998.4 was reported 547 times and diagnosis code 998.7 was reported 18 times, across all MS-DRGs, for a total of 565 times. The RTI detailed report is available at the following Web site: http://www.rti.org/​reports/​cms/​.

e. FY 2010 RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs

RTI further analyzed the effect of the HAC provision by studying the frequency with which a HAC-associated diagnosis was reported as a secondary diagnosis with a POA indicator of “N” or “U” and, of that number, how many resulted in MS-DRG reassignment. In Chart C below, Column A shows the number of discharges for each HAC category where the HAC-associated diagnosis was reported as a secondary diagnosis. Column B shows the percent of discharges reporting a HAC-associated diagnosis code relative to the total discharges “at risk” in each HAC category. For HAC categories 1 through 8, both medical and surgical MS-DRGs are included in the total discharges “at risk” so this equates to 10,189,168 discharges. The remaining HAC categories are defined by the combination of diagnosis and procedure codes; therefore, only the surgical MS-DRGs that include the designated procedure codes are included in the total discharges “at risk.” For HAC 9a, the total discharges “at risk” equates to 97,341. For HAC 9b, the total discharges “at risk” equates to 118,815 and for HAC 9c, the total discharges “at risk” equates to 15,698. Lastly, for HAC 10, the total discharges “at risk” equates to 440,571.

Column C shows the number of discharges for each HAC reported with a POA indicator of “N” or “U.” For example, there were 42 discharges that reported Air Embolism as a secondary diagnosis. The chart shows that, of these 42 reported discharges, 29 discharges (69.05 percent) had a POA indicator of “N” or “U” and was identified as a HAC discharge. The HAC policy applied to these 29 discharges, and they could, therefore, have had an MS-DRG reassignment. Column E shows the number of discharges where an actual MS-DRG reassignment occurred. For the Air Embolism HAC, Column E shows that the number of discharges that resulted in actual MS-DRG reassignments is 15 (51.72 percent of the 29 discharges with a POA indicator of “N” or “U”). Thus, while there were 29 discharges (69.05 percent of the original Start Printed Page 5151542 that had air embolism reported as a secondary diagnosis) with an air embolism reported with a POA indicator of “N” or “U” identified as a HAC discharge that could have caused MS-DRG reassignment, 15 discharges (51.72 percent) experienced MS-DRG reassignments. There are a number of reasons why a selected HAC reported with a POA indicator of “N” or “U” will not result in MS-DRG reassignment. These reasons were illustrated with the diagram in section II.F.1.c. of this preamble and will be discussed in further detail in section II.F.3.e. of this preamble.

Chart C below also shows that, of the 317,644 discharges with a HAC-associated diagnosis as a secondary diagnosis, 3,587 discharges ultimately resulted in MS-DRG reassignment. As we discuss below, there were 15 claims that resulted in MS-DRG reassignment where 2 HACs were reported on the same admission. The four HAC categories that had the most discharges resulting in MS-DRG reassignment were: (1) Falls and Trauma; (2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); (3) Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary Tract Infection (UTI).

Codes falling under the Falls and Trauma HAC category were the most frequently reported secondary diagnoses with 154,371 discharges. Of these 154,371 discharges, 5,454 (3.53 percent) were coded as not POA and identified as HAC discharges. This category also contained the greatest number of discharges that resulted in an MS-DRG reassignment. Of the 5,454 discharges within this HAC category that were not POA, 1,672 (30.66 percent) resulted in an MS-DRG reassignment.

Of the 317,644 total discharges reporting HAC-associated diagnoses as a secondary diagnosis, 3,494 discharges were coded with a secondary diagnosis of PE/DVT Orthopedic. Of these 3,494 discharges, 2,876 (82.31 percent) were coded as not POA and identified as HAC discharges. This category contained the second greatest number of discharges resulting in an MS-DRG reassignment. Of the 2,876 discharges in this HAC category that were not POA, 1,206 discharges (41.93 percent) resulted in an MS-DRG reassignment.

