Centers for Medicare and Medicaid Services (CMS), HHS.
Final rules.
We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Deficit Reduction Act of 2005, the Medicare Improvements and Extension Act, Division B, Title I of the Tax Relief and Health Care Act of 2006, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, and the Medicare Improvements for Patients and Providers Act of 2008. In addition, in the Addendum to this final rule, we describe the changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. These changes are generally applicable to discharges occurring on or after October 1, 2008. We also are setting forth the update to the rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits are effective for cost reporting periods beginning on or after October 1, 2008.
In addition to the changes for hospitals paid under the IPPS, this document contains revisions to the patient classifications and relative weights used under the long-term care hospital prospective payment system (LTCH PPS). This document also contains policy changes relating to the requirements for furnishing hospital emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).
In this document, we are responding to public comments and finalizing the policies contained in two interim final rules relating to payments for Medicare graduate medical education to affiliated teaching hospitals in certain emergency situations.
We are revising the regulatory requirements relating to disclosure to patients of physician ownership or investment interests in hospitals and responding to public comments on a collection of information regarding financial relationships between hospitals and physicians. In addition, we are responding to public comments on proposals made in two separate rulemakings related to policies on physician self-referrals and finalizing these policies.
Gay Burton, (410) 786–4487, Operating Prospective Payment, MS–DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, and Postacute Care Transfer Issues.
Tzvi Hefter, (410) 786–4487, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education, MS–LTC–DRGs, EMTALA, Hospital Emergency Services, and Hospital-within-Hospital Issues.
Siddhartha Mazumdar, (410) 786–6673, Rural Community Hospital Demonstration Program Issues.
Sheila Blackstock, (410) 786–3502, Quality Data for Annual Payment Update Issues.
Thomas Valuck, (410) 786–7479, Hospital Value-Based Purchasing and Readmissions to Hospital Issues.
Rebecca Paul, (410) 786–0852, Collection of Managed Care Encounter Data Issues.
Jacqueline Proctor, (410) 786–8852, Disclosure of Physician Ownership in Hospitals and Financial Relationships between Hospitals and Physicians Issues.
Lisa Ohrin, (410) 786–4565, and Don Romano, (410) 786–1401, Physician Self-Referral Issues.
This
Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).
The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.
If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.
If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.
Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.
The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate, plus
Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate based on their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. (We note that, as discussed in section IV.D.2. of this preamble, effective for cost reporting periods beginning on or after January 1, 2009, an SCH's hospital-specific rate will be based on their costs per discharge in FY 2006 if greater than the hospital-specific rates based on its costs in FY 1982, FY 1987, or FY 1996, or the IPPS rate based on the standardized amount.) Until FY 2007, a Medicare-dependent, small rural hospital (MDH) has received the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospital-specific rate if the hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is higher than the IPPS rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the IPPS rate and its hospital-specific rate, if the hospital-specific rate is higher than the IPPS rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.
Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. However, as discussed in section V.B.2. of this preamble, the capital IME adjustment will be reduced by 50 percent in FY 2009 (as established in the FY 2008 IPPS final rule with comment period). 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.
Under section 1886(d)(1)(B) of the Act, as amended, certain specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105–33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106–113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106–554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system.
The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.
Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P.
Under the authority of sections 123(a) and (c) of Public Law 106–113 and section 307(b)(1) of Public Law 106–554, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of “new” under § 412.23(e)(4) are paid, during a 5-year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of “new” under § 412.23(e)(4) could elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5-year transition. For cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
Under the authority of sections 124(a) and (c) of Public Law 106–113, inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF PPS. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount established under the IPF PPS. (For cost reporting periods beginning on or after January 1, 2005, and ending on or before December 31, 2007, some IPFs received transitioned payments for inpatient hospital services based on a blend of reasonable cost-based payment and a Federal per diem payment rate.) The existing regulations governing payment under the IPF PPS are located in 42 CFR 412, Subpart N.
Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415.
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
Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Public Law 109–171, requires the Secretary to develop a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals defined in the Act. In section IV.C. of the preamble of this proposed rule, we discuss the report to Congress on the Medicare value-based purchasing plan and the current testing of the plan.
Section 106(b)(2) of the MIEA–TRHCA instructed the Secretary of Health and Human Services to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also instructed to consider MedPAC's recommendations on the Medicare wage index classification system in developing these proposals. In section III. of the preamble of this final rule, we summarize Acumen's comparative and impact analysis of the MedPAC and CMS wage indices.
Section 7 of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110–90) provides for a 0.9 percent prospective documentation and coding adjustment in the determination of standardized amounts under the IPPS (except for MDHs, SCHs, and Puerto Rico hospitals) for discharges occurring during FY 2009. The prospective documentation and coding adjustment was established in FY 2008 in response to the implementation of an MS–DRG system under the IPPS that resulted in changes in coding and classification that did not reflect real changes in case-mix under section 1886(d) of the Act. We discuss our implementation of this provision in section II.D. of the preamble of this final rule and in the Addendum and in Appendix A to this final rule.
