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Proposed Rule

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for Graduate Medical Education Payment Purposes; Quality Reporting Requirements for Specific Providers and for Ambulatory Surgical Centers

Document Details

Information about this document as published in the Federal Register.

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ACTION:

Proposed rule.

SUMMARY:

We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems and to implement certain 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. These changes would be applicable to discharges occurring on or after October 1, 2012. We also are proposing to update the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2012.

We are proposing to update 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. These proposed changes would be applicable to discharges occurring on or after October 1, 2012.

In addition, we are proposing changes relating to determining a hospital's full-time equivalent (FTE) resident cap for the purpose of graduate medical education (GME) and indirect medical education (IME) payments. We are proposing new requirements or revised requirements for quality reporting by specific providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities (IPFs)) that are participating in Medicare. We also are proposing new administrative, data completeness, and extraordinary circumstance waivers or extension requests requirements, as well as a reconsideration process, for quality reporting by ambulatory surgical centers (ASCs) that are participating in Medicare.

We are proposing requirements for the Hospital Value-Based Purchasing (VBP) Program and the Hospital Readmissions Reduction Program.

DATES:

Comment Period: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. EDT on June 25, 2012.

ADDRESSES:

When commenting, please refer to file code CMS-1588-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may submit electronic comments on this regulation at http://www.regulations.gov. Follow the instructions for “Comment or Submission” and enter the file code CMS-1588-P to submit comments on this proposed rule.

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1588-P, P.O. Box 8011, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1588-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

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

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

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

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

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

For information on viewing public comments, see the beginning of the Supplementary Information section.

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.

Mollie Knight, (410) 786-7948, Market Basket for LTCHs Issues.

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

James Poyer, (410) 786-2261, Inpatient Quality Reporting and Hospital Value-Based Purchasing—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.

James Poyer, (410) 786-2261, and Barbara Choo, (410) 786-4449, Inpatient Psychiatric Facility Quality Reporting Issues and PPS-Exempt Cancer Hospital Quality Reporting Issues.

Anita Bhatia, (410) 786-7236, Ambulatory Surgical Center Quality Reporting Issues.

SUPPLEMENTARY INFORMATION:

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

Comments received timely will also be available for public inspection, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4:00 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

This Federal Register document is also available from the Federal Register online database through the U.S. Government Printing Office Web page at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR. 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), by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required).

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 proposed 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 are no longer 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 proposed 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 2013 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download”. The LTCH PPS tables for this FY 2013 proposed 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-1588-F. For complete details on the availability of the tables referenced in this proposed rule, we refer readers to section VI. of the Addendum to this proposed 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 Association

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis Related Group System

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

ASC Ambulatory surgical center

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

ASCQR Ambulatory Surgical Center Quality Reporting

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

CDC Center for Disease Control and Prevention

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  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

LTCHQR Long-Term Care Hospital Quality Reporting

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

NHSN National Healthcare Safety Network

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]

PCH PPS-exempt cancer hospital

PCHQR PPS-exempt cancer hospital quality reporting

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 Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

SSO Short-stay outlier

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

TEP Technical expert panel

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

TPS Total Performance Score

UHDDS Uniform hospital discharge data set

Table of Contents

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

2. Summary of the Major Provisions of Rule

3. Summary of Costs and Benefits

B. Background

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)

C. 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 2013

D. Major Contents of This Proposed Rule

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

A. Background

B. MS-DRG Reclassifications

1. General

2. Yearly Review for Making MS-DRG Changes

C. Adoption of the MS-DRGs in FY 2008

D. Proposed FY 2013 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 Pub. L. 110-90

4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

5. Prospective Adjustment for FY 2008 and FY 2009 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 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 Standard Amount

10. Proposed Prospective Adjustments for FY 2010 Documentation and Coding Effect

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Summary of Policy Discussions in FY 2012

3. Discussion for FY 2013

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

1. Background

2. HAC Selection

a. Diagnosis Codes Proposed To Be Added to Existing HACs

b. Proposals To Add New HAC Candidate: Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures

c. Proposal Regarding Previously Considered HAC Candidate: Iatrogenic Pneumothorax With Venous Catheterization

3. Present on Admission (POA) Indicator Reporting

4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS

5. Proposed Changes to the HAC Policy for FY 2013

6. RTI Program Evaluation Summary

G. Proposed Changes to Specific MS-DRG Classifications

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

a. Ventricular Assist Device

b. Allogeneic Bone Marrow Transplant

2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): Influenza With Pneumonia

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

a. Mitral Valve Repair

b. Endovascular Implantation of Branching or Fenestrated Grafts in Aorta

4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders): Disorders of Porphyrin Metabolism

5. Proposed Medicare Code Editor (MCE) Changes

6. Surgical Hierarchies

7. Complications or Comorbidity (CC) Exclusions List

a. Background

b. CC Exclusions List for FY 2013

(1) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for FY 2013

(2) Suggested Changes to MS-DRG Severity Levels for Diagnosis Codes for FY 2013

(A) Protein-Calorie Malnutrition

(B) Antineoplastic Chemotherapy Induced Anemia

(C) Cardiomyopathy and Congestive Heart Failure, Unspecified

(D) Chronic Total Occlusion of Artery of the Extremities

(E) Acute Kidney Failure With Other Specified Pathological Lesion in Kidney

(F) Pressure Ulcer, Unstageable

8. 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

9. Proposed Changes to the ICD-9-CM Coding System, Including Discussion of the Replacement 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

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Proposed Weights

2. Methodology for Calculation of the Proposed Relative Weights

3. Development of National Average CCRs

4. Bundled Payments for Care Improvement (BPCI) Initiative

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

1. Background

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

3. FY 2013 Status of Technology Approved for FY 2012 Add-On Payments: AutoLaser Interstitial Thermal Therapy (AutoLITTTM)

4. FY 2013 Applications for New Technology Add-On Payments

a. Glucarpidase (Trade Brand Voraxaze®)

b. DIFICIDTM (Fidaxomicin) Tablets

c. Zilver® PTX® Drug-Eluting Stent

d. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft

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

A. Background

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

C. Worksheet S-3 Wage Data for the Proposed FY 2013 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

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

D. Verification of Worksheet S-3 Wage Data

E. Method for Computing the Proposed FY 2013 Unadjusted Wage Index

F. Proposed Occupational Mix Adjustment to the FY 2013 Wage Index

G. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2013 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix Adjusted Wage Index

2. Application of the Rural, Imputed, and Frontier Floors

a. Rural Floor

b. Imputed Floor and Proposal for an Alternative, Temporary Methodology for Computing the Imputed Floor

c. Frontier Floor

3. Proposed FY 2013 Wage Index Tables

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

1. General

2. Effects of Reclassification/Redesignation

3. FY 2013 MGCRB Reclassifications

a. FY 2013 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2014

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. Proposed FY 2013 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 2013 Wage Index

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

A. Hospital Readmission Reduction Program

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Overview

3. FY 2013 Proposed Policies for the Hospital Readmissions Reduction Program

a. Overview

b. Proposals Regarding Base Operating DRG Payment Amount, Including Special Rules for SCHs and MDHs and Hospitals Paid Under Section 1814 of the Act

(1) Proposed Definition of Base Operating DRG Payment Amount (Proposed § 412.152)

(2) Proposal on Special Rules for Certain Hospitals: Hospitals Paid Under Section 1814(b)(3) of the Act (Proposed § 412.154(d))

c. Proposals Regarding Adjustment Factor (Both the Ratio and Floor Adjustment Factor (Proposed § 412.154(c))

d. Proposals Regarding Aggregate Payments for Excess Readmissions and Aggregate Payment for All Discharges (Proposed § 412.152)

e. Proposals Regarding Applicable Hospital (Proposed § 412.152)

4. Limitations on Review (Proposed § 412.154(e))

5. Reporting Hospital-Specific Information, Including Opportunity To Review and Submit Corrections ((Proposed § 412.154(f))

B. Sole Community Hospitals (SCHs) (§ 412.92)

1. Background

2. Clarification of Regulations Regarding Duration of Classification (Proposed § 412.92(b)(3)(iv))

3. Proposed Change to Effective Date of Classification for MDHs Applying for SCH Status Upon the Expiration of the MDH Program (Proposed § 412.92(b)(3)(v))

C. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI) and Discharge Criteria (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

D. Proposed Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Expiration of the Affordable Care Act Provision for FYs 2011 and 2012

2. Background

3. Affordable Care Act Provisions for FYs 2011 and 2012

4. Proposed Payment Adjustment for FY 2013 and Subsequent Years

E. Indirect Medical Education (IME) Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2013

2. Clarification and Proposal Regarding Timely Filing Requirements Under Fee-for-Service Medicare

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

1. Background

2. Proposed Policy Change Relating to Treatment of Labor and Delivery Beds in the Calculation of the Medicare DSH Payment Adjustment and the IME Payment Adjustment

G. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

H. Proposed Changes in the Inpatient Hospital Update

1. FY 2013 Inpatient Hospital Update

2. FY 2013 Puerto Rico Hospital Update

I. Payment for Graduate Medical Education Costs

1. Background

2. New Teaching Hospitals: Proposed Change in New Growth Period From 3 Years to 5 Years

3. Clarification Related to 5-Year Period Following Implementation of Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of the Affordable Care Act

4. Preservation of Resident Cap Positions From Closed Hospitals (Section 5506 of the Affordable Care Act)

a. Background

b. Proposed Change in Amount of Time Provided for Submitting Applications Under Section 5506 of the Affordable Care Act

c. Proposed Change to the Ranking Criteria Under Section 5506

d. Effective Dates of Slots Awarded Under Section 5506

e. Clarification of Relationship Between Ranking Criteria One, Two, and Three

f. Proposed Modifications to the Section 5506 CMS Evaluation Form

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

K. Rural Community Hospital Demonstration Program

1. Background

2. Proposed FY 2013 Budget Neutrality Offset Amount

L. Hospital Routine Services Furnished Under Arrangements

M. Proposed Technical Change

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

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

C. Proposed Changes in the Documentation and Coding Adjustment for FY 2013

1. Background

2. Prospective Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2013 and Subsequent Years

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

D. Proposed Changes for Annual Update for FY 2013

VI. Proposed Changes for Hospitals Excluded From the IPPS

VII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2013

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

2. Criteria for Classification as a LTCH

a. Classification as a LTCH

b. Hospitals Excluded From the LTCH PPS

3. Limitation on Charges to Beneficiaries

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

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights for FY 2013

1. Background

2. Patient Classifications Into MS-LTC-DRGs

a. Background

b. Proposed Changes to the MS-LTC-DRGs for FY 2013

3. Development of the Proposed FY 2013 MS-LTC-DRG Relative Weights

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

b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2013

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

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

f. Proposed Low-Volume MS-LTC-DRGs—Steps for Determining the Proposed FY 2013 MS-LTC-DRG Relative Weights

g. Steps for Determining the Proposed FY 2013 MS-LTC-DRG Relative Weights

C. Proposed Use of a LTCH-Specific Market Basket Under the LTCH PPS

1. Background

2. Overview of the Proposed FY 2009-Based LTCH-Specific Market Basket

3. Proposed Development of a LTCH-Specific Market Basket

a. Development of Cost Categories

b. Cost Category Computation

c. Selection of Price Proxies

d. Proposed Methodology for the Capital Portion of the Proposed FY 2009-Based LTCH-Specific Market Basket

e. Proposed FY 2013 Market Basket for LTCHs

f. Proposed FY 2013 Labor-Related Share

D. Proposed Changes to the LTCH Payment Rates and Other Changes to the FY 2013 LTCH PPS

1. Overview of Development of the LTCH Payment Rates

2. Proposed FY 2013 LTCH PPS Annual Market Basket Update

a. Overview

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

c. Proposed Market Basket Under the LTCH PPS for FY 2013

d. Proposed Annual Market Basket Update for LTCHs for FY 2013

3. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located in Alaska and Hawaii

E. Expiration of Certain Payment Rules for LTCH Services and the Moratorium on the Establishment of Certain Hospitals and Satellite Facilities and on the Increase in Number of Beds at in LTCHs and LTCH Satellite Facilities

1. Background

2. The 25-Percent Payment Adjustment Threshold

3. The “IPPS Comparable Per Diem Amount” Payment Option for Very Short Stays Under the SSO Policy

4. Proposed One-Time Prospective Adjustment to the Standard Federal Rate Under § 412.523(d)(3)

VIII. Proposed Quality Data Reporting Requirements for Specific Providers and Suppliers

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background

a. History of Measures Adopted for the Hospital IQR Program

b. Maintenance of Technical Specifications for Quality Measures

c. Public Display of Quality Measures

2. Removal and Suspension of Hospital IQR Program Measures

a. Considerations in Removing Quality Measures From the Hospital IQR Program

b. Hospital IQR Program Measures Removed in Previous Rulemakings

c. Proposed Removal of Hospital IQR Program Measures for the FY 2015 Payment Determination and Subsequent Years

(1) Proposed Removal of One Chart-Abstracted Measure

(2) Proposed Removal of 16 Claims-Based Measures

(A) Proposed Removal of Eight Hospital-Acquired Condition (HAC) Measures

(B) Proposed Removal of Three AHRQ IQI Measures

(C) Proposed Removal of Five AHRQ PSI Measures

d. Suspension of Data Collection for the FY 2014 Payment Determination and Subsequent Years

3. Proposed Measures for the FY 2015 and FY 2016 Hospital IQR Program Payment Determinations

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

b. Proposed Hospital IQR Program Measures for the FY 2015 Payment Determination and Subsequent Years

(1) Process for Retention of Hospital IQR Program Measures Adopted in Previous Payment Determinations

(2) Proposed Additional Hospital IQR Program Measures for FY 2015 Payment Determination and Subsequent Years

(A) Proposed New Survey-Based Measure Items for Inclusion in the HCAHPS Survey Measure for the FY 2015 Payment Determination and Subsequent Years

(B) Proposed New Claims-Based Measures for the FY 2015 Payment Determination and Subsequent Years

(C) Proposed New Chart-Abstracted Measure: Elective Delivery Prior to 39 Completed Weeks Gestation: Percentage of Babies Electively Delivered Prior to 39 Completed Weeks Gestation (NQF #469)

(D) Clarification Regarding Existing Hospital IQR Program Measures That Have Undergone Changes During NQF Measure Maintenance Processes

c. Proposed Hospital IQR Program Quality Measures for the FY 2016 Payment Determination and Subsequent Years

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

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

a. Background

b. Proposed Procedural Requirements for the FY 2015 Payment Determination and Subsequent Years

c. Proposed Data Submission Requirements for Chart-Abstracted Measures

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

e. Proposed HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016 Payment Determinations

f. Proposed Data Submission Requirements for Structural Measures

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

6. Proposed Supplements to the Chart Validation Process for the Hospital IQR Program for the FY 2015 Payment Determination and Subsequent Years

a. Separate Validation Approaches for Chart-Abstracted Clinical Process of Care and HAI Measures

(1) Background and Rationale

(2) Selection and Sampling of Clinical Process of Care Measures for Validation

(3) Selection and Sampling of HAI Measures for Validation

(4) Validation Scoring for Chart-Abstract Clinical Process of Care and HAI Measures

(5) Criteria To Evaluate Whether a Score Passes or Fails

b. Number and Manner of Selection for Hospitals Included in the Base Annual Validation Random Sample

c. Targeting Criteria for Selection of Supplemental Hospitals for Validation

7. Proposed Data Accuracy and Completeness Acknowledgement Requirements for the FY 2015 Payment Determination and Subsequent Years

8. Public Display Requirements for the FY 2015 Payment Determination and Subsequent Years

9. Reconsideration and Appeal Procedures for the FY 2015 Payment Determination

10. Hospital IQR Program Disaster Extensions or Waivers

11. Electronic Health Records (EHRs)

a. Background

b. HITECH Act EHR Provisions

B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

1. Statutory Authority

2. Covered Entities

3. Proposed Quality Measures for PCHs for FY 2014 Program and Subsequent Program Years

a. Considerations in the Selection of the Quality Measures

b. Proposed PCHQR Program Quality Measures for FY 2014 Program and Subsequent Program Years

(1) Proposed CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures

(A) Proposed Central Line Associated Blood Stream Infections ((CLABSI), NQF #0139)

(B) Proposed Catheter Associated Urinary Tract Infection ((CAUTI), NQF #0138)

(2) Proposed Cancer-Specific Measures

(A) Proposed Adjuvant Chemotherapy Is Considered or Administered Within 4 Months (120 Days) of Surgery to Patient Under the Age of 80 With AJCC III (Lymph Node Positive Colon Cancer) (NQF #0223)

(B) Proposed Combination Chemotherapy Is Considered or Administered Within 4 Months (120 Days) of Diagnosis for Women Under 70 With AJCC T1c or Stage II or III Hormone Receptor Negative Breast Cancer (NQF #0559)

(C) Proposed Adjuvant Hormonal Therapy (NQF #0220)

4. Possible New Quality Measure Topics for Future Years

5. Maintenance of Technical Specifications for Quality Measures

6. Proposed Public Display Requirements for the FY 2014 Program and Subsequent Program Years

7. Proposed Form, Manner, and Timing of Data Submission for FY 2014 Program and Subsequent Program Years

a. Background

b. Proposed Procedural Requirements for FY 2014 Program and Subsequent Program Years

c. Proposed Reporting Mechanisms for FY 2014 Program and Subsequent Program Years

(1) Proposed Reporting Mechanism for the Proposed HAI Measures

(2) Proposed Reporting Mechanism for the Proposed Cancer-Specific Measures

d. Proposed Data Submission Timelines for FY 2014 Program and Subsequent Program Years

e. Proposed Data Accuracy and Completeness Acknowledgement (DACA) Requirements for FY 2014 Program and Subsequent Program Years

C. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background

2. Overview of the FY 2013 Hospital VBP Program

3. FY 2014 Hospital VBP Program Measures

4. Other Previously Finalized Requirements for the Hospital VBP Program

5. Proposed Hospital VBP Payment Adjustment Calculation Methodology

a. Proposed Definitions of the Term “Base Operating DRG Payment Amount” for Purposes of the Hospital VBP Program

b. Proposals for Calculating the Funding Amount for Value-Based Incentive Payments Each Year

c. Proposed Methodology To Calculate the Value-Based Incentive Payment Adjustment

d. Proposed Timing of the Base Operating DRG Payment Amount Reduction and Value-Based Incentive Payment Adjustment for FY 2013 and Future Hospital VBP Program Years

e. Proposed Process for Reducing the Base Operating DRG Payment Amount and Applying the Value-Based Incentive Payment Amount Adjustment for FY 2013

6. Proposed Review and Corrections Processes

a. Background

b. Proposed Review and Corrections Process for Claims-Based Measure Rates

c. Proposed Review and Corrections Process for Condition-Specific Scores, Domain-Specific Scores and TSPs

7. Proposed Appeal Process Under the Hospital VBP Program

a. Background

b. Proposed Appeal Process

8. Proposed Measures for the FY 2015 Hospital VBP Program

a. Relationship Between the National Strategy and the Hospital VBP Program

b. Proposed FY 2015 Measures

c. Proposed General Process for Hospital VBP Program Measure Adoption for Future Program Years

9. Proposed Measures and Domains for the FY 2016 Hospital VBP Program

a. Proposed FY 2016 Measures

b. Proposed Quality Measure Domains for the FY 2016 Hospital VBP Program

c. Proposed Performance Standards for FY 2016 Hospital VBP Program Measures

10. Proposed Performance Periods and Baseline Periods for the FY 2015 Hospital VBP Program

a. Proposed Clinical Process of Care Domain Performance Period and Baseline Periods for FY 2015

b. Proposed Patient Experience of Care Domain Performance Period and Baseline Period for FY 2015

c. Proposed Efficiency Domain Measure Performance Period and Baseline Period for FY 2015

d. Proposed Outcome Domain Performance Periods for FY 2015

(1) Mortality Measures

(2) Proposed AHRQ PSI Composite Measure

(3) CLABSI Measure

e. Proposed Performance Periods for Proposed FY 2016 Measures

11. Proposed Performance Periods for the Hospital VBP Program for FY 2015 and FY 2016

a. Background

b. Proposed Performance Standards for the FY 2015 Hospital VBP Program Measures

c. Proposed Performance Standards for FY 2016 Hospital VBP Program Measures

d. Adopting Performance Periods and Standards for Future Program Years

12. Proposed FY 2015 Hospital VBP Program Scoring Methodology

a. General Hospital VBP Program Scoring Methodology

b. Proposed Domain Weighting for the FY 2015 Hospital VBP Program for Hospitals That Receive a Score on All Four Proposed Domains

c. Proposed Domain Weighting for Hospitals Receiving Scores on Fewer Than Four Domains

13. Applicability of the Hospital VBP Program to Hospitals

a. Background

b. Proposed Exemption Request Process for Maryland Hospitals

14. Proposed Minimum Numbers of Cases and Measures for the FY 2015 Program

a. Background

b. Proposed Minimum Numbers of Cases and Measures for the FY 2015 Outcome Domain

c. Proposed Medicare Spending per Beneficiary Measure Case Minimum

15. Immediate Jeopardy Citations

D. Long-Term Care Hospital Quality Reporting (LTCHQR) Program

1. Statutory History

2. LTCH Program Measures for the FY 2014 Payment Determination and Subsequent Fiscal Years Payment Determinations

a. Proposed Process for Retention of LTCHQR Program Measures Adopted in Previous Payment Determinations

b. Proposed Process for Adoption of Changes to LTCHQR Program Measures

3. Proposal To Retain Previously Adopted Finalized Measures for the LTCHQR Program FY 2014 Payment Determination

4. Proposed LTCHQR Program Quality Measures for the FY 2016 Payment Determinations and Subsequent Fiscal Years Payment Determinations

a. Considerations in Updating and Expanding Quality Measures Under the LTCHQR Program for FY 2016 and Subsequent Payment Update Determinations

b. Proposed New LTCHQR Program Quality Measures Beginning With the FY 2016 Payment Determination

(1) Proposed New Quality Measure #1 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Percent of Nursing Home Residents Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680)

(2) Proposed New LTCH Quality Measure #2 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Percentage of Residents or Patients Who Were Assessed and Appropriately Given the Pneumococcal Vaccine (Short-Stay) (NQF #0682)

(3) Proposed New LTCH Quality Measure #3 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431)

(4) Proposed New LTCH Quality Measure #4 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Ventilator Bundle (NQF #0302)

(5) Proposed New LTCH Quality Measure #5 for the FY 2016 Payment Determination and Subsequent Fiscal Years Payment Determinations: Restraint Rate per 1,000 Patient Days

5. Proposed Timeline for Data Submission Under the LTCHQR Program for the FY 2015 Payment Determination

6. Proposed Timeline for Data Submission Under the LTCHQR Program for the FY 2016 Payment Determination

7. Proposed Public Display of Data Quality Measures

E. Proposed Quality Reporting Requirements for Ambulatory Surgical Centers (ASCs)

1. Background

2. Proposed Requirements for Reporting of ASC Quality Data

a. Proposed Administrative Requirements

(1) Proposals Regarding QualityNet Account and Administrator for the CYs 2014 and 2015 Payment Determinations

(2) Proposals Regarding Participation Status for the CY 2014 Payment Determination and Subsequent Payment Determination Years

b. Proposals Regarding Form, Manner, and Timing for Claims-Based Measures for CYs 2014 and 2015 Payment Determinations

(1) Background

(2) Proposed Minimum Threshold for Claims-Based Measures Using QDCs

c. ASC Quality Reporting Program Validation of Claims-Based and Structural Measures

3. Proposed Extraordinary Circumstances Extension or Waiver for the CY 2014 Payment Determination and Subsequent Payment Determination Years

4. Proposed ASC Quality Reporting Program Reconsideration Procedures for the CY 2014 Payment Determination and Subsequent Payment Determination Years

F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority

2. Application of the Payment Update Reduction for Failure To Report for FY 2014 Payment Determination and Subsequent Years

3. Covered Entities

4. Proposed Quality Measures

a. Considerations in Selecting Quality Measures

b. Proposed Quality Measures Beginning With FY 2014 Payment Determination and Subsequent Years

(1) HBIPS-2 (Hours of Physical Restraint Use)

(2) HBIPS-3 (Hours of Seclusion Use)

(3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic Medications)

(4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic Medications With Appropriate Justification)

(5) HBIPS-6 (Post Discharge Continuing Care Plan Created)

(6) HBIPS-7 (Post Discharge Continuing Care Plan Transmitted to the Next Level of Care Provider Upon Discharge)

c. Maintenance of Technical Specifications for Quality Measures

5. Possible New Quality Measures for Future Years

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

7. Form, Manner, and Timing of Quality Data Submission for the FY 2014 Payment Determination and Subsequent Years

a. Background

b. Proposed Procedural Requirements for the FY 2014 Payment Determination and Subsequent Years

c. Proposed Reporting and Submission Requirements for the FY 2014 Payment Determination

d. Proposed Reporting and Submission Requirements for the FY 2015 and FY 2016 Payment Determinations

e. Proposed Population, Sampling, and Minimum Case Threshold for FY 2014 and Subsequent Years

f. Proposed Data Accuracy and Completeness Acknowledgement Requirements for the FY 2014 Payment Determination and Subsequent Years

8. Reconsideration and Appeals Procedure for the FY 2014 Payment Determination and Subsequent Years

9. Proposed Waivers From Quality Reporting Requirements for the FY 2014 Payment Determination and Subsequent Years

10. Electronic Health Records (EHRs)

IX. MedPAC Recommendations and Other Related Reports and Studies for the IPPS and LTCH PPS

A. MedPAC Recommendations for the IPPS for FY 2013

B. Studies and Reports on Reforming the Hospital Wage Index

1. Secretary's Report to Congress on Wage Index Reform

2. Institute of Medicine (IOM) Study on Medicare's Approach to Measuring Geographic Variations in Hospitals' Wage Costs

X. Proposed Quality Improvement Organization (QIO) Regulation Changes Relating to Provider and Practitioner Medical Record Deadlines and Claim Denials

XI. 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 Occupational Mix Adjustment to the FY 2013 Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for Application for GME/IME Resident Slots

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

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

8. ICRs for Hospital Value-Based Purchasing (VBP) Program

9. ICRs for the Quality Reporting Program for LTCHs

10. ICRs for the Ambulatory Surgical Center (ASC) Quality Reporting Program

11. ICRs for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

C. Response to Public Comments

Regulation Text Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2012 and Proposed Payment Rates for LTCHs Effective With Discharges Occurring on or After October 1, 2012

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2013

A. Calculation of the Proposed Adjusted Standardized Amount

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

C. Proposed MS-DRG Relative Weights

D. Calculation of the Proposed Prospective Payment Rates

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2013

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

B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for FY 2013

C. Capital Input Price Index

IV. Proposed Changes to Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages for FY 2013

V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 2013

A. Proposed LTCH PPS Standard Federal Rate for FY 2013

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for FY 2013

1. Background

2. Geographic Classifications/Labor Market Area Definitions

3. Proposed LTCH PPS Labor-Related Share

4. Proposed LTCH PPS Wage Index for FY 2013

5. Proposed Budget Neutrality Adjustment for Changes to the Area Wage Level Adjustment

C. Proposed LTCH PPS Cost-of-Living Adjustment for LTCHs Located in Alaska and Hawaii

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

E. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for FY 2013

VI. Tables Referenced in This Proposed 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 Proposed 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 Proposed Other Policy Changes

1. Effects of Proposed Policy on HACs, Including Infections

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

3. Effects of Proposed Policy Changes Relating to SCHs

4. Effects of Proposed Payment Adjustment for Low-Volume Hospitals for FY 2013

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

6. Effects of the Proposed Policy Changes Relating to Direct GME and IME

a. Effects of Clarification and Proposal Regarding Timely Filing Requirements for Claims for Medicare Advantage Enrollees Under Fee-for-Service Medicare

b. Effects of Proposed Policy Changes Relating to New Teaching Hospitals: New Program Growth From 3 Years to 5 Years

c. Effects of Proposed Changes Relating to 5-Year Period Following Implementation of Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of the Affordable Care Act

d. Preservation of Resident Cap Positions From Closed Hospitals (Section 5506 of the Affordable Care Act)

7. Effects of Proposed Changes Relating to the Reporting Requirements for Pension Costs for Medicare Cost-Finding Purposes

8. Effects of Proposed Budget Neutrality Offset Amount for the Rural Community Hospital Demonstration Program

9. Effects of Proposed Change in Effective Date for Policies Relating to Hospital Services Furnished Under Arrangements

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

2. Results

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

1. Introduction and General Considerations

2. Impact on Rural Hospitals

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

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

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

L. Effects of Proposed PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

M. Effects of Proposed Hospital Value-Based Purchasing (VBP) Program Requirements

N. Anticipated Effects of Proposed New Measures To Be Added to the LTCH Quality Reporting (LTCHQR) Program

O. Effects of Proposed Quality Reporting Requirements for Ambulatory Surgical Centers

P. Effects of Proposed Requirements for the Inpatient Psychiatric Facilities Quality Reporting Program

Q. Alternatives Considered

R. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

II. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

III. Regulatory Flexibility Act (RFA) Analysis

IV. Impact on Small Rural Hospitals

V. Unfunded Mandate Reform Act (UMRA) Analysis

VI. 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 2013

A. Proposed FY 2013 Inpatient Hospital Update

B. Proposed Update for SCHs for FY 2013

C. Proposed FY 2013 Puerto Rico Hospital Update

D. Proposed Update for Hospitals Excluded From the IPPS

E. Proposed Update for LTCHs

III. Secretary's Recommendation

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

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This proposed rule would make payment and policy changes under the Medicare inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals as well as for certain hospitals and hospital units excluded from the IPPS. In addition, it would make payment and policy changes for the Medicare hospitals under the long-term care hospital prospective payment system (LTCH PPS). It also makes policy changes to programs associated with Medicare IPPS hospitals and LTCHs.

Under various statutory authorities, we are proposing to make changes to the Medicare IPPS, to the LTCH PPS, and to other related payment methodologies and programs for FY 2013. These statutory authorities include, but are not limited to, the following:

  • Section 1886(d) of the Social Security Act (the Act), which 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 that, instead of paying for capital-related costs of inpatient hospital services on a reasonable cost basis, the Secretary use a prospective payment system (PPS).
  • Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS.
  • 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), which provide for the development and implementation of a prospective payment system for payment for inpatient hospital services of long-term care hospitals (LTCHs) described in section 1886(d)(1)(B)(iv) of the Act.
  • Sections 1814(l), 1820, and 1834(g) of the Act, which specifies that payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services and that these payments are generally based on 101 percent of reasonable cost.
  • 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.
  • Section 1886(d)(4)(D) of the Act, which 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.
  • Section 1886(a)(4) of the Act, which specifies that 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.
  • Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce the applicable percentage increase in payments to a subsection (d) hospital for a fiscal year if the hospital does not submit data on measures in a form and manner, and at a time, specified by the Secretary.
  • Section 1886(o) of the Act, which requires the Secretary to establish a Hospital Value-Based Purchasing (VBP) Program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standards established for a performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year are to be established by the Secretary. Section 1886(o)(1)(B) of the Act directs the Secretary to begin making value-based incentive payments under the Hospital Inpatient VBP Program to hospitals for discharges occurring on or after October 1, 2012.
  • Section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act and amended by section 10309 of the Affordable Care Act, which establishes the “Hospital Readmission Reduction Program” effective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals under section 1886(d) of the Act will be reduced to account for certain excess readmissions.

2. Summary of the Major Provisions

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

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 prospective adjustment under section 1886(d)(3)(A)(vi) of the Act.

Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional one-time adjustment to the standardized amounts to offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 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.

After accounting for adjustments made in FYs 2008 and 2009, we have 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. Without making this adjustment, our actuaries estimated that annual aggregate payments would be increased by approximately $4 billion. Furthermore, an additional one-time adjustment of −5.8 percent would be required to fully recapture overpayments (estimated at approximately $6.9 billion) due to documentation and coding that occurred in FY 2008 and FY 2009, as required by section 7(b)(1)(B) of Public Law 110-90.

CMS has thus far implemented a −2.0 percent (of a required −3.9 percent) prospective adjustment, and completed the full one-time −5.8 percent recoupment adjustment (−2.9 percent in both FYs 2011 and 2012). In FY 2013, we are proposing to complete the remaining −1.9 percent prospective adjustment, while also making a +2.9 percent adjustment to remove the effect of the FY 2012 one-time recoupment adjustment. We have also determined that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of documentation and coding changes on future payments to SCHs and MDHs. After accounting for adjustments made to the hospital-specific rate in FY 2011 and FY 2012, an additional prospective adjustment of −0.5 percent is necessary to complete the full −5.4 adjustment. We are proposing a full −0.5 percent adjustment to the hospital-specific rate, in keeping with our policy of applying equivalent adjustments, when applicable, to other subsection (d) hospital payment systems.

We also are proposing an additional adjustment to account for documentation and coding effects that occurred in FY 2010. After review of comments and recommendations from MedPAC, CMS analyzed FY 2010 claims using the same methodology as previously applied to FYs 2008 and 2009 claims. CMS estimates that there was a 0.8 percentage point effect due to documentation and coding that did not reflect an actual increase in patient severity. Our actuaries estimate that this 0.8 percentage point increase resulted in additional aggregate payments of approximately $1.19 billion. Therefore, we are proposing an adjustment of −0.8 to the standardized amount and a −0.8 percent adjustment to the hospital-specific rate. This would result in a total documentation and coding adjustment of +0.2 percent (−1.9 plus +2.9 plus −0.8) to the standardized amount and a −1.3 percent (−0.5 plus −0.8) adjustment to the hospital-specific rate.

b. Hospital-Acquired Conditions (HACs)

Section 1886(d)(4)(D) 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.

In this proposed rule, we are proposing two new conditions, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures and Pneumothorax with Venous Catheterization, for the HAC payment provisions for FY 2013 under section 1886(d)(4)(D) of the Act. We also are proposing to add diagnosis codes 999.32 (Bloodstream infection due to central venous catheter) and 999.33 (Local infection due to central venous catheter) to the existing Vascular Catheter-Associated Infection HAC category for FY 2013.

c. Reduction of Hospital Payments for Excess Readmissions

We are proposing a number of policies to implement section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, which establishes the Hospital Readmissions Reduction Program. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payments to account for excess readmissions of selected applicable conditions, which are acute myocardial infarction, heart failure, and pneumonia. We are proposing the applicable hospitals that included in the Hospital Readmissions Reduction Program, the methodology to calculate the adjustment factor, the portion of the hospital's payment that is reduced by the adjustment factor, and the process under which the hospitals have the opportunity to review and submit corrections for their readmissions information prior to the information being posted on the Hospital Compare Web site.

d. Long-Term Care Hospital-Specific Market Basket

We are proposing to update LTCH payment rates with a separate market basket comprised of data from only LTCHs, which we refer to as a “LTCH-specific market basket.” We are proposing to implement a stand-alone LTCH market basket based on FY 2009 Medicare cost report data. The method used to calculate the cost weights and the price proxies used are generally similar to those used in the FY 2008-based RPL market basket that was finalized for the FY 2012 IPPS/LTCH PPS final rule. The primary difference is that we are using data from LTCH providers only.

e. Expiration of Certain Payment Rules for LTCH Services and the Moratorium on the Establishment of Certain Hospitals and Satellite Facilities and the Increase in the Number of Beds in LTCHs and LTCH Satellite Facilities

Moratoria on the implementation of certain LTCH payment policies and on the development of new LTCHs and LTCH satellite facilities and on bed increases in existing LTCHs and LTCH satellite facilities established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further amended by sections 3106 and 10312 of the Affordable Care Act are set to expire during CY 2012, under current law.

The moratoria established by these provisions delayed the full implementation of the following policies for 5 years beginning at various times in CY 2007:

  • The full application of the “25-percent payment adjustment threshold” to certain LTCHs, including hospitals-within-hospitals (HwHs) and LTCH satellite facilities for cost reporting periods beginning on or after July 1, 2007, and before July 1, 2012, or cost reporting periods beginning on or after October 1, 2007, and before October 1, 2012, as applicable under the regulations at §§ 412.534 and 412.536.
  • The inclusion of an “IPPS comparable per diem amount” option for payment determinations under the short stay outlier (SSO) adjustment at § 412.529 of the regulations for LTCH discharges occurring on or after December 29, 2007, but prior to December 29, 2012.
  • The application of any one-time budget neutrality adjustment to the LTCH PPS standard Federal rate provided for in § 412.523(d)(3) of the regulations from December 29, 2007, through December 28, 2012.
  • In general, the development of new LTCHs and LTCH satellite facilities, or increases in the number of beds in existing LTCHs and LTCH satellite facilities from December 29, 2007, through December 28, 2012, unless one of the specified exceptions to the particular moratorium was met.

In this proposed rule, we are proposing to extend the existing delay of the full implementation of the 25-percent payment adjustment threshold for an additional year; that is, for cost reporting periods beginning on or after October 1, 2012, and before October 1, 2013, as applicable. Although we are proposing to extend the moratoria relating to the application of the “25-percent threshold” payment adjustment for cost reporting periods beginning on or after October 1, 2012, and before October 1, 2013, the moratoria will expire for several regulatory provisions for cost reporting periods beginning before July 1, 2012, prior to the effective date of the proposed extension, affecting freestanding LTCHs, grandfathered hospitals-within-hospitals (HwHs), and grandfathered satellites. This gap in the continued application of the moratorium is a result of the July 1, 2007 effective date of section 114(c)(1) of the MMSEA as amended by section 4302(a)(1) of the ARRA which was based on the former July 1 through June 30 regulatory cycle for the LTCH PPS.

We are proposing an additional 1-year extension in the delay of the full application of the 25-percent payment adjustment threshold policy because we believe, based on a recent research initiative, that we could soon be in a position to propose revisions to our payment policies that could render the 25-percent payment adjustment threshold policy unnecessary. In light of this potential result, we believe it is prudent to avoid requiring LTCHs (or CMS systems) to implement the full reinstatement of the policy for what could be a relatively short period of time.

We are not proposing to make any changes to the SSO policy as it currently exists in the regulations at § 412.529. Accordingly, consistent with the existing regulations at § 412.529(c)(3), for SSO discharges occurring on or after December 29, 2012, the “IPPS comparable per diem amount” option at § 412.529(c)(3)(i)(D) would apply to payment determinations for cases with a covered length of stay that was equal to or less than one standard deviation from the geometric average length of stay for the same MS-DRG under the IPPS (that is, the “IPPS comparable threshold”).

The moratoria on the development of new LTCHs or LTCH satellite facilities and on an increase in the number of beds in existing LTCHs or LTCH satellite facilities are set to expire on December 29, 2012, under current law.

We are proposing to make a one-time prospective adjustment under § 412.523(d)(3) of the regulations (which would not apply to payments for discharges occurring on or before December 28, 2012, consistent with the statute) and to transition the application of this adjustment over a 3-year period. Regulations at § 412.523(d)(3) provide for the possibility of making a one-time prospective adjustment to the LTCH PPS rates so that the effect of any significant difference between the data used in the original computations of budget neutrality for FY 2003 and more recent data to determine budget neutrality for FY 2003 is not perpetuated in the prospective payment rates for future years.

f. Hospital Inpatient Quality Reporting (IQR) Program

Under section 1886(b)(3)(B)(vii) of the Act, hospitals are required to report data on measures selected by the Secretary for the Hospital IQR Program in order to receive the full annual percentage increase. In past rules, we have established measures for reporting and the process for submittal and validation of the data.

In this proposed rule, we are proposing programmatic changes to the Hospital IQR Program for the FY 2015 payment determination and subsequent years. These proposed changes would streamline and simplify the process for hospitals and reduce burden. We are proposing to reduce the number of measures in the Hospital IQR Program from 72 to 59 for the FY 2015 payment determination. We are proposing to remove 1 chart-abstracted measure and 16 claims based measures from the program for the FY 2015 payment determination and subsequent years. We are proposing to remove these measures for a number of reasons, including that these measures are losing NQF endorsement, are included in an existing composite measure, are duplicative of other measures in the Hospital IQR Program, or could otherwise be reported on Hospital Compare in the future under the authority of section 3008 of the Affordable Care Act. In addition, we are proposing to adopt three claims-based measures, one chart-abstracted measure and a survey-based measure regarding care transitions, which we will collect using the existing HCAHPS survey, to the measure set for the FY 2015 payment determination and subsequent years. We also are proposing to adopt a structural measure for the FY 2016 payment determination and subsequent years.