The Pressure Ulcer Stages III & IV category had the second most frequently coded secondary diagnoses, with 114,138 discharges. Of these discharges, 1,444 (1.27 percent) were coded as not POA and identified as HAC discharges. This category contained the third greatest number of discharges resulting in an MS-DRG reassignment. Of the 1,444 discharges in this HAC category that were not POA, 292 discharges (20.22 percent) resulted in an MS-DRG reassignment.

The Catheter-Associated UTI category had the third most frequently coded secondary diagnoses, with 18,247 discharges. Of these discharges, 3,885 (21.29 percent) were coded as not POA and identified as HAC discharges. This category contained the fourth greatest number of discharges resulting in an MS-DRG reassignment. Of the 3,885 discharges in this HAC category that were not POA, 223 discharges (5.74 percent) resulted in a MS-DRG reassignment.

The remaining 6 HAC categories only had 194 discharges that ultimately resulted in MS-DRG reassignment. We note that, even in cases where a large number of HAC-associated secondary diagnoses were coded as not POA, this finding did not necessarily translate into a large number of discharges that resulted in MS-DRG reassignment. For example, only 22 of the 4,366 Vascular Catheter-Associated Infection secondary diagnoses that were coded as not POA and identified as HAC discharges resulted in a MS-DRG reassignment.

There were a total of 364 discharges with a HAC-associated secondary diagnosis reporting a POA indicator of “N” or “U” that were excluded from acting as a HAC discharge (subject to MS-DRG reassignment) due to the CC Exclusion List logic within the GROUPER. The CC Exclusion List identifies secondary diagnosis codes designated as a CC or MCC that are disregarded by the GROUPER logic when reported with certain principal diagnoses. For example, a claim with the principal diagnosis code of 250.83 (Diabetes with other specified manifestations, type 1 [juvenile type], uncontrolled) and a secondary diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile type], uncontrolled) with a POA indicator of “N” would result in the HAC-associated secondary diagnosis code 250.13 being ignored as a CC. According to the CC Exclusion List, code 250.13 is excluded from acting as a CC when code 250.83 is the principal diagnosis. As a result, the HAC logic would not be applicable to that case. For a detailed discussion on the CC Exclusion List, we refer readers to section II.G.9. of this preamble.

Discharges where the HAC logic was not applicable due to the CC Exclusion List occurred among the following 6 HAC categories: Pressure Ulcer Stages III and IV (29 cases); Falls and Trauma (263 cases); Catheter-Associated UTI (16 cases); Vascular Catheter-Associated Infection (5 cases); Manifestations of Poor Glycemic Control (50 cases); and Surgical Site Infection Following Certain Orthopedic Procedures (1 case). Further information regarding the specific number of cases that were excluded for each HAC-associated secondary diagnosis code within each of the above mentioned HAC categories is also available in the RTI detailed report, which can be found at: http://www.rti.org/​reports/​cms/​.

In summary, Chart C below demonstrates that there were a total of 317,644 discharges with a reported HAC-associated secondary diagnosis. Of the total 317,644 discharges, 6.0 percent, or 19,143 discharges, were HACs reported with a POA indicator of “N” or “U” that were identified as a HAC discharge. Approximately 18.7 percent, or 3,587 discharges, of these 19,143 discharges resulted in MS-DRG reassignments.

Chart C—Discharge Frequencies of Current CMS HACS October 2009 Through September 2010

Selected HAC categoryDischarges with this condition as secondary diagnosisDischarges identified as a HACDischarges that change MS-DRG due to HAC
Number (column a)Percent 2 (column b)Number (column c)Percent 3 (column d)Number (column e)Percent 4 (column f)
1. Foreign Object Retained After Surgery5630.0127849.384415.83
2. Air Embolism420.002969.051551.72
3. Blood Incompatibility350.001234.2900.00
4. Pressure Ulcer Stages III & IV114,1381.12