On April 30, 2008, we issued in the
Below is a summary of the major changes that we proposed to make:
• Proposed changes to MS–DRG reclassifications based on our yearly review.
• Proposed application of the documentation and coding adjustment to hospital-specific rates resulting from implementation of the MS–DRG system.
• Proposed changes to address the RTI reporting recommendations on charge compression.
• Proposed recalibrations of the MS–DRG relative weights.
We also proposed to refine the hospital cost reports so that charges for relatively inexpensive medical supplies are reported separately from the costs and charges for more expensive medical devices. This proposal would be applied to the determination of both the IPPS and the OPPS relative weights as well as the calculation of the ambulatory surgical center payment rates.
We presented a listing and discussion of additional hospital-acquired conditions (HACs), including infections, that were proposed to be subject to the statutorily required quality adjustment in MS–DRG payments for FY 2009.
We presented our evaluation and analysis of the FY 2009 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108–173, obtained in a town hall meeting).
We proposed the annual update of the MS–LTC–DRG classifications and relative weights for use under the LTCH PPS for FY 2009.
In section III. of the preamble to the proposed rule, we proposed revisions to the wage index and the annual update of the wage data. Specific issues addressed include the following:
• Proposed wage index reform changes in response to recommendations made to Congress as a result of the wage index study required under Public Law 109–432. We discussed changes related to reclassifications criteria, application of budget neutrality in reclassifications, and the rural floor and imputed floor budget neutrality at the State level.
• Changes to the CBSA designations.
• The methodology for computing the proposed FY 2009 wage index.
• The proposed FY 2009 wage index update, using wage data from cost reporting periods that began during FY 2005.
• Analysis and implementation of the proposed FY 2009 occupational mix adjustment to the wage index.
• Proposed revisions to the wage index based on hospital redesignations and reclassifications.
• The proposed adjustment to the wage index for FY 2009 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
• The timetable for reviewing and verifying the wage data used to compute the proposed FY 2009 wage index.
• The proposed labor-related share for the FY 2009 wage index, including the labor-related share for Puerto Rico.
In section IV. of the preamble to the proposed rule, we discussed a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:
• Proposed changes to the postacute care transfer policy as it relates to transfers to home with the provision of home health services.
• The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
• Proposed changes in the collection of Medicare Advantage (MA) encounter data that are used for computing the risk payment adjustment made to MA organizations.
• Discussion of the report to Congress on the Medicare value-based purchasing
• Proposed changes to the methodology for determining core staff values for the volume decrease payment adjustment for SCHs and MDHs.
• The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
• The statutorily required IME adjustment factor for FY 2009 and technical changes to the GME payment policies.
• Proposed changes to policies on hospital emergency services under EMTALA to address EMTALA Technical Advisory Group (TAG) recommendations.
• Solicitation of public comments on Medicare policies relating to incentives for avoidable readmissions to hospitals.
• Discussion of the fifth year of implementation of the Rural Community Hospital Demonstration Program.
In section V. of the preamble to the proposed rule, we discussed the payment policy requirements for capital-related costs and capital payments to hospitals. We acknowledged the public comments that we received on the phase-out of the capital teaching adjustment included in the FY 2008 IPPS final rule with comment period, and again solicited public comments on this phase-out.
In section VI. of the preamble to the proposed rule, we discussed proposed changes to payments to excluded hospitals and hospital units, proposed changes for determining LTCH CCRs under the LTCH PPS, and proposed changes to the regulations on hospitals-within-hospitals.
In section VII. of the preamble of the proposed rule, we presented proposed changes to the regulations relating to the disclosure to patients of physician ownership or investment interests in hospitals.
In section VIII. of the preamble of the proposed rule, we proposed changes to the physician self-referral regulations relating to the “Stand in Shoes” provision and the period of disallowance for claims submitted in violation of the prohibition. In addition, we solicited public comments regarding physician-owned implant companies and gainsharing arrangements.
In section IX. of the preamble of the proposed rule, we solicited public comments on our proposed collection of information regarding financial relationships between hospitals and physicians.
In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2009 prospective payment rates for operating costs and capital-related costs. We also established the proposed threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2009 for hospitals and hospital units excluded from the PPS.
In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals.
In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2009 for the following:
• A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs (and hospital-specific rates applicable to SCHs and MDHs).
• Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS.
In Appendix C of the proposed rule, we presented the reporting form that we proposed to use for the proposed collection of information on financial relationships between hospitals and physicians discussed in section IX. of the preamble of the proposed rule.
Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2008 recommendations concerning hospital inpatient payment policies address the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and for hospitals and distinct part hospital units excluded from the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2008 reports or to obtain a copy of the reports, contact MedPAC at (202) 220–3700 or visit MedPAC's Web site at:
We received over 1,100 timely pieces of correspondence in response to the FY 2009 IPPS proposed rule issued in the
In the FY 2008 IPPS final rule with comment period, we solicited public comments on our policy changes related to phase-out of the capital teaching adjustment to the capital payment update under the IPPS (72 FR 47401). We received approximately 90 timely pieces of correspondence in response to our solicitation. In section V. of the preamble of the FY 2009 IPPS proposed rule, we acknowledged receipt of those public comments and again solicited public comments on the phase-out. We received numerous pieces of timely correspondence in response to the second solicitation. In section V. of this final rule, we summarize the public comments received on both the FY 2008 IPPS final rule with comment period and the FY 2009 IPPS proposed rule and present our responses.
We have issued two interim final rules with comment periods in the
On July 12, 2007, we issued in the
After publication of the FY 2009 IPPS proposed rule, the Medicare Improvements for Patients and Providers Act of 2008, Public Law 110–275, was enacted on July 15, 2008. Public Law 110–275 contains several provisions that impact payments under the IPPS for FY 2009, which we discuss or are implementing in this final rule:
• Section 122 of Public Law 110–275 provides that, for cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on an FY 2006 hospital-specific rate (that is, based on their updated costs per discharge from their 12-month cost reporting period beginning during Federal fiscal year 2007), if this results in the greatest payment to the SCH. Therefore, effective with cost reporting periods beginning January 1, 2009, SCHs will be paid based on the rate that results in the greatest aggregate payment using either the Federal rate or their hospital-specific rate based on their cost per discharge for 1982, 1987, 1996, or 2006. We address this provision under section IV.D.2. of the preamble of this final rule.
• Section 124 of Public Law 110–275 extends, through FY 2009, wage index reclassifications for hospitals reclassified under section 508 of Public Law 108–173 (the MMA) and certain special hospital exceptions extended under the Medicare and Medicaid SCHIP Extension Act (MMSEA) of 2007 (Pub. L. 110–173). We discuss this provision in section III.I.7. and various other sections of this final rule. We note that because of the timing of enactment of Public Law 110–275, we are not able to recompute the FY 2009 wage index values for any hospital that would be reclassified under the section 508 provisions in time for inclusion in this final rule. We will issue the final FY 2009 wage index values and other related tables, as specified in the Addendum to this final rule, in a separate
Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.
As discussed in the preamble to the FY 2008 IPPS final rule with comment period (72 FR 47138), we focused our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its “Report to the Congress, Physician-Owned Specialty Hospitals” in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking severity of illness into account and applying hospital-specific relative value (HSRV) weights to DRGs.
Currently, cases are classified into MS–DRGs for payment under the IPPS based on the following information reported by the hospital: the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. In a small number of MS–DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD–9–CM).
The process of developing the MS–DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The MDCs were formulated by physician panels to ensure that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final MS–DRG could contain patients in different MDCs. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2008, cases are assigned to one of 745 MS–DRGs in 25 MDCs. The table below lists the 25 MDCs.
In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS–DRG. However, under the most recent version of the Medicare GROUPER (Version 26.0), there are 9 MS–DRGs to which cases are directly assigned on the basis of ICD–9–CM procedure codes. These MS–DRGs are for heart transplant or implant of heart assist systems; liver and/or intestinal transplants; bone marrow transplants; lung transplants; simultaneous pancreas/kidney transplants; pancreas transplants; and tracheostomies. Cases are assigned to these MS–DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.
In addition to these changes to the MS–DRG titles, we are also amending one other MS–DRG title. Due to the creation, after the proposed rule was published, of 6 new ICD–9–CM diagnosis codes for various types of fevers, we are revising the title for MS–DRG 864 from “Fever of Unknown Origin” to “Fever”.
Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC).
Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect MS–DRG assignment for certain principal diagnoses. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. Lithotripsy procedures are not routinely performed in an operating room. Therefore, lithotripsy codes are not classified as O.R. procedures. However, our clinical advisors believe that patients with urinary stones who undergo extracorporeal shock wave lithotripsy should be considered similar to other patients who undergo O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.
Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect hospital resource consumption. Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS–DRG system was established based on severity levels of illness (72 FR 47141).
A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into an MS–DRG.
After patient information is screened through the MCE and any further development of the claim is conducted, the cases are classified into the appropriate MS–DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into an MS–DRG on the basis of the diagnosis and procedure codes and, for a limited number of MS–DRGs, demographic information (that is, sex, age, and discharge status).
After cases are screened through the MCE and assigned to an MS–DRG by the GROUPER, the PRICER software calculates a base MS–DRG payment. The PRICER calculates the payment for each case covered by the IPPS based on the MS–DRG relative weight and additional factors associated with each hospital, such as IME and DSH payment adjustments. These additional factors increase the payment amount to
The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible MS–DRG classification changes and to recalibrate the MS–DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule.