In an effort to streamline the rulemaking process, we are proposing to retain measures for all subsequent payment determinations, unless specifically stated otherwise, through rulemaking. We also are proposing to adopt certain changes to the Hospital IQR Program measures that arise out of the NQF endorsement maintenance process without going through further rulemaking to adopt such changes. To ensure that hospitals that participate in the Hospital IQR Program are submitting data for a full year, we are proposing that hospitals that would like to participate in the Hospital IQR Program for the first time must submit a completed Notice of Participation by December 31 of the calendar year preceding the first quarter of the calendar year in which chart-abstracted data submission is required for any given fiscal year. In addition, if a hospital wishes to withdraw from the program, it would have until May 15 prior to the start of the payment year affected to do so. In order reduce the burden associated with validation, we are proposing to reduce the base annual validation sample from 800 to 400, with an additional sample of up to 200 targeted hospitals. All hospitals failing validation would be included in the 200 hospital supplement, with a random sample drawn from hospitals meeting one or more additional targeting criteria. We also are proposing to require passing scores on both the chart-abstracted clinical process of care and hospital-acquired infection measure set groupings to pass validation, rather than only requiring one passing score for all validated measures.

g. Hospital Value-Based Purchasing Program

Section 1886(o)(1)(B) of the Act directs the Secretary to begin making value-based incentive payments under the Hospital Inpatient VBP Program to hospitals for discharges occurring on or after October 1, 2012. These incentive payments will be funded for FY 2013 through a reduction to the FY 2013 base operating MS-DRG payment for each discharge of 1 percent, as required by section 1886(o)(7)(B)(i) of the Act. The applicable percentage for FY 2014 is 1.25 percent, for FY 2015 is 1.5 percent, for FY 2016 is 1.75 percent, and for FY 2017 and subsequent years is 2 percent.

We previously published the requirements and related measures to implement the Hospital Inpatient VBP Program in a final rule issued in the Federal Register on April 29, 2011 (76 FR 26490, May 6, 2011, and 76 FR 26495 through 26511) and in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 51660). In this proposed rule, we are proposing to add requirements for the FY 2015 Hospital Inpatient VBP Program. Specifically, we are proposing to add one additional clinical process of care measure, AMI-10: Statin Prescribed at Discharge, and two additional outcomes measures—an AHRQ Patient Safety Indicators composite measure and CLABSI: Central Line-Associated Blood Stream Infection. We also are proposing to add a measure of Medicare Spending per Beneficiary in the Efficiency domain.

3. Summary of Costs and Benefits

  • Proposed FY 2013 Documentation and Coding Adjustment: Section 7(b)(1)(A) of Pub. L. 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 prospective adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional one-time adjustment to the standardized amounts to offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 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.

After accounting for adjustments made in FYs 2008 and 2009, we have 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. Without making this adjustment, our actuaries estimated that annual aggregate payments would be increased by approximately $4 billion. Furthermore, an additional one-time adjustment of −5.8 percent would be required to fully recapture overpayments (estimated at approximately $6.9 billion) due to documentation and coding that occurred in FY 2008 and FY 2009, as required by section 7(b)(1)(B) of Public Law 110-90.

CMS has thus far implemented a −2.0 percent (of a required −3.9 percent) prospective adjustment, and completed the full one-time −5.8 percent recoupment adjustment (−2.9 percent in both FYs 2011 and 2012). In FY 2013, we are proposing to complete the remaining −1.9 percent prospective adjustment, while also making a +2.9 percent adjustment to remove the effect of the FY 2012 one-time recoupment adjustment. We have also determined that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of documentation and coding changes on future payments to SCHs and MDHs. After accounting for adjustments made to the hospital-specific rate in FY 2011 and FY 2012, an additional prospective adjustment of −0.5 percent is necessary to complete the full −5.4 percent adjustment. We are proposing a full −0.5 percent adjustment to the hospital-specific rate, in keeping with our policy of applying equivalent adjustments, when applicable, to other subsection (d) hospital payment systems.

In addition, we are proposing an additional adjustment to account for documentation and coding effects that occurred in FY 2010. After review of comments and recommendations from MedPAC, CMS analyzed FY 2010 claims using the same methodology as previously applied to FYs 2008 and 2009 claims. CMS estimates that there was a 0.8 percentage point effect due to documentation and coding that did not reflect an actual increase in patient severity. Our actuaries estimate that this 0.8 percentage point increase resulted in additional aggregate payments of approximately $1.19 billion. Therefore we are proposing an adjustment of −0.8 to the standardized amount, and a −0.8 percent adjustment to the hospital-specific rate.

The total IPPS documentation and coding adjustment of +0.2 percent (−1.9 plus +2.9 plus −0.8) would increase total payments by approximately $200 million. The total adjustment to the hospital-specific rate would be −1.3 percent (−0.5 plus −0.8), and would decrease total payment by $312 million. The combined impact of the proposed FY 2013 documentation and coding adjustments would reduce total payments by approximately $112 million.

  • Hospital-Acquired Conditions (HACs). For FY 2013, we are proposing to continue to implement section 1886 (d)(4)(D) of the Act that addresses certain hospital-acquired conditions (HACs), including infections. We are proposing to add two additional conditions for FY 2013, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures and Iatrogenic Pneumothorax with Venous Catheterization. The projected savings estimate for these two conditions is less than $1 million, with the total estimated savings from HACs for FY 2013 projected at $24 million dollars.
  • Reduction to Hospital Payments for Excess Readmissions. We are proposing a number of policies to implement section 1886(q) of the Act, as added by section 3025 of the Affordable Care Act, which establishes the Hospital Readmissions Reduction Program. The Hospital Readmissions Reduction Program requires a reduction to a hospital's base operating DRG payments to account for excess readmissions of selected applicable conditions, which are acute myocardial infarction, heart failure, and pneumonia. This provision is not budget neutral. A hospital's readmission payment adjustment is the higher of a ratio of a hospital's aggregate dollars for excess readmissions to their aggregate dollars for all discharges, or 0.99 (that is, or a 1-percent reduction) for FY 2013. In this proposed rule, we estimate that the Hospital Readmissions Reduction Program will result in a 0.3 percent decrease, or approximately $300 million, in payments to hospitals.
  • Long-Term Care Hospital-Specific Market Basket. The proposed FY 2009-based LTCH-specific market basket update (as measured by percentage increase) for FY 2013 is currently forecasted to be the same as the market basket update based on the FY 2008-based RPL market basket at 3.0 percent (currently used under the LTCH PPS). Therefore, we are projecting that there would be no fiscal impact on the LTCH PPS payment rates in FY 2013 as a result of this proposal. In addition, we are proposing to update the labor-related share under the LTCH PPS for FY 2013 based on the proposed relative importance of each labor-related cost category in the proposed FY 2009-based LTCH-specific market basket. Although this proposal would result in a decrease in the LTCH PPS labor-related share for FY 2013, we are projecting that there would be no effect on aggregate LTCH PPS payments due to the regulatory requirement that any changes to the LTCH area wage adjustment (including the labor-related share) are adopted in a budget neutral manner.
  • Update to the LTCH PPS Standard Federal Rate, including the Expiration of Certain Payment Rules for LTCH Services and the Moratorium on the Establishment of Certain Hospitals and Satellite Facilities and the Increase in the Number of Beds in LTCHs and LTCH Satellite Facilities. Based on the best available data for the 427 LTCHs in our database, we estimate that the changes we are presenting in the preamble and Addendum of this proposed rule, including the proposed update to the standard Federal rate for FY 2013, the proposed changes to the area wage adjustment for FY 2013, and changes to short-stay outliers and high cost outlier would result in an increase in estimated payments from FY 2012 of approximately $100 million (or about 1.9 percent). Although we are generally projecting an increase in payments for all LTCHs in FY 2013 as compared to FY 2012, we expect rural LTCHs to experience a larger than average increase in payments (3.6 percent) primarily due to the proposed changes to the area wage level adjustment. Rural hospitals generally have a wage index of less than 1; therefore, the proposed decrease to the labor-related share results in their proposed wage index reducing a smaller portion of the standard Federal rate, resulting in an estimated increase in payments in FY 2013 as compared to FY 2012. In addition, the effect of the proposed extension of the moratorium on the application of the “25 percent threshold” payment adjustment policy, as provided by section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the Affordable Care Act, for cost reporting periods beginning on or after October 1, 2012, and before October 1, 2012, is estimated to result in a payment impact of approximately $170 million to LTCHs. Overall, we estimate that the increase in aggregate LTCH PPS payments in FY 2013 will be $270 million.
  • Hospital Inpatient Quality Reporting Program. In this proposed rule, we discuss our requirements for hospitals to report quality data under the Hospital IQR Program in order to receive the full annual percentage increase for FY 2015. We estimate that approximately 95 hospitals may not receive the full annual percentage increase in any fiscal year. However, at this time, information is not available to determine the precise number of hospitals that will not meet the requirements to receive the full annual percentage increase for FY 2015.

We are proposing supplements to the chart validation process for the Hospital IQR Program. Starting with the FY 2015 payment determination, we are proposing a modest increase to the current Hospital IQR Program validation sample of 18 cases per quarter to 27 cases per quarter in order to capture data on CLABSI, CAUTI, and SSI measures. However, in order not to increase the Hospital IQR validation program's overall burden to hospitals, we are proposing to reduce the total sample size of hospitals included in the annual validation sample from 800 eligible hospitals to 600 eligible hospitals.

We provide payment to hospitals for the cost of sending charts to the CDAC contractor at the rate of 12 cents per page for copying and approximately $4.00 per chart for postage. Our experience shows that the average chart received by the CDAC contractor is approximately 275 pages. The requirement of an additional 9 charts per hospital submitted for validation, combined with the decreased sample size, will result in approximately 1,800 additional charts per quarter being submitted to CMS by all selected hospitals. Thus, we estimate that we would expend approximately $66,600 per quarter to collect the additional charts we need to validate all measures.

  • Hospital Value-Based Purchasing Program. The Hospital Value-Based Purchasing Program for FY 2013 is statutorily mandated to be budget neutral. We believe that the program's benefits will be seen in improved patient outcomes, safety, and experience of care. We cannot estimate these benefits in actual dollar and patient terms because the program does not commence until FY 2013 payments.

B. 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 use a prospective payment system (PPS) to pay for the capital-related costs of inpatient hospital services for these “subsection (d) hospitals.” Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of 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. (We note that the statutory provision for payments to MDHs expires at the end of FY 2012, that is, after September 30, 2012.) 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, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the 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.

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) of the Act 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 October 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.

C. 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 2013

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, 2011, and 2012 were implemented in the June 2, 2010 Federal Register notice (75 FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).

In this proposed rule, we are proposing to implement, or continuing in FY 2013 to implement, the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS, the LTCH PPS, and PPS-exempt cancer hospitals:

  • Section 3001 of Public Law 111-148, which provides for establishment of a hospital inpatient value-based purchasing program under which value-based incentive payments will be made in a fiscal year to hospitals that meet performance standards established for a performance period with respect to discharges occurring during FY 2014.
  • Section 3004 of Public Law 111-148, which provides for the submission of quality data for LTCHs beginning in FY 2014 in order to receive the full annual update to the payment rates beginning with FY 2015 and the establishment of quality data measures by FY 2013 for the FY 2015 payment determination.
  • Section 3005 of Public Law 111-148, which provides for the establishment of a quality reporting program for PPS-exempt cancer hospitals beginning with the FY 2014 program year, and for subsequent program years.
  • Section 3025 of Public Law 111-148, which establishes a hospital readmissions reduction program and requires the Secretary to reduce payments to applicable hospitals with excess readmissions effective for discharges beginning on or after October 1, 2012.
  • Section 3125 and 10314 of Public Law 111-148, which modified the definition of a low-volume hospital and the methodology for calculating the payment adjustment for low-volume hospitals, effective only for discharges occurring during FYs 2011 and 2012. Beginning with FY 2013, the preexisting low-volume hospital qualifying criteria and payment adjustment, as implemented in FY 2005, will resume.
  • Section 3401 of Public Law 111-148, which provides for the incorporation of productivity adjustments into the market basket updates for IPPS hospitals and LTCHs.
  • Section 10324 of Public Law 111-148, which provides 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 2013.
  • Section 3137 of Public Law 111-148, which requires the Secretary to submit to Congress a report that includes a plan to comprehensively reform the Medicare wage index under the IPPS. In developing the plan, the Secretary was directed to take into consideration the goals for reforming the wage index that were set forth by MedPAC in its June 2007 Report to Congress and to consult with relevant affected parties.
  • 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 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.
  • Section 5506 of Public Law 111-148, which added a provision to the Act that instructs the Secretary to establish a process by regulation under which, in the event a teaching hospital closes, the Secretary will permanently increase the FTE resident caps for hospitals that meet certain criteria up to the number of the closed hospital's FTE resident caps. The Secretary is directed to ensure that the aggregate number of FTE resident cap slots distributed is equal to the amount of slots in the closed hospital's direct GME and IME FTE resident caps, respectively.

D. Major Contents of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2013. We also are setting 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, in this proposed rule, we are setting forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2013.

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

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

In section II. of the preamble of this proposed rule, we include the following:

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2013 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 adjustment in MS-DRG payments for FY 2013.
  • A discussion of the FY 2013 status of new technologies approved for add-on payments for FY 2012 and a presentation of our evaluation and analysis of the FY 2013 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).

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

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

  • The proposed FY 2013 wage index update using wage data from cost reporting periods beginning in FY 2009.
  • Analysis and implementation of the proposed FY 2013 occupational mix adjustment to the wage index for acute care hospitals.
  • 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 2013 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 2013 hospital wage index.
  • Determination of the labor-related share for the proposed FY 2013 wage index.

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

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

  • The proposed rules for payment adjustments under the Hospital Readmissions Reduction Program based on hospital readmission measures and the process for hospital review and correction of those rates.
  • Proposed clarification regarding the duration of the classification status of SCHs.
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
  • Proposed payment adjustment for low-volume hospitals for FY 2013.
  • The statutorily required IME adjustment factor for FY 2013, a clarification of the requirements of timely filing of claims for Medicare Advantage enrollees for IME, direct GME, and nursing and allied health education payment purposes, and a proposal to apply the timely filing requirements to the submission of no-pay bills for purposes of calculating the DSH payment adjustment.
  • Proposal for counting labor and delivery beds in the formula for determining the payment adjustment for disproportionate share hospitals and IME payments.
  • Discussion of the expiration of the MDH program in FY 2012.
  • Proposed changes to the inpatient hospital update for FY 2013, including incorporation of a productivity adjustment.
  • Proposed changes relating to GME and IME payments, including proposed changes in new growth period for new residency programs from 3 years to 5 years for new teaching hospitals; clarification related to the 5-year period following implementation of reductions and increases to hospitals' FTE resident caps; and proposals and clarifications related to the preservation of resident cap positions from closed hospitals.
  • Proposed conforming changes to regulations relating to reporting requirements for pension costs for Medicare cost-finding purposes.
  • Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
  • Proposed delay in the effective date of regulations relating to hospital routine services furnished under arrangements.

4. Proposed FY 2013 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to this proposed rule, we discuss the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2013 and the proposed MS-DRG documentation and coding adjustment for FY 2013.

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

In section VI. of the preamble of this proposed rule, we discuss proposed changes to payments to certain excluded hospitals.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of this proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2013. Specifically, we are proposing the following major changes: a 1-year extension of the moratorium on the full implementation of the “25-percent threshold” payment adjustment at 42 CFR 412.534 and 412.536; a “one-time prospective adjustment” to the standard Federal rate phased in over a 3-year period (which would not be applicable to payments for discharges occurring on or before December 28, 2012, consistent with the statute); an LTCH-specific market basket; and annual updates to the LTCH PPS standard Federal rate and to other payment factors.

7. Proposed Changes Relating to Quality Data Reporting for Specific Providers and Suppliers

In section VIII. of the preamble of this proposed rule, we address—

  • Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full applicable percentage increase.
  • The proposed establishment of a quality reporting program for PPS-exempt cancer hospitals.
  • Proposed requirements for the Hospital Value-Based Purchasing Program.
  • Proposed revisions to the quality reporting measures under the LTCH quality reporting program.
  • Proposed quality data reporting requirements for ambulatory surgical centers (ASCs).
  • The establishment of the Inpatient Psychiatric Facilities Quality Reporting Program

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

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2013 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also are proposing to establish the threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2013 for certain hospitals excluded from the IPPS.

9. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2013 prospective standard Federal rate. We also are proposing 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.

10. Impact Analysis

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

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

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2013 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).
  • Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.
  • The standard Federal rate for hospital inpatient services furnished by LTCHs.

12. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2012 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 this proposed rule. For further information relating specifically to the MedPAC March 2012 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.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, 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

For general information about the MS-DRG system, including yearly reviews and changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 through 50055), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 through 51487).

C. Adoption of the MS-DRGs in FY 2008

For information on the adoption of the MS-DRGs in FY 2008, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189).

D. Proposed FY 2013 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

In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189), 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 adopted 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 Law110-90 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, and we finalized the FY 2008 adjustment through rulemaking, effective on October 1, 2007 (72 FR 66886).

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent, and we finalized that adjustment through rulemaking (73 FR 48447). The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, which reflected the amendments made 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 only 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 performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008 using the methodology first described in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and later discussed in the FY 2010 final rule (74 FR 43768 through 43772). We performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims (75 FR 50057 through 50068). The results of the analysis for the FY 2011 proposed and final rules, and subsequent evaluations in FY 2012, supported that the 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system. We were persuaded by both MedPAC's analysis (as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50064 through 50065) and our own review of the methodologies recommended by various commenters that the methodology we employed to determine the required documentation and coding adjustments were sound.

5. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43767 through 43777), we opted to delay the implementation of any documentation and coding adjustment until a full analysis case-mix changes based on FY 2009 claim data could be completed. We refer readers to the FY 2010 IPPS/LTCH PPS final rule 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 percent. 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 that do not reflect real changes in case-mix 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 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. 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 because we finalized a −2.9 percent recoupment adjustment for that year. 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). 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 final rule (76 FR 51489 and 51497), we indicated that because further delay of this prospective adjustment will result in a continued accrual of unrecoverable overpayments, it was imperative that we implement a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we implemented a −2.0 percent prospective adjustment (a reduction of a proposed −3.15 percent adjustment) to the standardized amount to partially eliminate the full effect of the documentation and coding changes that do not reflect real changes in case-mix 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 in section II.D.6. of this preamble), and after considering other payment adjustments to FY 2012 rates proposed elsewhere in the FY 2012 proposed rule, we indicated that we believe a −2.0 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 −1.9 percent (3.9 percent minus 2.0 percent) would be required in future rulemaking to complete the necessary −3.9 adjustment to meet CMS' statutory requirement under section 7(b)(1)(A) of Public Law 110-90.

For FY 2013, we are proposing to complete the prospective portion of the adjustment required under section 7(b)(1)(B) of Public Law 110-90. We are proposing a −1.9 percent adjustment to the standardized amount for FY 2013. This adjustment would remove the remaining effect of the documentation and coding changes that do not reflect real changes in case-mix that occurred in FY 2008 and FY 2009. We believe it is imperative to implement the full remaining adjustment, as any further delay would result in an overstated standardized amount in FY 2013 and any future years until a full adjustment is made. We believe that the offsetting nature of the FY 2012 recoupment adjustment (described in section II.D.6. of this preamble) will mitigate any negative financial impacts of this prospective adjustment.

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

As discussed in section II.D.3. 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. Our actuaries estimated that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. Therefore, as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012 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.

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 final rule, we made 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 allowed 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).

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.

Therefore, for FY 2012, in accordance with 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 completed 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 (76 FR 51489 and 51498). Because these adjustments, in effect, balanced out, there was no year-to-year change in the standardized amount due to this recoupment adjustment for FY 2012.

The −2.9 percent adjustment in each of the 2 previous fiscal years completed the required recoupment for overpayments due to documentation and coding effects on discharges occurring in FYs 2008 and 2009. In this FY 2013 proposed rule, we are proposing to make a final +2.9 percent adjustment to the standardized amount. This adjustment would remove the effect of the onetime −2.9 percent adjustment implemented in FY 2012. 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.

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. (We note that the MDH program expires in FY 2012, as discussed in section IV.H. of this proposed rule.) 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 documentation and coding that do not reflect real change in case-mix.

However, in the final rule that appeared in the Federal Register on November 27, 2007 (72 FR 66886), we rescinded the application of the documentation and coding adjustment to the hospital-specific rates retroactive to October 1, 2007. In that final rule, we indicated that, while we still believe it would be appropriate to apply the documentation and coding adjustment to the hospital-specific rates, upon further review, we decided that the application of the documentation and coding adjustment to the hospital-specific rates is not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting “the standardized amount” under section 1886(d) of the Act and does not mention adjusting the hospital-specific rates.

In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in 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 FY 2010 proposed and final rules for a more complete discussion.

As we have noted previously, because hospitals paid on the basis of their hospital-specific rate, including SCHs (and MDHs until the end of FY 2012), 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 were 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. 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 hospitals paid on the basis of their hospital-specific rate. We note that, for FY 2013, this adjustment would only apply the SCHs because the MDH program expires in FY 2012 (as discussed in section IV.G. of this preamble). 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 adjustment needed to be made, as opposed to a −3.9 percent remaining adjustment for IPPS hospitals.

After finalizing a −2.9 percent prospective adjustment in FY 2011 (75 FR 50067 through 50071), we finalized a prospective adjustment to the hospital-specific rate of −2.0 percent for FY 2012 (76 FR 51499) 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. We indicated in the final rule that 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 would be required in future rulemaking.

For this FY 2013 proposed rule, we are proposing to complete the remaining prospective adjustment to account for the documentation and coding effect that occurred in FY 2008 and FY 2009 by applying a −0.5 percent adjustment to the hospital-specific rate. We continue to believe that SCHs had the same opportunity to benefit from improvements in documentation and coding that did not reflect an increase in patient severity, and we continue to believe that any resulting adjustments should be applied similarly to all subsection (d) hospitals, when possible. In FY 2013, we are proposing a prospective adjustment of −1.9 percent to the standardized amount. Therefore, we believe it is also appropriate to propose a −0.5 percent adjustment to the hospital-specific rate for FY 2013.

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 adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in documentation and coding 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.

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 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

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 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 that do not reflect real changes in case-mix 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. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50072 through 50073), 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.

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. For FY 2013, we also are not proposing any adjustment to the Puerto Rico-specific rate.

10. Proposed Prospective Adjustments for FY 2010 Documentation and Coding Effect

Section 7(b)(1)(A) of Public Law 110-90 required CMS to make prospective documentation and coding adjustments under section 1886(d)(3)(A)(iv) of the Act if, based upon a review of FY 2008 and FY 2009 discharges, we determined that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix during FY 2008 or FY 2009 and that were different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90. However, section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts if the Secretary determines such adjustments to be necessary for any subsequent fiscal years in order to eliminate the effect of coding or classification changes that do not reflect real changes in case-mix. After review of comments and recommendations received in a FY 2012 comment letter from MedPAC (available on the Internet at: http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf), we analyzed claims data in FY 2010 to determine whether any additional adjustment would be required to ensure that the introduction of MS-DRGs was implemented in a budget neutral manner. While we expect that the impacts of documentation and coding behavior in response to the introduction of MS-DRGs in FY 2008 will eventually decline to insignificant levels, we analyzed FY 2010 data on claims paid through December 2011 using the same claims-based methodology as described in previous rulemaking (73 FR 43768 and 43775). We determined a total prospective documentation and coding effect of 1.008 percent for FY 2010. Our actuaries have estimated that this 0.8 percentage point increase resulted in an increase in aggregate payments of approximately $1.19 billion in FY 2010. Therefore, we also are proposing an additional −0.8 percent adjustment to account for the effects of documentation and coding changes that did not reflect real changes in case-mix in FY 2010.

The combined total prospective adjustment to the standardized amount proposed for FY 2013 under Public Law 110-90 to account for documentation and coding effects in FY 2008 and FY 2009 and under section 1886(d)(3)(A)(vi) of the Act to account for documentation and coding effect in FY 2010 is −2.7 percent (−1.9 percent plus −0.8 percent). The proposed adjustment would eliminate the effect of documentation and coding that did not reflect real changes in case-mix for discharges occurring during FYs 2008, 2009, 2010. While we are making no proposals regarding future fiscal years at this time, we plan to continue to monitor and analyze additional claims data and make adjustments, when necessary, as authorized under 1886(d)(3)(A)(vi) of the Act. We note that the proposed total adjustment to the proposed FY 2013 standardized amount would be +0.2 percent because these prospective adjustments will be offset by the completion of the recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90, as discussed below.

We note that while we have decided to review FY 2010 claims data to determine whether additional prospective adjustments are necessary (as discussed earlier), section 7(b)(1)(B) of Public Law 110-90 does not authorize CMS to calculate any retrospective adjustment for overpayments made in FY 2010, nor to recover any related overpayments beyond FY 2012. The Secretary's authority under section 1886(d)(3)(A)(vi) of the Act is limited to prospective adjustments.

Remaining prospective adjustment for FYs 2008-2009Prospective adjustment for FY 2010Proposed prospective adjustment for FY 2013Removal of onetime recoupment adjustment in FY 2013Combined proposed documentation & coding adjustment for FY 2013
Level of Adjustments−1.9%−0.8%−2.7%+2.9%+0.2%

Consistent with our proposal for IPPS hospitals paid on the basis of the standardized amount, our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act, and based upon our review of FY 2010 claims data, we also are proposing an additional −0.8 percent adjustment to the hospital-specific rate to account for documentation and coding changes in FY 2010 that did not reflect real changes in case-mix. We believe that a full prospective adjustment for hospitals paid based on the hospital-specific rate is the most appropriate means to take into 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. Therefore, we are proposing a combined adjustment of −1.3 percent (−0.5 percent + −0.8 percent) to the hospital-specific rate, accounting for all documentation and coding effects observed between FY 2008 though FY 2010.

Based upon our analysis of FY 2010 claims data, we found no significant additional effect of documentation and coding in FY 2010 that would warrant any additional adjustment to the Puerto Rico-specific rate.

As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effects. 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.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

Beginning in FY 2007, we implemented relative weights for DRGs based on cost report data instead of charge information. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a 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.

As we implemented 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 the Research Triangle Institute, International (RTI) to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the cost-to-charge ratios (CCRs) across services within cost centers. For a detailed summary of RTI's findings, recommendations, and public comments that we received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 through 48453).

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, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the 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 the items that should be reported in these respective cost centers, we adopted the commenters' recommendations that hospitals should use revenue codes established by the AHA's National Uniform Billing Committee to determine the items that 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 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.

As we discussed in the FY 2009 IPPS final rule (73 FR 48458, respectively) and in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527), in addition to the findings regarding implantable devices, RTI also found that the costs and charges of computed tomography (CT) scans, magnetic resonance imaging (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 the 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 costs from charges on claims data. 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. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed discussion of the reasons for the creation of standard cost centers for CT scans, MRI, and cardiac catheterization.) The new standard cost centers for CT scans, MRI, 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.

2. Summary of Policy Discussion in FY 2012

In the FY 2009 IPPS 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. However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782), due to delays in the issuance of the revised cost report CMS 2552-10, we determined that a new CCR for Implantable Devices Charged to Patients might not be available before FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for CT scans, MRI, 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).

Accordingly, during the FY 2012 IPPS rulemaking (76 FR 51502), 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. We checked the availability of data in the “Implantable Devices Charged to Patients” cost center on the FY 2009 cost reports, but we did not believe that there 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 Devises 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 for the FY 2013 IPPS/LTCH PPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

3. Discussion for FY 2013

To calculate the MS-DRG relative weights, we use two data sources: the MedPAR file as the claims data source and the HCRIS as the cost data source. We adjust the charges from the claims to costs by applying the 15 national average CCRs developed from the cost reports. In the past several years, we have made progress in changing the cost report to add the “Implantable Devices Charged to Patients” cost center. At this time, there is a sizeable number of hospitals in the FY 2010 HCRIS that have reported data for “Implantable Devices Charged to Patients” on their cost reports beginning during FY 2010. However, we note that, during the development of this proposed rule, we have been able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates on or after October 1, 2009, and before May 1, 2010. This is because cost reports with fiscal year begin dates of May 1, 2010, through September 30, 2010, were filed on the new cost report Form 2552-10, and cost reports filed on the Form 2552-10 are not currently accessible in the HCRIS. Normally, we pull the HCRIS dataset that is 3 years prior to the IPPS fiscal year (that is, for the FY 2013 relative weights, we would use the FY 2010 HCRIS, which includes data from cost reports that begin on or after October 1, 2009, and before October 1, 2010). However, because data from the Form 2552-10 cost reports are not currently available, to ensure that the relative weights are calculated with a data set that is as comprehensive and accurate as possible, we are proposing to calculate the FY 2013 relative weights with data from FY 2010 cost reports for providers with fiscal year begin dates of on or after October 1, 2009, and before May 1, 2010, and to back fill with data from FY 2009 cost reports for those providers that have fiscal year begin dates on or after May 1, 2010 through September 30, 2010. Further complicating matters is that, due to additional unforeseen technical difficulties, the corresponding information regarding charges for implantable devices on hospital claims is not yet available to us in the MedPAR file. Without the breakout in the MedPAR file of charges associated with implantable devices to correspond to the costs of implantable devices on the cost report, we believe that we have no choice but to propose to continue computing the relative weights with the current CCR that combines the costs and charges for supplies and implantable devices. When we do have the necessary supplies and implantable device data on the claims in the MedPAR file to create distinct CCRs for supplies and implantable devices, perhaps for FY 2014, we also hope that we will have data for an analysis of creating distinct CCRs for MRI, CT scans, and cardiac catheterization. Prior to proposing to create these CCRs, we will first thoroughly analyze and determine the impacts of the data. Distinct CCRs for implantable devices, MRIs, and CT scans would be used in the calculation of the relative weights only if they were first finalized through rulemaking.

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

1. Background

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. This provision is part of an array of Medicare tools that we are using to promote increased quality and efficiency of care. 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 261 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.

Section 1886(d)(4)(D) 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.

Effective for discharges occurring on or after October 1, 2008, pursuant to the authority of section 1886(d)(4)(D) of the Act, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not present on admission (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. In addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is POA. When a HAC is not POA, payment can be effected in a manner shown in the diagram below.

2. 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, including a detailed discussion of the collaborative interdepartmental process and public input regarding selected and potential candidate HACs, we refer readers to the following rules: 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); the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080); and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) and final rule (76 FR 51504 through 51522). A complete list of the 10 current categories of HACs is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 through 25814) and FY 2012 IPPS/LTCH PPS final rule (76 FR 51507 through 50509), we proposed but did not finalize the candidate condition Contrast-Induced Acute Kidney Injury. Instead, we deferred the decision making on this condition as a selected HAC until future rulemaking and such a time when improved coding for the condition is available.

3. Present on Admission (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 previous rulemaking, we provided both CMS and CDC Web site resources that are available to hospitals for assistance in this reporting effort. For detailed information regarding these sites and materials, including the application and use of POA indicators, we refer the reader to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 through 51507).

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: Under the HAC policy, we treat HACs coded with “Y” and “W” indicators as POA and allow the condition on its own to cause an increased payment at the CC/MCC level. We treat HACs coded with “N” and “U” indicators as Not Present on Admission (NPOA) and do not allow the condition on its own to cause an increased payment at the CC/MCC level. We refer readers to the following rules for a detailed discussion: The FY 2009 IPPS proposed rule (73 FR 23559) and final rule (73 FR 48486 through 48487); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082); and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) and final rule (76 FR 51506 through 51507).

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.

Beginning on or after January 1, 2011, hospitals were 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. 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, which can be located at the following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf. 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.

In addition, as discussed elsewhere in section III.G.9. of the preamble of this proposed rule, the 5010 format allows the reporting and effective January 1, 2011, the processing of up to 25 diagnoses and 25 procedure codes. As such, it is necessary to report a valid POA indicator for each diagnosis code, including the principal and all secondary diagnoses up to 25.

4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS

As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 and 51507), in preparation for the transition to the ICD-10-CM and ICD-10-PCS code sets, further information regarding the use of the POA indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain to the HAC policy will be discussed in future rulemaking.

At the March 5, 2012 meeting of the ICD-9-CM Coordination and Maintenance Committee, an announcement was made with regard to the availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-10-PCS code sets. Participants were informed that the list of the current ICD-9-CM selected HACs has been translated into codes using the ICD-10-CM and ICD-10-PCS classification system. It was recommended that the public review this list of ICD-10-CM/ICD-10-PCS code translations of the current selected HACs available on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The translations can be found under the link titled ICD-10-CM/PCS MS-DRG v29 Definitions Manual Table of Contents—Full Titles—HTML Version in Appendix I—Hospital Acquired Conditions (HACs). The translation list also is available on the CMS Web page at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We encourage the public to submit comments on these translations through the HACs Web page using the CMS ICD-10-CM/PCS HAC Translation Feedback Mailbox that has been set up for this purpose under the Related Links section titled “CMS HAC Feedback.” The final HAC list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be subject to formal rulemaking.

In the meantime, we continue to encourage readers to review the educational materials and draft code sets currently available for ICD-10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In addition, the draft ICD-10-CM/ICD-10-PCS coding guidelines can be viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.

5. Proposed Changes to the HAC Policy for FY 2013

a. Proposed Additional Diagnosis Codes to Existing HACs

As changes to diagnosis codes and new diagnosis codes have been proposed and finalized for the list of CCs and MCCs, we have modified the list of selected HACs to reflect these changes. While there are not any new diagnosis codes being proposed for FY 2013, there were new and revised diagnosis codes effective October 1, 2011 (FY 2012) that were not finalized in time for inclusion in the FY 2012 IPPS rulemaking. Therefore, we are now proposing to add two of these codes to an existing HAC category. We are proposing to add diagnosis codes 999.32 (Bloodstream infection due to central venous catheter) and 999.33 (Local infection due to central venous catheter) to the Vascular Catheter-Associated Infection HAC category for FY 2013. These codes were created in response to a request discussed at the March 9-10, 2011 ICD-9-CM Coordination and Maintenance Committee meeting to better identify specific types of infections (systemic vs. local) that occur as a result of central venous catheter placement.

Previously, there was only one existing HAC code (999.31 (Infection due to central venous catheter)) in the Vascular Catheter-Associated Infection HAC category. With the creation of codes 999.32 and 999.33, effective October 1, 2011, the title for code 999.31 was revised to “Other and unspecified infection due to central venous catheter.” Therefore, codes 999.32 and 999.33 provide further specificity as to the type of infection due to a central venous catheter. We refer readers to page 45 of the topic packet found at the following link on the CDC ICD-9-CM Web page at http://www.cdc.gov/nchs/data/icd9/TopicpacketforMarch2011_HA1.pdf for further information.

Shown in the table below are these proposed two diagnosis codes with their corresponding descriptions and their CC/MCC designations.

ICD-9-CM codeCode descriptorCC/MCC designation
999.32Bloodstream infection due to central venous catheterCC
999.33Local infection due to central venous catheterCC

We are inviting public comments on the proposed adoption of these two ICD-9-CM diagnosis codes designated as CC/MCCs that are listed above, to be added to the Vascular Catheter-Associated Infection HAC category as indicated for FY 2013.

b. Proposal To Add New HAC Condition: Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures

We discuss below our rationale for proposing a new condition, Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures, for selection for FY 2013 as a HAC under section 1886(d)(4)(D) of the Act. As described in more detail in section II.F.1. 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 discuss 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 are inviting public comment on the degree to which these conditions fulfill these statutory requirements, as well as clinical, coding, and prevention issues on our proposal to add Surgical Site Infection (SSI) Following Cardiac Implantable Electronic Device (CIED) Procedures as a condition subject to the HAC payment provision for discharges occurring on or after October 1, 2012.

CIED therapy reduces morbidity and mortality in selected patients with cardiac rhythm disturbances.[1] More than 500,000 CIEDs are implanted each year in the United States and 70 percent of CIED recipients are age 65 or older.[2] However, this benefit with regard to the treatment of cardiac rhythm disturbances is somewhat reduced by complications following device placement, including infections. Patients can present with early or late infections because of CIED placement.[3] Two-thirds of these infections are caused by Staphylococcus aureus and coagulase-negative Staphylococcus species. Treatment of these infections usually entails surgical explantation of the device, sometimes under general anesthesia and a prolonged course of intravenous antibiotics, along with external electrical support in a monitored intensive care setting. The rate of CIED infection is increasing faster than the rate of CIED implantation,[4] and there are published data on the mortality and cost associated with CIED infection or the relationship of these outcomes to different CIED types.

There is not a unique code that identifies SSI Following CIED Procedures. However, the condition can be identified as a subset of discharges with ICD-9-CM diagnosis code 996.61 (Infection and inflammatory reaction due to cardiac device, implant and graft) or 998.59 (Other postoperative infection). Our clinical advisors believe that diagnosis code 996.61 or 998.59, in combination with the associated procedure codes below, can accurately identify SSI Following CIED Procedures. The procedure codes are:

  • 00.50 (Implantation of cardiac resynchronization pacemaker without mention of defibrillation, total system [CRT-P]);
  • 00.51 (Implantation of cardiac resynchronization defibrillator, total system [CRT-D]);
  • 00.52 (Implantation or replacement of transvenous lead [electrode] into left ventricular coronary venous system);
  • 00.53 (Implantation or replacement of cardiac resynchronization pacemaker pulse generator only [CRT-P]);
  • 00.54 (Implantation or replacement of cardiac resynchronization defibrillator pulse generator device only [CRT-D]);
  • 37.80 (Insertion of permanent pacemaker, initial or replacement, type of device not specified);
  • 37.81 (Initial insertion of single-chamber device, not specified as rate responsive);
  • 37.82 (Initial insertion of single-chamber device, rate responsive);
  • 37.83 (Initial insertion of dual-chamber device);
  • 37.85 (Replacement of any type pacemaker device with single-chamber device, not specified as rate responsive);
  • 37.86 (Replacement of any type of pacemaker device with single-chamber device, rate responsive);
  • 37.87 (Replacement of any type pacemaker device with dual-chamber device);
  • 37.94 (Implantation or replacement of automatic cardioverter/defibrillator, total system [AICD]);
  • 37.96 (Implantation of automatic cardioverter/defibrillator pulse generator only);
  • 37.98 (Replacement of automatic cardioverter/defibrillator pulse generator only);
  • 37.74 (Insertion or replacement of epicardial lead [electrode] into epicardium);
  • 37.75 (Revision of lead [electrode]);
  • 37.76 (Replacement of transvenous atrial and/or ventricular lead(s) [electrode]);
  • 37.77 (Removal of lead(s) [electrode] without replacement);
  • 37.79 (Revision or relocation of cardiac device pocket); and
  • 37.89 (Revision or removal of pacemaker device).

We are proposing to identify Surgical Site Infection Following CIED Procedures with diagnosis code 996.61 or 998.59 in combination with one or more of the above associated procedure codes. We believe the condition meets the three criteria for inclusion on the HAC list, as discussed in greater detail below.

First, the condition is one that is high cost and high volume. We reviewed Medicare claims data in the FY 2011 MedPAR file. For FY 2011, we found that there were 859 inpatient discharges coded with Surgical Site Infection Following CIED Procedures as specified by diagnosis code 996.61 or 998.59 when reported with one or more of the above cited associated procedure codes submitted through Medicare claims. The cases had an average cost of $51,795 for the entire hospital stay. We found that there were 583 inpatient discharges coded with Surgical Site Infection Following CIED Procedures as specified by diagnosis code 996.61 or 998.59 when reported with one or more of the above cited associated procedure codes submitted through Medicare claims reported as POA. These POA cases had an average cost of $41,999. We also found that there were 276 inpatient discharges coded with Surgical Site Infection Following CIED Procedures as specified by diagnosis code 996.61 or 998.59 when reported with one or more of the above cited associated procedure codes submitted through Medicare claims reported as NPOA. These NPOA cases had an average cost of $72,485. We note that these data are consistent with other data presented for current HACs. Therefore, we believe this condition is high cost and high volume.

In addition, we reviewed the literature regarding this condition. Infection associated with CIED procedures resulted in a substantial incremental increase in admission mortality and long-term mortality, and varies with the type of CIED. For the purposes of this proposal, we are considering CIED procedures in the aggregate. Several large studies showed CIED infection associated with an approximately 5 percent to 8 percent inhospital mortality as well as a 17.5 percent to 35.1 percent one year mortality.[5] Additionally, there is a significant cost impact for patients who suffer infections after CIED implantation. A recent large analysis of 2007 data on over 200,000 Medicare beneficiaries demonstrated the mean hospital cost of CIED infections to be $28,676 to $53,349, compared with a mean hospital cost ranging from $12,468 to $36,851 for beneficiaries without infection.[6] This additional information supports our conclusion from our analysis of data in the MedPAR file that this condition is high cost.

Second, the condition of Surgical Site Infection Following CIED Procedures, as specified in our proposal, is a CC under the MS-DRG system. We have not identified any additional administrative or operational difficulties associated with proposing this condition as a HAC.

Third, because there are widely recognized guidelines for the prevention of Surgical Site Infection Following CIED Procedures, we believe the condition is reasonably preventable through application of evidenced-based guidelines. A large randomized controlled trial demonstrated that prophylactic preoperative antibiotics reduced CIED infection by 81 percent in patients who received them.[7] Well-accepted guidelines for the prevention and prophylaxis of CIED infection now exist supporting the use of prophylactic antibiotics.

We are inviting public comment on whether Surgical Site Infection Following CIED Procedures 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 condition as a proposed condition subject to the HAC payment provision for FY 2013 (for discharges occurring on or after October 1, 2012). We are particularly interested in receiving comments on the degree to which Surgical Site Infection Following CIED Procedures is reasonably preventable through the application of evidence-based guidelines.

c. Proposal To Add New HAC: Iatrogenic Pneumothorax With Venous Catheterization

We discuss below our rationale for proposing a new condition, Iatrogenic Pneumothorax with Venous Catheterization, for selection as a HAC for FY 2013 under section 1886(d)(4)(D) of the Act. We had previously proposed Iatrogenic Pneumothorax more generally as a HAC in the FY 2009 IPPS rulemaking (73 FR 48485).

In the FY 2009 IPPS final rule (73 FR 48485), we considered Iatrogenic Pneumothorax as a condition but did not finalize it due to commenters' concerns about the preventability of the condition when following the evidence-based guidelines. Most commenters opposed the selection of Iatrogenic Pneumothorax as a HAC and indicated that the evidence-based guidelines often acknowledge that Iatrogenic Pneumothorax is a known relatively common risk for certain procedures. Further, with regard to evidence-based guidelines, many commenters opposed designation of this condition as a HAC due to a lack of consensus within the medical community regarding its preventability.[8] Some commenters offered suggestions to exclude certain procedures or situations, including central line placement, thoracotomy, and the use of a ventilator, if Iatrogenic Pneumothorax were to be selected as a HAC. In that rule, we noted that we would continue to review the development of evidence-based guidelines for the prevention of Iatrogenic Pneumothorax if evidence warrants and consider Iatrogenic Pneumothorax as a HAC in the future. We refer readers to that final rule for a more detailed discussion (73 FR 48485). To address concerns raised by commenters in FY 2009, we reviewed changes in the standard of care and evidence-based guidelines to identify specific situations where Iatrogenic Pneumothorax would be considered reasonably preventable and identified venous catheterization as one such instance.

Pneumothorax is defined as the presence of air or gas in the pleural cavity, which is the space between the covering of the tissue of the lung and parietal pleura, or the part of the pleura that lines the chest wall. The presence of air in this space partially or completely collapses the lung and is life threatening. Air can enter the intrapleural space through a passage through the chest wall. Iatrogenic Pneumothorax is a type of traumatic pneumothorax that results from incursion into the pleural space secondary to diagnostic or therapeutic medical intervention, such as needle placement for central line catheter guidance.

There is no unique code that identifies Iatrogenic Pneumothorax with Venous Catheterization. However, Iatrogenic Pneumothorax with Venous Catheterization can be identified as a subset of discharges with ICD-9-CM diagnosis code 512.1 (Iatrogenic pneumothorax). Our clinical advisors believe that diagnosis code 512.1, in combination with the associated procedure code 38.93 (Venous catheterization NEC), can accurately identify Iatrogenic Pneumothorax with Venous Catheterization. We are proposing to identify Iatrogenic Pneumothorax with Venous Catheterization reported in combination with diagnosis code 512.1 (Iatrogenic pneumothorax) and procedure code 38.93 (Venous catheterization NEC). We recognize that, in quality measurement such as with the Agency for Healthcare Research and Quality (AHRQ) Patient Safety Indicator (PSI) Number 6 (Iatrogenic Pneumothorax Rate), exclusion criteria are used to increase the accuracy of identifying these cases. We believe that, by limiting our proposal to include Iatrogenic Pneumothorax as a HAC only in the context of venous catheterization, we have improved our ability to accurately identify these cases. While we are not proposing exclusion criteria, we welcome public comment in this regard. In addition, we believe this more narrowly tailored condition meets the three criteria for inclusion on the HAC list, as discussed in greater detail below.

First, the condition is one that is high cost and high volume. We reviewed Medicare claims data in the FY 2011 MedPAR file. We found that there were 4,467 inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous Catheterization as specified by diagnosis code 512.1 reported with procedure code 38.93. The cases had an average cost of $39,128 for the entire hospital stay. We found that there were 612 inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous Catheterization as specified by diagnosis code 512.1 reported with procedure code 38.93 submitted through Medicare claims reported as POA. These POA cases had an average cost of $26,693. We also found that there were 3,855 inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous Catheterization as specified by diagnosis code 512.1 reported with procedure code 38.93 submitted through Medicare claims reported as NPOA. These NPOA cases had an average cost of $41,102. We note that these data are consistent with other data presented for current HACs. Therefore, we believe this condition is high cost and high volume.

In addition, we reviewed the literature regarding this condition. The cannulation of veins (that is insertion of a catheter) with central venous catheterization is an important aspect of patient care for the administration of fluids and medications and for monitoring purposes. Eight percent of hospitalized patients receive a central venous catheter, and more than 5 million central venous catheters are inserted in the United States each year. Indwelling catheters have several known complications and side effects associated with their use, such as infections or vessel damage. Additionally, there are risks associated with the placement of central venous catheters including the risk of pneumothorax for central catheters placed in the upper area of the patient's neck or chest when placed in the internal jugular or subclavian veins. Mechanical complications associated with Iatrogenic Pneumothorax are reported to occur in 5 to 19 percent of patients.[9]

Second, the condition of Iatrogenic Pneumothorax with Venous Catheterization as specified in our proposal is a CC under the MS-DRGs.

Third, there are widely recognized guidelines that address the prevention of Iatrogenic Pneumothorax with Venous Catheterization, and we believe that Iatrogenic Pneumothorax in the context of venous catheterization is reasonably preventable through application of these evidenced-based guidelines.

In terms of guidelines, the AHRQ, in a 2001 report “Making Health Care Safer: A Critical Analysis of Patient Safety Practices” (AHRQ Publication No. 01-EO58) recommended the use of ultrasound for the placement of all central venous catheters as one of its 11 practices aimed at improving patient care. Current standard placement techniques for these venous catheters rely on the knowledge of anatomic landmarks and other indicators to guide the initial cannulation of the vein. The increase in the number of small, advanced and portable 2D ultrasound devices has inspired the use of these newer ultrasound devices in central venous line placement, as now direct visualization of the target vessel can be achieved, making it easier to avoid these complications. Recommendations for the use of ultrasound as an adjunct to central venous line placement now exist and are based on supportive literature Category A (Randomized controlled trials report statistically significant (P _ .01) differences between clinical interventions for a specified clinical outcome) with a Level 1 weight of scientific evidence (multiple randomized controlled trials with the aggregated findings supported by meta-analysis).[10] Several studies have shown a decrease in the mechanical complication rate with the use of ultrasound during line placement.[11] Guidelines for performing ultrasound guided vascular cannulation have been recently published.[12]

We believe new evidence-based guidelines provide substantial clinical guidance for reasonable prevention when this condition occurs in the context of venous catheterization. We are inviting public comment on whether Iatrogenic Pneumothorax with Venous Catheterization 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 proposed condition, as a condition subject to the HAC payment provision for discharges occurring on or after October 1, 2012. We are particularly interested in public comment on how limiting the condition to situations in which it occurs in conjunction with venous catheterization influences preventability, and whether additional limits should be considered in the context of venous catheterization.

With the exception of the condition of Iatrogenic Pneumothorax with Venous Catheterization, at this time, we do not believe that additional analysis exists that would require us to change our previous determinations regarding the previously considered candidate HACs in the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 through 51511). We refer readers to these rules for a detailed discussion that supports our determination regarding each of the previously considered candidate HACs and continue to encourage public dialogue about refinements to the HAC list.

6. RTI Program Evaluation Summary

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. The evaluation includes conditions that are currently treated as HACs and also previously considered candidate conditions. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 51522) for a fuller description of this evaluation and findings to date regarding analysis of FY 2009 and FY 2010 data, respectively. Summary and detailed data 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/. RTI's analysis of the FY 2011 MedPAR data file for the HAC-POA program evaluation is being prepared for the FY 2013 IPPS/LTCH PPS final rule. When these summary and detailed data are available, they also will be made publicly available on the two Web sites noted above.

In addition to the evaluation of HAC and POA MedPAR claims data, RTI has also conducted analyses on readmissions due to HACs and the incremental costs of HACs to the health care system, a study of spillover effects and unintended consequences, as well as an updated analysis of the evidence-based guidelines for selected and previously considered HACs. Reports on these analyses have been made publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.

G. Proposed Changes to Specific MS-DRG Classifications

In this FY 2013 IPPS/LTCH PPS proposed rule, we are inviting public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which are also discussed below. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we are proposing to maintain the existing MS-DRG classification based on our analysis of claims data.

We encourage input from our stakeholders concerning the annual IPPS updates when that input is made available to us by December of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2013, comments and suggestions should have been submitted by early December 2011. The comments that were submitted in a timely manner are discussed below in this section.

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

a. Ventricular Assist Devices (VADs)

A ventricular assist device (VAD) is a mechanical circulatory device or pump that is used to partially or completely support heart function and blood flow in patients with a damaged or weakened heart. The device takes blood from the ventricles of the heart and helps pump the blood to the rest of the body.

Some VADs are intended for short-term use, often for patients who are recovering from heart attacks or heart surgery, while other VADs are intended for long-term use (months to years and, in some cases, for life). VADs are not the same device as artificial hearts, which are designed to completely take over cardiac function and generally require the removal of the patient's native heart.

VADs are designed to assist the ventricles, either the right (RVAD) or the left (LVAD), and, in some cases, both ventricles at once (BiVAD). The type of VAD used depends on the patient's underlying heart disease and the pulmonary arterial resistance that determines the load on the right ventricle. LVADs are the most commonly used, but when pulmonary arterial resistance is high, right ventricular assistance becomes necessary and an RVAD may be inserted. Long-term VADs are normally used to help maintain a patient's quality of life while he or she awaits a heart transplant. This process is known as a “bridge to transplant.” However, sometimes the insertion of an LVAD becomes the final treatment for the patient, which is known as “destination therapy.” In this case, the VAD is a permanent implant, and no heart transplantation occurs. In a smaller number of cases, the implantation of a VAD, combined with pharmaceutical therapy, has enabled the native heart to recover sufficiently to allow the VAD to be explanted, a “bridge to recovery.”

We have issued a national coverage determination (NCD) entitled “Artificial Hearts and Related Devices” under Section 20.9 of the Medicare Coverage Manual (Pub. No. 100-3). This NCD, which describes CMS' requirements for coverage of medical services provided to Medicare beneficiaries for the insertion of VADs, can be found at the CMS Web site at: https://www.cms.gov/medicare-coverage-database/details/ncd-details.aspx?NCDId=246&ncdver=5&NCAId=211&ver=20&NcaName=Artificial+Hearts&bc=ACAAAAAAIAAA&. We refer readers to this Web site for the complete viewing of the NCD for the insertion of VADs.

The assignment of procedure codes used to describe the insertion of VADs has been discussed repeatedly in IPPS rulemaking, for the CMS-DRGs (in effect prior to FY 2008) and more recently for the MS-DRGs (FY 2008 to present). We refer readers to the FY 2003 IPPS final rule (67 FR 49989) for a complete discussion of the assignment of these procedure codes up to that date. In addition, the topic was discussed in FY 2005; we refer readers to the FY 2005 IPPS final rule (69 FR 48927 through 48930) for a complete discussion regarding the assignment of these procedure codes for FY 2005. Specifically, for FY 2005, we moved ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist system) from CMS-DRG 525 (Other Heart Assist System Implant) to CMS-DRG 103 (Heart Transplant). When we adopted the MS-DRG classification system in FY 2008, former CMS-DRG 103 remained in the Pre-MDC section but was renamed and subdivided into MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with MCC) and MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without MCC).

For FY 2013, we have received a request to restructure MS-DRGs 001 and 002 by removing all of the procedure codes that describe the insertion of a device, leaving only procedure codes 33.6 (Combined heart-lung transplantation) and 37.51 (Heart transplantation) in the heart transplant DRGs. The requestor further asked that the remaining device codes be assigned to newly created MS-DRGs. The requestor believed that, within the existing MS-DRG grouping, CMS is underpaying for services to patients who have a VAD implanted and overpaying for services to patients who have heart transplantations. The requestor believed that the recommended restructuring “would allow defined grouping of cases with the higher level of resource [sic] required reflected in payment.”

We have reviewed data in the September 2011 update of the FY 2011 MedPAR file and found that the average length of stay for heart transplantations and VAD implantation cases are very similar (35.1 days for heart transplantations and 36.63 days for VAD implantations). We also found that the average cost for VAD implantation cases alone is higher than the average cost of heart transplantation cases. The table below includes our findings.

MS-DRGNumber of casesAverage length of stayAverage cost
MS-DRG 001—All Cases1,23536.97$164,846
MS-DRG 001—Cases with Heart Transplant without VAD38435.1123,472
MS-DRG 001—Cases with VAD Insertion Alone81136.85181,915
MS-DRG 002—All Cases31319.6689,818
MS-DRG 002—Cases with Heart Transplant without VAD17215.158,890
MS-DRG 002—Cases with VAD Insertion Alone14025.31128,069

We believe that this higher average cost could be attributable to the cost of the device itself. There are very few VADs approved by FDA; therefore, we believe this small group of manufacturers is able to set their own charges in the market. We point out that the IPPS is not designed to pay solely for the cost of devices. The MS-DRG classification system (and more importantly, the IPPS) is not based solely on the cost of devices.

Rather, the MS-DRG system is a patient classification system that provides an average means of relating the type of patients a hospital treats (that is, case-mix) to the costs incurred by the hospital. We have previously stated that, “Central to the success of the Medicare inpatient hospital prospective payment system is that DRGs have remained a clinical description of why the patient required hospitalization. We believe it would be undesirable to transform DRGs into detailed descriptions of the technology and processes used by the hospital to treat the patient. If such a transformation were to happen, the DRGs would become largely a repackaging of fee-for-service without the management and communication benefits. The separation of the clinical and payment weight methodologies allows a stable clinical methodology to be maintained, while the payment weights evolve in response to changing practice patterns. The packaging of all services associated with the care of a particular type of patient into a single payment amount provides the incentive for efficiency inherent in a DRG-based prospective payment system. Substantial disaggregation of the DRGs into smaller units of payment, or a substantial number of cases receiving extra payments, would undermine the incentives and communication value in the DRG system.” (66 FR 46904)

The results of our review of the claims data for MS-DRGs 001 and 002 are summarized in the following table.

CodeDescription of code(s)Number of cases
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System With MCC)
All codes1,235
33.6 or 37.51Combined heart-lung transplantation or Heart transplantation384
33.6 or 37.51 with 37.66Combined heart-lung transplantation or Heart transplantation with Insertion of implantable heart assist system (VAD)11
37.52Implantation of total internal biventricular heart replacement system (Artificial heart)2
37.66Insertion of implantable heart assist system (VAD)811
37.60 with 37.64Implantation or insertion of biventricular external heart assist system + Removal of external heart assist system(s) or device(s)1
37.63 with 37.64Repair of heart assist system + Removal of external heart assist system(s) or device(s)0
37.64 with 37.65Removal of external heart assist system(s) or device(s) + plant of single ventricular (extracorporeal) external heart assist system22
Multiple VADs without heart transplant22
MS-DRG 002 (Heart Transplant or Implant of Heart Assist System With MCC)
All codes313
33.6 or 37.51Combined heart-lung transplantation or Heart transplantation172
33.6 or 37.51 with 37.66Combined heart-lung transplantation or Heart transplantation with Insertion of implantable heart assist system (VAD)0
37.52Implantation of total internal biventricular heart replacement system (Artificial heart)0
37.66Insertion of implantable heart assist system (VAD)140
37.60 with 37.64Implantation or insertion of biventricular external heart assist system plus Removal of external heart assist system(s) or device(s)0
37.63 with 37.64Repair of heart assist system + Removal of external heart assist system(s) or device(s)0
37.64 with 37.65Removal of external heart assist system(s) or device(s) + plant of single ventricular (extracorporeal) external heart assist system1
Multiple VADs without heart transplant4

In general, we believe that the IPPS should accurately recognize differences in utilization for clinically distinct procedures. However, we also reiterate the language in the FY 2009 IPPS final rule that the payments under a prospective payment system are predicated on averages (73 FR 48443). To create a new MS-DRG specific to VAD implantation would require basing that MS-DRG almost exclusively on the presence of procedure code 37.66, representing a single procedure and currently one manufacturer with FDA approval. Currently, other manufacturers are reported to be in clinical trials with their VADs. This approach negates our longstanding method of grouping like procedures and diminishes the concept of averaging. Further, we are concerned that ignoring the structure of the MS-DRG system solely for the purpose of increasing payment for one device would set an unwarranted precedent for defining all of the other MS-DRGs in the system (73 FR 48497 and 48498).

The commenter requested that we create two new MS-DRGs for the VADs and that the requested MS-DRGs be divided based on the presence or absence of an MCC. We point out that the final rule establishing the MS-DRGs sets forth five criteria, all five of which are required to be met in order to warrant creation of a CC or an MCC subgroup within a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule with comment period (72 FR 47169). The original criteria were based on average charges; we now use average costs (FY 2007 IPPS final rule (71 FR 47882)). To reiterate, these criteria are as follows:

  • A reduction in variance of costs of at least 3 percent.
  • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
  • At least 500 cases are in the CC or MCC subgroup.
  • There is at least a 20-percent difference in average costs between subgroups.
  • There is a $2,000 difference in average cost between subgroups.

As procedure code 37.66 predominates in our claims data for VAD implantations, we are including the following table demonstrating the cost difference between MS-DRG 001 and MS-DRG 002.

MS-DRGNumber of casesAverage cost
001—Cases with procedure code 37.66811$181,915
002—Cases with procedure code 37.66140128,069

As stated in the FY 2008 IPPS final rule with comment period, all five criteria must be met in order to subdivide an MS-DRG into MCC and non-MCC severity levels. In this instance, the number of cases in MS-DRG 002 containing procedure code 37.66 is 140, not the minimum number of 500 cases as established by the MS-DRG severity criteria. Therefore, even if we were to create a new MS-DRG for VAD implantation, unless we further divided the MS-DRG based on the presence of an MCC, we would substantially overpay approximately 15 percent of total VAD cases. However, we could not create multiple MS-DRGs for VAD implantation without ignoring our rules for subdividing MS-DRGs.

For these reasons, for FY 2013, we are not proposing to make any changes to the structure of MS-DRGs 001 and 002. We are inviting public comment on our proposal.

b. Allogeneic Bone Marrow Transplant

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), we deleted MS-DRG 009 (Bone Marrow Transplant) and created two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone Marrow Transplant). We created MS-DRGs 014 and 015 because of differences in costs associated with the procedures in these two MS-DRGs. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51525 through 51526), we further subdivided MS-DRG 015 into two severity levels, by deleting MS-DRG 015 and creating MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC); and MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC). We created MS-DRGs 014 and 015 as these groups meet all five criteria for subdivision by severity level that we established in the FY 2008 IPPS final rule with comment period (72 FR 47169). As we discussed in the FY 2012 IPPS/LTCH PPS final rule, MS-DRG 014 did not meet the criteria for subdivision by severity level.

During the comment period for the FY 2012 IPPS/LTCH PPS proposed rule, we received a public comment regarding related and unrelated allogeneic bone marrow transplants (which are captured in MS-DRG 014) that had not been the subject of a proposal in that proposed rule. This issue was referred to briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), but we did not address the issue because we considered the comment to be out of the scope of provisions of the proposed rule. However, we are addressing this issue in this FY 2013 proposed rule. The commenter recommended that MS-DRG 014 be subdivided into two MS-DRGs based on related and unrelated transplant donor source.

Allogeneic bone marrow transplantation utilizes the bone marrow or stem cells from a donor that is either related (sibling or other close family member) or unrelated (not a close family member of the recipient) in the treatment of certain cancers and bone marrow diseases. Allogeneic transplant recipients must have a tissue type that matches the donor. According to the commenter, a related donor will typically be managed by the transplant facility from human leukocyte antigen (HLA) molecular typing through mobilization and collection, while an unrelated donor requires the use of donor registry for searching and collection process. According to the commenter, the unrelated donor setting adds significant costs to the transplant that would not be incurred in the related transplant setting.

Currently, there are three ICD-9-CM procedure codes that identify the transplant donor source:

  • 00.91 (Transplant from live related donor)
  • 00.92 (Transplant from live non-related donor)
  • 00.93 (Transplant from cadaver)

In our analysis of data in the FY 2011 MedPAR file, we found 467 cases assigned to MS-DRG 014 with average costs of approximately $64,403 and an average length of stay of approximately 24.8 days. There were 125 cases that reported procedure code 00.91 on the claim as the related transplant donor source with average costs of approximately $55,969 and an average length of stay of approximately 24.1 days. In our analysis of the unrelated donor source, we included the cases reported with the transplant from a cadaver donor source (code 00.93) with the transplant from a live nonrelated donor source (code 00.92). There were 213 cases that reported either code 00.92 or 00.93 as the transplant donor source with average costs of approximately $64,837 and an average length of stay of approximately 23 days. There were 129 cases that did not report a transplant donor source with average costs of approximately $71,859 and an average length of stay of approximately 28.5 days. The following table illustrates our findings:

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 014—All cases46724.8$64,403
MS-DRG 014—Live related donor (code 00.91)12524.155,969
MS-DRG 014—Live nonrelated donor (code 00.92) or cadaver (code 00.93)2132364,837
MS-DRG 014—No donor source12928.571,859

We note that one quarter of the cases (129 out of 467 cases) that did not report a transplant donor source code had the highest average costs of approximately $71,859, compared to $55,969 for live related donors and $64,837 for live nonrelated or cadaver donors and $64,403 for the overall average cost of cases within MS-DRG 014. The cases without a transplant donor source code also had a longer length of stay (28.5 days) than the live-related donor cases (24.1 days), the live nonrelated or cadaver cases (23 days), and the overall cases (24.8 days) assigned to MS-DRG 014.

Based on these findings, we believe that it would not be advisable to include cases without a transplant donor source code with the live nonrelated or cadaver donor cases, as we believe it would encourage providers not to report the transplant donor source code. All possible options must be included in any MS-DRG reconfiguration. Therefore, cases with no reported transplant donor source code must be included in the updated logic because this is the group with the highest average costs. Our clinical advisors reviewed this issue and do not support splitting MS-DRG 014 into two MS-DRGs because a quarter of the cases did not provide a transplant donor source. Therefore, we have concluded that the cases reported with a transplant donor source code are appropriately assigned to MS-DRG 014 and that MS-DRG does not warrant further subdivision. Without more complete information on donor source, we are not proposing that MS-DRG 014 be subdivided at this time. We are inviting public comment on our proposal not to subdivide MS-DRG 014 into two MS-DRGs based on related and unrelated donor source.

2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): Influenza With Pneumonia

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), we discussed a public comment that we considered out of the scope of the FY 2012 proposed rule. Therefore, we did not address the issues in the final rule. The commenter requested that we consider reassigning cases with a combined diagnosis of influenza with pneumonia from a set of simple pneumonia MS-DRGs to a set of MS-DRGs that captures a more severe type of pneumonia. The specific request involves cases now assigned to MS-DRGs 193 (Simple Pneumonia and Pleurisy with MCC), 194 (Simple Pneumonia and Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy without MCC/CC) being moved to MS-DRGs 177 (Respiratory Infections and Inflammations with MCC), 178 (Respiratory Infections and Inflammations with CC), and 179 (Respiratory Infections and Inflammations without MCC/CC).

We examined data in the FY 2011 MedPAR file on cases that reported diagnosis code 487.0 (Influenza with pneumonia) as the principal diagnosis with an additional secondary diagnosis code for one of the following types of pneumonia:

  • 482.0 (Pneumonia due to Klebsiella pneumoniae)
  • 482.1 (Pneumonia due to Pseudomonas)
  • 482.40 (Pneumonia due to Staphylococcus, unspecified)
  • 482.41 (Methicillin susceptible pneumonia due to Staphylococcus aureus)
  • 482.42 (Methicillin resistant pneumonia due to Staphylococcus aureus)
  • 482.49 (Other Staphylococcus pneumonia)
  • 482.81 (Pneumonia due to anaerobes)
  • 482.82 (Pneumonia due to Escherichia coli [E. coli])
  • 482.83 (Pneumonia due to other gram-negative bacteria)
  • 482.84 (Pneumonia due to Legionnaires' disease)
  • 482.89 (Pneumonia due to other specified bacteria)

Currently, when one of the pneumonia codes listed above is reported as a principal diagnosis, the case is assigned to MS-DRG 177, 178, or 179. However, when the patient has been diagnosed with one of these types of pneumonia and also has influenza, the ICD-9-CM coding book directs the coder to report diagnosis code 487.0 as the principal diagnosis and to assign an additional secondary code to describe the specific type of pneumonia. This reporting results in cases with diagnoses of both influenza and specific types of pneumonia being assigned to MS-DRG 193, 194, or 195 (Simple Pneumonia and Pleurisy with MCC, with CC, or without CC/MCC, respectively), instead of MS-DRG 177, 178, or 179. The commenter requested that we reassign cases reporting code 487.0 as the principal diagnosis with one of the specific pneumonia codes listed above as a secondary diagnosis to MS-DRGs 177, 178, and 179.

We analyzed data from the MedPAR file on cases with patients with pneumonia and found the following:

MS-DRGNumber of casesAverage length of stayAverage cost
MS-DRG 177—All cases69,1288.20$13,002
MS-DRG 178—All cases59,5596.409,193
MS-DRG 179—All cases14,1084.656,365
MS-DRG 193—All cases125,8926.289,589
MS-DRG 193—Cases with principal diagnosis code 487.0 and with a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89579.315,867
MS-DRG 193—Cases with principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.891,3206.9310,416
MS-DRG 194—All cases191,0304.736,524
MS-DRG 194—Cases with principal diagnosis code 487.0 and with a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89596.99,752
MS-DRG 194—Principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.892,0885.166,871
MS-DRG 195—All cases80,2533.534,660
MS-DRG 195—Cases with a principal diagnosis code 487.0 and a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89124.85,842
MS-DRG 195—Cases with principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.891,0653.784,580

The data showed that cases reporting a principal diagnosis code 487.0 with one of the pneumonia codes listed above as a secondary diagnosis have significantly higher average costs ($15,867 in MS-DRG 193, $9,752 in MS-DRG 194, and $5,842 in MS-DRG 195) than those cases reported without one of the pneumonia codes listed above as a secondary diagnosis ($10,416 in MS-DRG 193, $6,871 in MS-DRG 194, and $4,580 in MS-DRG 195), and also the overall average costs for all cases in MS-DRGs 193, 194, and 195 ($9,589, $6,524, and $4,660, respectively). The influenza and pneumonia cases had average costs that more closely align with the average costs of cases currently assigned to MS-DRGs 177, 178, and 179 ($13,002, $9,193, and $6,365, respectively).

As a result of our analysis, the data support the commenter's request that we reassign cases reporting a principal diagnosis code 487.0 and an additional secondary diagnosis code for one of the pneumonia codes listed above, from MS-DRGs 193, 194, and 195 to MS-DRGs 177, 178, and 179. Our clinical advisors also support reassigning these cases to MS-DRGs 177, 178, and 179. Therefore, for FY 2013, we are proposing to reassign cases with a principal diagnosis code 487.0 and an additional secondary diagnosis code of one of the following pneumonia codes listed as a secondary diagnosis codes from MS-DRGs 193, 194, and 195 to MS-DRGs 177, 178, and 179: 482.0; 482.1; 482.40; 482.41; 482.42; 482.49; 482.81; 482.82; 482.83; 482.84; and 482.89.

We are inviting public comment on our proposal for FY 2013.

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

a. Percutaneous Mitral Valve Repair With Implant

We received a request to reassign procedure code 35.97 (Percutaneous mitral valve repair with implant) to the following MS-DRGs:

  • MS-DRG 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac with MCC);
  • MS-DRG 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac with CC);
  • MS-DRG 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac without CC/MCC);
  • MS-DRG 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac with MCC);
  • MS-DRG 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac with CC); and
  • MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac without CC/MCC).

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51528 through 51529), we discussed reassigning procedure code 35.97 from MS-DRGs 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, respectively) and MS-DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC), 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC), and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC). In that final rule, we stated that we did not have sufficient claims data on which to base and evaluate any proposed changes to the current MS-DRG assignment. Procedure code 35.97 was created for use beginning October 1, 2010 (FY 2011) after the concept of percutaneous valve repair was presented at the March 2010 ICD-9-CM Coordination and Maintenance Committee meeting. Procedure code 35.97 was created at that time to describe the MitraClipTM device and any other percutaneous mitral valve repair devices currently on the market. This procedure code was assigned to the following MS-DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, respectively); 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC); 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC).

According to the Food and Drug Administration's (FDA's) terms of the clinical trial for MitraClipTM, the device is to be implanted in patients without any additional surgeries performed. Therefore, based on these terms, we stated that while the procedure code is assigned to MS-DRGs 246 through 251, the most likely MS-DRG assignments would be MS-DRGs 250 and 251, as described above. As we stated in the FY 2012 IPPS/LTCH PPS final rule, because procedure code 35.97 had only been in use since October 1, 2010, there were no claims data in the most recent update of the MedPAR file at that time to evaluate any alternative MS-DRG assignments. Therefore, we did not make any MS-DRG assignment changes for procedure code 35.97 for FY 2012.

For this proposed rule, we have analyzed claims data from the FY 2011 MedPAR file on the procedure that describes mitral valve repair with implant and found the following:

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 216—All Cases9,62416.44$61,015
MS-DRG 217—All Cases5,65510.2441,324
MS-DRG 218—All Cases9957.4334,587
MS-DRG 219—All Cases15,33612.5350,176
MS-DRG 220—All Cases18,4557.5334,150
MS-DRG 221—All Cases4,7195.5929,082
MS-DRG 231—All Cases1,17012.1749,728
MS-DRG 231—Cases with Procedure Code 35.97413.7535,409
MS-DRG 232—All Cases1,0109.1637,820
MS-DRG 232—Cases with Procedure Code 35.97913.5646,008
MS-DRG 246—All Cases29,2995.2020,725
MS-DRG 247—All Cases109,6612.3913,014
MS-DRG 248—All Cases13,5626.3519,785
MS-DRG 248—Cases with Procedure Code 35.97132.00110,262
MS-DRG 249—All Cases35,1002.8611,806
MS-DRG 250—All Cases8,3137.0719,673
MS-DRG 250—Cases with Procedure Code 35.97399.7729,753
MS-DRG 251—All Cases31,3162.9212,658
MS-DRG 251—Cases with Procedure Code 35.97982.6918,651

We note that most of the cases were found in MS-DRGs 250 and 251, as we predicted in the FY 2012 IPPS/LTCH PPS final rule based on FDA's terms of the clinical trial for MitraClipTM. As stated earlier, the device is to be implanted in patients without any additional surgeries performed. There were 39 cases in MS-DRG 250 with average costs of $29,753 (which includes cases with an MCC). These average costs are significantly lower than the average costs of $61,015 for cases in MS-DRG 216, and the average costs of $50,176 for cases in MS-DRG 219 (which includes cases with an MCC). There were 98 cases in MS-DRG 251 (without MCC) with average costs of $18,651. These average costs also are lower than the average costs of comparable cases in MS-DRGs 217, 218, 220, and 221, whose average costs range from a high of $41,324 to a low of $29,082. While the average costs of mitral valve repair cases are higher than the average costs of other cases assigned to MS-DRGs 250 and 251, they are significantly less than the average costs of cardiac valve replacement cases assigned to MS-DRGs 216 through 221. Our analysis of the claims data does not support reassigning the procedure that describes percutaneous mitral valve repair with implant from MS-DRGs 250 and 251 to MS-DRGs 216 through 221. Our clinical advisors also support maintaining the current assignment of this procedure in MS-DRGs 250 and 251. Therefore, based on our findings, we are not proposing to reassign procedure code 35.97 from MS-DRGs 250 and 251 to MS-DRGs 216 through 221.

We are inviting public comment on our proposal to maintain the current assignment of procedure code 35.97 in MS-DRGs 250 and 251 and not to reassign the procedure code to MS-DRGs 217 through 221.

b. Endovascular Implantation of Branching or Fenestrated Grafts in Aorta

The fenestrated (with holes) graft device is designed to treat patients with abdominal aortic aneurysms (AAA). Current treatment options for patients with AAAs include open surgical repair, endovascular repair using stent-grafts, or medical management.

Aneurysmal disease that extends proximally to the level of the renal arteries is usually indicative of more extensive aortic disease and comorbidities. As a result, many of these patients are at a higher overall risk when undergoing open surgical repair. In addition, these patients are often not suitable for endovascular treatment with currently available endografts because the length of healthy aorta is insufficient to provide an adequate seal at the proximal end. The indications for use for many of the standard endografts call for an aortic neck length greater than or equal to 15 millimeters.

Published industry reports estimate that 8 percent to 30 percent of patients with AAAs that need repair have aortic necks of less than 15 millimeters in length. One institution has reported that over half of its patients with AAAs were considered ineligible for endovascular aneurysm repair or endovascular aortic repair (EVAR) due to an inadequate length of nondiseased aorta. These patients also were predominantly contraindicated for open repair.

Prior to the development of a fenestrated graft device, the only treatment option available to a large number of these high-risk patients would have been medical management. Open surgical repair is too challenging to frail patients, as it requires supraceliac clamping of the aorta and may result in renal ischemia, mesenteric ischemia, or atheroembolization of the visceral vessels of the aorta. EVAR with a standard endograft is not a viable option either because the shortened neck precludes an adequate proximal end seal, which can lead to type I endoleaks (leaking of blood around the device into the aneurysm resulting in continued pressurization of the aneurysm). Medical management alone leaves these patients at high risk for AAA-related morbidity and mortality. These suboptimal choices led to the creation of fenestrated endografts that can seal above the renal arteries while maintaining access and uninterrupted blood flow to branch vessels of the aorta.

The fenestrated graft is currently under clinical trial in the United States, but has not yet received FDA approval. One of the two companies that are conducting clinical trials expects to receive FDA approval in the second quarter of 2012. Both companies listed on the FDA clinical trial Web site are still recruiting participants.

At the September 15, 2010 meeting of the ICD-9-CM Coordination and Maintenance Committee, the topic of fenestrated graft was presented with a request for a unique procedure code. As a result of that meeting, and additional meetings with manufacturers throughout the year, procedure code 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta) was created for use beginning October 1, 2011 (FY 2012). This code is assigned to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without CC/MCC, respectively).

We have received a request from a manufacturer to reassign procedure code 39.78 from MS-DRGs 252, 253, and 254 and to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and without MCC, respectively). The requestor stated that the assignment to MS-DRGs 252, 253, and 254 violates both of CMS' stated principles regarding assigning new codes to MS-DRGs that reflect both clinical coherence and similar consumption of resources.

From the standpoint of clinical coherence, the requestor noted that, while procedures in MS-DRGs 252, 253, and 254 are vascular procedures, the procedures do not involve the aorta. The requestor further notes that AAA repairs, both open and endovascular, are assigned to MS-DRGs 237 and 238. From the standpoint of similar consumption of resources, the requestor included anticipated device costs of $17,424 to $21,824 for a fenestrated endovascular procedure. The requestor noted that these costs only represent the device and do not include any additional resources required during the hospitalization. The requestor believed that the device costs are more similar to devices used in MS-DRGs 237 and 238.

CMS' practice is to assign new codes to MS-DRGs where similar procedures are also located. In terms of clinical coherence, CMS assigned the new code to the vascular procedure MS-DRGs (252, 253, and 254) where other noncoronary endovascular procedures for blood vessel repair also are assigned. This decision was based on our practice to group similar procedures together, in this case repairs to blood vessels, especially for new codes when CMS has no data history.

With regard to resource consumption, we point out that procedure code 39.78 was created for use effective with discharges on or after October 1, 2011. Our review of data in the MedPAR file shows no utilization of this code because it is too new. That is, we have no claims data that would either prove or disprove the requestor's supposition that procedure code 39.78 is not adequately paid under MS-DRGs 252, 253, and 254. As discussed elsewhere in this preamble, CMS is not a device classification system. Therefore, because there are very few companies currently marketing their fenestrated graft devices, we are concerned that these companies are able to set their own charges in the market.

In addition, the requestor opined that “an argument could possibly be made that the increased device costs and longer procedural times for [procedure code] 39.78 suggest assignment into MS-DRG 237 alone would be appropriate,” although the requestor further stated that, without a significant volume of actual claims data, it might be more reasonable [for CMS] to take a conservative approach and assign these procedures to either MS-DRG 237 or MS-DRG 238. We note that MS-DRGs 237 and 238 are paired MS-DRGs, with both MS-DRGs containing the same procedure codes, but which have been subdivided based on the formula for the presence or absence of comorbid or complicating conditions. It is not an inherent part of the GROUPER logic to assign a code to only one DRG in a set of paired or triplicate MS-DRGs.

We will continue to evaluate the clinical coherence and resource consumption costs that impact this code and the current MS-DRG assignment. We also note that the requestor has expressed its intent to apply for New Technology status, provided that its anticipated FDA approval is granted in time for this year's IPPS update.

Because there is no data history for procedure code 39.78 that would justify a reassignment based on either clinical coherence or resource consumption, we are not proposing to make a change to the MS-DRG assignment of procedure code 39.78 for FY 2013. We believe that procedure code 39.78 has been appropriately placed within the MS-DRG structure. We are inviting public comment on our proposal.

4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders): Disorders of Porphyrin Metabolism

We received a request for the creation of a new MS-DRG to better identify cases where patients with disorders of porphyrin metabolism exist, to recognize the resource requirements in caring for these patients, to ensure appropriate payment for these cases, and to preserve patient access to necessary treatments. Porphyria is defined as a group of rare disorders (“porphyrias”) that interfere with the production of hemoglobin that is needed for red blood cells. While some of these disorders are genetic (inborn) and others can be acquired, they all result in the abnormal accumulation of hemoglobin building blocks, called porphyrins, which can be deposited in the tissues where they particularly interfere with the functioning of the nervous system and the skin.

Treatment for patients suffering from disorders of porphyrin metabolism consists of an intravenous injection of Panhematin® (hemin for injection). This pharmaceutical agent became the first drug approved under the Orphan Drug Act for rare diseases in 1983. It is the only FDA-approved prescription treatment for acute intermittent porphyria.

ICD-9-CM diagnosis code 277.1 (Disorders of porphyrin metabolism) describes these cases, which are currently assigned to MS-DRG 642 (Inborn and Other Disorders of Metabolism). We analyzed data from the FY 2011 MedPAR file for cases assigned to this MS-DRG. As shown in the table below, we found a total of 1,447 cases in MS-DRG 642 with an average length of stay of 4.63 days and average costs of $7,400. We then analyzed the data for cases reporting diagnosis code 277.1 as the principal diagnosis in this same MS-DRG. We found a total of 330 cases, with an average length of stay of 6.12 days and average costs of $11,476.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 642—All cases1,4474.63$7,400
MS-DRG 642—Cases with principal diagnosis code 277.13306.1211,476

While the average costs for the 330 cases reporting a principal diagnosis code of 277.1 were higher than all cases in MS-DRG 642 ($11,476 versus $7,400), the volume of affected cases is small, representative of approximately 20 percent of all of the cases in MS-DRG 642. Under our existing policy (76 FR 51487 and 51488), in deciding whether to make modifications to the MS-DRGs, we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different from the remaining patients in the MS-DRG. We evaluate the utilization of resources related to patient care using average costs and length of stay and rely 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 consider both the absolute and percentage differences in average costs between the cases we selected for review and the reminder of cases in the MS-DRG. We also consider variation in costs within these groups; that is, whether observed average differences are consistent across patients or attributable to cases that were extreme in terms of charges or length of stay. Further, we consider the number of patients who have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases. Therefore, we have determined that the findings do not support the creation of a new MS-DRG.