As we indicated above, for FY 2008, we made significant improvement in the DRG system to recognize severity of illness and resource usage by adopting MS–DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. The changes we proposed for FY 2009 (and are adopting in this final rule) will be reflected in the FY 2009 GROUPER, Version 26.0, and will be effective for discharges occurring on or after October 1, 2008. As noted in the FY 2009 IPPS proposed rule (73 FR 23538), our DRG analysis for the FY 2009 proposed rule was based on data from the September 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through September 30, 2007, for discharges through September 30, 2007. For this final rule, our analysis is based on more recent data from the March 2008 update of the FY 2007 MedPAR file, which contains hospital bills received through March 31, 2008, for discharges occurring in FY 2007.
Many of the changes to the MS–DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with comments about MS–DRG classifications to submit these in a timely manner so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the MS–DRG recalibration process, comments about MS–DRG classification issues should be submitted no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.
The actual process of forming the MS–DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS–DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS–DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS–DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS–DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS–DRG. We also considered variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS–DRG unless it would include a substantial number of cases.
In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed a number of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.
For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). However, based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs (71 FR 47906 through 47912). Rather, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.
In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD–9–CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990s in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives, our actions for FY 2008, and our proposals for FY 2009 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS–DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2009 in other sections of this preamble and in the Addendum to this final rule.
In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights are being adopted over a 3-year transition period in
We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are making in this final rule for FY 2009 will improve payment accuracy and reduce financial incentives to create specialty hospitals.
We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full discussion of how the MS–DRG system was established based on severity levels of illness (72 FR 47141).
As stated above, we adopted the new MS–DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates. Adoption of the MS–DRGs resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. By increasing the number of DRGs and more fully taking into account severity of illness in Medicare payment rates, the MS–DRGs encourage hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), which appeared in the
On September 29, 2007, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, Public Law 110–90, was enacted. Section 7 of Public Law 110–90 included a provision that reduces the documentation and coding adjustment for the MS–DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. To comply with section 7 of Public Law 110–90, in a final rule that appeared in the
For FY 2009, Public Law 110–90 requires a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As required by statute, we are applying a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110–90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment in FY 2009 is in addition to the −0.6 percent adjustment in FY 2008, yielding a combined effect of −1.5 percent.
The documentation and coding adjustment was developed based on the recognition that the MS–DRGs, by better accounting for severity of illness in Medicare payment rates, would encourage hospitals to ensure they had fully and accurately documented and coded all patient diagnoses and procedures consistent with the medical record in order to garner the maximum IPPS payment available under the MS–DRG system. For example, under the previous CMS DRGs, “congestive heart failure, unspecified” (code 428.0) was a CC. Under the MS–DRGs, this unspecified code has been made a non-CC, while more specific heart failure codes have been made CCs or MCCs. Because of this, hospitals have a financial incentive under the MS–DRG system, which they did not have under the previous CMS DRG system, to ensure that they code the type of heart failure a patient has as precisely as possible, consistent with the medical record.
The statute requires that DRG recalibration be budget neutral. Due to the standard 2-year lag in claims data, when we recalibrated the MS–DRGs in FY 2008, the calculations were based on FY 2006 claims data that reflected coding under the prior CMS DRG system. As a result, the claims data upon which the DRG recalibrations were performed in FY 2008 did not reflect any improvements in documentation and coding encouraged by the MS–DRG system. Thus, our actuaries determined that a separate adjustment for documentation and coding improvements would be needed in order to ensure that the implementation of the MS–DRG system was budget neutral. This determination led to the establishment of the documentation and coding adjustment established in the FY 2008 IPPS final rule with comment period and amended by Public Law 110–90.
As with any other DRG system, there is potential under the MS–DRG system for an individual provider to inappropriately code and bill for services. The MS–DRG documentation and coding adjustment was not developed to address such program integrity issues. Rather, the program integrity safeguards in place to address inappropriate billing under the CMS DRG system remain in place under the MS–DRG system.
Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: The Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greater of either the FY 1982, 1987, or 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period, we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that rule, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS–DRGs to all other hospitals. In establishing this policy, section 1886(d)(3)(A)(vi) of the Act provides the authority to adjust “the standardized amount” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix. However, in a final rule that appeared in the
In the FY 2009 IPPS proposed rule, we indicated that we continue to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS–DRG system as other hospitals, we believe they have the potential to realize increased payments from coding improvements that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act,
Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico-specific standardized amount. In this final rule, we are correcting this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates. The revised FY 2008 Puerto Rico-specific operating standardized amounts are: $1,471.10 for the labor share and $901.64 for the nonlabor share for a hospital with a wage index greater than 1 and $1,392.80 for the labor share and $979.94 for the non-labor share for a hospital with a wage index less than or equal to 1. The revised FY 2008 Puerto Rico capital payment rate is $202.89 (as discussed in section III.A.6.b. of the Addendum to this final rule). These revised rates are effective October 1, 2007, for FY 2008.
While section 1886(d)(3)(A)(vi) of the Act is not applicable to the Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid based on the hospital-specific rate, discussed in section II.D.2. of this preamble, we believe that Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs in section II.D.2. of the preamble of this final rule, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals in Puerto Rico. As we indicated in the FY 2009 proposed rule, if we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico-specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 Puerto Rico-specific standardized amount, it may involve applying the FY 2008 and FY
Section 7 of Public Law 110–90 also provides for payment adjustments in FYs 2010 through 2012 based upon a retrospective evaluation of claims data from the implementation of the MS–DRG system. If, based on this retrospective evaluation, the Secretary finds that in FY 2008 and FY 2009, the actual amount of change in case-mix that does not reflect real change in underlying patient severity differs from the statutorily mandated documentation and coding adjustments implemented in those years, the law requires the Secretary to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 as a result of that difference, in addition to making an appropriate adjustment to the standardized amount under section 1886(d)(3)(A)(vi) of the Act.
In order to implement these requirements of section 7 of Public Law 110–90, we are planning a thorough retrospective evaluation of our claims data. Results of this evaluation would be used by our actuaries to determine any necessary payment adjustments in FYs 2010 through 2012 to ensure the budget neutrality of the MS–DRG implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule, we described our preliminary analysis plans to provide the opportunity for public input.
In the proposed rule, we indicated that we intend to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expect part of this overall national average change would be attributable to underlying changes in actual patient severity and part would be attributable to documentation and coding improvements under the MS–DRG system. In order to separate the two effects, we plan to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within base DRGs. The shifts among base DRGs are the result of changes in principal diagnoses while the shifts within base DRGs are the result of changes in secondary diagnoses. Because we expect most of the documentation and coding improvements under the MS–DRG system will occur in the secondary diagnoses, we believe that the shifts among base DRGs are less likely to be the result of the MS–DRG system and the shifts within base DRGs are more likely to be the result of the MS–DRG system. We also anticipate evaluating data to identify the specific MS–DRGs and diagnoses that contributed significantly to the improved documentation and coding payment effect and to quantify their impact. This step would entail analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.
In the proposed rule, we also stated that, while we believe that the data analysis plan described previously will produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding improvements, we may also decide, if feasible, to use historical data from our Hospital Payment Monitoring Program (HPMP) to corroborate the within-base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC). From 1998 to 2007, the CDAC obtained medical records for a sample of discharges as part of our hospital monitoring activities. These data were collected on a random sample of between 30,000 to 50,000 hospital discharges per year. The historical CDAC data could be used to develop an upper bound estimate of the trend in real case-mix growth (that is, real change in underlying patient severity) prior to implementation of the MS–DRGs.
In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for conducting a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patients' severity of illness.
In the FY 2008 IPPS final rule with comment period (72 FR 47188), we
Also, in FY 2008, we adopted severity-based MS–DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS–DRGs. We decided to implement a 2-year transition for the MS–DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS–DRG relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for more detail on our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS–DRGs.
As we transitioned to cost-based relative weights, some commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high cost items and overvalue low cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in March 2007 which was posted on the CMS Web site with its findings on charge compression. In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI found inconsistent matching of charges in the Medicare cost report and their corresponding charges in the MedPAR claims for certain cost centers. In addition, there was inconsistent reporting of costs and charges among hospitals. For example, some hospitals would report costs and charges for devices and medical supplies in the Medical Supplies Charged to Patients cost center, while other hospitals would report those costs and charges in their related ancillary departments such as Operating Room or Radiology. RTI also found evidence that certain revenue codes within the same cost center had significantly different markup rates. For example, within the Medicare Supplies Charged to Patients cost center, revenue codes for devices, implantables, and prosthetics had different markup rates than the other medical supplies in that cost center. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.
RTI offered short-term, medium-term, and long-term recommendations to mitigate the effects of charge compression. RTI's short-term recommendations included expanding the distinct hospital CCRs to 19 by disaggregating the “Emergency Room” and “Blood and Blood Products” from the Other Services cost center and by estimating regression-based CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost centers. RTI recommended, for the medium-term, to expand the MedPAR file to include separate fields that disaggregate several existing charge departments. In addition, RTI recommended improving hospital cost reporting instructions so that hospitals can properly report costs in the appropriate cost centers. RTI's long-term recommendations included adding new cost centers to the Medicare cost report, such as adding a “Devices, Implants and Prosthetics” line under “Medical Supplies Charged to Patients” and a “CT Scanning and MRI” subscripted line under “Radiology-Diagnostics”.
Among RTI's short-term recommendations, for FY 2008, we expanded the number of distinct hospital department CCRs from 13 to 15 by disaggregating “Emergency Room” and “Blood and Blood Products” from the Other Services cost center as these lines already exist on the hospital cost report. Furthermore, in an effort to improve consistency between costs and their corresponding charges in the MedPAR file, we moved the costs for cases involving electroencephalography (EEG) from the Cardiology cost center to the Laboratory cost center group which corresponds with the EEG MedPAR claims categorized under the Laboratory charges. We also agreed with RTI's recommendations to revise the Medicare cost report and the MedPAR file as a long-term solution for charge compression. We stated that, in the upcoming year, we would consider additional lines to the cost report and additional revenue codes for the MedPAR file.