We acknowledge the importance of ensuring that patients diagnosed with a disorder of porphyrin metabolism have adequate access to care and receive the necessary treatment. Despite the fact that our data analysis did not demonstrate support for the creation of a new MS-DRG at this time, we also explored an alternative option. In reviewing the medical MS-DRGs in terms of resources and clinical coherence that are also located within MDC 10, we found three MS-DRGs that we believe are similar to MS-DRG 642. We analyzed data from the MedPAR file on cases in MS-DRGs 643, 644, and 645 (Endocrine Disorders with MCC, with CC, and without CC/MCC, respectively) to determine if the cases reporting a principal diagnosis code of 277.1 would be more appropriately reassigned from MS-DRG 642 to MS-DRGs 643, 644, and 645. Upon examination of the data, we found that the average costs of these cases were $10,835, $6,816, and $4,762, respectively, as shown in the table below.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 643—Cases with principal diagnosis code 277.16,5627.11$10,835
MS-DRG 644—Cases with principal diagnosis code 277.112,7694.896,816
MS-DRG 645—Cases with principal diagnosis code 277.15,9793.404,762

Based on these findings, if we were to reassign cases where disorders of porphyrin metabolism (diagnosis code 277.1) were reported as the principal diagnosis with a secondary diagnosis designated as a CC (MS-DRG 644) or with a secondary diagnosis that was not a CC/MCC (MS-DRG 645), Medicare would pay significantly less for these cases than they are now paid under MS-DRG 642. Therefore, it would not be appropriate to reassign cases reporting a principal diagnosis code of 277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645. In addition, our clinical advisors did not support this reassignment. The MS-DRG classification system on which the IPPS is based comprises a system of averages. As such, it is understood that, in any particular MS-DRG, it is not unusual for a small number of cases to demonstrate higher than average costs, nor is it unusual for a small number of cases to demonstrate lower than average costs. Upon review of the MedPAR data and the alternative option discussed, our clinical advisors agree that the current MS-DRG assignment for diagnoses of disorders of porphyrin metabolism (diagnosis code 277.1) to MS-DRG 642 is most appropriate at this time.

As stated previously, we acknowledge and recognize the severity of symptoms that patients diagnosed with disorders of porphyrin metabolism may experience. We also are sensitive to concerns about access to care and treatment for these patients. We will continue to monitor this issue and determine how to better account for the variation in resource utilization within the IPPS for these cases.

In summary, we are not proposing to create a new MS-DRG or to reassign cases reporting a principal diagnosis code of 277.1 to MS-DRGs 643, 644, and 645 for FY 2013. We are inviting public comment on our proposal.

5. Proposed Medicare Code Editor (MCE) Changes

The Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.

We are proposing to make a change to the MCE edits which includes the creation of a new length of stay edit for continuous invasive mechanical ventilation for 96 consecutive hours or more.

It was brought to our attention that a number of hospitals reporting ICD-9-CM procedure code 96.72 (Continuous invasive mechanical ventilation for 96 consecutive hours or more) may be inaccurately reporting this code. As the title of the procedure code implies, a patient must have received continuous mechanical ventilation for 96 hours or more in order for this code to be assigned. This equates to a patient being hospitalized for at least a 4-day length of stay and having received continuous invasive mechanical ventilation for a minimum of 4 days. Therefore, a patient with a length of stay less than 4 days who received continuous invasive mechanical ventilation should not have procedure code 96.72 reported on the claim.

The ICD-9-CM classification system contains three procedure codes that identify and describe continuous invasive mechanical ventilation: Procedure code 96.70 (Continuous invasive mechanical ventilation of unspecified duration); procedure code 96.71 (Continuous invasive mechanical ventilation for less than 96 consecutive hours); and procedure code 96.72 (Continuous invasive mechanical ventilation for 96 consecutive hours or more). To assist in the accurate assignment of these codes, guidance in the form of a “Note” is provided within the designated procedure section of ICD-9-CM. This “Note” describes the calculation of the number of hours during a hospitalization in which a patient receives continuous invasive mechanical ventilation. In addition, coding advice pertaining to appropriate code assignment for mechanical ventilation has been published in various editions of the American Hospital Association's (AHA's) Coding Clinic for ICD-9-CM.

We analyzed the FY 2011 MedPAR data to determine how many cases reported procedure code 96.72 with a length of stay less than 4 days. Specifically, we reviewed cases reporting procedure code 96.72 with a length of stay of 1 day, 2 days, or 3 days. We found a total of 595 cases meeting those criteria. The data analysis showed there were 89 cases reporting procedure code 96.72 with a length of stay of 1 day and average costs of $5,948, 134 cases reporting procedure code 96.72 with a length of stay of 2 days and average costs of $7,776, and 372 cases reporting procedure code 96.72 with a length of stay of 3 days and average costs of $11,613.

The data also demonstrate that the 595 cases found were distributed across a wide range of MS-DRGs, with the top two (in terms of volume) being MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support 96+ Hours) and MS-DRG 870 (Septicemia or Severe Sepsis with Mechanical Ventilation 96+ hours). We note that the two MS-DRGs with the highest volume of cases reporting procedure code 96.72 and having a length of stay less than 4 days are the two MS-DRGs that specifically reference “96+ hours” in their titles. More importantly, a large percentage of these cases reporting procedure code 96.72 in error are being grouped to the incorrect MS-DRGs, resulting in significant overpayments. For example, of the 89 cases reporting procedure code 96.72 with a length of stay of 1 day, 31 cases were grouped to MS-DRGs 207 and 870. Of the 134 cases reporting procedure code 96.72 with a length of stay of 2 days, 54 cases were grouped to MS-DRGs 207 and 870. Lastly, of the 372 cases reporting procedure code 96.72 with a length of stay of 3 days, 160 cases were grouped to MS-DRGs 207 and 870. Therefore, the data show that a total of 245 cases (41 percent) were grouped to MS-DRGs 207 and 870 in error, resulting in approximately $25,000 in increased payments for each case (or approximately $6 million in increased payments for all 245 cases). Based on the results of these figures for that portion of the total 595 cases found, there is an even larger dollar amount that is being overpaid to hospitals. These overpayments justify the proposed corrective actions.

However, we also note that the presumed amount of overpayments for claims having a length of stay less than 4 days, as discussed above, is merely an estimate based on the data analysis that has been conducted at this time. We are aware that, for particular circumstances such as those patients who may require observation services, it is possible to have procedure code 96.72 reported on the claim with a length of stay less than 4 days. Although unlikely, a patient might be briefly ventilated in an extended outpatient stay following a toxic ingestion with loss of protective reflexes or following outpatient procedures with a prolonged effect of anesthesia. A subsequent conversion to an inpatient stay would cause the costs to be attributable to the stay, while the days themselves were not reported in the inpatient date span on the claim. Similar effects could occur following an observation stay for a patient on chronic home or skilled nursing facility ventilation. It is for this reason that we are proposing a new edit in which claims found to have procedure code 96.72 with a length of stay less than 4 days would be returned to the provider for validation and resubmission. Instructions in the form of a Change Request (CR) would be issued prior to the implementation date. We are inviting the public to comment on our proposal to create this edit, effective for FY 2013.

6. Surgical Hierarchies

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

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

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

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

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

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

We are proposing limited changes to the MS-DRG classifications for FY 2013, as discussed in sections II.G.1. and 4. of this preamble. In our review of these proposed changes, we did not identify any needed changes to the surgical hierarchy. Therefore, we are not proposing any changes to the surgical hierarchy for Pre-MDCs and MDCs for FY 2013.

7. Complications or Comorbidity (CC) Exclusions List

a. Background

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

b. Proposed CC Exclusions List for FY 2013

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

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

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

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC.[13]

(1) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for FY 2013

For FY 2013, we are not proposing to make any revisions to the CC Exclusions List. There were no changes made to the ICD-9-CM coding system, effective October 1, 2012, due to the partial code freeze. (We refer readers to section II.G.9. of the preamble of this proposed rule for a discussion of ICD-9-CM coding system.)

(2) Suggested Changes to the MS-DRG Severity Levels for Diagnosis Codes for FY 2013

(A) Protein-Calorie Malnutrition

We received a request that we consider changing the severity levels for the following protein-calorie malnutrition diagnosis codes:

  • 263.0 (Malnutrition of moderate degree)
  • 263.1 (Malnutrition of mild degree)
  • 263.9 (Unspecified protein-calorie malnutrition)

It was suggested that we change the severity level for diagnosis codes 263.0 and 263.1 from a non-CC to a CC, while changing the severity level for diagnosis code 263.9 from a CC to a non-CC. We received this comment during the comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we considered this comment outside of the scope of the proposed rule, as we did not propose any severity level changes to these codes for FY 2012, and did not address it in the final rule. However, we are addressing this issue in this FY 2013 proposed rule.

For this proposed rule, we analyzed the claims data in the FY 2011 MedPAR file for diagnosis codes 263.0, 263.1, and 263.9. We used the same approach we used in initially creating the MS-DRGs and classifying secondary diagnosis codes as non-CCs, CCs, or MCCs. A detailed discussion of the process and criteria we used in this process is described in the FY 2008 IPPS final rule with comment period (72 FR 47158 through 47161). We refer the readers to this discussion for complete information on our approach to developing the non-CC, CC, and MCC lists. Each diagnosis for which Medicare data were available was evaluated to determine its impact on resource use and to determine the most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order to make this determination, the average cost for each subset of cases was compared to the expected cost for cases in that subset. The following format was used to evaluate each diagnosis:

CodeDiagnosisCnt1C1Cnt2C2Cnt3C3

Count (Cnt) is the number of patients in each subset. C1, C2, and C3 are a measure of the impact on resource use of patients in each of the subsets. The C1, C2, and C3 values are a measure of the ratio of average costs for patients with these conditions to the expected average cost across all cases. The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is a MCC. A value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a non-CC. A value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or non-CC. For additional details on this analysis, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47158 through 47161).

The following chart shows the analysis for each of the protein-calorie malnutrition diagnosis codes:

CodeDiagnosis descriptionCC levelCnt 1Cnt 1 impactCnt 2Cnt 2 impactCnt 3Cnt 3 impact
263.0Malnutrition of moderate degreeNon-CC6,0402.1421,3832.6121,6353.20
263.1Malnutrition of mild degreeNon-CC4,1392.2211,5982.508,9213.13
263.9Unspecified protein-calorie malnutritionCC2,7372.16165,8252.54178,0443.34

We ran the following data as described in FY 2008 IPPS final rule with comment period (72 FR 47158 through 47161). The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is a MCC.

The chart above shows that the C1 findings ranged from a low of 2.14 to a high of 2.22. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as a MCC. The C1 findings suggest that these codes are more like a CC than a non-CC. The C2 findings ranged from 2.50 to 2.61. A value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or non-CC. The C2 findings of 2.50 for diagnosis code 263.1 and 2.54 for diagnosis code 263.9 suggest these codes are more similar to a CC than a non-CC, while the finding of 2.61 for diagnosis code 263.0 is borderline more similar to a MCC than a CC or non-CC when there is at least one other secondary diagnosis code that is a CC but none that is an MCC.

CC conditions typically have a C1 value over 1.75, a C2 value under 2.5, and a C3 value under 3.2. MCC conditions typically have a C1 value over 2.4, a C2 value over 2.8, and a C3 value over 3.3. We concluded that diagnosis code 263.0 is more similar to a CC than an MCC.

Therefore, the C1 and C2 findings support changing diagnosis codes 263.0 and 263.1 from a non-CC to a CC and maintaining code 263.9 as a CC. Our clinical advisors reviewed this issue and are in support of these findings that these conditions are more appropriately classified as CCs. Based on the data and clinical analysis, we are proposing for FY 2013 to change diagnosis codes 263.0 and 263.1 from a non-CC to a CC. We are not proposing any change to the severity level for diagnosis code 263.9. We are inviting public comment on our proposals.

(B) Antineoplastic Chemotherapy Induced Anemia

We received a request from a commenter that the severity level for diagnosis code 285.3 (Antineoplastic chemotherapy induced anemia) be changed from a non-CC to a CC. We received this comment during the comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). In that rule, we indicated that we considered this comment outside of the scope of the proposed rule because we did not propose any severity level changes to diagnosis code 285.3 for FY 2012; therefore, we did not address the issue in the final rule. However, we are addressing this issue in this FY 2013 proposed rule. We examined claims data in the FY 2011 MedPAR file for diagnosis code 285.3 according to the approach that we used in FY 2008 as described above. The following table illustrates our findings:

CodeDiagnosis descriptionCC levelCnt 1Cnt 1 impactCnt 2Cnt 2 impactCnt 3Cnt 3 impact
285.3Antineoplastic chemotherapy induced anemiaNon-CC1,9371.3611,8582.216,0363.11

As discussed above, a value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a non-CC. A value of close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. The C1 finding for diagnosis code 285.3 of 1.36 supports the current severity level of a non-CC. The C2 finding of 2.21 for diagnosis code 285.3 suggests that this code is more similar to a CC than a non-CC but not as significant as an MCC when there is at least one other secondary diagnosis code that is a CC. CC conditions typically have a C1 value over 1.75, a C2 value under 2.5, and a C3 value under 3.2.

Therefore, the C1 and C2 findings do not support changing the severity level for diagnosis code 285.3 to a CC. In addition, our clinical advisors reviewed this issue and support the decision not to change the severity level for diagnosis code 285.3 because the anemia is inherent in the treatment of cancer and does not qualify as a CC. As a result of our data analysis as well as the advice of our clinical advisors, we are not proposing any change to the severity level for diagnosis code 285.3 for FY 2013. We are inviting public comment on our proposal.

(C) Cardiomyopathy and Congestive Heart Failure, Unspecified

We received a comment that recommended changes to the severity levels for the cardiomyopathy and congestive heart failure, unspecified codes. The commenter recommended that cardiomyopathy codes, which are currently classified as CCs, be changed to non-CCs and diagnosis code 428.0 (Congestive heart failure, unspecified) be changed from a non-CC to a CC. According to the commenter, these proposed changes would better represent the resources utilized in caring for this population and reduce the administrative burden in clarifying these diagnoses with providers. We received this comment during the comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we considered this comment outside of the scope of the proposed rule because we did not propose any severity level changes to these codes for FY 2012; therefore, we did not address it in the final rule. However, we are addressing this issue in this FY 2013 proposed rule.

The commenter did not provide a list of the cardiomyopathy codes. We identified the following codes for analysis of the claims data in the FY 2011 MedPAR file:

  • 425.4 (Other primary cardiomyopathies)
  • 425.5 (Alcoholic cardiomyopathy)
  • 425.7 (Nutritional and metabolic cardiomyopathy)
  • 425.8 (Cardiomyopathy in other diseases classified elsewhere)
  • 425.9 (Secondary cardiomyopathy, unspecified)
  • 428.0 (Congestive heart failure, unspecified)

We did not include diagnosis codes 425.11(Hypertrophic obstructive cardiomyopathy) and 425.18 (Other hypertrophic cardiomyopathy) for our analysis because these two codes were created in FY 2012 and the data are not yet available. We examined claims data according to the approach that we used in FY 2008 as described above. The following table illustrates our findings:

CodeDiagnosis descriptionCC LevelCnt 1Cnt 1 impactCnt 2Cnt 2 impactCnt 3Cnt 3 impact
425.4Other primary cardiomyopathiesCC39,4891.47243,7192.18139,6893.20
425.5Alcoholic cardiomyopathyCC4381.682,6432.191,6703.26
425.7Nutritional and metabolic cardiomyopathyCC601.188692.177993.14
425.8Cardiomyopathy in other diseases classified elsewhereCC9401.195,9672.155,1713.14
425.9Secondary cardiomyopathy, unspecifiedCC3561.562,0782.071.3723.22
428.0Congestive heart failure, unspecifiedNon-CC304,9631.40634,2412.16748,6493.06

The table above shows that the C1 findings for the cardiomyopathy codes ranged from a low of 1.18 to a high of 1.68. A value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a non-CC. A value of close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. The C1 findings suggest that the majority of these cardiomyopathy codes are more similar to a non-CC than a CC. The C2 findings ranged from a low of 2.07 to a high of 2.19. These findings suggest that these cardiomyopathy codes are more similar to a CC.

The C1 finding for diagnosis code 428.0 of 1.40 suggests that the condition is more similar to a non-CC than a CC. The C2 finding for diagnosis code 428.0 of 2.16 suggests that the secondary diagnosis is more similar to a CC than a non-CC.

The data are mixed between the C1 and C2 findings for the cardiomyopathy codes and do not consistently support a change in the severity level. Our clinical advisors reviewed these issues and are not in support of proposing any changes to the severity levels for these codes. Our clinical advisors stated that the diagnosis of cardiomyopathy (diagnosis codes 425.4 through 425.9) is generally severe, with significant impact on the patient requiring additional monitoring resources and cognitive effort, and is appropriately classified as a CC.

The data are mixed between the C1 and C2 findings for the congestive heart failure, unspecified, diagnosis code 428.0. Our clinical advisors reviewed these issues and are not in support of proposing any changes to the severity level of code 428.0. They indicated that diagnosis code 428.0 is very nonspecific and does not identify the severity of the heart failure, and concluded that the current classification for code 428.0 as a non-CC is appropriate. As a result of our data analysis and clinical advisors' review of these issues, we are not proposing any changes to the severity level for the cardiomyopathy and congestive heart failure, unspecified codes for FY 2013. We are inviting public comment on our proposal.

(D) Chronic Total Occlusion of Artery of the Extremities

We received a request to change the severity level designation for diagnosis code 440.4 (Chronic total occlusion of artery of the extremities) to a CC. Currently, the diagnosis code is classified as a non-CC. Chronic total occlusion of artery of the extremities forms when plaque accumulates in an artery over an extended period of time, resulting in total cessation of blood flow. We analyzed claims data in the FY 2011 MedPAR file for this diagnosis code according to the approach that we used in FY 2008 as described above. The following table illustrates our findings:

CodeDiagnosis descriptionCC levelCnt 1Cnt 1 impactCnt 2Cnt 2 impactCnt 3Cnt 3 impact
440.4Chronic total occlusion of artery of the extremitiesNon-CC8,4391.388,0572.705,3663.23

The C1 finding of 1.38 for diagnosis code 440.4 supports the current designation of this diagnosis code as a non-CC. However, the C2 findings of 2.70 suggests that this code is similar to a CC or perhaps an MCC, as this value is near to 3.0, which suggests that this condition is similar to an MCC. However, we would expect a higher C1 value such as 2.4 for this condition to qualify as an MCC.

The C1 and C2 findings support changing diagnosis code 440.4 from a non-CC to a CC. Our clinical advisors reviewed this issue and are in support of changing the severity level because this condition behaves as a CC. Therefore, we are proposing to change the severity level for diagnosis code 440.4 from a non-CC to a CC for FY 2013. We are inviting public comment on our proposal.

(E) Acute Kidney Failure With Other Specific Pathological Lesion in Kidney

We received a request to consider changing the severity level for diagnosis code 584.8 (Acute kidney failure with other specified pathological lesion in kidney). This diagnosis code's severity level is currently classified as an MCC. We examined claims data for this code in the FY 2011 MedPAR file according to the approach described above. The following table illustrates those findings.

CodeDiagnosis descriptionSeverity levelCnt 1Cnt 1 impactCnt 2Cnt 2 impactCnt 3Cnt 3 impact
584.8Acute kidney failure with other specified pathological lesion in kidneyMCC120.98131.891,3503.17

As discussed above, a C1 value close to 1.0 in the C1 field suggests that the diagnosis code produces the same expected value as a diagnosis code that has been classified as a non-CC. A value close to 2.0 in the C1 field suggests that the condition is more similar to a CC severity level than a non-CC severity level, but not as significant in resource usage as an MCC severity level. In this case, the C1 value finding for diagnosis code 584.8 of 0.98 suggests that this diagnosis code is more similar to a non-CC than an MCC. A C2 value close to 3.0 suggests that the condition is more similar to an MCC than a CC or a non-CC. A C2 value close to 2.0 suggests that the condition is more similar to a CC than a non-CC. The C2 value finding for diagnosis code 584.8 of 1.89 supports classifying the severity level of this diagnosis code as a CC. Therefore, the C1 and C2 value findings support changing the severity level of diagnosis code 584.8 from an MCC to a lower severity level, that is, a CC. Our clinical advisors reviewed this issue and stated that this condition behaves as a CC. Therefore, they supported changing the severity level of this diagnosis code to a CC. Based on the clinical analysis and consistent with supporting claims data, we believe that the severity level of diagnosis code 584.8 should be changed from an MCC to a CC. Therefore, we are proposing to change the severity level of diagnosis code 584.8 from an MCC to a CC for FY 2013. We are inviting public comment on our proposal.

(F) Pressure Ulcer, Unstageable

We received a request to consider changing the severity level for diagnosis code 707.25 (Pressure ulcer, unstageable) from its current classification as a non-CC to an MCC. This issue was referred to as an out-of-scope public comment in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), but was not addressed in that rule.

For this FY 2013 proposed rule, we analyzed claims data for diagnosis code 707.25 from the FY 2011 MedPAR file according to the process and approach described above. The following table illustrates our findings:

CodeDiagnosis descriptionCC levelCnt 1Cnt 1 impactCnt 2Cnt 2 impactCnt 3Cnt 3 impact
707.25Pressure ulcer, unstageableNon-CC1,8391.877,1612.4613,2853.08

As discussed above, a C1 value close to 2.0 suggests the condition is more similar to a CC than a non-CC severity level but not as significant in resource usage as an MCC. The C1 value finding of 1.87 for diagnosis code 707.25, which is near but not that close to a 2.0, suggests that this code is more similar to a CC than an MCC. A C2 value of close to 3.0 suggests the condition is more similar to an MCC than a CC or non-CC. The C2 value finding for diagnosis code 707.25 is 2.46, which is not close to 3.0 and, therefore, the data do not support classifying this as an MCC. The C1 and C2 findings are more supportive of a classification as a CC than an MCC. There is another problem with this request to change diagnosis code 707.25 from a non-CC to an MCC. Currently, only stages III and IV pressure ulcers are MCCs. This unstageable code captures a pressure ulcer whose stage has not been determined. It would be inappropriate to assume that a pressure ulcer reported with diagnosis code 707.25 might be a stage III or IV pressure ulcer. Our claims data C1 and C2 findings do not support the fact that this code acts as an MCC. As mentioned earlier, the claims data are more supportive of a classification as a CC than an MCC. We asked our clinical advisors to review this issue. Our clinical advisors agree that the data findings and their own clinical evaluation support not changing the severity level of this diagnosis code to a CC or an MCC. Our clinical advisors recommend that unstageable pressure ulcers should continue to be classified as a non-CC because the stage is not clearly designated as a stage III or IV. Unstageable codes do not delineate what the stage of the ulcer might be. As a result of our data analysis as well as the advice of our clinical advisors, we believe that unstageable pressure ulcers should continue to be classified as a non-CC. Therefore, we are proposing that diagnosis code 707.25 remain a non-CC for FY 2013.

We are inviting public comment on our proposal not to change the severity level for diagnosis code 707.25 for FY 2013.

For FY 2013, there are proposed changes to Table 6G (Additions to the CC Exclusion List). As we discuss earlier, we are proposing to change the severity level for diagnosis codes 263.0, 263.1, and 440.4 from a non-CC to a CC. There are no proposed changes to Table 6H (Deletions to the CC Exclusion List). These tables, which contain codes that are effective for discharges occurring on or after October 1, 2012, are not being published in the Addendum to this proposed rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www/cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnosis for which there is a CC exclusion is shown in Tables 6G and 6H with an asterisk, and the conditions that will not count as a CC are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or after October 1, 2011, the indented diagnoses were not recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

To assist readers in identifying the proposed changes to the MCC and CC lists that occur as a result of our review of severity levels for several ICD-9-CM diagnosis codes, we are providing the following summaries of those proposed MCC and CC changes for FY 2013. There will be no new, revised, or deleted diagnosis codes for FY 2013. Therefore, there will be no Tables 6A, 6C, and 6E published for FY 2013.

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

There are no proposed additions to the MS-DRG MCC List.

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

CodeDescription
584.8Acute kidney failure with other specified pathological lesion in kidney.

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

CodeDescription
263.0Malnutrition of moderate degree.
263.1Malnutrition of mild degree.
440.4Chronic total occlusion of artery of the extremities.
584.8Acute kidney failure with other specified pathological lesion in kidney.

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

There are no proposed deletions from the MS-DRG CC list.

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current MS-DRG Definitions Manual, Version 29.0, is available on a CD for $225.00. Version 30.0 of this manual, which will include the final FY 2013 MS-DRG changes, will be available on a CD for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by obtaining an order form at the Web site: http://www.3MHIS.com. Please specify the revision or revisions requested.

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

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

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

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

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.[14]

Our review of MedPAR claims data showed that there were no cases that merited movement or should logically be assigned to any of the other MDCs. Therefore, for FY 2013, we are not proposing to change the procedures assigned among these MS-DRGs.

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

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. As noted above, there were no cases that merited movement or that should logically be assigned to any of the other MDCs. Therefore, for FY 2013, we are not proposing to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis is assigned.

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

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of those procedures should be reassigned from one of these three MS-DRGs to another of the three MS-DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

There were no cases representing shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical, or that merited movement so that cases should logically be assigned to any of the other MDCs. Therefore, for FY 2013, we are not proposing to move any procedure codes among these MS-DRGs.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs as described above in sections III.G.1. through 4. of this preamble, we are not proposing to add any diagnosis or procedure codes to MDCs for FY 2013.

9. Proposed Changes to the ICD-9-CM Coding System, Including Discussion of the Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-10-PCS Systems in FY 2014

a. ICD-9-CM Coding System

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

The Official Version of the ICD-9-CM contains the list of valid diagnosis and procedure codes. (The Official Version of the ICD-9-CM is available from the Government Printing Office on CD-ROM for $29.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no longer available in printed manual form from the Federal Government; it is only available on CD-ROM. Users who need a paper version are referred to one of the many products available from publishing houses.

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

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

The Committee presented proposals for coding changes for implementation in FY 2013 at a public meeting held on September 14, 2011 and finalized the coding changes after consideration of comments received at the meetings and in writing by November 18, 2011. For FY 2013, there were no changes to the ICD-9-CM coding system due to the partial code freeze or for new technology. Therefore, there will be no new, revised, or deleted diagnosis and procedure codes that are usually announced in Tables 6A (New Diagnosis Codes), 6B (New Procedure Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F (Revised Procedure Codes). Therefore, these tables will not be published as part of this FY 2013 proposed rulemaking.

Copies of the minutes of the procedure codes discussions at the Committee's September 14, 2011 meeting and March 5, 2012 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 14, 2011 meeting and March 5, 2012 meeting are found at: http://www.cdc.gov/nchs/icd.htm. These Web sites also provide detailed information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by E-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by E-mail to: patricia.brooks2@cms.hhs.gov.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October.

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

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

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

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

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April l, 2012 implementation of an ICD-9-CM code at the September 14, 2011 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2012.

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

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

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same MS-DRG in which its predecessor code was assigned so there will be no MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates will be available through the Web sites indicated above and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software systems. We will strive to have the April 1 updates available through these Web sites 5 months prior to implementation (that is, early November of the previous year), as is the case for the October 1 updates.

b. Code Freeze

The International Classification of Diseases, 10th Revision (ICD-10) coding system applicable to hospital inpatient services was to be implemented on October 1, 2013, as described in the Health Insurance Portability and Accountability Act (HIPAA) Administrative Simplification: Modifications to Medical Data code Set Standards to Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362, January 16, 2009). However, the Secretary of Health and Human Services has issued a proposed rule that would delay, from October 1, 2013, to October 1, 2014, the compliance date for the International Classification of Diseases, 10th Edition diagnosis and procedure codes (ICD-10). The proposed rule, CMS-0040-P, went on display at the Office of the Federal Register on April 9, 2012, and was published in the Federal Register on April 17, 2012 (77 FR 22950) and is available for viewing at: http://www/gpo.gov/fdsys/browse/collection.action?collectionCode=FR.

The ICD-10 coding system includes 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, as well as the Official ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), there was a discussion of the need for a partial or total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment addressed in that final rule stated that the annual code set updates should cease l year prior to the implementation of ICD-10. The commenters stated that this freeze of code updates would allow for instructional and/or coding software programs to be designed and purchased early, without concern that an upgrade would take place immediately before the compliance date, necessitating additional updates and purchases.

We responded to comments in the ICD-10 final rule that the ICD-9-CM Coordination and Maintenance Committee has jurisdiction over any action impacting the ICD-9-CM and ICD-10 code sets. Therefore, we indicated that the issue of consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the Committee at a future public meeting.

The code freeze was discussed at multiple meetings of the ICD-9-CM Coordination and Maintenance Committee and public comment was actively solicited. The Committee evaluated all comments from participants attending the Committee meetings as well as written comments that were received. There was an announcement at the September 15-16, 2010 and September 14, 2011 ICD-9-CM Coordination and Maintenance Committee meetings that a partial freeze of both ICD-9-CM and ICD-10 codes will be implemented as follows:

  • The last regular annual update to both ICD-9-CM and ICD-10 code sets was made on October 1, 2011.
  • On October 1, 2012, there will be only limited code updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new diseases.
  • On October 1, 2013, there were to be only limited code updates to ICD-10 code sets to capture new technology and diagnoses as required by section 503(a) of Pub. L. 108-173. There were to be no updates to ICD-9-CM on October 1, 2013, as the system would no longer be a HIPAA standard and, therefore, no longer be used for reporting. With the proposed ICD-10 implementation delay, there will be only limited code updates to both ICD-9-CM and ICD-10 to capture new technology and new diagnoses on October 1, 2013.
  • On October 1, 2014, regular updates to ICD-10 were to begin. As stated earlier, HHS has issued a proposed rule that would delay the compliance date of ICD-10 from October 1, 2013, to October 1, 2014. If this delay is implemented, there would be only limited ICD-10 code updates for new technologies and new diseases on October 1, 2014. There will be no updates to ICD-9-CM on October 1, 2014, as the system will no longer be a HIPAA standard and, therefore, no longer be used for reporting. Full ICD-10 updates would begin on October 1, 2015, 1 year after the implementation of ICD-10.

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

Complete information on the partial code freeze and discussions of the issues at the Committee meetings can be found on the ICD-9-CM Coordination and Maintenance Committee Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03. A summary of the September 14, 2011 Committee meeting, along with both written and audio transcripts of this meeting, are posted on the “Download” section of this Web page.

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

CMS is currently processing all 25 diagnosis codes and 25 procedure codes submitted on electronic hospital inpatient claims. Prior to January 1, 2011, hospitals could submit up to 25 diagnosis and 25 procedures; however, CMS' system limitations allowed for the processing of only the first 9 diagnosis codes and 6 procedure codes. We discussed this change in processing claims in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127), in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25843), in a correction notice issued in the Federal Register on June 14, 2011 (76 FR 24633), and in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51553). As discussed in these prior rules, CMS undertook an expansion of our internal system capability so that we are able to process up to 25 diagnoses and 25 procedures on hospital inpatient claims as part of the HIPAA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system update. We recognize the value of the additional information provided by this coded data for multiple uses such as for payment, quality measures, outcome analysis, and other important uses. We will continue to process up to 25 diagnosis codes and 25 procedure codes when received on the 5010 format.

d. ICD-10 MS-DRGs

In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received comments on the creation of the ICD-10 version of the MS-DRGs, which will be implemented at the same time as ICD-10 (75 FR 50127 and 50128). As we stated earlier, the Secretary of Health and Human Services has issued a proposed rule that would delay the compliance date of ICD-10 from October 1, 2013 to October 1, 2014. While we did not propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we noted that we have been actively involved in converting our current MS-DRGs from ICD-9-CM codes to ICD-10 codes and sharing this information through the ICD-9-CM Coordination and Maintenance Committee. We undertook this early conversion project to assist other payers and providers in understanding how to go about their own conversion projects. We posted ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS went about completing this project and suggestions for others to follow. All of this information can be found on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. We have continued to keep the public updated on our maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems as well as the General Equivalence Mappings that assist in conversion through the ICD-9-CM Coordination and Maintenance Committee. Information on these committee meetings can be found at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.

During FY 2011, we developed and posted Version 28.0 of the ICD-10 MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRGs Version 28.0 also included the CC Exclusion List and the ICD-10 version of the hospital-acquired conditions (HACs), which was not posted with Version 26.0. We also discussed this update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM Coordination and Maintenance Committee. The minutes of these two meetings are posted on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.

We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made updates as a result of these comments. We called the updated version the ICD-10 MS-DRGs Version 28 R1. We posted a Definitions Manual of ICD-10 MS-DRGs Version 28 R1 on our ICD-10 MS-DRG Conversion Project Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. To make the review of Version 28 R1 updates easier for the public, we also made available pilot software on a CD-ROM that could be ordered through the National Technical Information Service (NTIS). A link to the NTIS ordering page was provided on the CMS ICD-10 MS-DRG Web page. We stated that we believed that, by providing the ICD-10 MS-DRG Version 28 R1 Pilot Software (distributed on CD-ROM), the public would be able to more easily review and provide feedback on updates to the ICD-10 MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28 R1 at the September 14, 2011 ICD-9-CM Coordination and Maintenance Committee meeting. We encouraged the public to continue to review and provide comments on the ICD-10 MS-DRGs so that CMS could continue to update the system.

In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on the FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 IPPS/LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-DRGs Version 29.0 on our ICD-10 MS-DRGs Web site. We also prepared a document that describes changes made from Version 28.0 to Version 29.0 to facilitate a review. The ICD-10 MS-DRGs Version 29.0 was discussed at the ICD-9-CM Coordination and Maintenance Committee meeting on March 5, 2012. Information was provided on the types of updates made. Once again the public was encouraged to review and comment on the most recent update to the ICD-10 MS-DRGs.

We provided information on a study conducted on the impact on converting MS-DRGs to ICD-10-CM and ICD-10-PCS. Information on this study is summarized in a paper entitled “Impact of the Transition to ICD-10 on Medicare Inpatient Hospital Payments.” This paper is posted on the CMS ICD-10 MS-DRG conversion Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The paper describes CMS' approach to the conversion of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was undertaken using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010) and converted to the ICD-10 MS-DRGs Version 27.0. The study estimated the impact on aggregate payment to hospitals and the distribution of payments across hospitals. The paper was distributed and discussed at the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee. The impact of the conversion from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was estimated using 2009 Medicare data. The study found a hospital payment increase of 0.05 percent using the ICD-10 MS-DRGs Version 27.0. For detailed information on this study, we refer readers to the complete report which is posted on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp.

CMS provided an overview of this hospital payment impact study at the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee meeting. This presentation followed presentations on the creation of ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be found on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. At this March 2012 meeting, CMS announced that it would produce an update on this impact study based on an updated version of the ICD-10 MS-DRGs. This update will provide additional information to the public as CMS is evaluating refinements made to the ICD-10 MS-DRGs based on public comments.

We will continue to work with the public to explain how we are approaching the conversion of MS-DRGs to ICD-10 and will post drafts of updates as they are developed for public review. The final version of the ICD-10 MS-DRGs will be implemented at the same time as ICD-10 and will be subject to notice and comment rulemaking. In the meantime, we will provide extensive and detailed information on this activity through the ICD-9-CM Coordination and Maintenance Committee.

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Proposed Weights

In developing the proposed FY 2013 system of weights, we used two data sources: claims data and cost report data. As in previous years, the claims data source is the MedPAR file. This file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2011 MedPAR data used in this proposed rule include discharges occurring on October 1, 2010, through September 30, 2011, based on bills received by CMS through December 31, 2011, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which are under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2011 MedPAR file used in calculating the proposed relative weights includes data for approximately 10,354,422 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the December 31, 2011 update of the FY 2011 MedPAR file complies with version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the calculation of the proposed relative weights for FY 2013 also excludes claims with claim type values not equal to “60.” The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost-based relative weighting methodology is the Medicare cost report data files from the HCRIS. Normally, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year (that is, for the calculation of the FY 2013 MS-DRG relative weights, we use data from the FY 2010 HCRIS, which are data from cost reports that began on or after October 1, 2009 and before October 1, 2010). However, during the development of this proposed rule, we have found that those cost reports in the FY 2010 HCRIS dataset with fiscal year begin dates that are on or after May 1, 2010, and before October 1, 2010, are not accessible. This inaccessibility is because cost reports with fiscal year begin dates of May 1, 2010, through September 30, 2010, were filed on the new cost report Form 2552-10, and cost reports filed on Form 2552-10 are not currently accessible in the HCRIS. However, because data from cost reports filed on Form 2552-10 are not currently available, to ensure that the FY 2013 MS-DRG relative weights are calculated with a dataset that is as comprehensive and accurate as possible, we are proposing to calculate the FY 2013 MS-DRG relative weights with data from FY 2010 cost reports for providers with fiscal year begin dates of on or after October 1, 2009 and before May 1, 2010, and to backfill with data from FY 2009 cost reports for those providers that have fiscal year begin dates on or after May 1, 2010 through September 30, 2010. We used cost report data for the December 31, 2011 update of the HCRIS for FY 2009 and FY 2010 in calculating the proposed FY 2013 relative cost-based weights.

2. Methodology for Calculation of the Proposed Relative Weights

The methodology we used to calculate the proposed FY 2013 MS-DRG cost-based relative weights based on claims data in the FY 2011 MedPAR file and data from the FY 2009 and FY 2010 Medicare cost reports is as follows:

  • To the extent possible, all the claims were regrouped using the proposed FY 2013 MS-DRG classifications discussed in sections II.B. and G. of the preamble of this proposed rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2010 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
  • Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.
  • Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.
  • At least 96.3 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 cost centers were deleted.
  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
  • Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

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

To avoid these problems, we reset the POA indicator field to “Y” only for relative weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 15 cost groups so that each MS-DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2009 and FY 2010 cost report data.

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

3. Development of National Average CCRs

We developed the national average CCRs as follows:

Using the FY 2009 and FY 2010 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-4 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-4. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The proposed FY 2013 cost-based relative weights were then normalized by an adjustment factor of 1.5877342556 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 15 proposed national average CCRs for FY 2013 are as follows:

GroupCCR
Routine Days0.514
Intensive Days0.442
Drugs0.199
Supplies & Equipment0.335
Therapy Services0.370
Laboratory0.142
Operating Room0.238
Cardiology0.145
Radiology0.136
Emergency Room0.226
Blood and Blood Products0.389
Other Services0.397
Labor & Delivery0.451
Inhalation Therapy0.189
Anesthesia0.109

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. In this FY 2013 IPPS/LTCH PPS proposed rule, we are proposing to use that same case threshold in recalibrating the MS-DRG weights for FY 2013. Using data from the FY 2011 MedPAR file, there were 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients aged 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients aged 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have received frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. Newborns are unique and require separate MS-DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs listed below are for newborns. In FY 2013, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, we are proposing to compute weights for the low-volume MS-DRGs by adjusting their FY 2012 weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

Low-volume MS-DRGMS-DRG titleCrosswalk to MS-DRG
768Vaginal Delivery with O.R. Procedure Except Sterilization and/or D&CFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
789Neonates, Died or Transferred to Another Acute Care FacilityFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
790Extreme Immaturity or Respiratory Distress Syndrome, NeonateFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791Prematurity with Major ProblemsFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792Prematurity without Major ProblemsFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793Full-Term Neonate with Major ProblemsFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794Neonate with Other Significant ProblemsFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795Normal NewbornFY 2012 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).

4. Bundled Payments for Care Improvement (BPCI) Initiative

a. Background

Section 3021 of the Affordable Care Act, codified at section 1115A of the Act, authorizes CMS to test innovative payment and service delivery models with the goal of reducing Medicare program expenditures while preserving or enhancing the quality of care furnished to individuals. Because initiatives established under this authority could result in IPPS hospitals receiving a payment different than what they otherwise would receive under the IPPS, we believe it is important to identify how these initiatives are addressed in the context of MS-DRG recalibration and ratesetting, budget neutrality, and the impact analysis in the Addendum of this proposed rule.

Under the Bundled Payments for Care Improvement (BPCI) initiative, CMS would link payments for multiple services that patients receive during an episode of care. CMS is working in partnership with providers to develop and test models of bundling payments through the BPCI initiative. On August 23, 2011, CMS invited providers to apply to help develop and test four different models of bundling payments. For additional information, we refer readers to the CMS Web site at: http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html. We are providing below a brief overview of payments under each model. However, the BPCI initiative Request for Application and related information on the CMS Web site at http://innovations.cms.gov/initiatives/bundled-payments/ provide more details of this initiative.

As described below and also in the Addendum to this proposed rule, we are generally proposing to include data from hospitals participating in the BPCI initiative and to treat these hospitals without regard to their participation in the BPCI initiative for the purposes of IPPS ratesetting.

Model 1

In Model 1, the episode of care is defined as the inpatient hospital services for the acute care hospital stay only. Applicants for this model were asked to propose discount percentages for various periods of the 3-year program, which would be applied to the IPPS operating MS-DRG payment for each participating hospital's MS-DRGs over the lifetime of the initiative. That is, for hospitals participating in Model 1, Medicare would continue to pay participating acute care hospitals under the IPPS. However, these payments to participating acute care hospitals would be at a reduced payment amount that reflects the applicable discount percentage for cases in all MS-DRGs for the specific period of the program. We note that an adjustment would be made such that payments for IME, DSH, and outliers would be calculated based on the nondiscounted MS-DRG operating IPPS payment amount and then paid, if applicable, in addition to the discounted MS-DRG operating IPPS payment. The minimum discount percentage that awardees are expected to offer would be phased in over time, with the discount percentage updated as frequently as every 6 months.

Model 2

In Model 2, the episode of care is defined as the inpatient acute care hospital stay for specific clinical conditions and a specified period of time following discharge (with a minimum episode length of at least 30 days following hospital discharge). The payment bundle for Model 2 would encompass all Medicare Part A payments for designated MS-DRGs, Part B professional services paid under the Medicare Physician Fee Schedule (MPFS) during the hospital stay, and related professional services furnished after discharge during the episode, “related readmissions” (as defined under the BPCI initiative), care by a postacute care provider such as an HHA, IRF, SNF, LTCH, and other related services furnished during the episode (that is, all Medicare Part A and Part B with the exception of hospice care). Applicants, which may be a Medicare supplier or provider, groups of such entities, or other organizations that bring together providers and suppliers to test the model, are asked to propose specific MS-DRG(s) for the clinical condition(s) to be tested in Model 2. Furthermore, the applicants are asked to propose the target price on an MS-DRG basis for the episode that includes a single rate of discount off of the expected Medicare payment (including hospital, postacute care, Medicare Part B professional services, and other services, as applicable) for all Model 2 beneficiaries discharged from the inpatient hospital stay with the specified MS-DRG(s). We note that, when proposing the target price, applicants are instructed to include IPPS outlier payments in their calculation; however, IPPS IME and DSH payments should be excluded from the target price. In Model 2, payments would be made at the usual fee-for-service payment rates to the participating providers through the regular claims processing system, after which the aggregate Medicare payment for the episode would be reconciled against the target price. If aggregate Medicare expenditures are less than the target price, the awardee would be paid the difference as a reconciliation payment. Conversely, if aggregate Medicare expenditures exceed the target price, CMS would recoup that amount from the awardee.

Model 3

In Model 3, the episode of care begins at initiation of postacute services at one of four postacute care providers (HHAs, IRFs, SNFs, and LTCHs) within 30 days after discharge from any acute care hospital for specific clinical conditions. As with the other three models, applicants may be one or more Medicare providers or supplier or other organization(s) bringing those entities together to test the model. Applicants are asked to propose an episode length that would extend to at least 30 days following initiation of care at an HHA, IRF, SNF, or LTCH. The payment bundle for Model 3 would encompass care by a postacute care provider, and other related services furnished during the episode, including Medicare Part B professional services paid under the MPFS, and inpatient hospital readmissions (as defined under the BPCI initiative). In contrast to Model 2, the payment bundle for Model 3 does not include services provided in the initial acute care hospital stay. We note that, while the episode is initiated at one of the four postacute care providers rather than at an acute care hospital, applicants are asked to specify the clinical condition(s) to be tested in Model 3 by proposing relevant MS-DRG(s). Therefore, applicable to all Model 3 beneficiaries discharged from any inpatient acute care hospital stay with the specified MS-DRG(s), applicants are to propose a target price on an MS-DRG basis for the episode that includes a single rate of discount off of the expected Medicare payment, which includes care by a postacute care provider, related Medicare Part B professional services paid under the MPFS, inpatient hospital readmissions, and other related services furnished during the episode. In Model 3, payments would be made at the usual fee-for-service payment rates to the participating providers through the regular claims processing process, after which the aggregate Medicare payment for the episode would be reconciled against the target price. Like Model 2, if aggregate Medicare expenditures are less than the target price, the awardee would be paid the difference as a reconciliation payment. Conversely, if aggregate Medicare expenditures exceed the target price, CMS would recoup that amount from the awardee. We note that Model 3 does address payment for related hospital readmissions.

Model 4

In Model 4, the episode of care is defined as the acute care hospital stay and includes all “related readmissions” (as defined under the BPCI initiative). The payment bundle for Model 4 would encompass Medicare inpatient hospital services, Medicare Part B professional services paid under the MPFS furnished during the initial hospitalization, as well as hospital services and Medicare Part B professional services during any related readmissions. Applicants are asked to propose specific MS-DRG(s) for the clinical condition(s) to be tested in Model 4. Applicants for this model are asked to propose a target price for the episode that includes a single rate of discount off of expected Medicare payment (including both Medicare Part A hospital services and Part B professional services) for all beneficiaries discharged from the inpatient hospital stay with the specified MS-DRG(s).

In contrast to Models 2 and 3, where usual Medicare fee-for-service payments are made to all providers and reconciliation of Medicare spending against the target price for the episode is conducted retrospectively, under Model 4, hospitals would receive a prospectively established bundled payment for specified MS-DRGs. This payment would include both the MS-DRG payment for the hospital and a fixed payment amount for the Medicare Part B professional services anticipated to be furnished during the episode. That is, separate payment for providers' professional services furnished during the inpatient hospital stay would not be made. Participating Model 4 hospitals receiving payment would take responsibility for distributing payment to providers that would otherwise be paid separately. We note that IPPS IME and DSH payments to Model 4 hospitals would be calculated based on the nondiscounted base MS-DRG operating IPPS payment that would have been made in the absence of the model. Other applicable payment adjustors would also be calculated based on the base MS-DRG operating IPPS payment amount that would otherwise have applied to the case, as opposed to the prospectively established amount paid through this initiative, which would be higher as it includes payment for Part B services as well as the base MS-DRG payment. Under Model 4, no separate IPPS outlier payments would be made.

b. Proposed Treatment of Data From Hospitals Participating in the BPCI Initiative

As discussed above, acute care hospitals have the opportunity to apply and participate in the BPCI payment models described above. For Model 1 and Model 2, participating acute care hospitals would continue to receive an IPPS payment under section 1886(d) of the Act (subject to a predetermined discount for hospitals participating in Model 1). For Model 2, participating hospitals may also receive a reconciliation payment under the BPCI initiative (based on their predetermined target price). Under Model 3, services provided in the initial acute care hospital stay are not included; however, the model does address payment for possible hospital readmissions. Under Model 1, hospitals participate for all MS-DRGs, while, under Model 2, hospitals participate for only pre-selected MS-DRGs. We believe it is appropriate to include all applicable data from these subsection(d) hospitals in our IPPS payment modeling and ratesetting calculations because these hospitals are still receiving IPPS payments under section 1886(d) of the Act (in addition to, with respect to Model 2 hospitals, any reconciliation payment the hospital may receive under the BPCI initiative). Moreover, even if these hospitals were not receiving IPPS payments under section 1886(d) of the Act (and were participating in Models 1 and 2), the Secretary has the authority to make appropriate adjustments for payment amounts under section 1886(d)(5)(I)(i) of the Act to include all applicable data from these subsection(d) hospitals in our IPPS ratesetting calculations. We believe it is appropriate to use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act to include all IPPS, short-term, acute care hospitals within the IPPS ratesetting calculations because excluding these hospitals would diminish the number of providers used to determine the IPPS rates, which could cause fluctuations in the IPPS rates and could produce instability to the IPPS rates. Therefore, because we believe it is appropriate to include all claims from hospitals participating within Models 1 and 2 within the IPPS ratesetting calculations, using the Secretary's authority under section 1886(d)(5)(I)(i) of the Act, we are proposing to include all applicable data from “subsection (d)” hospitals participating in Models 1 and 2 under the BPCI initiative in our IPPS payment modeling and ratesetting calculations (which includes recalibration of the MS-DRG weights, ratesetting, calculation of the budget neutrality factors, and the impact analysis). In essence, we would continue to treat these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within these two bundled payment models (that is, we would treat these hospitals as if they are not participating in Model 1 or Model 2 under the BPCI initiative).

In contrast to BPCI Models 1 and 2 (wherein participating IPPS hospitals would receive an IPPS payment under section 1886(d) of the Act, and, in the case of Model 2, may also receive a reconciliation payment under the BPCI initiative), IPPS hospitals participating in Model 4 would receive a predetermined bundled payment for Medicare Part A and Part B services for a pre-specified MS-DRG “episode” (and any “related readmissions” as defined under the BPCI initiative). These bundled payments are for certain pre-specified MS- DRG(s) episodes (not all cases) and would be made in accordance with the terms of the model, as authorized by section 1115A of the Act (these IPPS hospitals would also receive “regular” IPPS payments under section 1886(d) of the Act for those MS-DRGs not included in the bundling model). Similar to Models 1 and 2, we believe it is appropriate to keep all applicable data from these “subsection (d)” hospitals in our IPPS payment modeling and ratesetting calculations because the majority of Medicare payments these hospitals would receive would be IPPS payments under section 1886(d) of the Act (that is, payments for cases in MS-DRGs that are not included in the bundled payment model). Moreover, although these hospitals are not receiving payments under 1886(d) of the Act for the cases included in the prospective bundled payment under Model 4, the Secretary has the authority to make appropriate adjustments for payment amounts at section 1886(d)(5)(I)(i) of the Act to include all applicable data from these subsection(d) hospitals in our IPPS ratesetting calculations. We believe it is appropriate to use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act to include all IPPS, short-term, acute care hospitals and their claims within the IPPS ratesetting calculations because excluding these hospitals would diminish the number of providers used to determine the IPPS rates, which could cause fluctuations in the IPPS rates and could produce instability to the IPPS rates. Therefore, because we believe it is appropriate to include all claims from hospitals participating within Models 1 and 2 within the IPPS ratesetting calculations and use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act to include those hospitals and claims, we also believe it is appropriate to include all applicable data from subsection (d) hospitals participating in Model 4 in our IPPS payment modeling and ratesetting calculations (which includes recalibration of the MS-DRG weights, ratesetting, calculation of the budget neutrality factors, and the impact analysis) and propose to do so. In essence, we would continue to treat these hospitals the same as prior fiscal years for purposes of the FY 2013 (and subsequent years) IPPS payment modeling and ratesetting process without regard to a hospital's participation within this bundled payment model (that is, we would treat these hospitals as if they are not participating in Model 4 under the BPCI initiative).

We note that Model 3 only addresses payments for related readmissions and postacute care services (rather than IPPS payments). Therefore, we believe it is not necessary to propose to address the treatment of any data for participating hospitals in Model 3.

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

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” We note that beginning with discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations at 42 CFR 412.87 implement these provisions and specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. Below we highlight some of the major statutory and regulatory provisions relevant to the new technology add-on payment criteria as well as other information. For a complete discussion on the new technology add-on payment criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574).

Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a specific medical service or technology will be considered “new” for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. We note that we do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to a technology that was approved by FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final rule (70 FR 47351) and FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we explained our policy regarding substantial similarity in detail.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. Table 10 that was released with the FY 2012 IPPS/LTCH PPS final rule contains the final thresholds that will be used to evaluate applications for new technology add-on payments for FY 2013. We refer readers to the Web site http://www.cms.gov/AcuteInpatientPPS/FR2012/list.asp#TopOfPage for a complete viewing of Table 10 from the FY 2012 IPPS/LTCH PPS final rule.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for complete information on this issue.

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

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

Section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulations at § 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criteria, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We also amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval or clearance for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered.

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

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

To improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an “Innovator's Guide” to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.

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

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov.

We note that applicants for add-on payments for new medical services or technologies for FY 2014 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2014, the Web site also will post the tracking forms completed by each applicant.

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

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

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

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2013 prior to publication of this FY 2013 IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on November 18, 2011 (76 FR 71571 through 71572), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 14, 2012. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for each of the FY 2013 new medical service and technology add-on payment applications before the publication of this FY 2013 proposed rule.

Approximately 70 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. Four of the five FY 2013 applicants presented information on its technology, including a discussion of data reflecting the substantial clinical improvement aspect of the technology. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on the applications that were received by the due date of March 6, 2012, in our evaluation of the new technology add-on applications for FY 2013 in this proposed rule.

In response to the published notice and the new technology town hall meeting, we received written comments regarding applications for FY 2013 new technology add-on payments. We summarize these comments below or, if applicable, indicate that there were no comments received, at the end of each discussion of the individual applications in this proposed rule.

Comment: A number of attendees at the new technology town hall meeting provided comments that were unrelated to the issue of whether the FY 2013 new technology add-on applications met the “substantial clinical improvement” criterion.

Response: As explained above and in the Federal Register notice announcing the new technology town hall meeting (76 FR 71571), the purpose of the new technology town hall meeting was specifically to discuss the substantial clinical improvement criterion in regard to pending new technology applications for FY 2013. Therefore, we are not summarizing those comments in this proposed rule. Commenters are welcome to resubmit these comments in response to proposals presented in this proposed rule.

3. FY 2013 Status of Technology Approved for FY 2012 Add-On Payments: Auto Laser Interstitial Thermal Therapy (AutoLITTTM) System

Monteris Medical submitted an application for new technology add-on payments for FY 2011 for the AutoLITTTM. AutoLITTTM is a minimally invasive, MRI-guided laser tipped catheter designed to destroy malignant brain tumors with interstitial thermal energy causing immediate coagulation and necrosis of diseased tissue. The technology can be identified by ICD-9-CM procedure codes 17.61 (Laser interstitial thermal therapy [LITT] of lesion or tissue of brain under guidance), and 17.62 (Laser interstitial thermal therapy [LITT] of lesion or tissue of head and neck under guidance), which became effective on October 1, 2009.

The AutoLITTTM received a 510K FDA clearance in May 2009. The AutoLITTTM is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in medicine and surgery in the discipline of neurosurgery with 1064 nm lasers. The AutoLITTTM may be used in patients with glioblastoma multiforme brain tumors. The applicant stated in its application and through supplemental information that, due to required updates, the technology was actually introduced to the market in December 2009. The applicant explained that it was necessary to reduce the thermal damage lines from three to one and complete International Electrotechnical Commission/Underwriter Laboratory testing, which led to the introduction of the technology to the market in December 2009, although the technology was approved by FDA in May 2009. The applicant also stated through supplementary information to its application that the first sale of the product took place on March 19, 2010. However, because the product was already available for use in December 2009, it appears that the newness date would begin in December 2009. In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comments on this issue.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for the AutoLITTTM and consideration of the public comments we received in response to the FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional analysis of clinical data and supporting information submitted by the applicant, we approved the AutoLITTTM for new technology add-on payments for FY 2011. Consistent with the applicant's clinical trial, the add-on payment is intended only for use of the device in cases of glioblastoma multiforme. Therefore, we limited the new technology add-on payment to cases involving the AutoLITTTM in MS-DRGs 025 (Craniotomy and Endovascular Intracranial Procedures with MCC), 026 (Craniotomy and Endovascular Intracranial Procedures with CC), and 027 (Craniotomy and Endovascular Intracranial Procedures without CC or MCC). Cases involving the AutoLITTTM that are eligible for the new technology add-on payment are identified by assignment to MS-DRGs 025, 026, and 027 with a procedure code of 17.61 (Laser interstitial thermotherapy of lesion or tissue of brain under guidance) in combination with a principal diagnosis code that begins with a prefix of 191 (Malignant neoplasm of brain). We note that using the procedure and diagnosis codes above and restricting the add-on payment to cases that map to MS-DRGs 025, 026, and 027 is consistent with information provided by the applicant, which demonstrated that cases of the AutoLITTTM would only map to MS-DRGs 025, 026, and 027. Procedure code 17.62 (Laser interstitial thermotherapy of lesion or tissue of head and neck under guidance) does not map to MS-DRGs 025, 026, or 027 under the GROUPER software and, therefore, is ineligible for new technology add-on payment.

The average cost of the AutoLITTTM is reported as $10,600 per case. Under § 412.88(a)(2) of the regulations, new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the AutoLITTTM is $5,300.

The new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology” (42 CFR 412.87(b)(2)). Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362). With regard to the newness criterion for the AutoLITTTM, as stated above, we consider the beginning of the newness period for the device to commence from the market release date of December 2009. Therefore, for FY 2013, as of December 2012, the AutoLITTTM will have been on the market for 3 years, and would therefore no longer be considered “new” as of December 2012 nor be considered eligible for new technology add-on payments in FY 2013. However, we received information from the manufacturer that the market release date of the AutoLITTTM occurred after April 2010 (which occurs in the latter half of the fiscal year) and, therefore, it appears that the AutoLITTTM would still be considered “new” for FY 2013 and would still be eligible for new technology add-on payments in FY 2013. We note that we received this information in close proximity to the publication of the proposed rule and anticipate receiving further information on the delayed market release date from the manufacturer and welcome public comment as well.

4. FY 2013 Applications for New Technology Add-On Payments

We received six applications for new technology add-on payments for FY 2013. However, two applicants withdrew their applications prior to the publication of this proposed rule.

a. Glucarpidase (Trade Brand Voraxaze®)

BTG International, Inc. submitted an application for new technology add-on payments for Glucarpidase (trade brand Voraxaze®) for FY 2013. Glucarpidase is used in the treatment of patients who have been diagnosed with toxic methotrexate (MTX) concentrations as a result of renal impairment. The administration of Glucarpidase causes a rapid and sustained reduction of toxic MTX concentrations.

Methotrexate (MTX) is a widely used anticancer agent. The administration of high-dose methotrexate (HDMTX) is an important component of the treatment provided to patients who have been diagnosed with various types of cancer. According to the applicant, HDMTX, in particular, is specifically used in the treatment of patients who have been diagnosed with osteosarcoma, acute lymphoblastic leukemia, non-Hodgkin's lymphoma, or primary CNS lymphoma. The applicant further stated that the administration of HDMTX can cause renal dysfunction. Renal dysfunction impairs the elimination of MTX, which in turn causes the levels of MTX to rise to the point of life-threatening toxicity.

The applicant maintains that there are not any currently FDA-approved pharmaceutical treatment options available to rapidly decrease MTX levels in patients who have been diagnosed with toxic MTX concentrations as a result of renal impairment. The applicant asserts that extracorporeal treatment options that are routinely employed to rapidly treat this condition, such as hemodialysis, hemodiafiltration, high-flux hemodialysis, charcoal hemoperfusion or hemofiltration, peritoneal dialysis, exchange transfusion, or plasma exchange, are invasive, may add excess morbidity to the treatment regimen, and have proven to have limited effects.[15] High flux hemodialysis is the most effective method of extracorporeal MTX removal, but this method requires 5 to 6 days of daily treatment (4 to 6 hours per session).[16] The risks associated with repeated hemodialysis procedures such as anemia, infection, and increased mortality, especially in neutropenic or thrombocytopenic patients, are significant and cause rebounds in MTX levels. The applicant maintains that other treatment options, such as the administration of leucovorin, hydration, and urinary alkalinization, also are commonly used to reduce harmful levels of MTX. However, these treatment options do not reduce toxic MTX concentrations in all patient populations.[17]

Voraxaze® is an orphan drug that was approved by the FDA on January 17, 2012. Beginning in 1993, certain patients could obtain expanded access for treatment use to Voraxaze® as an investigational drug. Since 2007, the applicant has been authorized to recover the costs of making Voraxaze® available through its expanded access program. We describe expanded access for treatment use of investigational drugs and authorization to recover certain costs of investigational drugs in more detail below. The applicant intends to make Voraxaze® available on the market in the United States as a commercial product to the larger population in April 2012.

With regard to newness, we are concerned that Voraxaze® may no longer be considered “new”. Specifically, section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years “beginning on the date on which an inpatient hospital code is issued with respect to the service or technology”. In addition, the regulations at § 412.87(b)(2) state that “A medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new service or technology (depending on when a new code is assigned and data on the new service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs, based on available data, to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered `new' under the criterion of this section.” As we have indicated in the past, we generally believe that the newness period begins on the date that FDA approval is granted. The FDA approval date is typically the date when new technologies are available on the market and as a result begin to be reflected within the MS-DRGs cost data.

As noted above, Voraxaze® was approved by the FDA in January 2012. However, starting in 1993, certain patients were able to obtain access to Voraxaze® as an investigational drug through an expanded access program, and the applicant has been authorized to recover certain costs of making Voraxaze® available through its expanded access program since 2007. We discuss below in more detail whether the cost of Voraxaze® is already reflected within the MS-DRG relative weights.

To determine the date of newness for Voraxaze®, we believe it is appropriate to compare investigational drugs provided under the expanded access program to devices eligible for the Humanitarian Use Device (HUD) Program because these programs contain similarities to evaluate the newness criterion.

In prior final rules, we have evaluated and approved technologies with a Humanitarian Device Exemption (HDE) approval. In the FY 2010 IPPS/LTCH PPS final rule, we approved new technology add-on payments for the Spiration® IBV®, which received a HDE approval from the FDA on October 24, 2008, and had its first IRB approval on March 12, 2009 (74 FR 43754, 43819). Therefore, technologies with an HDE approval may be eligible for new technology add-on payments. In other words, we have concluded that HDE approval constitutes an FDA approval in the context of the newness criterion and would begin the newness period, subject to market availability.

There are separate processes and standards for providing expanded access to investigational drugs for treatment use and for the HUD Program. The term “expanded access” refers to the use of investigational drugs, or approved drugs where availability is limited by a risk evaluation or mitigation strategy, when the primary purpose is to diagnose, monitor, or treat a patient's disease or condition. When the requirements in (FDA's regulations at) 21 CFR part 312, Subpart I are met, a patient or group of patients with a serious or immediately life-threatening disease or condition, and no comparable or satisfactory alternative therapy, may obtain expanded access to an investigational drug. When patients obtain expanded access to an unapproved investigational drug, the safety and effectiveness of the drug have not been fully established, and the drug does not have formal FDA approval under a New Drug Application (NDA) or Biologics Licensing Application (BLA) for commercial marketing. Manufacturers may continue conducting clinical trials in parallel to the expanded access program in order to pursue formal market approval from the FDA under an NDA or BLA for commercial marketing. The FDA's Office of Orphan Products Development administers the HUD Program. A HUD is a device that is intended to benefit patients by treating or diagnosing a disease or condition that affects fewer than 4,000 individuals in the United States per year. To obtain approval for a HUD, a HDE application is submitted to FDA. A HDE application is similar in both form and content to a Premarket Approval (PMA) application, but is exempt from the effectiveness requirements of a PMA. A HDE application must, however, contain sufficient information for FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use, taking into account the probable risks and benefits of currently available devices or alternative forms of treatment. An approved HDE authorizes marketing of the HUD, however, an HDE approval requires that the device only be used in facilities that have established a local Institutional Review Board (IRB) to supervise clinical testing of devices, and that an IRB approve the use of the device to treat or diagnose the specific disease. Although HUDs can be marketed, they are subject to a general prohibition on profit; that is, they may not, except in narrow circumstances, be sold for an amount that exceeds the cost of research and development, fabrication and distribution.

Expanded access to investigational drugs and the HUD Program have similarities and differences that are relevant to the newness criterion. Both have limits on who is eligible to receive a drug or use a device. In addition, to satisfy the requirements for expanded access in FDA's regulations, and for a HDE to meet the standard for approval, a sponsor is not required to demonstrate effectiveness of the product at the same level as for approval of a PMA, NDA, or BLA. Expanded access to investigational drugs and the HUD Program differ in many ways, including that the HUD Program is for devices, and the expanded access programs provide access to drugs. In addition, under the HUD Program, the device is granted FDA approval for limited use. However, while FDA authorizes expanded access to an investigational drug, FDA does not approve the investigational drug when it authorizes expanded access.

This second difference is key to our interpretation of our policy to recognize a HDE approval as an FDA approval. We believe that the availability of a drug through the expanded access program would not constitute FDA approval in the context of the newness criterion because unapproved, investigational drugs made available to certain patients through the expanded access program do not receive FDA approval prior to enrollment in the program and cannot be marketed. In other words, we believe that for the purposes of evaluating whether a new technology meets the newness criterion, it may be appropriate not to consider the date when Voraxaze® became available to certain patients through the applicant's expanded access program as the date of market availability.

We note that cost recovery for investigational drugs is of concern with regard to the newness criterion. Although a sponsor (for example, a drug manufacturer) may not commercially distribute an investigational drug, in certain circumstances, a sponsor of a clinical trial or an expanded access program may receive authorization from FDA to charge for certain costs associated with making an investigational drug available. The applicant has been authorized to recover certain costs by making Voraxaze® available since 2007. As we stated earlier, once CMS has recalibrated the DRGs based on available data to reflect the costs of an otherwise new technology, that technology will no longer be considered “new”' for the purposes of the new technology add-on payments. It is possible that a hospital may have submitted a claim to Medicare for the cost of Voraxaze® provided through the applicant's expanded access program. Therefore, it is also possible that the costs associated with this technology may already be reflected in some limited fashion in the data used to determine the MS-DRG relative weights. While these are possibilities, we have not in the past been confronted with a situation where an applicant has indicated that hospitals have sought cost recovery for their technology when the technology was available through the expanded access program. We also have not been confronted with a situation where an applicant has indicated that cost recovery was sought for technologies (that were not available via an expanded access program) during clinical trials. We note that our data do not distinguish charges for drugs by FDA approval status, and, therefore, we do not exclude from the relative weight calculation costs (as derived from charges) associated with investigational drugs if they are included by hospitals on a claim. Therefore, cost data for non-FDA approved technologies (that is, still involved in clinical trials) may be present in the relative weights on a very limited basis prior to FDA approval, regardless of whether a technology received new technology add-on payments.

We are inviting public comment regarding the issue of whether a drug is considered “new” for the purposes of new technology add-on payments starting with its availability in the expanded access program, and how that may differ from devices being considered “new” starting from the date the device received FDA approval under a HDE (subject to market availability or availability to Medicare beneficiaries) and specifically request comment on these considerations in the context of Voraxaze®. We also are inviting public comment on whether the costs of Voraxaze®, or more generally, any unapproved investigational drug for which cost recovery is authorized are already included in data used to determine relative weights, and how that influences the start of a newness period, if at all. In addition, we are inviting public comment regarding the market availability of Voraxaze® between its FDA approval date of January 17, 2012, and the market availability date according to the applicant of April 2012 and the reasons for the delay in availability.

The applicant submitted a request to the ICD-9-CM Coordination and Maintenance Committee for a new procedure code, which was discussed at the committee's March 2012 meeting. For further information regarding the code proposal, we refer readers to the following CMS Web site: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.

We are inviting public comment on whether or not Voraxaze® meets the newness criterion, especially in light of its reported availability date through the applicant's expanded access program, and the ability for the applicant to charge for certain costs associated with making an investigational drug available. In addition, we are inviting public comment on considerations that should be given in regard to the technology's delay in availability after FDA's approval was granted, in addition to the reason for the delay, as it relates to the newness criterion.

With respect to cost criterion, the applicant researched the 2009 Standard Analytic Inpatient File (SAF) for cases with a principal or secondary diagnosis of osteosarcoma (ICD-9-CM code series 170.xx), acute lymphoblastic leukemia (ICD-9-CM code series 204.0x), non-Hodgkin's lymphoma (ICD-9-CM code series 200.xx and 202.xx), or primary CNS lymphoma (ICD-9-CM code series 200.5x) with a corresponding ICD-9-CM procedure code for chemotherapy (99.25) that may be eligible for Voraxaze®, based on the product's approved indications. The applicant's search yielded potentially eligible cases within 249 MS-DRGs, of which 56 MS-DRGs captured 12 or more cases.

Using this universe of cases (249 MS-DRGs), the applicant added the additional costs of Voraxaze® to the case-weighted average standardized charge per case. Although the applicant submitted data related to the estimated cost of Voraxaze®, the applicant noted that the cost of the technology was proprietary information. According to the applicant, it did not convert the costs to charges for this analysis because of the technology's high cost. The applicant maintains that an average adult receiving treatment for one of the diagnoses above would require a minimum of four vials of Voraxaze®.

The applicant used the following multiple analysis of different subsets of MS-DRGs to compare the average case-weighted standardized charge per case to the average case-weighted threshold to determine that Voraxaze® met the cost criteria:

  • The applicant found 12,324 eligible cases within 249 MS-DRGs, and determined a case-weighted average standardized charge per case of $87,582 (which includes the cost of Voraxaze®) and a case-weighted threshold of $39,216. The applicant maintains that Voraxaze® meets the cost criterion because the case-weighted average standardized charge per case exceeds the case-weighted threshold.
  • The applicant excluded those MS-DRGs that had fewer than 11 cases, which resulted in 12,134 eligible cases within 56 MS-DRGs. The applicant determined a case-weighted average standardized charge per case of $84,039 (which includes the cost of Voraxaze®) and a case-weighted threshold of $37,195. The applicant maintains that Voraxaze® meets the cost criterion because the case-weighted average standardized charge per case exceeds the case-weighted threshold.
  • The applicant analyzed the 20 MS-DRGs that contained the highest number of cases and, based on the 20 cases they stated they found, determined a case-weighted average standardized charge per case of $80,400 (which includes the cost of Voraxaze®) and a case-weighted threshold of $34,990. The applicant maintains that Voraxaze® meets the cost criterion because the case-weighted average standardized charge per case exceeds the case-weighted threshold.

We are inviting public comment on whether or not Voraxaze® meets the cost criterion. Specifically, we welcome public comment on the methodologies used in the applicant's analysis, including (1) the methods used to identify the eligible cases used in the cost analysis of this technology, especially if there are cases that should be excluded from the analysis because of clinical reasons, and if there are other ways to identify cases for which this technology may be appropriate, and (2) the appropriateness of not converting the costs to charges for the purposes of this analysis and what would be an accurate and appropriate CCR for this technology.

With regard to substantial clinical improvement, the applicant maintains that Voraxaze® is a clinical improvement compared to current treatment options because it is less time intensive, allows certain patient populations to avoid risks associated with current treatment options, and has characteristics that allows it to reduce MTX concentrations more effectively. As noted above, the applicant maintains that current treatment options for renal impairment as a result of toxic MTX concentrations are limited to extracorporeal methods that are time-intensive and could subject patients in certain populations to harm from the associated risks. The applicant states that the administration of Voraxaze® to patients who have been diagnosed with HDMTX-induced renal dysfunction metabolizes circulating MTX to the inactive metabolite DAMPA. The applicant asserts that this characteristic action of the technology represents a substantial clinical improvement over current treatment options available to patients who have toxic MTX concentrations in a more effective, and rapid way, and provides protection to eligible patient populations against potential harm associated with current treatment options.

In addition, the applicant provided the results from a study of 23 patients diagnosed with MTX-induced renal dysfunction treated with Voraxaze®. During this study, the applicant reported that the administration of Voraxaze® lowered toxic MTX concentrations in patients within 15 minutes after the administration by more than 98 percent. Because the administration of Voraxaze® could metabolize both leucovorin and its active metabolite, 5-mTHF, these patients were also administered Thymidine, a drug used to enhance the treatment for patients with high levels of MTX. The applicant notes that the combination of Voraxaze® and Thymidine rescue was well tolerated by the 23 patients studied, and MTX-related toxicities were reduced from severe to mild to moderate. The range of age of these 23 patients was 19 to 94 years old. The applicant asserts that the types of health conditions treated with HDMTX, such as acute lymphoblastic leukemia, osteosarcoma, central nervous system (CNS) lymphoma, and leptomeningeal cancer, tend to occur within the Medicare population and cites research that states “HD-MTX-induced renal failure with persistence of toxic blood MTX levels is a rare but life threatening complication that occurs more frequently in adults, particularly those with advanced age and CNS lymphoma.” [18] When these malignancies arise which require treatment with HDMTX, HDMTX-induced renal failure with persistent toxic MTX levels is a complication that occurs more frequently in adults. The applicant asserts that the administration of Voraxaze® has been shown to be well-tolerated by older adult patients, while achieving similar reduction rates in younger patient populations who have been diagnosed with toxic MTX concentrations and treated with Voraxaze®.[19] The applicant also provided additional published peer-reviewed articles [20,21,22,23,24,25] relevant to their application to support their assertion that they meet the substantial clinical improvement criteria.

We are inviting public comment on whether or not Voraxaze® meets the criterion of representing a substantial clinical improvement for Medicare beneficiaries.

b. DIFICIDTM (Fidaxomicin) Tablets

Optimer Pharmaceuticals, Inc. submitted an application for new technology add-on payments for FY 2013 for the use of DIFICIDTM (Fidaxomicin) tablets. The applicant asserts that Fidaxomicin is a major clinical advancement in the options available to treat Clostridium difficile-associated diarrhea (CDAD).

Clostridium difficile (C. Diff.) is a bacterium that can cause infection with symptoms that range from diarrhea to life-threatening inflammation of the colon, and is also commonly referred to as CDAD. The symptoms associated with CDAD can be treated by stopping administration of an antibiotic because often antibiotics can alter the native intestinal microflora and thus trigger CDAD. For mild cases of CDAD, this step may be sufficient to relieve the associated symptoms. However, many patients who have been diagnosed with more severe cases of CDAD require further treatment. Further treatment options include prescribing antibiotics such as Metronidazole or Vancomycin, prescribing probiotics administered in conjunction with antibiotics, and performing surgery using a fecal transplant to restore healthy intestinal bacteria by placing donor stool in the colon. According to the applicant, about one-fourth of the patients diagnosed with CDAD experience a recurrence of these associated symptoms.

As indicated on the labeling submitted to the FDA, the applicant noted that Fidaxomicin is taken twice a day as a daily dosage (200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The applicant asserts that Fidaxomicin provides potent bactericidal activity against C. Diff., and moderate bactericidal activity against certain other gram-positive organisms, such as enterococcus and staphylococcus. Unlike other antibiotics used to treat CDAD, the applicant noted that the effects of Fidaxomicin preserve bacteroides organisms in the fecal flora. These are markers of normal anaerobic microflora. The applicant asserts that this helps prevent pathogen introduction or persistence, which potentially inhibits the re-emergence of C. Diff., and reduces the likelihood of overgrowths as a result of vancomycin-resistant Enterococcus (VRE). Because of this narrow spectrum of activity, the applicant asserts that Fidaxomicin does not alter this native intestinal microflora.[26]

With regard to the newness criterion, Fidaxomicin was approved by the FDA on May 27, 2011, for the treatment of CDAD in adult patients, 18 years of age and older. Fidaxomicin was commercially available on the market within 7 weeks after the FDA's approval was granted. Currently, there are not any ICD-9-CM diagnosis or procedure codes that exist to uniquely identify the use of Fidaxomicin, or any oral drug, as a procedure. Optimer has submitted a request to the ICD-9-CM Coordination and Maintenance Committee for a new ICD-9-CM procedure code, which was discussed at the committee's meeting on March 5, 2012. For further information regarding the code proposal, we refer readers to the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.

We believe that under our current new technology add-on payment policy, eligibility for consideration for new technology add-on payments is limited to new technologies associated with procedures described by ICD-9-CM codes. In the FY 2002 IPPS final rule, we establish the framework for our current policy (66 FR 46907 through 46915). The discussion of technologies in that rule focuses on those technologies identifiable by ICD-9-CM codes. We also discuss in response to comments the feasibility and appropriateness of HCPCS codes and V-codes. Similar to ICD-9-CM codes, HCPCS codes are also a procedure-based system and identify procedures. We noted in that rule that V-codes would not be appropriate to use for identification of new technology because they are not a substitute for procedure coding. Volume 3 of ICD-9-CM contains codes that describe inpatient procedures (65 FR 50325). In other words, we have not considered drugs that are only taken orally to be eligible for consideration for new technology add-on payments, because there is no procedure associated with these drugs and, therefore, no ICD-9-CM code(s).

This interpretation is also consistent with other Medicare payment policies. For example, when drugs taken orally are given as part of an outpatient encounter, they would likely be considered self-administered drugs under the Hospital Outpatient Prospective Payment System (OPPS). If a Medicare beneficiary who has outpatient status were to be provided a self-administered drug by a hospital or wholly-owned or wholly-operated entity of that hospital and that beneficiary were subsequently admitted to that hospital for a related reason within three days, the hospital may not include these self-administered drugs on the inpatient bill (under the 3-day payment window policy), because self-administered drugs are not covered under the OPPS. However, they would be required to include nondiagnostic services related to admission and all other diagnostic services on the inpatient bill (under the 3-day payment window).

We are inviting public comment on our interpretation of our policy regarding drugs that are only self-administered for consideration for new technology add-on payments. Further, we are inviting public comment on whether or not Fidaxomicin meets the newness criterion.

With regard to the cost criterion, Optimer researched the FY 2010 MedPAR file for cases that would be eligible for treatment with Fidaxomicin to determine it if would qualify for the cost criterion for new technology add-on payments. Based on its analysis, the applicant identified cases in which a patient had been diagnosed with CDAD by searching the MedPAR file for claims that included ICD-9-CM diagnosis code 008.45 (Intestinal infection due to Clostridium difficile) as a principal diagnosis or secondary diagnosis. Optimer provided three examples of how the results of the analyses of different MS-DRGs demonstrate that it meets the cost criterion.

Under the first analysis, the applicant researched the FY 2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a principal or secondary diagnosis across all MS-DRGs. The applicant found 162,310 cases within 536 MS-DRGs, and determined a case-weighted average standardized charge per case (excluding charges for the cost of Fidaxomicin) of $50,136. Using a factor of 6.5 percent to inflate the charges to 2012 rates based on the Medical Consumer Price Index (CPI), the applicant determined a case-weighted standardized charge per case that equals $53,394. The applicant then added the charges related to the technology to the inflated charges. The applicant then determined a final case-weighted average standardized charge per case of $58,994, which exceeds the case-weighted threshold of $43,673. Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this first analysis, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

Under the second analysis, the applicant researched the FY 2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 only as a principal diagnosis, which mapped to MS-DRGs 371 (Major Gastrointestinal Disorders and Peritoneal Infections with MCC), 372 (Major Gastrointestinal Disorders and Peritoneal Infections with CC), and 373 (Major Gastrointestinal Disorders and Peritoneal Infections without CC/MCC). The applicant found 55,410 cases, and determined a case-weighted average standardized charge per case (excluding charges for the cost of Fidaxomicin) of $28,007. Using a factor of 6.5 percent to inflate the charges to 2012 rates based on the Medical CPI, the applicant determined a case-weighted standardized charge per case that equals $29,828. The applicant then added the charges related to the drug to the inflated charges. The applicant then determined a final case-weighted average standardized charge per case of $35,428, which exceeds the case-weighted threshold of $34,730. Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this second analysis, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

Under the third analysis, the applicant again researched the FY 2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a principal or secondary diagnosis across all MS-DRGs. The applicant then narrowed the results of the analysis to include only the top 37 MS-DRGs (in volume of cases), which accounted for 75 percent of all cases. The applicant's methodology resulted in 121,748 cases, and the applicant determined a case-weighted average standardized charge per case (excluding charges for the cost of Fidaxomicin) of $45,523. Using a factor of 6.5 percent to inflate the charges to 2012 rates based on the Medical CPI, the applicant determined a case-weighted standardized charge per case that equals $48,482. The applicant then added the charges related to the drug to the inflated charges. The applicant then determined a final case-weighted average standardized charge per case of $54,082, which exceeds the case-weighted threshold of $42,452. Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this third analysis, the applicant maintains that Fidaxomicin meets the cost criterion for new technology add-on payments.

In the three analyses discussed above, the applicant submitted data related to the estimated cost and charge of the drug (using a charge markup). However, the applicant has not released the cost of the technology, asserting that it is proprietary information. The applicant converted the cost of the technology to a charge using a charge markup (a factor of 6.5 percent based on the Medical CPI) that represented a 10-day dosage.

We are concerned that these analyses do not take into account situations in which patients would be prescribed Fidaxomicin later in the duration of their inpatient stay, and may finish the course of Fidaxomicin sometime after being discharged from the hospital. In addition, as discussed above, if Fidaxomicin is prescribed and self-administered during the 3-day period prior to admission to an IPPS hospital for a related encounter, we do not believe that this service is payable under the OPPS, nor that it can be included on the inpatient claim submitted to Medicare because of the 3-day payment window policy. Therefore, it may not be appropriate to include in the applicant's calculations the full charges related to Fidaxomicin and the corresponding proprietary charges for the 10-day dose. In addition, we believe that it is necessary for the applicant to adjust its estimates to remove from the MedPAR file's claims for the charges that describe other types of treatment options such as Vancomycin, since use of these treatments would preclude use of Fidaxomicin. Furthermore, to identify the cases that may be eligible for the technology's use, the applicant researched and analyzed claims that included ICD-9-CM diagnosis code 008.45 as the principal diagnosis or as the principal or secondary diagnosis. We are concerned that this baseline for eligible cases may not represent the appropriate universe of cases, such as if all MS-DRGs were considered or if a subset of MS-DRGs were considered.

We are inviting public comment on whether or not Fidaxomicin meets the cost criterion. In addition, we are inviting public comment on the methodologies used by the applicant in its analyses, in particular the assumptions made about the dosage in developing the cost analysis. We also are interested in comments about the applicant's selection of claims with an ICD-9-CM diagnosis code 008.45 as the principal diagnosis or secondary diagnosis, and whether those cases accurately represent the Medicare population that may benefit from the technology's use.