Despite receiving public comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR, we did not adopt RTI's short-term recommendation to create four additional regression-based CCRs for several reasons. We were concerned that RTI's analysis was limited to charges on hospital inpatient claims, while typically hospital cost report CCRs combine both inpatient and outpatient services. Further, because both the IPPS and OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. We have since expanded RTI's analysis of charge compression to incorporate outpatient services. RTI has been evaluating the cost estimation process for the OPPS cost-based weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. Because the RTI report was not available until after the conclusion of our proposed rule development process, we were unable to include a summary of the report in the FY 2009 IPPS proposed rule. The IPPS-related chapters of RTI's interim report were posted on the CMS Web site on April 22, 2008, for a 60-day comment period, and we welcomed comments on the report. In this final rule, we are providing a summary of RTI's findings and the public comments
As stated earlier, subsequent to the release of the FY 2009 IPPS proposed rule, we posted on April 22, 2008, an interim report discussing RTI's research findings for the IPPS MS–DRG relative weights to be available during the public comment period on the FY 2009 IPPS proposed rule. This report can be found on RTI's Web site at:
RTI's final report distinguished between two types of research findings and recommendations: Those pertaining to the accounting or cost report data and those related to statistical regression analysis. Because the OPPS uses a hospital-specific CCR methodology, employs detailed cost report data, and estimates costs at the claim level, CMS asked RTI to closely evaluate the accounting component of the OPPS cost-based weight methodology. In reviewing the cost report data for nonstandard cost centers used in the crosswalk, RTI discovered some problems concerning the classification of nonstandard cost centers that impact both the IPPS and the OPPS. RTI reclassified nonstandard cost centers by reading providers' cost center labels. Standard cost centers are preprinted in the CMS-approved cost report software, while nonstandard cost centers are identified and updated periodically through analysis of frequently used labels. Under the IPPS, the line reassignments only slightly impact the 15 national aggregate CCRs used in the relative weight calculation. However, improved cost report data for CT Scanning, MRI, Nuclear Medicine, Therapeutic Radiology, and Cardiac Catheterization through line reassignments allowed for the reduction in aggregation bias by expanding the number of national CCRs available to separately capture these and other services. Importantly, RTI found that, under the IPPS and the OPPS, this improvement to the cost reporting data reduces some of the sources of aggregation bias without having to use regression-based adjustments.
In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the OPPS. RTI also suggested that regression-based CCRs could provide a short-term correction until accounting data could be refined to support more accurate CCR estimates under both the IPPS and the OPPS. RTI again found aggregation bias in devices, drugs, and radiology and, using combined outpatient and inpatient claims, expanded the number of recommended regression-adjusted CCRs to create seven regression-adjusted CCRs for Devices, IV Solutions, Cardiac Catheterization, CT Scanning, MRI, Therapeutic Radiology, and Nuclear Medicine.
In almost all cases, RTI observed that potential distortions from aggregation bias and incorrect cost reporting in the OPPS relative weights were proportionally much greater than for MS–DRGs for both accounting-based and statistical adjustments because OPPS groups are small and generally price a single service. HCRIS line reassignments by themselves had little effect on most inpatient weights. However, just as the overall impacts on MS–DRGs were more moderate because MS–DRGs experienced offsetting effects in cost estimation among numerous revenue codes in an episode, a given hospital outpatient visit might include more than one service, leading to offsetting effects in cost estimation for services provided in the outpatient episode as a whole.
Notwithstanding likely offsetting effects at the provider-level, RTI asserted that, while some averaging is appropriate for a prospective payment system, extreme distortions in payments for individual services bias perceptions of service profitability and may lead hospitals to inappropriately set their charge structure. RTI noted that this may not be true for “core” hospital services, such as oncology, but has a greater impact in evolving areas with greater potential for provider-induced demand, such as specialized imaging services. RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. With regard to APCs and MS–DRGs that contain substantial device costs, RTI cautioned that other prospective payment system adjustments (wage index, IME, and DSH) largely offset the effects of charge compression among hospitals that receive these adjustments. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights.
As a result of this research, RTI made 11 recommendations. The first set of recommendations is more applicable to the OPPS because it uses more granular HCRIS data and concentrates on short-term accounting changes to current cost report data. This set includes a recommendation that CMS immediately implement a review of HCRIS cost center assignments based on text searches of providers' line descriptions and reassign lines appropriately. The second set addresses short-term regression-based and other statistical adjustments. The third set focuses on clarifying existing cost report instructions to instruct providers to use all applicable standard cost centers, adding new standard cost centers (for Devices, CT Scans, MRIs, Cardiac Catheterization, and Infusion Drugs), and creating new charge category summaries in the MedPAR to match the new cost centers on the cost report. Specifically, the new MedPAR groups would be for Intermediate Care (revenue codes 0206 and 0214), Devices (revenue codes 0274, 0275, 0276 and 0278), IV Solutions (revenue code 0258), CT Scanning (revenue codes 035x), Nuclear Medicine (revenue codes 034x, possibly combined with 0404), and Therapeutic Radiology (revenue codes 033x). RTI also recommends educating hospitals through industry-led educational initiatives directed at methods for capital cost finding, specifically encouraging providers to use direct assignment of equipment depreciation and lease costs wherever possible, or at least to allocate moveable equipment depreciation based on the dollar value of assigned depreciation costs. Lastly, although not directly the focus of its study, RTI mentions the problem of nursing cost compression in the relative weights, and notes that cost compression within inpatient nursing services is a significant source of distortion in the various IPPS' relative
We note that in the CY 2009 OPPS/ASC proposed rule (73 FR 41490), we are proposing to break the single standard Drugs Charged to Patient cost center, Line 56, into two standard cost centers, Drugs with High Overhead Cost Charged to Patients and Drugs with Low Overhead Cost Charged to Patients, to reduce the reallocation of pharmacy overhead cost from expensive to inexpensive drugs and biologicals. We use the term “pharmacy overhead” here to refer to overhead and related expenses such as pharmacy services and handling costs. This proposal is consistent with RTI's recommendation for creating a new cost center with a CCR that would be used to adjust charges to costs for drugs requiring detail coding. In the CY 2009 OPPS/ASC proposed rule, we note that comments on the proposed changes to the cost report for drugs should address any impact on both the inpatient and outpatient payment systems because both systems rely upon the Medicare hospital cost report for cost estimation. Furthermore, in that proposed rule, we specifically invited public comment on the appropriateness of creating standard cost centers for Computed Tomography (CT) Scanning, Magnetic Resonance Imaging (MRI), and Cardiac Catheterization, rather than continuing the established nonstandard cost centers for these services (73 FR 41431).
A second reason that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS–DRGs. In the FY 2008 final rule with comment period (72 FR 47197), we stated that we engaged RAND as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs and we would consider their analysis as we prepared for the FY 2009 IPPS rulemaking process. We stated that we would analyze how the relative weights would change if we were to adopt regression-based CCRs and an HSRV methodology using fully-phased in MS–DRGs. We stated that we would consider the results of the second phase of the RAND study as we prepared for the FY 2009 IPPS rulemaking process. We had intended to include a detailed discussion of RAND's study in the FY 2009 IPPS proposed rule. However, due to some delays in releasing identifiable data to the contractor under revised data security rules, the report on this second stage of RAND's analysis was not completed in time for the development of the proposed rule. Therefore, we continued to have the same concerns with respect to uncertainty about how regression-based CCRs would interact with the MS–DRGs or an HSRV methodology, and we did not propose to adopt the regression-based CCRs or an HSRV methodology in the FY 2009 IPPS proposed rule. Nevertheless, we welcomed public comments on our proposals not to adopt regression-based CCRs or an HSRV methodology at that time or in the future. The RAND report on regression-based CCRs and the HSRV methodology was finalized at the conclusion of our proposed rule
RAND evaluated six different methods that could be used to establish relative weights: CMS' current relative weight methodology and five alternatives. In particular, RAND examined:
• How the relative weights differ across the alternative methodologies.
• How well each relative weight methodology explained variation in costs.
• Payment accuracy under each relative weight methodology and current facility-level adjustments.
• Payment implications of alternatives to the current methodology for establishing relative weights.
RAND examined alternative relative weight methodologies including either our current methodology of 15 national CCRs or 19 CCRs that are disaggregated using the regression-based methodology, or hospital-specific CCRs for 15 cost center groupings. The expansion from 15 to 19 cost center groupings is intended to reduce charge compression in the relative weights introduced by combining services with different rates of charge markups into a single cost center for purposes of estimating cost. The hospital-specific CCRs are intended to account for differences in overall charging practices across hospitals (that is, smaller nonteaching hospitals tend not to have as much variation in rates of markup as larger teaching hospitals).
In addition, RAND analyzed our standardization methodologies that account for systematic cost differences across hospitals. The purpose of standardization is to eliminate systematic facility-specific differences in cost so that these cost differences do not influence the relative weights. The three standardization methodologies analyzed by RAND include the “hospital payment factor” methodology currently used by CMS, where a hospital's wage index factor, and IME and/or DSH factor are divided out of its estimated DRG cost; the HSRV methodology that standardizes the cost for a given discharge by the hospital's own costliness rather than by the effect of the systematic cost differences across groups of hospitals; and the HSRVcc methodology, which removes hospital-level cost variation by calculating hospital-specific charge-based relative values for each DRG at the cost center level and standardizing them for differences in case mix. Under the HSRVcc methodology, a national average charge-based relative weight is calculated for each cost center.