With regard to the substantial clinical improvement criterion, the applicant maintains that Fidaxomicin represents a substantial clinical improvement to the treatment options currently available. According to the applicant, Fidaxomicin represents the first major clinical advancement in the treatment options available to address CDAD in more than 25 years, and it is one of only two agents indicated by the FDA to treat this condition. The applicant notes that reports from its clinical trials show that a higher proportion of patients achieve positive clinical response to treatment with Fidaxomicin as opposed to treatment with Vancomycin. The applicant reported that these patients did not experience recurrences of associated symptoms for at least 25 days after the end of treatment. The applicant asserts that Fidaxomicin has longer acting antimicrobial activity and inhibits spore production in C. difficile in vitro. The applicant stated that C. difficile cells produce spores when exposed to air; therefore, transmission of infection occurs even when the cells themselves are killed.

The applicant reported on two randomized, double-blinded trials [27,28] . A non-inferiority design was utilized to demonstrate the efficacy of administering Fidaxomicin (200 mg twice daily for 10 days) compared to administering Vancomycin (125 mg four times daily for 10 days) to adult patients diagnosed with CDAD. The demographic profile and baseline CDAD characteristics of the subjects enrolled in both trials were similar. These patients had a median age of 64 years, were mainly white (90 percent), female (58 percent), and inpatients (63 percent).

The applicant reported that the primary efficacy endpoint (for both trials) was the clinical response rate at the end of therapy, based upon improvement in diarrhea or other symptoms such that, in the investigator's judgment, further CDAD treatment was not needed. An additional efficacy endpoint was sustained clinical response 25 days after the end of treatment. Sustained response was only evaluated for patients who were clinical successes at the end of treatment. Sustained response was defined as clinical response at the end of treatment, and survival without proven or suspected reoccurrence of a diagnosis of CDAD beyond 25 days after the end of treatment. The results for clinical response at the end of treatment in both trials, which the applicant submitted in the table below, indicate that the effects of administering Fidaxomicin is noninferior to the effects of administering Vancomycin based on the 95 percent confidence interval (CI) lower limit being greater than the non-inferiority margin of −10 percent.

The applicant stated that the results for sustained clinical response at the end of the follow-up period, also shown in the table below, indicate that the effects of administering Fidaxomicin is superior to the effects of administering Vancomycin on this endpoint. Because clinical success at the end of treatment and mortality rates were similar across treatment arms (approximately 6 percent in each group), the applicant determined that the differences in sustained clinical response were due to lower rates of proven or suspected reoccurrence of diagnoses of CDAD in patients during the follow-up period. In addition, the applicant asserts that the effects of administering Fidaxomicin has minimal impact on normal gut flora due to its limited specificity, and could be associated with a lower risk of acquisition of VRE if used as a treatment option instead of administering Vancomycin.

Clinical Response Rates at End-of-Therapy and Sustained Response at 25 Days Post-Therapy

Clinical response at end of treatmentSustained response at follow-up
FIDAXOMICIN % (N)Vancomycin % (N)Difference (95% CI)FIDAXOMICIN % (N)Vancomycin % (N)Difference (95% CI)
Trial 188% (N = 289)86% (N = 307)2.6% (−2.9%, 8.0%)70% (N = 289)57% (N = 307)12.7% (4.4%, 20.9%)
Trial 288% (N = 253)87% (N = 256)1.0% (−4.8%, 6.8%)72% (N = 253)57% (N = 256)14.6% (5.8%, 23.3%)

Based on the analysis described above, the applicant asserts Fidaxomicin meets the substantial clinical improvement criterion as a treatment option with the potential to decrease hospitalizations and physician office visits, as well as to improve the quality of life for patients who have been diagnosed with CDAD.

We are concerned that this technology may not offer a substantial clinical improvement compared to other effective treatment alternatives already available in the treatment of patients who have been diagnosed with CDAD. In addition, although the applicant maintains that there is no evidence of significant clinical resistance developing with the use of this drug, we are still concerned about the long-term possibility that patients may develop resistance to this drug since the applicant provided no data to substantiate its claim. We are inviting public comment on whether or not Fidaxomicin meets the substantial clinical improvement criterion based on the analysis and results presented by the applicant.

c. Zilver® PTX® Drug Eluting Stent

Cook® Medical submitted an application for new technology add-on payments for the Zilver® PTX® Drug Eluting Stent (Zilver® PTX®) for FY 2013. The Zilver® PTX® is intended for use in the treatment of peripheral artery disease (PAD) of the above-the-knee femoropopliteal arteries (superficial femoral arteries). According to the applicant, the stent is percutaneously inserted into the artery(s), usually by accessing the common femoral artery in the groin. The applicant states that an introducer catheter is inserted over the wire guide and into the target vessel where the lesion will first be treated with an angioplasty balloon to prepare the vessel for stenting. The applicant indicates that the stent is self-expanding, made of nitinol (nickel titanium), and is coated with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and for use with coronary stents to reduce the risk of renarrowing of the coronary arteries after stenting procedures.

The manufacturer maintains that there are currently no FDA approved drug-eluting stents used for superficial femoral arteries. The applicant expects to receive FDA approval for the stent in the second quarter of 2012. The technology is currently described by ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of the superficial femoral artery). We are inviting public comment regarding how the Zilver® PTX® meets the newness criterion.

With regard to the cost criterion, the applicant believes that cases of superficial femoral arteries typically map to MS-DRGs 252 (Other Vascular Procedures with MCC), 253 (Other Vascular Procedures with CC), and 254 (Other Vascular Procedures without CC/MCC). The applicant searched the FY 2009 MedPAR file for cases with a procedure code of 39.90 (Insertion of non-drug-eluting peripheral vessel stents) in combination with a diagnosis code of 440.20 (Atherosclerosis of the extremities, unspecified), 440.21 (Atherosclerosis of the extremities, with intermittent claudication), 440.22 (Atherosclerosis of the extremities with rest pain), 440.23 (Atherosclerosis of the extremities with ulceration), and 440.24 (Atherosclerosis of the extremities with gangrene). The applicant found 7,144 cases (or 24.4 percent of all cases) in MS-DRG 252; 9,146 cases (or 31.2 percent of all cases) in MS-DRG 253; and 13,012 cases (or 44.4 percent of all cases) in MS-DRG 254. The average charge per case was $78,765 for MS-DRG 252, $63,758 for MS-DRG 253, and $47,586 for MS-DRG 254, equating to a case-weighted average charge per case of $60,236.

The case-weighted average charge per case above does not include charges related to the Zilver® PTX®; therefore, it is first necessary to remove the amount of charges related to the nondrug-eluting peripheral vessel stents and replace them with charges related to the Zilver® PTX®. The applicant used two methodologies to remove the charges of the nondrug-eluting peripheral vessel stents and replace them with charges related to the Zilver® PTX®. Although the applicant submitted data related to the estimated cost of the nondrug-eluting peripheral vessel stents and the Zilver® PTX®, the applicant noted that the cost of these devices was proprietary information.

Under the first methodology, the applicant determined the amount of stents per case based on the following ICD-9-CM codes on each claim: 00.45 (Insertion of one vascular stent), 00.46 (Insertion of two vascular stents), 00.47 (Insertion of three vascular stents) and 00.48 (Insertion of four or more vascular stents). If a claim had a code of 00.48, the applicant assumed a maximum of four stents per case. The applicant multiplied the amount of stents used per case by the average market price for nondrug-eluting peripheral vessel stents and then converted the cost of the stents used per case to a charge by dividing the results by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case and then standardized the charges per case. Because the applicant used FY 2009 MedPAR data, it was necessary to inflate the charges from FY 2009 to FY 2012. Using data from the U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index, the applicant inflated the average standardized charge per case with an inflation factor of 6 percent. To determine the amount of Zilver® PTX® stents per case, instead of using the amount of stents used per case based on the ICD-9-CM codes above, the applicant used an average of 1.9 stents per case based on the Zilver® PTX® Global Registry Clinical Study.[29] The applicant believed that it is appropriate to use data from the clinical study (to determine the average amount of stents used per case) rather than the actual data from the claims because the length of a nondrug-eluting peripheral vessel stent typically ranges from 80mm to 120 mm, while the length of the Zilver® PTX® is 80 mm (which could cause a variance in the actual amount of stents used per case when using the Zilver® PTX®). Similar to above, the applicant multiplied the average of 1.9 stents used per case by the future market price for the Zilver® PTX® and then converted the cost of the stents used per claim to a charge by dividing the results by the national average CCR of 0.329 for supplies and equipment. The applicant then added the amount of charges related to the Zilver® PTX® to the inflated average standardized charge per case and determined a final case-weighted average standardized charge per case of $60,014. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount, the applicant maintains that the Zilver® PTX® meets the cost criterion.

The second methodology was similar to the first methodology described above, but the applicant used hospital-specific CCRs from the FY 2009 IPPS impact file to convert the cost of the nondrug-eluting peripheral vessel stents and the cost of the Zilver® PTX® to charges. In summary, the applicant determined the amount of nondrug-eluting peripheral vessel stents used per case based on the ICD-9-CM codes on each claim (as discussed above). The applicant multiplied the amount of stents used per case by the average market price for nondrug-eluting peripheral vessel stents and then converted the cost of the stents used per case to a charge by dividing by the hospital-specific CCR (from the FY 2009 IPPS impact file). The applicant removed the appropriate amount of charges per case and then standardized the charges per case. Similar to the step described above, because the applicant used FY 2009 MedPAR data, it was necessary to inflate the charges from FY 2009 to FY 2012. Using data from the Bureau of Labor Statistics Consumer Price Index, the applicant inflated the average standardized charge per case with an inflation factor of 6 percent. To determine the amount of Zilver® PTX® stents per case, instead of using the amount of stents used per case based on the ICD-9-CM codes above, the applicant used an average of 1.9 stents per case based on the Zilver® PTX® Global Registry Clinical Study (because of the reason stated in the first methodology). The applicant then multiplied the average of 1.9 stents used per case by the future market price for the Zilver® PTX® and then converted the cost of the stents used per claim to a charge by dividing the results by the hospital-specific CCR (from the FY 2009 IPPS impact file). The applicant then added the amount of charges related to the Zilver® PTX® to the inflated average standardized charge per case and determined a final case-weighted average standardized charge per case of $60,339. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all calculations above were performed using unrounded numbers). Because the case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount, the applicant maintains that the Zilver® PTX® would meet the cost criterion.

We are inviting public comment on whether or not the Zilver® PTX® meets the cost criterion. Additionally, we are inviting public comment on the methodologies used by the applicant in its analysis, including its assumptions regarding the types of cases in which this technology could potentially be used, the number of stents required for each case, and the CCRs used in the cost calculation.

In an effort to demonstrate that the technology meets the substantial clinical improvement criterion, the applicant shared several findings from the clinical trial data. The applicant stated that current treatment options for patients who have been diagnosed with PAD includes angioplasty, bare metal stenting, bypass graft and endarterectomy. The applicant asserts that the Zilver® PTX® meets the substantial clinical improvement because it decreases the recurrence of symptoms arising from restenotic SFA lesions, the rate of subsequent diagnostic or therapeutic interventions required to address restenotic lesions, and the number of future hospitalizations.

The applicant cited a 480-patient, multicenter, multinational randomized controlled trial that compared the Zilver® PTX® to balloon angioplasty; an additional component of the study allowed a direct comparison of the Zilver® PTX® to a bare (uncoated) metal Zilver® stent. The primary safety endpoint of the randomized controlled study was “Event-Free Survival” (EFS), defined as “freedom from the major adverse events of death, target lesion revascularization, target limb ischemia requiring surgical intervention or surgical repair of the target vessel, and freedom of worsening systems as described by the Rutherford classification by 2 classes or to class 5 or 6.” The primary effectiveness endpoint was primary patency (defined as a less than 50 percent renarrowing).

The applicant noted that the Zilver® PTX® had an EFS of 90.4 percent compared to balloon angioplasty, which had an EFS of 83.9 percent, demonstrating that the Zilver® PTX® is as safe or safer than balloon angioplasty. In addition, the applicant noted that the Zilver® PTX® demonstrated a 50-percent reduction in restenosis rates compared to angioplasty and a 20-percent reduction compared to bare metal stents. The 12-month patency rate for the Zilver® PTX® was 83.1 percent, which compared favorably to the balloon angioplasty patency rate of 32.8 percent. In the provisional stenting arm of the study, which allowed a direct comparison of the Zilver® PTX® and a bare metal stent, the Zilver® PTX® primary patency exceeded the bare metal stent patency by nearly 20 percent (89.9 percent versus 73.0 percent). The applicant stated that these differences are significant, as they result in a substantial clinical improvement compared to angioplasty and bare metal stenting, with patients being spared a recurrence of their leg pain and the need to be admitted to the hospital for repeat procedures on these treated lesions.

The applicant also cited a prospective, multicenter, multinational, 787-patient single arm study on the Zilver® PTX® that demonstrated similar safety and effectiveness results consistent with those from the pivotal randomized controlled study above. The applicant cited an EFS for the Zilver® PTX® of 89.0 percent and an 86.2 percent primary patency rate. The applicant stated that these results confirm the safety and effectiveness of the Zilver® PTX®, and compare favorably to current results for angioplasty and bare metal stenting. The applicant added that these results also demonstrate a 67 to 81 percent relative reduction in Target Lesion Revascularization (the need to retreat an already treated lesion that has restenosed, resulting in a recurrence of symptoms) rates compared to recently published results of contemporary bare metal stents.[30]

We are inviting public comment regarding whether the Zilver® PTX® meets the substantial clinical improvement criterion.

d. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft

Cook® Medical submitted an application for new technology add-on payments for the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft (Zenith® F. Graft) for FY 2013. The applicant stated that the current treatment for patients who have had an AAA is an endovascular graft. The applicant explained that the Zenith® F. Graft is an implantable device designed to treat patients who have an AAA and who are anatomically unsuitable for treatment with currently approved AAA endovascular grafts because of the length of the infrarenal aortic neck. The applicant noted that, currently, an AAA is treated through an open surgical repair or medical management for those patients not eligible for currently approved AAA endovascular grafts.

The applicant stated that the Zenith® F. Graft is custom-made for each patient. It is a modular system consisting of three components: a two-part main body graft and one iliac leg. The two-part main body of the graft consists of a proximal tubular graft and a distal bifurcated graft body. The proximal body graft contains precisely located holes (fenestrations) and/or cut-outs from the proximal margin (scallops) of the polyester graft material along with a bare proximal stent with barbs to provide fixation. The iliac leg component, which couples with the main bifurcated body, completes the basic fenestrated endograft.

With respect to newness, the applicant stated that FDA approval for the use of the Zenith® F. Graft was granted on April 4, 2012. The technology is described by ICD-9-CM procedure code 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta), which became effective October 1, 2011. While procedure code 39.78 maps to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and without MCC/CC, respectively), the applicant believes that MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and without MCC, respectively) would be a more appropriate assignment for procedure code 39.78. (We note that in section III.G.3.b. of this preamble, we discuss our response to the request for consideration of MS-DRGs 237 and 238 as a more appropriate assignment for procedure code 39.78.) We are inviting public comment regarding whether the Zenith® F. Graft meets the newness criterion for new technology add-on payment.

With regard to the cost criterion, the applicant used clinical trial data and three separate analyses of FY 2010 MedPAR data to demonstrate that the Zenith® F. Graft meets the cost criteria. The clinical trial data [31] was based on 173 claims (all Medicare patients except one patient). The applicant found that, of the 173 cases, 35 cases (or 20.2 percent of all cases) mapped to MS-DRG 252, 86 cases (or 49.7 percent of all cases) mapped to MS-DRG 253, and 52 cases (or 30.1 percent of all cases) mapped to MS-DRG 254, equating to a case-weighted average charge per case of $87,733.

The applicant noted that the investigational devices (the bare metal renal stents that are used in the procedure and the Zenith® F. Graft) were sold to the trial sites at reduced prices. Therefore, the average charge per case cited above contains reduced charges for the investigational devices rather than commercial charges. As a result, the applicant believes it is necessary to remove the reduced charges for the investigational devices and replace them with commercial charges, in order to determine the cost of the investigational devices for each of the three analyses. Although the applicant submitted data related to the estimated cost of the investigational devices, the applicant noted that the cost of these devices was proprietary information.

To remove the reduced charges for the investigational devices, the applicant searched the clinical trial claims data and removed those charges with a revenue code of 0624 (investigational device exempt). Because the claims data for the clinical trial ranged from 2002 to 2010, it was necessary to inflate the charges. Using data from the U.S. Department of Labor Bureau of Labor Statistics (BLS) Consumer Price Index, the applicant applied an inflation factor to the claim charges ranging from 3 percent to 27 percent, depending on the year of the claim. After inflating the charges, the applicant then added the commercial charges of the investigational devices to the inflated charge per case. To determine the amount of commercial charges related to the investigational devices, the applicant divided the cost of the investigational devices by the hospital-specific CCR from the FY 2012 IPPS Final Rule Impact File. After adding the charges of the investigational devices to the inflated charges, the applicant then standardized the charges on each claim. As a result, the applicant determined a final case-weighted average standardized charge per case of $122,821. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 252, 253, and 254 was $53,869 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payment.

We note that, in addition to the analysis above, the applicant conducted a similar cost analysis using drug eluting renal stents instead of bare metal renal stents. The applicant noted that the price of drug eluting renal stents exceeds the price of bare metal renal stents by approximately $2,200 per stent. Therefore, the applicant asserted that if the price of drug eluting renal stents is more expensive than bare metal renal stents and the Zenith® F. Graft meets the cost criteria with bare metal renal stents, the Zenith® F. Graft also meets the cost criteria when the applicant uses drug eluting renal stents in its analysis.

As mentioned above, the applicant conducted three separate analyses using FY 2010 MedPAR data to identify cases eligible for the Zenith® F. Graft to demonstrate that it meets the cost criterion. Cases of endovascular implantation of branching or fenestrated graft(s) in the aorta are coded with procedure code 39.78, which currently map to MS-DRGs 252, 253, and 254. Because procedure code 39.78 was effective October 1, 2011, the applicant noted that it was unable to conduct a MedPAR data analysis with claims that contained a procedure code of 39.78. Therefore, in order to identify cases eligible for the Zenith® F. Graft prior to October 1, 2011, the applicant searched the MedPAR file for the following three scenarios. The first analysis searched the FY 2010 MedPAR file for cases with procedure code 39.71 (Endovascular implantation of graft in abdominal aorta) in combination with a diagnosis code of 441.4 (Abdominal aneurysm without mention of rupture). The applicant conducted this analysis using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and 254 because procedure code 39.71 maps to MS-DRGs 237 and 238. The applicant found 1,679 cases (or 9.1 percent of all cases) in MS-DRG 237 and 16,793 cases (or 90.9 percent of all cases) in MS-DRG 238. The average charge per case was $122,252 for MS-DRG 237 and $76,883 for MS-DRG 238, equating to a case-weighted average charge per case of $81,006.

The applicant noted that these MedPAR claims data included charges for the existing stent graft but did not include charges for the Zenith® F. Graft. Therefore, the applicant stated that it was first necessary to remove the amount of charges related to the existing stent graft and replace them with charges for the Zenith® F. Graft. Although the applicant submitted data related to the estimated cost of the existing stent graft and the Zenith® F. Graft, the applicant noted that the cost of these devices was proprietary information.

To determine the amount of charges for the existing stent graft, the applicant divided the costs for the existing stent graft by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case from the average charge per case. Because the applicant used FY 2010 MedPAR data, it was necessary to inflate the charges from FY 2010 to FY 2012. Using data from the BLS' Consumer Price Index, the applicant inflated the case-weighted average standardized charge per case with an inflation factor of 4 percent. The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. The applicant determined a final case-weighted average standardized charge per case of $80,509. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237and 238 was $72,512 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount under this first analysis, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payment. The applicant noted that the FY 2013 Table 10 thresholds for MS-DRGs 237 and 238 are much higher than the FY 2013 Table 10 thresholds for MS-DRGs 252, 253, and 254. Therefore, the applicant believes that if the final case-weighted average standardized charge per case exceeds the case-weighted threshold for MS-DRGs 237 and 238, it would exceed any case-weighted threshold for MS-DRGs 252, 253, and 254.

For their second analysis, the applicant searched the FY 2010 MedPAR file for cases with procedure code 38.44 (Resection of vessel with replacement, aorta) in combination with a diagnosis code of 441.4. Similar to the first analysis, the applicant conducted this analysis using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and 254 because procedure code 38.44 maps to MS-DRGs 237 and 238. The applicant found 1,310 cases (or 37.9 percent of all cases) in MS-DRG 237 and 2,145 cases (or 62.1 percent of all cases) in MS-DRG 238. The average charge per case was $110,708 for MS-DRG 237 and $64,095 for MS-DRG 238, equating to a case-weighted average charge per case of $81,769.

The next steps of the applicant's second analysis were similar to the steps in the first analysis. The applicant noted that the MedPAR claims data included charges for the vascular graft for open procedures but did not include charges for the Zenith® F. Graft. Therefore, the applicant indicated that it was first necessary to remove the amount of charges related to the vascular graft for open procedures and replace them with charges for the Zenith® F. Graft. Although the applicant submitted data related to the estimated cost of the vascular graft for open procedures and the Zenith® F. Graft, the applicant noted that the cost of these devices was proprietary information.

To determine the amount of charges for the vascular graft for open procedures, the applicant divided the costs for the vascular graft for open procedures by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case from the average charge per case. Similar to the first analysis, the applicant inflated the case-weighted average charge per case with an inflation factor of 4 percent (based on data from the BLS' Consumer Price Index). The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. The applicant determined a final case-weighted average standardized charge per case of $118,774. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $81,776 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount in this second analysis, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payments. As discussed above, the applicant noted that the FY 2013 Table 10 thresholds for MS-DRGs 237 and 238 are much higher ($101,728 for MS-DRG 237 and $69,591 for MS-DRG 238) than the FY 2013 Table 10 thresholds for MS-DRGs 252, 253, and 254 ($60,619 for MS-DRG 252, $56,719 for MS-DRG 253 and $44,611 for MS-DRG 254). Therefore, the applicant believes that if the final case-weighted average standardized charge per case exceeds the case-weighted threshold for MS-DRGs 237 and 238, it would exceed any case-weighted threshold for MS-DRGs 252, 253, and 254.

While the applicant removed charges for the vascular graft for open procedures, we are concerned that the applicant did not remove charges for other services such as extra operating room time and other possible charges that would be incurred during an open procedure but would possibly not be incurred during cases when the Zenith® F. Graft is implanted.

The third analysis was a combination of the first and second analyses discussed above. The applicant searched the FY 2010 MedPAR file for cases with a procedure code of 38.44 or 39.71 in combination with a diagnosis code of 441.4. Similar to the first and second analyses, the applicant conducted this analysis using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and 254 because both procedure codes map to MS-DRGs 237 and 238. The applicant found 2,981 cases (or 13.6 percent of all cases) in MS-DRG 237 and 18,928 cases (or 86.4 percent of all cases) in MS-DRG 238. The applicant removed those cases that had both procedure codes 38.44 and 39.71 on the claim. The average charge per case was $116,826 for MS-DRG 237 and $75,298 for MS-DRG 238, equating to a case-weighted average charge per case of $80,948.

The applicant noted that the MedPAR claims data included charges for the existing stent graft or vascular graft for open procedures but did not include charges for the Zenith® F. Graft. Therefore, the applicant stated that it was first necessary to remove the amount of charges related to the existing stent graft or vascular graft for open procedures and replace them with charges for the Zenith® F. Graft. Similar to the first and second analyses, to determine the amount of charges for the existing stent graft or vascular graft for open procedures, the applicant divided the costs for these devices by the national average CCR of 0.329 for supplies and equipment (76 FR 51571). The applicant removed the appropriate amount of charges per case from the average charge per case. The applicant inflated the case-weighted average standardized charge per case with an inflation factor of 4 percent (based on data from the BLS' Consumer Price Index). The applicant then determined the amount of charges for the Zenith® F. Graft by dividing the costs of the Zenith® F. Graft by the national average CCR of 0.329 for supplies. The applicant then added the amount of charges related to the Zenith® F. Graft to the inflated charges and then standardized the charges. As a result, the applicant determined a final case-weighted average standardized charge per case of $86,081. Using the FY 2013 Table 10 thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was $73,964 (all calculations above were performed using unrounded numbers). Because the final case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that the Zenith® F. Graft meets the cost criterion for new technology add-on payment. As discussed above, the applicant noted that the FY 2013 Table 10 thresholds for MS-DRGs 237 and 238 are much higher than the FY 2013 Table 10 thresholds for MS-DRGs 252, 253, and 254. The applicant believes that if the final case-weighted average standardized charge per case exceeds the case-weighted threshold for MS-DRGs 237-238, it would exceed any case-weighted threshold for MS-DRGs 252, 253, and 254.

Similar to our concerns with the second analysis, we are concerned that for this third analysis the applicant did not remove charges for other services such as extra operating room time and other possible charges that would be incurred during an open procedure, but would possibly not be incurred during cases when the Zenith® F. Graft is implanted.

We appreciate the multiple analyses of the FY 2010 MedPAR data provided by the applicant and are inviting public comment on whether or not the Zenith® F. Graft meets the cost criterion for new technology add-on payments. In addition, we are inviting public comment on the methodologies used by the applicant, specifically on whether and the degree to which the second and third analyses may contain charges not relevant to the final case-weighted standardized charge per case determined by the applicant.

The applicant maintains that the technology also meets the substantial clinical improvement criterion. The applicant first explained that current treatment for those patients who are not eligible for standard endovascular AAA devices is an open repair. The applicant referenced data from a published series [32] that demonstrated an open repair can lead to a high risk of morbidity and increased mortality. The applicant added that an open procedure requires suprarenal aortic cross-clamping.[33] The applicant also noted that there is a high risk of blood loss during an open procedure and the de-branching of vessels increases the level of surgical risk. The applicant further noted that 30 to 40 percent of patients who have an infrarenal AAA cannot be treated with current commercial devices because of anatomical reasons (for example, insufficient neck length to achieve graft adequate seal). The applicant added that use of standard endografts in patients with neck lengths less than 10 mm can result in a fourfold increase in an endoleak.[34]

The applicant also stated that the intended use of the Zenith® F. Graft differs from standard AAA endovascular grafts in that the fenestrated device provides physicians the ability to treat patients who have infrarenal aortic neck lengths as short as 4 mm, where standard endovascular AAA devices require an infrarenal aortic neck length of at least 10 to 15 mm. Therefore, the applicant believes that the Zenith® F. Graft offers an additional AAA repair option to those patients who have limited surgical treatment options (for example, if short infrarenal neck lengths make the patients at too high a risk to be candidates for open surgical repair).

The applicant also stated, for patients who have AAAs and short infrarenal neck lengths, the Zenith® F. Graft offers a less invasive treatment option than open surgical repair. The applicant referred to several sources of literature to support the following endpoints for fenestrated endovascular aortic repair (EVAR) versus open repair of the juxtarenal AAA relative to open repair of the juxtarenal AAA: Reduced peri-operative mortality (2.4 percent (range: 0 to 5.7 percent)) [35,36,37,38,39,40,41,42,43] reported for fenestrated EVAR repairs versus 2.9 percent (range 0 to 7.4 percent) [44,45] reported for open repair of juxtarenal AAA); 46 reduced morbidity by reducing renal failure requiring permanent dialysis (1.9 percent (pooled average) for fenestrated EVAR repairs versus 3.4 percent reported for open repair of juxtarenal AAA); shorter hospital stay and less operative blood loss to open repair. The applicant maintains that fenestrated EVAR repair results in an average length of stay of 3.5 days, compared to 14.2 days for open repair of juxtarenal AAA, and blood loss of 537 ml, compared to 2586 ml for open repair of juxtarenal AAA.

We note that the information provided by the applicant to evaluate substantial clinical improvement compares this technology to open surgical repair. We are concerned that the applicant does not present publicly available information comparing the technology to medical management, which the applicant mentions as another method for treating patients anatomically unsuited for currently approved AAA endovascular grafts. In these comparisons, we are also concerned that information regarding the longevity of the Zenith® F. Graft as well as long-term complications and secondary interventions or reinterventions has not been presented. In terms of the data presented by the applicant, we are concerned that these clinical study data were nonrandomized, did not differentiate between patients by infrarenal neck length and/or suitability for other endovascular grafts, and were of noninferiority. We are inviting public comment on whether or not the Zenith® F. Graft meets the substantial clinical improvement criterion.

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the proposed FY 2013 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.B. of this preamble.

Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section of the Act provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for FY 2013 is discussed in section II.B. of the Addendum to this proposed rule.

As discussed below in section III.H. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The proposed budget neutrality adjustment for FY 2013 is discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are proposing to apply beginning October 1, 2012 (the FY 2013 wage index) appears under section III.F. of this preamble.

In response to concerns frequently expressed by providers and other relevant parties that the current wage index system does not effectively reflect the true variation in labor costs for a large cross-section of hospitals, two studies were undertaken by the Department. First, section 3137(b) of the Affordable Care Act required the Secretary to submit to Congress a report that includes a plan to comprehensively reform the Medicare wage index applied under section 1886(d) of the Act. In developing the plan, the Secretary was directed to take into consideration the goals for reforming the wage index that were set forth by the Medicare Payment Advisory Commission (MedPAC) in its June 2007 report entitled “Report to Congress: Promoting Greater Efficiency in Medicare” and to “consult with relevant affected parties.” Second, the Secretary commissioned the Institute of Medicine (IOM) to “evaluate hospital and physician geographic payment adjustments, the validity of the adjustment factors, measures and methodologies used in those factors, and sources of data used in those factors.” Reports on both of these studies recently have been released. We refer readers to section IX.B. of this preamble for summaries of the studies, their findings, and recommendations on reforming the wage index system.

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

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we define hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by OMB and announced in December 2003 (69 FR 49027). For a discussion of OMB's delineations of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582) that, in 2013, OMB plans to announce new area delineations based on new standards adopted in 2010 (75 FR 37246) and the 2010 Census of Population and Housing data. For the FY 2013 wage index, to be effective October 1, 2012 and before the availability of OMB's new area delineations, we are proposing to use the same labor market areas that we used for the FY 2012 wage index (76 FR 51581).

C. Worksheet S-3 Wage Data for the FY 2013 Proposed Wage Index

The FY 2013 proposed wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2009 (the FY 2012 wage indices were based on data from cost reporting periods beginning during FY 2008).

1. Included Categories of Costs

The FY 2013 proposed wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):

  • Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty)
  • Home office costs and hours
  • Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315))
  • Wage-related costs, including pension costs (based on policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590) and other deferred compensation costs.

2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2012, the proposed wage index for FY 2013 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The proposed FY 2013 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).

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

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

D. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2013 proposed wage index were obtained from Worksheet S-3, Parts II and III of the Medicare cost report for cost reporting periods beginning on or after October 1, 2008, and before October 1, 2009. For wage index purposes, we refer to cost reports during this period as the “FY 2009 cost report,” the “FY 2009 wage data,” or the “FY 2009 data.” Instructions for completing Worksheet S-3, Parts II and III are in the Provider Reimbursement Manual (PRM), Part II, sections 3605.2 and 3605.3. The data file used to construct the wage index includes FY 2009 data submitted to us as of March 2, 2011. As in past years, we performed an intensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

We asked our fiscal intermediaries/MACs to revise or verify data elements that result in specific edit failures. For the FY 2013 proposed wage index, we identified and excluded 32 providers with data that was too aberrant to include in the proposed wage index, although if data elements for some of these providers are corrected, we intend to include some of these providers in the FY 2013 final wage index. We instructed fiscal intermediaries/MACs to complete their data verification of questionable data elements and to transmit any changes to the wage data no later than April 11, 2012. We intend that all unresolved data elements will be resolved by the date the final rule is issued. The revised data will be reflected in the FY 2013 IPPS final rule.

In constructing the FY 2013 proposed wage index, we included the wage data for facilities that were IPPS hospitals in FY 2009, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we removed 7 hospitals that converted to CAH status between February 15, 2011, the cut-off date for CAH exclusion from the FY 2012 wage index, and February 14, 2012, the cut-off date for CAH exclusion from the FY 2013 wage index. After removing hospitals with aberrant data and hospitals that converted to CAH status, the proposed FY 2013 wage index is calculated based on 3,443 hospitals.

For the FY 2013 proposed wage index, we allotted the wages and hours data for a multicampus hospital among the different labor market areas where its campuses are located in the same manner we allotted such hospitals' data in the FY 2012 wage index (76 FR 51591). Table 2 containing the FY 2013 proposed wage index associated with this proposed rule (available on the CMS Web site) includes separate wage data for the campuses of four multicampus hospitals.

E. Method for Computing the Proposed FY 2013 Unadjusted Wage Index

The method used to compute the FY 2013 proposed wage index without an occupational mix adjustment follows the same methodology that we used to compute the FY 2012 final wage index without an occupational mix adjustment (76 FR 51591 through 51593).

As discussed in that final rule, in “Step 5,” for each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2008, through April 15, 2010, for private industry hospital workers from the BLS' Compensation and Working Conditions. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not proposing any changes to the usage for FY 2013. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated below.

Midpoint of Cost Reporting Period

AfterBeforeAdjustment factor
10/14/200811/15/20081.03003
11/14/200812/15/20081.02786
12/14/200801/15/20091.02582
01/14/200902/15/20091.02386
02/14/200903/15/20091.02199
03/14/200904/15/20091.02014
04/14/200905/15/20091.01826
05/14/200906/15/20091.01635
06/14/200907/15/20091.01446
07/14/200908/15/20091.01263
08/14/200909/15/20091.01086
09/14/200910/15/20091.00910
10/14/200911/15/20091.00728
11/14/200912/15/20091.00539
12/14/200901/15/20101.00352
01/14/201002/15/20101.00172
02/14/201003/15/20101.00000
03/14/201004/15/20100.99830

For example, the midpoint of a cost reporting period beginning January 1, 2009, and ending December 31, 2009, is June 30, 2009. An adjustment factor of 1.01446 would be applied to the wages of a hospital with such a cost reporting period.

Using the data as described above and in the FY 2012 IPPS-LTCH PPS final rule, the FY 2013 proposed national average hourly wage (unadjusted for occupational mix) is $37.4023. The proposed Puerto Rico overall average hourly wage (unadjusted for occupational mix) is $15.8467.

F. Proposed Occupational Mix Adjustment to the FY 2013 Wage Index

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

1. Development of Data for the FY 2013 Proposed Occupational Mix Adjustment Based on the 2010 Occupational Mix Survey

As provided for under section 1886(d)(3)(E) of the Act, we collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program.

As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 through 51586), the FY 2013 proposed wage index is based on data collected on the new 2010 Medicare Wage Index Occupational Mix Survey (Form CMS-10079 (2010)). The survey is available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage and through the fiscal intermediaries/MACs. Hospitals were required to submit their completed 2010 surveys to their fiscal intermediaries/MACs by July 1, 2011. The preliminary, unaudited 2010 survey data was released in early October 2011, along with the FY 2009 Worksheet S-3 wage data, for the FY 2013 wage index review and correction process.

2. Calculation of the Proposed Occupational Mix Adjustment for FY 2013

For FY 2013, we are proposing to calculate the occupational mix adjustment factor using the same methodology that we used for the FY 2012 wage index (76 FR 51582 through 51586). As a result of applying this methodology, the FY 2013 proposed occupational mix adjusted national average hourly wage is $37.3721. The FY 2013 proposed occupational mix adjusted Puerto Rico-specific average hourly wage is $15.8838.

Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2013 wage index. For the FY 2010 survey, the response rate was 91.7 percent. In the FY 2013 proposed wage index established in this proposed rule, we applied proxy data for noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant data in the same manner that we applied proxy data for such hospitals in the FY 2012 wage index occupational mix adjustment (76 FR 51586).

In the FY 2011 IPPS/LTCH PPS proposed and final rules (75 FR 23943 and 50167, respectively), we stated that, in order to gain a better understanding of why some hospitals are not submitting the occupational mix data, we will require hospitals that do not submit occupational mix data to provide an explanation for not complying. This requirement was effective beginning with the new 2010 occupational mix survey. We instructed fiscal intermediaries/MACs to begin gathering this information as part of the FY 2013 wage index desk review process. We will review these data for future analysis and consideration of potential penalties for noncompliant hospitals.

G. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2013 Occupational Mix Adjusted Wage Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix Adjusted Wage Index

As discussed in section III.F. of this preamble, for FY 2013, we are proposing to apply the occupational mix adjustment to 100 percent of the proposed FY 2013 wage index. We calculated the proposed occupational mix adjustment using data from the 2010 occupational mix survey data, using the methodology described in the FY 2012 IPPS-LTCH PPS final rule (76 FR 51582 through 51586).

Using the occupational mix survey data and applying the occupational mix adjustment to 100 percent of the FY 2013 wage index results in a proposed national average hourly wage of $37.3721 and a proposed Puerto-Rico specific average hourly wage of $15.8838. After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2009 Worksheet S-3, Parts II and III, cost report data for use in calculating the proposed FY 2013 wage index, we calculated the proposed FY 2013 wage index using the occupational mix survey data from 3,443 hospitals. Using the Worksheet S-3, Parts II and III, cost report data of 3,443 hospitals and occupational mix survey data from 3,157 hospitals represents a 91.7 percent survey response rate. The proposed FY 2013 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

Occupational mix nursing subcategoryAverage hourly wage
National RN37.362735568
National LPN and Surgical Technician21.762566488
National Nurse Aide, Orderly, and Attendant15.312800678
National Medical Assistant17.240367808
National Nurse Category31.807020884

The proposed national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $31.807020884. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2010 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) that the national percentage of hospital employees in the nurse category is 43.34 percent, and the national percentage of hospital employees in the all other occupations category is 56.66 percent. At the CBSA level, the percentage of hospital employees in the nurse category ranged from a low of 27.03 percent in one CBSA, to a high of 59.70 percent in another CBSA.

We also compared the FY 2013 wage data adjusted for occupational mix from the 2010 survey to the FY 2013 wage data adjusted for occupational mix from the 2007-2008 survey. This analysis illustrates the effect on area wage indices of using the 2010 survey data compared to the 2007-2008 survey data; that is, it shows whether hospitals' wage indices are increasing or decreasing under the current survey data as compared to the prior survey data. Our analysis shows that the FY 2013 wage index values for 190 (48.6 percent) urban areas and 18 (37.5 percent) rural areas will increase. Fifty (12.8 percent) urban areas will increase by 1 percent or more, and no urban areas will increase by 5 percent or more. Three (6.3 percent) rural areas will increase by 1 percent or more, and no rural areas will increase by 5 percent or more. However, the wage index values for 197 (50.4 percent) urban areas and 30 (62.5 percent) rural areas will decrease using the 2010 data. Sixty-four (16.4 percent) urban areas will decrease by 1 percent or more, and no urban areas will decrease by 5 percent or more. Three (6.3 percent) rural areas will decrease by 1 percent or more, and no rural areas will decrease by 5 percent or more. The largest positive impacts using the 2010 data compared to the 2007-2008 data are 4.37 percent for an urban area and 3.24 percent for a rural area. The largest negative impacts are 4.86 percent for an urban area and 2.28 percent for a rural area. Four urban areas and no rural areas will be unaffected. These results indicate that the wage indices of more CBSAs overall (51.7 percent) will be decreasing due to application of the 2010 occupational mix survey data as compared to the 2007-2008 survey data to the wage index. Further, a larger percentage of urban areas (48.6 percent) will benefit from the 2010 occupational mix survey as compared to the 2007-2008 survey than will rural areas (37.5 percent).

We compared the proposed FY 2013 occupational mix adjusted wage indices for each CBSA to the proposed unadjusted wage indices for each CBSA. As a result of applying the occupational mix adjustment to the wage data, the proposed wage index values for 207 (52.9 percent) urban areas and 32 (66.7 percent) rural areas would increase. One hundred seventeen (29.9 percent) urban areas would increase by 1 percent or more, and 3 (0.77 percent) urban areas would increase by 5 percent or more. Fourteen (29.2 percent) rural areas would increase by 1 percent or more, and no rural areas would increase by 5 percent or more. However, the wage index values for 184 (47.1 percent) urban areas and 15 (31.3 percent) rural areas would decrease. Eighty-five (21.7 percent) urban areas would decrease by 1 percent or more, and one urban area would decrease by 5 percent or more (0.26 percent). Seven (14.6 percent) rural areas would decrease by 1 percent or more, and no rural areas would decrease by 5 percent or more. The largest positive impacts are 6.71 percent for an urban area and 3.10 percent for a rural area. The largest negative impacts are 5.22 percent for an urban area and 3.10 percent for a rural area. No urban areas are unaffected, but one rural area is unaffected. These results indicate that a larger percentage of rural areas (66.7 percent) would benefit from the occupational mix adjustment than do urban areas (52.9 percent). While these results are more positive overall for rural areas than under the previous occupational mix adjustment that used survey data from 2007-2008, approximately one-third (31.3 percent) of rural CBSAs would still experience a decrease in their wage indices as a result of the occupational mix adjustment.

2. Application of the Rural, Imputed, and Frontier Floors

a. Rural Floor

Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. This provision is referred to as the “rural floor.” Section 3141 of Public Law 111-148 also requires that a national budget neutrality adjustment be applied in implementing the rural floor. In the FY 2013 proposed wage index associated with this proposed rule and available on the CMS Web site, 393 hospitals are receiving an increase in their FY 2013 proposed wage index due to the application of the rural floor.

b. Imputed Floor and Proposal for an Alternative, Temporary Methodology for Computing the Imputed Floor

In the FY 2005 IPPS final rule (69 FR 49109), we adopted the “imputed floor” policy as a temporary 3-year regulatory measure to address concerns from hospitals in all-urban States that have argued that they are disadvantaged by the absence of rural hospitals to set a wage index floor for those States. Since its initial implementation, we have extended the imputed floor policy three times, with the latest extension being set to expire on September 30, 2013 (we refer readers to the discussion in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51593)). There are currently two all-urban States, New Jersey and Rhode Island, that have a range of wage indices assigned to hospitals in the State, including through reclassification or redesignation (we refer readers to discussions of geographic reclassifications and redesignations in section III.H. of this preamble). However, as we explain below, the current method for computing the imputed floor benefits only New Jersey, and not Rhode Island.

The current methodology for computing the imputed floor is contained in our regulations at 42 CFR 412.64(h)(4). In computing the imputed floor, we calculate the ratio of the lowest-to-highest CBSA wage index for each all-urban State (that is, New Jersey and Rhode Island) as well as the average of the ratios of lowest-to-highest CBSA wage indices of those all-urban States. We compare the State's own ratio to the average ratio and whichever is higher is multiplied by the highest CBSA wage index value in the State—the product of which establishes the imputed floor for the State. Rhode Island has only one CBSA (Providence-New Bedford-Fall River, RI-MA); therefore, Rhode Island's own ratio equals 1.0, and its imputed floor is equal to its original CBSA wage index value. Conversely, New Jersey has 10 CBSAs. As the average ratio of New Jersey and Rhode Island is higher than New Jersey's own ratio, the current methodology provides a benefit for New Jersey.

For the FY 2013 wage index, the final year of the extension of the imputed floor policy under § 412.64(h)(4), we are proposing an alternative, temporary methodology for computing the imputed floor wage index to address the concern that the current imputed floor methodology guarantees a benefit for one all-urban State with multiple wage indices but cannot benefit the other. This proposed alternative methodology for calculating the imputed floor would be established using empirical data from the application of the rural floor policy for FY 2013. Under this proposal, we would first determine the average percentage difference between the post-reclassified, pre-floor area wage index and the post-reclassified, rural floor wage index (without rural floor budget neutrality applied) for all CBSAs receiving the rural floor. (Table 4D associated with this proposed rule and available on the CMS Web site includes the CBSAs receiving a State's rural floor wage index.) The lowest post-reclassified wage index assigned to a hospital in an all-urban State having a range of such values would then be increased by this factor, the result of which would establish the State's alternative imputed floor. We are proposing to amend § 412.64(h)(4) to add new paragraphs (v)(A) and (B) to incorporate this proposed alternative methodology, and to make conforming references.

In addition, for the FY 2013 wage index, we are proposing no changes to the current imputed floor methodology at § 412.64(h)(4) and, therefore, no changes to the New Jersey imputed floor computation for FY 2013. Instead, for FY 2013, we are proposing a second, alternative methodology that would be used in cases where an all-urban State has a range of wage indices assigned to its hospitals, but the State cannot benefit from the methodology in existing § 412.64(h)(4). We intend to further evaluate the need, applicability, and methodology for the imputed floor before the September 30, 2013 expiration of the imputed floor policy and address these issues in the FY 2014 proposed rule.

The proposed wage index and impact tables associated with this FY 2013 proposed rule that are available on the CMS Web site include the application of the imputed floor policy at § 412.64(h)(4) and a national budget neutrality adjustment for the imputed floor. There are 29 providers in New Jersey that would receive an increase in their FY 2013 proposed wage index due to the imputed floor policy. The proposed wage index and impact tables for this proposed rule do not reflect the application of the proposed second alternative methodology for computing the imputed floor, which we anticipate would benefit four hospitals in Rhode Island.

c. Frontier Floor

Section 10324 of Public Law 111-148 requires that hospitals in frontier States cannot be assigned a wage index of less than 1.0000 (we refer readers to a discussion of the implementation of this provision in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160). Four States in the FY 2013 proposed wage index are being treated as frontier States: Montana, North Dakota, South Dakota, and Wyoming; 51 providers in these States are receiving the frontier floor value of 1.0000 in the FY 2013 proposed wage index associated with this proposed rule. Although Nevada is also, by definition, a frontier State and was assigned a frontier floor value of 1.0000 for FY 2012, its FY 2013 proposed rural floor value of 1.0293 is greater and, therefore, is the State's proposed minimum wage index for FY 2013.

The areas affected by the rural, imputed, and frontier floor policies for the FY 2013 proposed wage index are identified in Table 4D associated with this proposed rule and available on the CMS Web site.

3. Proposed FY 2013 Wage Index Tables

The proposed wage index values for FY 2013 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act), included in Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the proposed occupational mix adjustment, geographic reclassification or redesignation as discussed in section III.H. of this preamble, and the application of the rural, imputed, and frontier State floors as discussed in section III.G.2. of this preamble.

Tables 3A and 3B, available on the CMS Web site, list the 3-year average hourly wage for each labor market area before the redesignation or reclassification of hospitals based on FYs 2007, 2008, and 2009 cost reporting periods. Table 3A lists these data for urban areas, and Table 3B lists these data for rural areas. In addition, Table 2, which is available on the CMS Web site, includes the adjusted average hourly wage for each hospital from the FY 2007 and FY 2008 cost reporting periods, as well as the FY 2009 period used to calculate the proposed FY 2013 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described previously) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period. The proposed average hourly wages in Tables 2, 3A, and 3B, which are available on the CMS Web site, include the proposed occupational mix adjustment. The proposed wage index values in Tables 4A, 4B, 4C, and 4D also include the proposed national rural and imputed floor budget neutrality adjustment. The proposed wage index values in Table 2 also include the proposed outmigration adjustment for eligible hospitals.

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

1. General Policies and Effects of Reclassification and Redesignation

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280. (We refer readers to a discussion of the proximity requirements in the FY 2002 IPPS final rule (66 FR 39874 and 39875).) The general policies for reclassifications and redesignations that we are proposing for FY 2013, and the policies for the effects of hospitals' reclassifications and redesignations on the wage index, are the same as those discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). Also, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage index of urban hospitals reclassifying to rural areas under 42 CFR 412.103. Hospitals that are geographically located in States without any rural areas are ineligible to apply for rural reclassification pursuant to 42 CFR 412.103.

2. FY 2013 MGCRB Reclassifications

a. FY 2013 Reclassification Requirements and Approvals

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

At the time this proposed rule was constructed, the MGCRB had completed its review of FY 2013 reclassification requests. Based on such reviews, there were 238 hospitals approved for wage index reclassifications by the MGCRB for FY 2013. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2013, hospitals reclassified during FY 2011 or FY 2012 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications. There were 277 hospitals approved for wage index reclassifications in FY 2011, and 255 hospitals approved for wage index reclassifications in FY 2012. Of all of the hospitals approved for reclassification for FY 2011, FY 2012, and FY 2013, based upon the review at the time of this proposed rule, 770 hospitals are in a reclassification status for FY 2013.

Under 42 CFR 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of a proposed rule. For information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 50065). Additional discussion on withdrawals and terminations, and clarifications regarding reinstating reclassifications and “fallback” reclassifications, were included in the FY 2008 IPPS final rule (72 FR 47333).

Changes to the wage index that result from withdrawals of requests for reclassification, terminations, wage index corrections, appeals, and the Administrator's review process for FY 2013 will be incorporated into the wage index values published in the FY 2013 IPPS/LTCH PPS final rule. These changes affect not only the wage index value for specific geographic areas, but also the wage index value redesignated/reclassified hospitals receive; that is, whether they receive the wage index that includes the data for both the hospitals already in the area and the redesignated/reclassified hospitals. Further, the wage index value for the area from which the hospitals are redesignated/reclassified may be affected.

b. Applications for Reclassifications for FY 2014

Applications for FY 2014 reclassifications are due to the MGCRB by September 4, 2012 (the first working day of September 2012). We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under 42 CFR 412.273(d). Applications and other information about MGCRB reclassifications may be obtained, beginning in mid-July 2012, via the Internet on the CMS Web site at: http://cms.hhs.gov/MGCRB/02_instructions_and_applications.asp, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

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

Section 1886(d)(8)(B) of the Act requires us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA if certain criteria are met. Effective beginning FY 2005, we use OMB's 2000 CBSA standards and the Census 2000 data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area. Hospitals located in these counties have been known as “Lugar” hospitals and the counties themselves are often referred to as “Lugar” counties. The FY 2013 chart with the listing of the rural counties containing the hospitals designated as urban under section 1886(d)(8)(B) of the Act is available via the Internet on the CMS Web site.

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

As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are also eligible to be reclassified to a different area by the MGCRB. Affected hospitals are permitted to compare the reclassified wage index for the labor market area in Table 4C associated with this proposed rule (available on the CMS Web site) into which they would be reclassified by the MGCRB to the wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB reclassification within 45 days of the publication of this FY 2013 proposed rule. (We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51598 through 51599) for the procedural rules and requirements for a hospital that is redesignated under section 1886(d)(8)(B) of the Act and seeking reclassification under the MGCRB, as well as our policy of measuring the urban area, exclusive of the Lugar County, for purposes of meeting proximity requirements.) We treat New England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to FY 2008 IPPS final rule with comment period (72 FR 47337) for a discussion of this policy.)

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

Section 508 of Public Law 108-173 allowed certain qualifying hospitals to receive wage index reclassifications and assignments that they otherwise would not have been eligible to receive under the law. Although section 508 originally was scheduled to expire after a 3-year period, Congress extended the provision several times, as well as certain special exceptions that would have otherwise expired. For a discussion of the original section 508 provision and its various extensions, we refer readers to the FY 2012 notice, CMS-1442-N, which went on public display at the Office of the Federal Register on April 19, 2012, and was published in the Federal Register on April 20, 2012. The most recent extension of the provision was included in section 302 of the Temporary Payroll Tax Cut Continuation Act of 2011 (Pub. L. 112-78), as amended by section 3001 of the Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96), which extends certain section 508 reclassifications and special exception wage indices for a 6-month period during FY 2012, from October 1, 2011 through March 31, 2012. As of the drafting of this proposed rule, section 508 reclassifications and certain special exceptions have not been extended for FY 2013.

6. Waiving Lugar Redesignation for the Out-Migration Adjustment

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we adopted the policy that, beginning with FY 2012, an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS, including being considered rural for the DSH payment adjustment, effective for the fiscal year in which the hospital receives the out-migration adjustment. (We refer readers to a discussion of DSH payment adjustment under section IV.G. of this preamble.)

In addition, we adopted a minor procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within the requisite number of days from the publication of the proposed rule [47] ) to automatically waive its urban status for the 3-year period for which its out-migration adjustment is effective. That is, such a Lugar hospital would no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the adjustment. Thus, under the procedural change, a Lugar hospital that requests to waive its urban status in order to receive the rural wage index in addition to the out-migration adjustment would be deemed to have accepted the out-migration adjustment and agrees to be treated as rural for the duration of its 3-year eligibility period, unless, prior to its second or third year of eligibility, the hospital explicitly notifies CMS in writing, within the required period (generally 45 days from the publication of the proposed rule), that it instead elects to return to its deemed urban status and no longer wishes to accept the out-migration adjustment.

We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600) for a detailed discussion of the policy and process for waiving Lugar status for the out-migration adjustment.

I. Proposed FY 2013 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with the broad discretion granted to the Secretary under section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. The proposed FY 2013 out-migration adjustment is based on the same policies, procedures, and computation that were used for the FY 2012 out-migration adjustment (we refer readers to a full discussion of the adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or section 1886(d)(10) to have waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602)). Table 4J, available via the Internet on the CMS Web site, lists the out-migration adjustments for the FY 2013 proposed wage index.

J. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the proposed FY 2013 wage index were made available on October 4, 2011, through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.

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

In a memorandum dated September 29, 2011, we instructed all fiscal intermediaries/MACs to inform the IPPS hospitals they service of the availability of the wage index data files and the process and timeframe for requesting revisions (including the specific deadlines listed below). We also instructed the fiscal intermediaries/MACs to advise hospitals that these data were also made available directly through their representative hospital organizations.

If a hospital wished to request a change to its data as shown in the October 4, 2011 wage and occupational mix data files, the hospital was to submit corrections along with complete, detailed supporting documentation to its fiscal intermediary/MAC by December 5, 2011. Hospitals were notified of this deadline and of all other deadlines and requirements, including the requirement to review and verify their data as posted on the preliminary wage index data files on the Internet, through the September 29, 2011 memorandum referenced above.

In the September 29, 2011 memorandum, we also specified that a hospital requesting revisions to its occupational mix survey data was to copy its record(s) from the CY 2010 occupational mix preliminary files posted to the CMS Web site in October, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete documentation to its fiscal intermediary/MAC no later than December 5, 2011.

The fiscal intermediaries/MACs notified the hospitals by mid-February 2012 of any changes to the wage index data as a result of the desk reviews and the resolution of the hospitals' early-December revision requests. The fiscal intermediaries/MACs also submitted the revised data to CMS by mid-February 2012. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 21, 2012. Hospitals had until March 5, 2012, to submit requests to the fiscal intermediaries/MACs for reconsideration of adjustments made by the fiscal intermediaries/MACs as a result of the desk review, and to correct errors due to CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the wage index data. Hospitals also were required to submit sufficient documentation to support their requests.

After reviewing requested changes submitted by hospitals, fiscal intermediaries/MACs were required to transmit any additional revisions resulting from the hospitals' reconsideration requests by April 11, 2012. The deadline for a hospital to request CMS intervention in cases where the hospital disagrees with the fiscal intermediary's (or, if applicable, the MAC's) policy interpretations was April 18, 2012.

Hospitals should examine Table 2, which is listed in section VI. of the Addendum to this proposed rule and available on the CMS Web site at: http://www.cms.gov. Table 2 contains each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2009 data used to construct the proposed FY 2013 wage index. We note that the hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data that were transmitted to CMS by March 2012.

We will release the final wage index data public use files in early May 2012 on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The May 2012 public use files are made available solely for the limited purpose of identifying any potential errors made by CMS or the fiscal intermediary/MAC in the entry of the final wage index data that resulted from the correction process described above (revisions submitted to CMS by the fiscal intermediaries/MACs by April 11, 2012). If, after reviewing the May 2012 final public use files, a hospital believes that its wage or occupational mix data are incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital should send a letter to both its fiscal intermediary/MAC and CMS that outlines why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). CMS and the fiscal intermediaries (or, if applicable, the MACs) must receive these requests no later than June 4, 2012.

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

After the release of the May 2012 wage index data files, changes to the wage and occupational mix data will only be made in those very limited situations involving an error by the fiscal intermediary/MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the fiscal intermediary/MAC nor CMS will approve the following types of requests:

  • Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by fiscal intermediaries or the MACs on or before April 11, 2012.
  • Requests for correction of errors that were not, but could have been, identified during the hospital's review of the February 21, 2012 wage index public use files.
  • Requests to revisit factual determinations or policy interpretations made by the fiscal intermediary or the MAC or CMS during the wage index data correction process.

Verified corrections to the wage index data received timely by CMS and the fiscal intermediaries or the MACs (that is, by June 4, 2012) will be incorporated into the final wage index in the FY 2013 IPPS/LTCH PPS final rule, which will be effective October 1, 2012.

We created the processes described above to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2013 payment rates. Accordingly, hospitals that do not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the fiscal intermediary's (or, if applicable, the MAC's) decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the Provider Reimbursement Review Board, the failure of CMS to make a requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections.

Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the fiscal intermediary's (or, if applicable, the MAC's) attention. Moreover, because hospitals have access to the final wage index data by early May 2012, they have the opportunity to detect any data entry or tabulation errors made by the fiscal intermediary or the MAC or CMS before the development and publication of the final FY 2013 wage index by August 2012, and the implementation of the FY 2013 wage index on October 1, 2012. If hospitals avail themselves of the opportunities afforded to provide and make corrections to the wage and occupational mix data, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after June 4, 2012, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with 42 CFR 412.64(k)(1) of our existing regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) The fiscal intermediary or the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, “before the beginning of the fiscal year” means by the June 4 deadline for making corrections to the wage data for the following fiscal year's wage index. This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the fiscal intermediaries or the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the fiscal intermediary (or, if applicable, the MAC) and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 4, 2012 deadline for the FY 2013 wage index); and (3) CMS agreed that the fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.

In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the June 4, 2012 deadline), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; and it can only be used for the current Federal fiscal year. In other situations where our policies would allow midyear corrections, we continue to believe that it is appropriate to make prospective-only corrections to the wage index.

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

K. Labor-Related Share for the Proposed FY 2013 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related: “The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs of the DRG prospective payment rates * * *.” We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this “would result in lower payments to a hospital than would otherwise be made.” However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate “from time to time” the proportion of hospitals' costs that are “attributable to wages and wage-related costs.” Thus, hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share resulted in a higher payment.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 43856), we rebased and revised the hospital market basket for operating costs. We established a FY 2006-based IPPS hospital market basket to replace the FY 2002-based IPPS hospital market basket, effective October 1, 2009. In that final rule, we presented our analysis and conclusions regarding the frequency and methodology for updating the labor-related share for FY 2010. We also recalculated a labor-related share of 68.8 percent, using the FY 2006-based IPPS market basket, for discharges occurring on or after October 1, 2009. In addition, we implemented this revised and rebased labor-related share in a budget neutral manner, but consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. In this FY 2013 proposed rule, we are not proposing to make any further changes to the national average proportion of operating costs that are attributable to wages and salaries, fringe benefits, contract labor, the labor-related portion of professional fees, administrative and business support services, and all other labor-related services (previously referred to in the FY 2002-based IPPS market basket as labor-intensive).

Therefore, for FY 2013, we are proposing to continue to use a labor-related share of 68.8 percent for discharges occurring on or after October 1, 2012. Tables 1A and 1B, which are published in section VI. of the Addendum to this proposed rule and available via the Internet, reflect this labor-related share. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this employment “would result in lower payments to a hospital than would otherwise be made.” Therefore, for all IPPS hospitals whose wage indices are less than 1.0000, we are proposing to apply the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals whose wage indices are greater than 1.0000, we are proposing to apply the wage index to a labor-related share of 68.8 percent of the national standardized amount.

For Puerto Rico hospitals, the national labor-related share will always be 62 percent because the national wage index for all Puerto Rico hospitals is less than 1.0. In this proposed rule, we are proposing to continue to use a labor-related share for the Puerto Rico-specific standardized amounts of 62.1 percent for discharges occurring on or after October 1, 2012. This Puerto Rico labor-related share of 62.1 percent was also adopted in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43857) at the time the FY 2006-based hospital market basket was established, effective October 1, 2009. Consistent with our methodology for determining the national labor-related share, we added the Puerto Rico-specific relative weights for wages and salaries, fringe benefits, contract labor, the labor-related portion of professional fees, administrative and business support services, and all other labor-related services (previously referred to in the FY 2002-based IPPS market basket as labor-intensive) to determine the labor-related share. Puerto Rico hospitals are paid based on 75 percent of the national standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. The labor-related share of a hospital's Puerto Rico-specific rate will be either the Puerto Rico-specific labor-related share of 62.1 percent or 62 percent, depending on which results in higher payments to the hospital. If the hospital has a Puerto Rico-specific wage index of greater than 1.0, we will set the hospital's rates using a labor-related share of 62.1 percent for the 25 percent portion of the hospital's payment determined by the Puerto Rico standardized amounts because this amount will result in higher payments. Conversely, a hospital with a Puerto Rico-specific wage index of less than 1.0 will be paid using the Puerto Rico-specific labor-related share of 62 percent of the Puerto Rico-specific rates because the lower labor-related share will result in higher payments. The Puerto Rico labor-related share of 62.1 percent for FY 2013 is reflected in Table 1C, which is published in section VI. of the Addendum to this proposed rule and available via the Internet.

IV. Other Decisions and Proposed Changes to the IPPS for Operating Costs and Graduate Medical Education (GME) Costs

A. Hospital Readmissions Reduction Program

1. Statutory Basis for the Hospital Readmissions Reduction Program

Section 3025 of the Affordable Care Act, as amended by section 10309 of the Affordable Care Act, added a new subsection (q) to section 1886 of the Act. Section 1886(q) of the Act establishes the “Hospital Readmissions Reduction Program” effective for discharges from an “applicable hospital” beginning on or after October 1, 2012, under which payments to those hospitals under section 1886(d) of the Act will be reduced to account for certain excess readmissions.

Section 1886(q)(1) of the Act sets forth the methodology by which payments to “applicable hospitals” will be adjusted to account for excess readmissions. Pursuant to section 1886(q)(1) of the Act, payments for discharges from an “applicable hospital” will be an amount equal to the product of the “base operating DRG payment amount” and the adjustment factor for the hospital for the fiscal year. That is, “base operating DRG payments” are reduced by an adjustment factor that accounts for excess readmissions. Section 1886(q)(1) of the Act requires the Secretary to make payments for a discharge in an amount equal to the product of “the base operating DRG payment amount” and “the adjustment factor” for the hospital in a given fiscal year. Section 1886(q)(2) of the Act defines the base operating DRG payment amount as “the payment amount that would otherwise be made under subsection (d) (determined without regard to subsection (o) [the Hospital VBP Program]) for a discharge if this subsection did not apply; reduced by * * * any portion of such payment amount that is attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection (d).” Paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection(d) refer to outlier payments, IME payments, DSH payments, and payments for low-volume hospitals, respectively.

Furthermore, section 1886(q)(2)(B) of the Act specifies special rules for defining “the payment amount that would otherwise be made under subsection (d)” for certain hospitals. Specifically, section 1886(q)(2)(B) of the Act states that “[i]n the case of a Medicare-dependent, small rural hospital (with respect to discharges occurring during fiscal years 2012 and 2013) or a sole community hospital * * * the payment amount that would otherwise be made under subsection (d) shall be determined without regard to subparagraphs (I) and (L) of subsection (b)(3) and subparagraphs (D) and (G) of subsection (d)(5).” We are proposing policies to implement the statutory provisions related to the definition of “base operating DRG payment amount” in this proposed rule.

Section 1886(q)(3)(A) of the Act defines the “adjustment factor” for an applicable hospital for a fiscal year as equal to the greater of “(i) the ratio described in subparagraph (B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” Section 1886(q)(3)(B) of the Act, in turn, describes the ratio used to calculate the adjustment factor. It states that the ratio is “equal to 1 minus the ratio of—(i) the aggregate payments for excess readmissions * * * and (ii) the aggregate payments for all discharges * * *.” Section 1886(q)(3)(C) of the Act describes the floor adjustment factor, which is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal years.

Section 1886(q)(4) of the Act sets forth the definitions of “aggregate payments for excess readmissions” and “aggregate payments for all discharges” for an applicable hospital for the applicable period. The term “aggregate payments for excess readmissions” is defined in section 1886(q)(4)(A) of the Act as “the sum, for applicable conditions * * * of the product, for each applicable condition, of (i) the base operating DRG payment amount for such hospital for such applicable period for such condition; (ii) the number of admissions for such condition for such hospital for such applicable period; and (iii) the “Excess Readmission Ratio * * * for such hospital for such applicable period minus 1.” The “Excess Readmission Ratio” is a hospital-specific ratio based on each applicable condition. Specifically, section 1886(q)(4)(C) of the Act defines the Excess Readmission Ratio as the ratio of “risk-adjusted readmissions based on actual readmissions” for an applicable hospital for each applicable condition, to the “risk-adjusted expected readmissions” for the applicable hospital for the applicable condition.

Section 1886(q)(5) of the Act provides definitions of “applicable condition,” “expansion of applicable conditions,” “applicable hospital,” “applicable period,” and “readmission.” The term “applicable condition,” which is addressed in detail in section IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 51666), is defined as a “condition or procedure selected by the Secretary among conditions and procedures for which: (i) Readmissions * * * represent conditions or procedures that are high volume or high expenditures * * * and (ii) measures of such readmissions * * * have been endorsed by the entity with a contract under section 1890(a) * * * and such endorsed measures have exclusions for readmissions that are unrelated to the prior discharge (such as a planned readmission or transfer to another applicable hospital).” Section 1886(q)(5)(B) of the Act also requires the Secretary, beginning in FY 2015, “to the extent practicable, [to] expand the applicable conditions beyond the 3 conditions for which measures have been endorsed * * * to the additional 4 conditions that have been identified by the Medicare Payment Advisory Commission in its report to Congress in June 2007 and to other conditions and procedures as determined appropriate by the Secretary.”

Section 1886(q)(5)(C) of the Act defines “applicable hospital,” that is, a hospital subject to the Hospital Readmissions Reduction Program, as a “subsection (d) hospital or a hospital that is paid under section 1814(b)(3) [of the Act], as the case may be.” The term “applicable period,” as defined under section 1886(q)(5)(D) of the Act, “means, with respect to a fiscal year, such period as the Secretary shall specify.” As explained in the FY 2012 IPPS/LTCH PPS final rule, the “applicable period” is the period from which data are collected in order to calculate various ratios and adjustments under the Hospital Readmissions Reduction Program.

Section 1886(q)(6) of the Act sets forth the public reporting requirements for hospital-specific readmission rates. Section 1886(q)(7) of the Act limits administrative and judicial review of certain determinations made pursuant to section 1886(q) of the Act. Finally, section 1886(q)(8) of the Act requires the Secretary to collect data on readmission rates for all hospital inpatients for “specified hospitals” in order to calculate the hospital-specific readmission rates for all hospital inpatients and to publicly report these readmission rates.

2. Overview

As we stated in the FY 2012 IPPS/LTCH PPS final rule, we intend to implement the requirements of the Hospital Readmissions Reduction Program in the FY 2012, FY 2013, and future IPPS/LTCH PPS rulemaking cycles.

As explained above, the payment adjustment factor set forth in section 1886(q) of the Act does not apply to discharges until FY 2013. Therefore, we elected to implement the Hospital Readmissions Reduction Program over a 2-year period, beginning in FY 2012. In the FY 2012 IPPS/LTCH PPS final rule, we addressed the issues of the selection of readmission measures and the calculation of the excess readmission ratio, which will be used, in part, to calculate the readmission adjustment factor. Specifically, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 through 51676), we addressed portions of section 1886(q) of the Act related to the following provisions:

  • Selection of applicable conditions;
  • Definition of “readmission;”
  • Measures for the applicable conditions chosen for readmission;
  • Methodology for calculating the excess readmission ratio; and
  • Definition of “applicable period.”

With respect to the topics of “measures for readmission” for the applicable conditions, and “methodology for calculating the excess readmission ratio,” we specifically addressed the following:

  • Index hospitalizations;
  • Risk adjustment;
  • Risk standardized readmission rate;
  • Data sources; and
  • Exclusion of certain readmissions.

We are providing below a summary of the provisions of section 1886(q) of the Act that were finalized in the FY 2012 IPPS/LTCH PPS final rule.

Applicable conditions: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 51666), we finalized the applicable conditions for the FY 2013 Hospital Readmissions Reduction Program as heart failure (HF), acute myocardial infarction (AMI), and pneumonia (PN). Section 1886(q)(5)(A) of the Act requires that the “applicable conditions” be conditions or procedures for which readmissions are “high volume or high expenditure” and that “measures of such readmissions” have been endorsed by the entity with a contract under section 1890(a) of the Act (currently National Quality Forum (NQF)) and such endorsed measures have exclusions for readmissions that are unrelated to the prior discharge. In this proposed rule, we are proposing to codify this definition of “applicable conditions” in the regulations we are proposing at 42 CFR 412.152.

In the FY 2012 IPPS/LTCH PPS final rule, we discussed how each of the finalized “applicable conditions” for FY 2013 meets these statutory requirements. We noted that section 1886(q)(5)(B) of the Act allows for the Secretary to expand the conditions for the Hospital Readmissions Reduction Program starting in FY 2015.

Readmission: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666), we finalized a definition of “readmission” as occurring when a patient is discharged from an applicable hospital and then admitted to the same or another acute care hospital, that is, another applicable hospital, within a specified time period (30 days) from the date of discharge from the initial index hospitalization. In this proposed rule, we are proposing to codify this definition of “readmission” under the regulations we are proposing at 42 CFR 412.152. As also discussed in the FY 2012 IPPS/LTCH PPS final rule, only one readmission during the 30 days following the discharge from the initial hospitalization will count as a readmission for purposes of calculating the ratios set forth in section 1886(q)(3) of the Act. For any given patient, none of the subsequent readmissions he or she experiences within 30 days after discharge would be counted as a new “index” admission (that is, an admission evaluated for a subsequent readmission).

Measures for applicable conditions: As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666 and 51667), we will use three NQF-endorsed, hospital risk-standardized readmission measures for FY 2013, which are currently in the Hospital IQR Program: Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure (NQF #0505); Heart Failure 30-Day Risk Standardized Readmission Measure (NQF #0330); and Pneumonia 30-day Risk Standardized Readmission Measure (NQF #0506). The measures, as endorsed by the NQF, include the 30-day time window, risk-adjustment methodology, and exclusions for certain readmissions.

As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673), we will use the risk-standardized readmission ratio of the NQF-endorsed readmission measures as the excess readmission ratio. The ratio is a measure of relative performance. If a hospital performs better than an average hospital that admitted similar patients (that is, patients with the same risk factors for readmission such as age and comorbidities), the ratio will be less than 1.0. If a hospital performs worse than average, the ratio will be greater than 1.0.

Measure methodology: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51668 through 51669), we finalized the methodology of the measures and are summarizing it briefly below.

Index hospitalizations included in the measure calculation: We finalized the definition of “index hospital” consistent with the NQF-endorsed definition. The measures define an index hospitalization as a hospitalization evaluated in the measure for a possible readmission within 30 days after discharge (that is, a hospitalization included in the measure calculation). The measures exclude as index hospitalizations any hospitalization for patients with an in-hospital death, without at least 30 days post-discharge enrollment in Medicare fee-for-service (FFS), discharged against medical advice, and under the age of 65.

Risk adjustment: The three measures, as endorsed by the NQF and finalized in the FY 2012 IPPS/LTCH PPS final rule, adjust for key factors that are clinically relevant and have strong relationships with the outcome (for example, patient demographic factors, patient coexisting medical conditions, and indicators of patient frailty). Under the current NQF-endorsed methodology, these covariates are obtained from Medicare claims extending 12 months prior to, and including, the index admission. This risk-adjustment approach adjusts for differences in the clinical status of the patient at the time of the index admission as well as for demographic variables. A complete list of the variables used for risk adjustment and the clinical and statistical process for selecting the variables for each NQF-endorsed measure, as proposed, is available at the Web site: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.

Data sources: The finalized measures use Medicare inpatient claims data for Medicare FFS patients 65 years and older to identify index hospitalizations and readmissions. For risk adjustment, the measures use Part A and Part B claims for the 12 months prior to the index hospitalization as well as index hospitalization claims.

Exclusion of certain readmissions: The NQF-endorsed measures of readmissions finalized in the FY 2012 IPPS/LTCH PPS final rule include exclusions of readmissions consistent with the statutory requirement that all measures exclude certain readmissions that are unrelated to the prior discharge, such as transfers to other acute care facilities and planned readmissions.

Minimum number of discharges for applicable conditions: Section 1886(q)(4)(C)(ii) of the Act allows the Secretary discretion to determine the minimum number of discharges for the applicable condition. We finalized a policy in the FY 2012 IPPS/LTCH PPS final rule that the minimum number of discharges for applicable conditions is 25 for each condition for the FY 2013 Hospital Readmissions Reduction Program.

Applicable period: Under 1886(q)(5)(D) of the Act, the Secretary has the authority to specify the applicable period with respect to a fiscal year. In the FY 2012 IPPS/LTCH PPS final rule, we finalized our policy to use 3 years worth of claims data to calculate the proposed readmission measures. Specifically, we finalized the policy to use claims data from July 1, 2008, to June 30, 2011, to calculate the excess readmission ratios and to calculate the FY 2013 Hospital Readmissions Reduction Program payment adjustment. As discussed in section IV.A.3.d. of this preamble, for the purpose of this proposed rule, the excess readmission ratios used to model our proposed methodology to calculate the Hospital Readmissions Reduction Program payment adjustment will be based on the 3-year time period of July 1, 2007 to June 30, 2010. For the final rule, we intend to use excess readmission ratios based on the applicable period of July 1, 2008 to June 30, 2011, as finalized in the FY 2012 IPPS/LTCH PPS final rule. In this proposed rule, we are proposing to codify the definition of “applicable period” under the regulations we are proposing at 42 CFR 412.152 as the 3-year period from which data are collected in order to calculate excess readmission ratios and adjustments for the fiscal year.

Excess Readmission Ratio calculation: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673 through 51676), we finalized the excess readmission ratio pursuant to section 1886(q)(4)(C) of the Act. We established the excess readmission ratio as the risk-standardized readmission ratio from the NQF-endorsed measures. The ratio is calculated using hierarchical logistic regression. The method adjusts for variation across hospitals in how sick their patients are when admitted to the hospital (and therefore variation in hospital patients' readmission risk) as well as the variation in the number of patients that a hospital treats to reveal difference in quality. The method produces an adjusted actual (or “predicted”) number in the numerator and an “expected” number in the denominator. The expected calculation is similar to that for logistic regression—it is the sum of all patients' expected probabilities of readmission, given their risk factors and the risk of readmission at an average hospital.

For each hospital, the numerator of the ratio used in the NQF-endorsed methodology (actual adjusted readmissions) is calculated by estimating the probability of readmission for each patient at that hospital and summing up over all the hospital's patients to get the actual adjusted number of readmissions for that hospital. Mathematically, the numerator equation can be expressed as:

The denominator of the risk-standardized ratio (excess readmission ratio) under this NQF-endorsed methodology sums the probability of readmission for each patient at an average hospital. This can be expressed mathematically as:

Thus, the ratio compares the total adjusted actual readmissions at the hospital to the number that would be expected if the hospital's patients were treated at an average hospital with similar patients. Hospitals with more adjusted actual readmissions than expected readmissions will have a risk-standardized ratio (excess readmission ratio) greater than one. In summary, in the FY 2012 IPPS/LTCH PPS final rule, we defined the “excess readmission ratio” as the risk-standardized readmission ratio of the NQF-endorsed readmission measures. More in-depth detail surrounding the methodology of excess readmission ratio calculation can be accessed on the Web site at: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.

In this proposed rule, we are proposing to codify the definition of “excess readmission ratio” under the regulations we are proposing at 42 CFR 412.152 as a hospital-specific ratio for each applicable condition for an applicable period, which is the ratio (but not less than 1.0) of (1) risk-adjusted readmissions based on actual readmissions for an applicable hospital for each applicable condition to (2) the risk-adjusted expected readmissions for the applicable hospital for the applicable condition.

3. FY 2013 Proposed Policies for the Hospital Readmissions Reduction Program

a. Overview

In this proposed rule, we are addressing the provisions in section 1886(q) of the Act that are related to the Hospital Readmissions Reduction Program payment adjustment, as well as any other provisions in section 1886(q) of the Act that were not addressed in the FY 2012 IPPS/LTCH PPS final rule that are effective for discharges beginning on or after October 1, 2012. Specifically, in this proposed rule, we are addressing section 1886(q) of the Act related to the following provisions:

  • Base operating DRG payment amount, including policies for SCHs and MDHs and hospitals paid under section 1814(b) of the Act;
  • Adjustment factor (both the ratio and floor adjustment factor);
  • Aggregate payments for excess readmissions and aggregate payments for all discharges;
  • Applicable hospital;
  • Limitations on review;
  • Reporting of hospital-specific information, including the process for hospitals to review and submit corrections.

We are proposing to establish a new Subpart I under 42 CFR Part 412 to incorporate the rules relating to the payment adjustments under the Hospital Readmissions Reduction Program.

b. Proposals Regarding Base Operating DRG Payment Amount, Including Special Rules for SCHs and MDHs and Hospitals Paid Under Section 1814 of the Act

(1) Proposed Definition of Base Operating DRG Payment Amount (Proposed § 412.152)

Under the Hospital Readmissions Reduction Program at section 1886(q) of the Act, payments for discharges from an “applicable hospital” will be an amount equal to the product of the “base operating DRG payment amount” and an “adjustment factor” that accounts for excess readmissions for the hospital for the fiscal year, for discharges beginning on or after October 1, 2012. Specifically, section 1886(q)(1) of the Act requires the Secretary to make payments for a discharge in an amount equal to the product of “the base operating DRG payment amount” and “the adjustment factor” for the hospital in a given fiscal year. The “base operating DRG payment amount” is defined under section 1886(q)(2) of the Act as “the payment amount that would otherwise be made under subsection (d) (determined without regard to subsection (o) [the Hospital VBP Program]) for a discharge if this subsection did not apply; reduced by * * * any portion of such payment amount that is attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection (d).” Paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection (d) [of section 1886 of the Act] refer to outlier payments, indirect medical education (IME) payments, disproportionate share (DSH) payments, and low-volume hospital payments, respectively.

In general, “the payment amount that would otherwise be made under subsection (d) * * * for a discharge” (that is, the discharge payment amount made under section 1886(d) of the Act) determined without consideration of the adjustments to payments made under the Hospital VBP Program (section 1886(o) of the Act) or under the Hospital Readmissions Reduction Program (section 1886(q) of the Act) is the applicable average standardized amount adjusted for resource utilization by the applicable MS-DRG relative weight and adjusted for differences in geographic costs by the applicable area wage index (and by the applicable cost-of-living adjustment (COLA) for hospitals located in Alaska and Hawaii), which is often referred to as the “wage-adjusted DRG operating payment.” This payment amount may then be further adjusted if the hospital qualifies for an IME adjustment (under section 1886(d)(5)(B) of the Act), a DSH payment adjustment (under section 1886(d)(5)(F) of the Act), and/or a low-volume payment adjustment (under section 1886(d)(12) of the Act), or if the discharge qualifies for an outlier payment (under section 1886(d)(5)(A) of the Act). Furthermore, certain discharges may qualify for an additional payment for new medical services or technologies under section 1886(d)(5)(K) of the Act (often referred to as a “new technology add-on payment”).

Consistent with section 1886(q)(2) of the Act, under the regulations we are proposing at 42 CFR 412.152, we would define the “base operating DRG payment amount” under the Hospital Readmissions Reduction Program as the wage-adjusted DRG operating payment plus any applicable new technology add-on payments. As required by the statute, the proposed definition of “base operating DRG payment amount” does not include adjustments or add-on payments for IME, DSH, outliers and low-volume hospitals provided for under sections 1886(d)(5)(B), (d)(5)(F), (d)(5)(A), and (d)(12) of the Act, respectively. Section 1886(q)(2) of the Act does not exclude new technology payments made under section 1886(d)(5)(K) of the Act; therefore, any payments made under section 1886(d)(5)(K) of the Act are included in the proposed definition of “base operating DRG payment amount.” In addition, under the regulations we are proposing at 42 CFR 412.152, we are proposing to define “wage-adjusted DRG operating payment” as the applicable average standardized amount adjusted for resource utilization by the applicable MS-DRG relative weight and adjusted for differences in geographic costs by the applicable area wage index (and by the applicable COLA for hospitals located in Alaska and Hawaii). We are proposing that, under § 412.154(b)(1), to account for excess readmissions, an applicable hospital's base operating DRG payment amount is adjusted for each discharge occurring during the fiscal year. The payment adjustment for each discharge is determined by subtracting the product of the base operating DRG payment amount for such discharge by the hospital's admission payment adjustment factor for the fiscal year from the base operating DRG payment amount for such discharge.

Under this proposal, consistent with section 1886(q)(2)(B)(i) of the Act and proposed § 412.154(b)(2), for SCHs that receive payments based on their hospital-specific payment rate, we also are proposing to exclude the difference between the hospital's applicable hospital-specific payment rate and the Federal payment rate from the definition of “base operating DRG payment amount.” We note that, under the Hospital Readmissions Reduction Program at section 1886(q) of the Act, the proposed definition of “base operating DRG payment amount” would be used to calculate both the “aggregate payments for excess readmissions” and “aggregate payments for all discharges” under sections 1886(q)(4)(A) and (B) of the Act, which would then be used to determine the readmission adjustment factor that accounts for excess readmissions under section 1886(q)(3) of the Act (as discussed in greater detail in section IV.A.3.c. of this preamble), and would also be used to determine which payment amounts will be adjusted to account for excess readmissions. (We note that, as discussed in section IV.G. of this preamble, under current law, the MDH program expires at the end of FY 2012 (that is, the MDH program is currently only applicable to discharges occurring before October 1, 2012). Therefore, due to the expiration of the MDH program beginning with FY 2013, we are not including MDHs in the discussion of our proposals regarding the base operating DRG payment amount in this proposed rule.)

(2) Proposal on Special Rules for Certain Hospitals: Hospitals Paid Under Section 1814(b)(3) of the Act (Proposed § 412.154(d))

Although the definition of “applicable hospital” under section 1886(q)(5)(C) of the Act includes hospitals paid under section 1814(b)(3) of the Act (that is, certain Maryland hospitals), section 1886(q)(2)(B)(ii) of the Act allows the Secretary to exempt such hospitals from the Hospital Readmissions Reduction Program, provided that the State submits an annual report to the Secretary describing how a similar program to reduce hospital readmissions in that State achieves or surpasses the measured results in terms of health outcomes and cost savings established by Congress for the program as applied to “subsection (d) hospitals.” Accordingly, a program established by the State of Maryland that could serve to exempt the State from the Hospital Readmissions Reduction program would focus on those “applicable” Maryland hospitals operating under the “waiver” provided by section 1814(b)(3) of the Act, that is, those hospitals that would otherwise have been paid by Medicare under the IPPS, absent the provision.

In this proposed rule, we are proposing to establish criteria for evaluation of an annual report to CMS to determine whether Maryland should be exempted from the program each year. Accordingly, we would evaluate a report submitted by the State of Maryland documenting how its program that is described below meets those criteria. Based on the information in the report, we would determine whether or not Maryland's readmission program meets our criteria to be exempt from the Hospital Readmissions Reduction Program for FY 2013. We note that our proposed criteria to evaluate Maryland's program is for FY 2013, the first year of the program, and our evaluation criteria may change through notice-and-comment rulemaking as the Hospital Readmissions Reduction Program evolves. We are proposing to codify this requirement at § 412.154(d) of the regulations.

Based on preliminary discussions with the State, we understand that, effective July 1, 2011, Maryland has established the Admission-Readmission Revenue (ARR) Program. The State has described its program as a voluntary program for acute care hospitals, of which 30 out of the 46 acute care hospitals in the State are currently enrolled. Under the program, the State pays hospitals under a case-mix adjusted bundled payment per episode of care, where the episode of care is defined as the initial admission and any subsequent readmissions to the same hospital or linked hospital system that occur within 30 days of the original discharge. According to the State, an initial admission with no readmissions provides the hospital with the same weight as an initial admission with multiple readmissions. Therefore, hospitals receive a financial reward for decreased readmissions (as determined through the case mix adjusted, episode of care weights). Unlike the Hospital Readmissions Reduction Program under section 1886(q) of the Act, which is currently based on measures for three conditions (HF, AMI, and PN) for the Medicare FFS population and only adjusts the IPPS operating payments, Maryland's program applies to all conditions for all patients. In addition, while the Hospital Readmissions Reduction Program considers a readmission to be a subsequent admission to either the original acute care hospital from where the patient was initially discharged or an admission to another acute care hospital, currently Maryland only tracks readmissions to the same acute care hospital (or linked hospital system) from which the patient was originally discharged. The State has noted that, under its ARR program, the readmission rates for the hospitals participating in the ARR program for the first quarter of its fiscal year compared to the first quarter of its previous fiscal year decreased from 9.86 percent to 8.96 percent.

We are proposing to evaluate Maryland's ARR program based on whether the State can demonstrate that cost savings under its program achieve or exceed the savings to the Medicare program due to the Hospital Readmissions Reduction Program under section 1886(q) of the Act. We also are proposing to evaluate whether Maryland's program can demonstrate similar results in reducing unnecessary readmissions among hospitals in the State, as described in more detail below. With specific regard to Maryland's demonstration of cost savings, we are proposing to evaluate whether Maryland's ARR program can demonstrate savings to the Medicare program that are at least similar to those expected under the Hospital Readmissions Reduction Program. As discussed later in this proposed rule, we estimate that, under the Hospital Readmissions Reduction Program, for FY 2013, Medicare IPPS operating payments will decrease by approximately $300 million (or 0.3 percent) of total Medicare IPPS operating payments. Maryland has indicated that it believes it can achieve comparable savings because it intends to reduce the rate update factor for all hospitals by 0.3 percent, regardless of a hospital's performance on readmissions.

In addition, we plan to propose in future rulemaking to evaluate whether Maryland's ARR program can meet or exceed health outcomes that we expect to improve under the Hospital Readmissions Reduction Program. Because the Hospital Readmissions Reduction Program is not effective until October 1, 2012, we do not yet have measured health outcomes against which we can evaluate Maryland's ARR program. However, we intend to have outcomes data in the future with which to evaluate Maryland's ARR program. We anticipate that, under the Hospital Readmissions Reduction Program, hospitals will experience a reduction in unnecessary readmissions. Therefore, in future rulemaking, we intend to propose to evaluate whether Maryland's ARR program can demonstrate similar decreases in potential preventable readmissions among hospitals in the State. Furthermore, we are proposing that the State's annual report and request for exemption from the Hospital Readmissions Reduction Program must be resubmitted and reconsidered annually in accordance with the statute and as proposed at § 412.154(d)(2).

Based on preliminary information provided by Maryland, the State believes that its program can meet our evaluation criteria and demonstrate that its program achieves or surpasses the measured results in terms of health outcomes and cost savings. We are reviewing whether the Maryland's ARR program, which currently cannot monitor readmissions to other hospitals and a financial reward for hospitals that reduce within-hospital readmissions and provides a 0.3 percent reduction to the annual rate update to account for comparable savings to the Hospital Readmissions Reduction Program, meets the criteria to exempt Maryland hospitals from the Hospital Readmissions Reduction Program. We welcome public comments on whether the Maryland ARR program meets the requirements for exemption from the Hospital Readmissions Reduction Program set forth in section 1886(q)(2)(B)(ii) of the Act.

For the purposes of modeling the impacts of this proposal in this proposed rule, we have modeled under the assumption that Maryland hospitals will not have Hospital Readmission Reduction Program adjustment factors applied to them. Although the adjustment factors do not apply to these hospitals under our models, Maryland hospitals have excess readmission ratios, consistent with the definition of excess readmission ratio. Any readmission to a Maryland hospital from a subsection(d) hospital in another State is still considered a readmission for purposes of the original hospital in another State. This is consistent with the definition of readmissions in section 1886(q)(5)(E) of the Act, which includes admissions to the same or another “applicable hospital.” As discussed above, we interpret the definition of “applicable hospital” under section 1886(q)(5)(C) of the Act includes both subsection (d) hospitals and hospitals paid under section 1814(b)(3) of the Act that would, absent the provisions of section 1814(b)(3) of the Act, be paid under subsection (d).

c. Proposals Regarding Adjustment Factor (Both the Ratio and Floor Adjustment Factor) (Proposed § 412.154(c))

Section 1886(q)(3)(A) of the Act defines the “adjustment factor” for an applicable hospital for a fiscal year as equal to the greater of “(i) the ratio described in subparagraph (B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” Section 1886(q)(3)(B) of the Act in turn describes the ratio used to calculate the adjustment factor. Specifically, it states that the ratio is “equal to 1 minus the ratio of—(i) the aggregate payments for excess readmissions * * *; and (ii) the aggregate payments for all discharges. * * *” We are proposing to codify the calculation of this ratio at § 412.154(c)(1) of the regulations. Section 1886(q)(3)(C) of the Act specifies the floor adjustment factor, which is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal years. We are proposing to codify the floor adjustment factor at § 412.154(c)(2) of the regulations.

For FY 2013, under proposed § 412.154(c), we are proposing that an applicable hospital would receive an adjustment factor that is either the greater of the ratio described in section IV.A.3.d. of this preamble or a floor adjustment factor of 0.99. We are proposing that the ratio would be rounded to the fourth decimal place, consistent with the calculation of other IPPS payment adjustments such as the wage index, DSH adjustment, and the IME adjustment. In other words, a hospital included in this program can have an adjustment factor that is between 1.0 and 0.9900 for FY 2013. Consistent with section 1886(q)(3) of the Act, under proposed § 412.154(c), we are proposing that, for FY 2013, the hospital will receive an adjustment factor under the Hospital Readmissions Reduction Program that is the greater of the ratio or the floor of 0.99. Consistent with this proposal, under the regulations we are proposing at 42 CFR 412.152, we are proposing to define the “floor adjustment factor” as the value that the readmissions adjustment factor cannot be less than for a given fiscal year. As noted above, the floor adjustment factor is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal years.

d. Proposals Regarding Aggregate Payments for Excess Readmissions and Aggregate Payments for All Discharges (Proposed § 412.152)

As discussed earlier, section 1886(q)(3)(B) of the Act specifies the ratio used to calculate the adjustment factor under the Hospital Readmissions Reduction Program. It states that the ratio is “equal to 1 minus the ratio of—(i) the aggregate payments for excess readmissions * * *; and (ii) the aggregate payments for all discharges * * *.” In this section, we set forth proposals to define aggregate payments for excess readmissions and aggregate payments for all discharges, as well as a methodology for calculating the numerator of the ratio (aggregate payments for excess readmissions) and the denominator of the ratio (aggregate payments for all discharges).

Section 1886(q)(4) of the Act sets forth the definitions of “aggregate payments for excess readmissions” and “aggregate payments for all discharges” for an applicable hospital for the applicable period. The term “aggregate payments for excess readmissions” is defined in section 1886(q)(4)(A) of the Act as “for a hospital for an applicable period, the sum, for applicable conditions * * * of the product, for each applicable condition, of (i) the base operating DRG payment amount for such hospital for such applicable period for such condition; (ii) the number of admissions for such condition for such hospital for such applicable period; and (iii) the `Excess Readmission Ratio' * * * for such hospital for such applicable period minus 1.” We are proposing to include this definition of “aggregate payments for excess readmissions” under the regulations we are proposing at 42 CFR 412.152.

The “excess readmission ratio” is a hospital-specific ratio calculated for each applicable condition. Specifically, section 1886(q)(4)(C) of the Act defines the excess readmission ratio as the ratio of “risk-adjusted readmissions based on actual readmissions” for an applicable hospital for each applicable condition, to the “risk-adjusted expected readmissions” for the applicable hospital for the applicable condition. The methodology for the calculation of the excess readmission ratio was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673). “Aggregate payments for excess readmissions” is the numerator of the ratio used to calculate the adjustment factor under the Hospital Readmissions Reduction Program.

The term “aggregate payments for all discharges” is defined at section 1886(q)(4)(B) of the Act as “for a hospital for an applicable period, the sum of the base operating DRG payment amounts for all discharges for all conditions from such hospital for such applicable period.” “Aggregate payments for all discharges” is the denominator of the ratio used to calculate the adjustment factor under the Hospital Readmissions Reduction Program. We are proposing to include this definition of “aggregate payments for all discharges” under the regulations we are proposing at § 412.152.

As discussed above, when calculating the numerator (aggregate payments for excess readmission), CMS determines the base operating DRG for the applicable period. “Aggregate payments for excess readmissions” (the numerator) is defined as “the sum, for applicable conditions * * * of the product, for each applicable condition, of (i) the base operating DRG payment amount for such hospital for such applicable period for such condition; (ii) the number of admissions for such condition for such hospital for such applicable period; and (iii) the `Excess Readmission Ratio' * * * for such hospital for such applicable period minus 1.”

We discussed above our proposed definition of “base operating DRG payment amount.” When determining the base operating DRG payment amount for an individual hospital for such applicable period for such condition, we are proposing to use Medicare inpatient claims from the MedPAR file with discharge dates that are within the same applicable period that was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671) to calculate the excess readmission ratio. We are proposing to use MedPAR claims data as our data source for determining aggregate payments for excess readmissions and aggregate payments for all discharges, as this data source is consistent with the claims data source used in IPPS rulemaking in order to determine IPPS rates. For FY 2013, we are proposing to use data from MedPAR claims with discharge dates that are on or after July 1, 2008, and no later than June 30, 2011, the applicable period finalized in the FY 2012 IPPS/LTCH PPS final rule. We are proposing to use the update of the MedPAR file for each Federal fiscal year, which is updated 6 months after the end of each Federal fiscal year within the applicable period, as our data source (that is, the March updates of the respective Federal fiscal year MedPAR files for the final rules, as described in greater detail below). These are the same MedPAR files that are used in the annual IPPS rulemaking for each Federal fiscal year.

For the purposes of this proposed rule, for FY 2013, we are proposing to use the March 2009 update of the FY 2008 MedPAR file to identify claims within FY 2008 with discharges dates that are on or after July 1, 2008, the March 2010 update of the FY 2009 MedPAR file to identify claims within FY 2009, the March 2011 update of the FY 2010 MedPAR file to identify claims within FY 2010, and the December 2011 update of the FY 2011 MedPAR file to identify claims within FY 2011 with discharge dates no later than June 30, 2011. However, for the FY 2013 IPPS/LTCH PPS final rule, we plan to use the March 2012 update of the FY 2011 MedPAR file to identify claims within FY 2011, as these would be the most recently available FY 2011 claims data used for FY 2013 rulemaking. These MedPAR data files are used each year in other areas of the IPPS, including calculating the IPPS relative weights, budget neutrality factors, outlier thresholds, and the standardized amount. Accordingly, we believe it is appropriate to use these same data files for the purpose of calculating the readmission adjustment factors. The FY 2008 through FY 2011 MedPAR data files can be purchased from CMS. These files allow the public to verify the readmission adjustment factors. Interested individuals may order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on the MedPAR Limited Data Set (LDS)-Hospital (National). This Web page describes the files and provides directions and further detailed instructions for how to order the data sets. 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 and Medicaid Services, RDDC Account, Accounting Division, P.O Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare and Medicaid Services, OFM/Division of Accounting RDDC, Mailstop C#-07-11, 7500 Security Boulevard, Baltimore, MD 21244-1850.

We note that, in this proposed rule, we are proposing to determine aggregate payments for excess readmissions and aggregate payments for all discharges using data from MedPAR claims with discharge dates that are on or after July 1, 2008, and no later than June 30, 2011, which is the applicable period finalized in the FY 2012 IPPS/LTCH PPS final rule. However, in this proposed rule, for the purposes of modeling, we are using excess readmission ratios based on an older performance period of July 1, 2007 to June 30, 2010. For the final rule, we intend to use both the excess readmission ratios and MedPAR claims data to calculate aggregate payments for excess readmissions and aggregate payments for all discharges based on the applicable period finalized in the FY 2012 IPPS/LTCH PPS final rule (July 1, 2008 to June 30, 2011).

In order to identify the admissions for each condition for an individual hospital for calculating the aggregate payments for excess readmissions, we are proposing to identify each applicable condition using the same ICD-9-CM codes used to identify applicable conditions to calculate the excess readmission ratios. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51669), in our discussion of the methodology of the readmissions measures, we stated that we identify eligible hospitalizations and readmissions of Medicare patients discharged from an applicable hospital having a principal diagnosis for the measured condition in an applicable period. The discharge diagnoses for each applicable condition are based on a list of specific ICD-9-CM codes for that condition. These codes are listed in the 2010 Measures Maintenance Technical Report: Acute Myocardial Infarction, Heart Failure, and Pneumonia 30-Day Risk-Standardized Readmission Measures. They also are posted on the Web site at: http://www.QualityNet.org > Hospital-Inpatient > Readmission Measures > methodologies.

In order to identify the applicable conditions to calculate the aggregate payments for excess readmissions, we are proposing to identify the claim as an applicable condition if the ICD-9-CM code for that condition is listed as the principal diagnosis on the claim, consistent with the methodology to identify conditions to calculate the excess readmission ratio. Furthermore, we are proposing to only identify Medicare FFS claims that meet the criteria (that is, claims paid for under Part C, Medicare Advantage, would not be included in this calculation), consistent with the methodology to calculate excess readmission ratios based on readmissions for Medicare FFS patients. The tables below list the ICD-9-CM codes we are proposing to use to identify each applicable condition to calculate the aggregate payments for excess readmissions under this proposal. These ICD-9-CM codes will also be used to identify the applicable conditions to calculate the excess readmission ratios, consistent with our policy finalized in the FY 2012 IPPS/LTCH PPS final rule.

ICD-9-CM Codes To Identify Pneumonia Cases

ICD-9-CM CodeDescription of code
480.0Pneumonia due to adenovirus.
480.1Pneumonia due to respiratory syncytial virus.
480.2Pneumonia due to parainfluenza virus.
480.3Pneumonia due to SARS-associated coronavirus.
480.8Viral pneumonia: pneumonia due to other virus not elsewhere classified.
480.9Viral pneumonia unspecified.
481Pneumococcal pneumonia [streptococcus pneumoniae pneumonia].
482.0Pneumonia due to klebsiella pneumoniae.
482.1Pneumonia due to pseudomonas.
482.2Pneumonia due to hemophilus influenzae [h. influenzae].
482.30Pneumonia due to streptococcus unspecified.
482.31Pneumonia due to streptococcus group a.
482.32Pneumonia due to streptococcus group b.
482.39Pneumonia due to other streptococcus.
482.40Pneumonia due to staphylococcus unspecified.
482.41Pneumonia due to staphylococcus aureus.
482.42Methicillin Resistant Pneumonia due to Staphylococcus Aureus.
482.49Other staphylococcus pneumonia.
482.81Pneumonia due to anaerobes.
482.82Pneumonia due to escherichia coli [e.coli].
482.83Pneumonia due to other gram-negative bacteria.
482.84Pneumonia due to legionnaires' disease.
482.89Pneumonia due to other specified bacteria.
482.9Bacterial pneumonia unspecified.
483.0Pneumonia due to mycoplasma pneumoniae.
483.1Pneumonia due to chlamydia.
483.8Pneumonia due to other specified organism.
485Bronchopneumonia organism unspecified.
486Pneumonia organism unspecified.
487.0Influenza with pneumonia.
488.11Influenza due to identified novel H1N1 influenza virus with pneumonia.

ICD-9-CM Codes To Identify Heart Failure Cases

ICD-9-CM CodeCode description
402.01Hypertensive heart disease, malignant, with heart failure.
402.11Hypertensive heart disease, benign, with heart failure.
402.91Hypertensive heart disease, unspecified, with heart failure.
404.01Hypertensive heart and chronic kidney disease, malignant, with heart failure and with chronic kidney disease stage I through stage IV, or unspecified.
404.03Hypertensive heart and chronic kidney disease, malignant, with heart failure and with chronic kidney disease stage V or end stage renal disease.
404.11Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stage I through stage IV, or unspecified.
404.13Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stage I through stage IV, or unspecified failure and chronic kidney disease stage V or end stage renal disease.
404.91Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or end stage renal disease heart failure and with chronic kidney disease stage I through stage IV, or unspecified.
404.93Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or end stage renal disease.
428.xxHeart Failure.

ICD-9-CM Codes To Identify Acute Myocardial Infarction Cases

ICD-9-CM CodeDescription of Code
410.00AMI (anterolateral wall)—episode of care unspecified.
410.01AMI (anterolateral wall)—initial episode of care.
410.10AMI (other anterior wall)—episode of care unspecified.
410.11AMI (other anterior wall)—initial episode of care.
410.20AMI (inferolateral wall)—episode of care unspecified.
410.21AMI (inferolateral wall)—initial episode of care.
410.30AMI (inferoposterior wall)—episode of care unspecified.
410.31AMI (inferoposterior wall)—initial episode of care.
410.40AMI (other inferior wall)—episode of care unspecified.
410.41AMI (other inferior wall)—initial episode of care.
410.50AMI (other lateral wall)—episode of care unspecified.
410.51AMI (other lateral wall)—initial episode of care.
410.60AMI (true posterior wall)—episode of care unspecified.
410.61AMI (true posterior wall)—initial episode of care.
410.70AMI (subendocardial)—episode of care unspecified.
410.71AMI (subendocardial)—initial episode of care.
410.80AMI (other specified site)—episode of care unspecified.
410.81AMI (other specified site)—initial episode of care.
410.90AMI (unspecified site)—episode of care unspecified.
410.91AMI (unspecified site)—initial episode of care.

Section 1886(q)(2) of the Act defines the base operating DRG payment amount as “the payment amount that would otherwise be made under subsection (d) (determined without regard to subsection (o) [the Hospital VBP Program]) for a discharge if this subsection did not apply; reduced by * * * any portion of such payment amount that is attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection (d).” Paragraphs (d)(5)(A), (d)(5)(B), (d)(5)(F), and (d)(12) of section 1886 refer to outlier payments, IME payments, DSH payments, and payments for low-volume hospitals, respectively.

As discussed earlier in section IV.A.3.b.(1) of this preamble, we are proposing to define “base operating DRG payment amount” under the Hospital Readmissions Reduction Program as the wage-adjusted DRG operating payment plus any new technology add-on payments. Thus, in order to calculate the base operating DRG payment amount for such condition for such hospital, we are proposing to identify the base operating DRG payment amount for such conditions based on the payment amounts in the MedPAR files on the claims identified to meet those conditions based on their ICD-9-CM code.

As discussed in section IV.A.3.b. of this preamble, applicable hospitals in the Hospital Readmissions Reduction Program include SCHs and current MDHs (whose status is set to expire at the end of FY 2012), as these hospitals meet the definition of subsection (d) hospitals. SCHs are paid in the interim (prior to cost report settlement) on a claim-by-claim basis at the amount that is the higher of the payment based on the hospital-specific rate or the IPPS Federal rate based on the standardized amount. At cost report settlement, the fiscal intermediary or MAC determines whether the hospital would receive higher IPPS payments in the aggregate using the hospital-specific rate (on all claims) or the Federal rate (on all claims). MDHs are paid the sum of the Federal payment amount plus 75 percent of the amount by which their hospital-specific rate exceeds the Federal payment amount. Although MDH status is to expire beginning in FY 2013, because we are using historical data to determine the base operating DRG payments to calculate adjustment factor, the payments reflected on claims for current MDHs may be based on the hospital-specific rate. For SCHs and current MDHs, we are proposing to model their base operating DRG payment amount as they would have been paid under the Federal standardized amount, rather than using the information on the claim (which may represent a payment either made under the hospital-specific rate or the Federal rate) so that their payments are consistent with our proposed definition of base operating DRG payment. As such, the payment difference between the payment made under the hospital-specific rate and the payment made under the Federal rate is not included in the base operating DRG amount to determine the readmission adjustment factor; that is, it is neither included in the numerator of the aggregate dollars for excess readmissions nor in the denominator of the aggregate dollars for all discharges.

As discussed earlier, we are proposing to use data from the MedPAR files that contain claims from the 3-year applicable period of July 1, 2008, to June 30, 2011, for FY 2013 to calculate aggregate payments for excess readmissions (the numerator of the ratio). To calculate aggregate payments for excess readmissions, we are proposing to calculate the base operating DRG payment amounts for all the claims in the 3-year applicable period that list each applicable condition as the principal diagnosis (as described above). Once we have calculated the base operating DRG payment amounts for all the claims that list each condition as the principal diagnosis, we are proposing to add up the base operating DRG payment amounts by each condition, resulting in three summed amounts, one amount for each of the three applicable conditions. We then are proposing to multiply each amount for each condition by their respective excess readmission ratio minus 1. The methodology for the calculation of the excess readmission ratio was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673). We are proposing that the excess readmission ratios for each condition used to calculate the numerator of this ratio are excess readmission ratios that have gone through the proposed review and correction process described later in this proposed rule. Each product in this computation represents the payment for excess readmissions for that condition. We are proposing to then sum the resulting products, which represent a hospital's proposed “aggregate payments for excess readmissions” (the numerator of the ratio).

If a hospital has an excess readmission ratio that is greater than 1 for a condition, that hospital has performed, with respect to readmissions for that applicable condition, worse than the average hospital with similar patients. As such, it will have aggregate payments for excess readmissions. If a hospital has an excess readmission ratio that is less than (or equal) to one, that hospital has performed better (or on average), with respect to readmissions for that applicable condition, than an average hospital with similar patients. As such, that hospital would not be considered to have “aggregate payments” for excess readmissions, and its payments would not be reduced under section 1886(q) of the Act. As described in section 1886(q)(4)(C) of the Act, and finalized in the FY 2012 IPPS/LTCH PPS final rule, the excess readmission ratio used cannot be less than 1 because the hospital will not have aggregate payments for excess readmissions and will not be subject to a readmission payment adjustment, as the hospital will have performed better than average. Because this calculation is performed separately for the three conditions, a hospital's excess readmission ratio must be less than or equal to 1 on each measure to avoid aggregate payments for excess readmissions.

Section 1886(q)(4)(B) of the Act defines “aggregate payments for all discharges” (the denominator of the ratio) as “for a hospital for an applicable period, the sum of the base operating DRG payment amounts for all discharges for all conditions from such hospital for such applicable period.” We are proposing to use the same MedPAR files to calculate the denominator as we are proposing to use to calculate the numerator, for the 3-year applicable period of July 1, 2008 to June 30, 2011, for FY 2013. We are proposing to calculate base operating DRG payments in the same manner as we calculate base operating DRG payments for the numerator. We are proposing to sum the base operating DRG payment amounts for all Medicare FFS claims for such hospital during the 3-year applicable period. We also are proposing that we would model base operating DRG payment amount for SCHs and current MDHs as they would have been paid under the Federal standardized amount, rather than using the information on the claim (as described above).

We are proposing that the ratio described in section 1886(q)(3)(B) of the Act is 1 minus the ratio of the numerator and denominator described above. In addition, we are proposing that the readmission adjustment for an applicable hospital is the higher of this ratio under section 1886(q)(3)(B) of the Act or the floor of 0.99 for FY 2013. Consistent with this proposal, under the regulations we are proposing at 42 CFR 412.152, we are proposing to define “readmissions adjustment factor” as equal to the greater of: (i) 1 minus the ratio of the aggregate payments for excess readmissions to aggregate payments for all discharges or (ii) the floor adjustment factor.

For this proposed rule, for the purpose of modeling the proposed aggregate payments for excess readmissions and the proposed readmissions adjustment factors, we are using excess readmission ratios for the applicable hospitals from the 3-year period of July 1, 2007 to June 30, 2010, because the underlying data from this period have already been available to the public on the Hospital Compare Web site (as of July 2011). The data from the 3-year applicable period for FY 2013 of July 1, 2008 to June 30, 2011, have not been through the review and correct process required by section 1886(q)(6) of the Act (as discussed below). For the final rule, we intend to use excess readmission ratios based on discharges for the finalized applicable period of July 1, 2008 to June 30, 2011, to calculate the aggregate payments for excess readmissions and, ultimately, to calculate the readmission adjustment factors. Applicable hospitals will have had the opportunity to review and correct these data before they are made public under our proposal set forth below regarding the reporting of hospital-specific readmission rates, consistent with section 1886(q)(6) of the Act.

Formulas To Calculate the Readmission Adjustment Factor

Aggregate payments for excess readmissions = [sum of base operating DRG payments for AMI × (Excess Readmission Ratio for AMI-1)] + [sum of base operating DRG payments for HF × (Excess Readmission Ratio for HF-1)] + [sum of base operating DRG payments for PN × (Excess Readmission Ratio for PN-1)].

Aggregate payments for all discharges = sum of base operating DRG payments for all discharges.

Ratio = 1−(Aggregate payments for excess readmissions/Aggregate payments for all discharges).

Readmissions Adjustment Factor for FY 2013 is the higher of the ratio or 0.99.

*Based on claims data from July 1, 2008 to June 30, 2011 for FY 2013.

During the FY 2012 IPPS rulemaking cycle, we received public comments expressing concern that hospitals that treat a larger proportion of patients of lower socioeconomic circumstances may have higher readmission rates and could be unfairly penalized under the Hospital Readmissions Reduction Program. The table below shows, based on the excess readmission ratios and the proposed methodology to calculate the readmissions adjustment factor discussed in this proposed rule, the estimated distribution of the readmission adjustment factors among hospitals ranked by their DSH patient percentage (DPP). The DPP is used as a proxy for low-income patients and is the sum of the hospital's Medicare fraction and Medicaid fraction. The Medicare fraction is computed by dividing the number of a hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days. The DPP is used to determine a hospital's Medicare DSH payment adjustment. Thus, hospitals with higher percentages of Medicare patients entitled to SSI and higher percentages of Medicaid patients have higher DPPs. In the table, the hospitals are ranked by their estimated DPP and categorized into deciles. The table shows the number of hospitals within each decile that are subject to no proposed readmission payment adjustment, the −1 percent floor readmission payment adjustment, and a readmission payment adjustment that is less than the −1 percent floor. We are inviting public comment on this analysis.

Distribution of Hospitals Readmission Adjustment Factor by DSH Patient Percentage (DPP)

DecileNumber of hospitalsPayment adjustment of less than −1 percent−1 Percent floor adjustmentNo readmission adjustment factor
Lowest DPP33915638145
Second33916457118
Third33916844127
Fourth33917048121
Fifth33918242115
Sixth33917143125
Seventh33918744108
Eighth33918243114
Ninth33917958102
Highest DPP3421856196
Total3,3931,7444781,171

In addition, we have examined the estimated distribution of the proposed readmission adjustment factor based on the excess readmission ratios in this proposed rule (determined using the 2007-2010 data discussed above). The table below shows the number and percentage of hospitals ranked by the percent reduction received under the Hospital Readmissions Reduction Program. The table shows that about 71 percent of hospitals would receive either no adjustment or a readmission adjustment factor that would reduce their base operating DRG payments by less than 0.5 percent.

Distribution of Readmission Adjustment Factors

Percent reductionNumber of hospitalsPercent of hospitals
No Adjustment1,17134.5
Up to −.09 Percent34710.2
−0.1 Percent to −0.19 Percent2808.3
−0.20 Percent to −0.29 Percent2286.7
−0.30 Percent to −0.39 Percent1965.8
−0.40 Percent to −0.49 Percent1805.3
−0.50 Percent to −0.59 Percent1293.8
−0.60 Percent to −0.69 Percent1183.5
−0.70 Percent to −0.79 Percent1103.2
−0.80 Percent to −0.89 Percent772.3
−0.90 Percent to −0.99 Percent762.2
−1.0 Percent48114.2
Total3,393100.0

e. Proposals Regarding Applicable Hospitals

An “applicable hospital,” is defined at section 1886(q)(5)(C) of the Act as (1) “a subsection(d) hospital or (2) a hospital that is paid under section 1814(b)(3).” Specifically, hospitals subject to the Hospital Readmissions Reduction Program are hospitals paid under the IPPS and hospitals paid under the authority of section 1814(b)(3) of the Act. We are interpreting this reference to section 1814(b)(3) of the Act to mean those Maryland hospitals that are paid under section 1814(b)(3) of the Act and that, absent the “waiver” specified by section 1814(b)(3) of the Act, would have been paid under the IPPS. A subsection (d) hospital is defined in section 1886(d)(1)(B) of the Act, in part, as a “hospital located in one of the fifty States or the District of Columbia.” The term subsection (d) hospital does not include hospitals located in the Territories or hospitals located in Puerto Rico. Section 1886(d)(9)(A) of the Act separately defines a “subsection(d) Puerto Rico hospital” as a hospital that is located in Puerto Rico and that “would be a subsection(d) hospital * * * if it were located in one of the 50 States.” Therefore, Puerto Rico hospitals are not considered applicable hospitals under the Hospital Readmissions Reduction Program. Indian Health Services hospitals enrolled as a Medicare provider meet the definition of a subsection (d) hospital and, therefore, are considered an applicable hospital under the Hospital Readmissions Reduction Program, even if they are not paid under the IPPS. In addition, hospitals that are SCHs and current MDHs, although they may be paid under a hospital-specific rate instead of under the Federal rate under the IPPS, are subsection (d) hospitals and, therefore, are included in the definition of an applicable hospital under the Hospital Readmissions Reduction Program.

A subsection (d) hospital as defined in section 1886(d)(1)(B) of the Act does not include hospitals and hospital units excluded from the IPPS, such as LTCHs, cancer hospitals, children's hospitals, IRFs, and IPFs, and, therefore, these hospitals are not considered “applicable hospitals.” CAHs are not “applicable hospitals” because they do not meet the definition of a “subsection (d) hospital,” as they are separately defined under section 1886(mm) of the Act and are paid under a reasonable cost methodology under section 1814(l) of the Act. Consistent with the statute, therefore, we are proposing to define “applicable hospital” under the regulations at 42 CFR 412.152 to include both (1) subsection (d) hospitals, that is, hospitals paid under the IPPS and (2) hospitals in Maryland that are paid under section 1814(b)(3) of the Act and that, absent the “waiver” specified by section 1814(b)(3) of the Act, would have been paid under the IPPS.

The term “applicable hospital” is also referenced in the definition of readmission in section 1886(q)(5)(E) of the Act, which defines “readmission” as “in the case of an individual who is discharged from an applicable hospital, the admission of the individual to the same or another applicable hospital within a time period specified by the Secretary from the date of such discharge.” In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666), we finalized the definition of readmission as “occurring when a patient is discharged from the applicable hospital and then is admitted to the same or another acute care hospital within a specified time period from the time of discharge from the index hospitalization.” Furthermore, we finalized the time period specified for these readmission measures as 30 days. With our proposal to define an applicable hospital as a subsection (d) hospital or certain Maryland hospitals described above, we also are proposing to refine the definition of readmission to only include admissions and readmissions occurring from an applicable hospital (that is, a subsection (d) hospital or certain Maryland hospitals) to the same or another applicable hospital (again, a subsection (d) hospital or certain Maryland hospitals) (proposed § 412.152). Accordingly, excess readmission ratios calculated for the purpose of the Hospital Readmissions Reduction Program would include only admissions and readmissions to “applicable hospitals.”

We note that because the Hospital Readmissions Reduction Program only includes admissions and readmissions to “applicable hospitals” to calculate the excess readmission ratios used under section 1886(q) of the Act, these excess readmission ratios will differ from the readmission rates reported on Hospital Compare for the purpose of the Hospital IQR Program. The excess readmission ratios for the purpose of the Hospital IQR Program were determined based on admissions and readmissions to all hospitals, not just hospitals specified in sections 1886(d) and 1814(b)(3) of the Act. Therefore, as discussed above, the excess readmission ratios used in this proposed rule will use a subset of the claims used to calculate the readmission rates reported on Hospital Compare for the purpose of the Hospital IQR Program and would be limited to admissions and readmissions to “applicable hospitals” and are based on the period of June 30, 2007 to July 1, 2010. In this proposed rule, we are using these excess readmission ratios, as they are based on the most recent data available and will allow the public to replicate our methodology to understand how the readmission adjustment factor is calculated. We believe that the differences between these proposed excess readmission ratios and those excess readmission ratios currently published on Hospital Compare under the Hospital IQR Program are minimal, and we believe that it is helpful for hospitals to see the impact of our proposed methodology to calculate the readmission adjustment using excess readmission ratios calculated under our methodology finalized in the FY 2012 IPPS/LTCH PPS final rule. For the final rule, we intend to use excess readmission ratios based on the applicable period of June 30, 2008 to July 1, 2011, as finalized in the FY 2012 IPPS/LTCH PPS final rule, and hospitals will have the opportunity to review and correct their data related to their excess readmission ratios prior to the publication of those excess readmission ratios.

We are specifically inviting public comment on our readmissions proposal, including our proposed definition of base operating DRG payment, our proposed methodology to calculate the readmission adjustment factor, the minimum number of cases, and our proposed definition of applicable hospital.

4. Limitations on Review (Proposed § 412.154(e))

Section 1886(q)(7) of the Act provides that there will be no administrative or judicial review under section 1869 of the Act, under section 1878 of the Act, or otherwise for any of the following:

  • The determination of base operating DRG payment amounts.
  • The methodology for determining the adjustment factor, including the excess readmissions ratio, aggregate payments for excess readmissions, and aggregate payments for all discharges, and applicable periods and applicable conditions.

We are proposing to include under proposed § 412.154(e) that the provisions listed above will not be subject to administrative or judicial review, consistent with section 1886(q)(7) of the Act. We note that section 1886(q)(6) of the Act requires that the Secretary “make information available to the public regarding readmissions rates of each subsection (d) hospital under the [Hospital Readmissions Reduction Program]” and also requires the Secretary to “ensure that a subsection (d) hospital has the opportunity to review and submit corrections for, the information to be made public.” Our proposal for reporting hospital-specific information, including a hospital's opportunity to review and submit corrections, consistent with section 1886(q)(7) of the Act, is discussed below.

5. Reporting Hospital-Specific Information, Including Opportunity To Review and Submit Corrections (Proposed § 412.154(f))

Section 1886(q)(6)(A) of the Act requires the Secretary to “make information available to the public regarding readmissions rates of each subsection (d) hospital under the [Hospital Readmissions Reduction Program]”. Section 1886(q)(6)(B) of the Act also requires the Secretary to “ensure that a subsection (d) hospital has the opportunity to review, and submit corrections for, the information to be made public with respect to the hospital.” In addition, section 1886(q)(6)(C) of the Act requires the Secretary to post the hospital-specific readmission information for each subsection (d) hospital on the Hospital Compare Web site in an easily understood format.

For purposes of the Hospital Readmissions Reduction Program for FY 2013, we will calculate excess readmission ratios for each of the three conditions, AMI, HF, and PN, using the previously finalized 3-year applicable period for the FY 2013 payment determination that spans from July 1, 2008 through June 30, 2011 (76 FR 51671), data sources, and the minimum number of discharges previously finalized in the FY 2012 IPPS/LTCH PPS final rule for each applicable hospital (76 FR 51671 through 51672). We intend to make these excess readmission ratios available to the public, consistent with the requirements of section 1886(q)(6)(B) of the Act, as part of the FY 2013 rulemaking process, in addition to posting this information on the Hospital Compare Web site in a subsequent release.

In the FY 2012 IPPS/LTCH PPS final rule, we indicated that we would provide hospitals an opportunity to review and submit corrections using a process similar to what is currently used for posting results on Hospital Compare. We currently provide hospitals with the data elements necessary to verify the accuracy of their readmission rates for the Hospital IQR Program prior to posting their rates on Hospital Compare. Because we believe it is important to provide hospitals with relevant information available to hospitals for assessing payment impacts for purposes of the Hospital Readmissions Reduction Program, we plan to make the excess readmission ratios used for the Hospital Readmissions Reduction Program adjustment factor calculation available during the rulemaking cycle. As a result, the timeline and details of this process must accommodate the rulemaking timeline in addition to posting on Hospital Compare. We are proposing below the details regarding the process for hospitals to review and submit corrections to their excess readmission ratios prior to making this information available to the public in rulemaking and on Hospital Compare.

For FY 2013, we are proposing to deliver confidential reports and accompanying confidential discharge-level information to applicable hospitals as defined in section IV.A.2. of this preamble, which contain their excess readmission ratios for the three applicable conditions by June 20, 2012. These reports will be delivered in hospitals' secure QualityNet accounts. The information in the confidential reports and accompanying confidential discharge-level information would be calculated using the claims information we had available approximately 90 days after the last discharge date in the applicable period, which is when we would create the data extract for the calculations (we discuss this practice in more detail later).

The discharge-level information accompanying the excess readmission ratios would include the risk-factors for the discharges that factor into the calculation of the excess readmission ratio, as well as information about the readmissions associated with these discharges (such as dates, provider numbers, and diagnosis upon readmission). Our intent in providing this information is twofold: (1) To facilitate hospitals' verification of the excess readmission ratio calculations we provide during the review and correction period based upon the information CMS had available at the time our data extract was created; and (2) to facilitate hospitals' quality improvement efforts with respect to readmissions.

We are proposing to provide hospitals with a period of 30 days to review and submit corrections for their excess readmission ratios for the Hospital Readmissions Reduction Program. This 30-day period would begin the day hospitals' confidential reports and accompanying discharge-level information are posted to their QualityNet accounts. Based on previous experience with public reporting of measures under the Hospital IQR program, including the 30-day risk standardized readmission rates, we believe this 30-day period would allow enough time for hospitals to review their data and notify CMS of calculation errors, and for CMS to incorporate appropriate corrections to the excess readmission ratio calculations prior to the publication of the final rule, at which time the excess readmission ratios would be made available to the public in a table to be cited in the final rule and available via the Internet on the CMS Web site. During the review and correction period, hospitals should notify CMS of suspected errors in their excess readmission ratio calculations using the technical assistance contact information provided in their confidential reports.

The review and correction process we are pr