RAND conducted two different types of analyses to evaluate 5 alternative relative weight methodologies that varied use of 19 national CCRs and 15 hospital-specific CCRs, and HSRV and HSRVcc standardization methodologies along with components of the current relative weight methodology using 15 national CCRs and hospital payment factor standardization. The first type of analysis compared the five alternative relative weight methodologies to CMS' current relative weight methodology and compared average payment under each relative weight methodology across different types of hospitals. The second analysis examined the relative payment accuracy of the relative weight methodologies. RAND used the costs under 15 hospital-specific CCRs as its hospital cost baseline. RAND noted that the choice for its baseline may affect the results of the analysis because relative weight methodologies that are similar to the 15 hospital-specific CCR methodology may be assessed more favorably because they are likely to have similar costs, while relative weight methodologies that are different from the 15 hospital-specific CCR methodology may not be as favorable. The payment accuracy analysis used a regression technique to evaluate how well the relative weight methodologies explained variation in costs and how well the hospital payments under the relative weight methodologies matched the costs per discharge. Finally, RAND examined payment-to-cost ratios among different types of hospitals.
Overall, RAND found that none of the alternative methods of calculating the relative weights represented a marked improvement in payment accuracy over the current method, and there was little difference across methods in their ability to predict cost at either the discharge-level or the hospital-level. In their regression analysis, RAND found that after controlling for hospital payment factors, the relative weights are compressed. However, RAND also found that the hospital payment factors increase more rapidly than cost, so while the relative weights are compressed, these payment factors offset the compression so that total payment increases more rapidly than cost.
RAND does not believe the regression-based charge compression adjustments significantly improve payment accuracy. RAND found that relative weights using the 19 national disaggregated regression-based CCRs result in significant redistributions in payments among hospital groupings. With regard to standardization methodologies, while RAND found that there is no clear advantage to the HSRV method or the HSRVcc method of standardizing cost compared to the current hospital payment factor standardization method, its analysis did reveal significant limitations of CMS' current hospital payment factor standardization method. The current standardization method has a larger impact on the relative weights and payment accuracy than any of the other alternatives that RAND analyzed because the method “over-standardizes” by removing more variability for hospitals receiving a payment factor than can be empirically supported as being cost-related (particularly for IME and DSH). RAND found that instead of increasing proportionately with cost, the payment factors CMS currently uses (some of which are statutory), increase more rapidly than cost, thereby reducing payment accuracy. Further analysis is needed to isolate the cost-related component of the IPPS payment adjustments (some of which has already been done by MedPAC), use them to standardize cost, and revise the analysis of payment accuracy to reflect only the cost-related component. Generally, RAND believes it is premature to consider further refinements in the relative weight methodology until data from FY 2008 or later that reflect coding improvement and other behavioral changes that are likely to occur as hospitals adopt the MS–DRGs can be evaluated.
Some commenters disagreed with RAND's methodology and findings that the regression-based CCRs offer no improvement in payment accuracy. RAND found that regression-based CCRs result in significant redistributions in payment within hospital groups with increases in payments concentrated to the cardiac and orthopedic surgical DRGs. RAND's payment to cost ratio analysis, which measures payment equity across groups of hospitals, found that adopting regression-based CCRs led
A number of commenters objected to the regression-based approach to break out the one CCR for all radiology services that CMS is currently using. The commenters noted that the RTI estimates suggest that hospitals mark up CT services on average by more than 1800 percent over cost (CCR 0.054), while routine radiology services are marked up by an average of more than 300 percent over cost. The commenters believed that this vast difference in the markup practices of hospitals seems implausible and, therefore, would result in significant payment distortions if CMS were to adopt RTI's disaggregated radiology CCRs or some related adjustment to the radiology CCR, for Medicare ratesetting. The commenters asserted that use of RTI's CCRs would significantly reduce payment for imaging-intensive DRGs in the inpatient setting for trauma services, but the impact on payments under the OPPS and the Medicare physician fee schedule (MPFS) imaging services capped by OPPS payments would be even more dramatic. The commenters believed that the CCRs for advanced imaging may reflect a misallocation of capital costs on the cost report. They further stated that this could indicate that many hospitals are reporting CT and MRI machines as fixed equipment and allocate the related capital costs as part of the facility's Building and Fixtures overhead cost center instead of reporting the capital costs directly in the Radiology cost center, resulting in RTI's estimate of the costs and CCRs for CT and MRI equipment to be too low. The commenters argued that, regardless of the reason for the low CCRs, the use of RTI's CCRs could result in aberrant payments for radiology services, where payments to a hospital for outpatient x-rays might be higher than the payment for a similar CT scan, and where the physician fee schedule rates for the technical component cost of the CT scan may also be less than the cost of these scans estimated by CMS, providing a disincentive for hospitals and physicians to provide these services. In concluding that RTI's analysis of the CCRs for imaging services is flawed, several commenters urged CMS to more carefully analyze CCRs for radiology before proposing any measures to change these CCRs. The commenters believed that if the underreported capital costs are considered, it is likely that the CCRs for CT scanning and MRI services would be approximately equal to the overall radiology CCR and no adjustment would be needed.
A significant number of commenters supported applying the regression-based CCRs as a temporary solution to address charge compression. The commenters believed that because CMS' proposed changes to the cost report would not have an impact on the relative weights until FY 2012, implementation of regression-based CCRs is necessary in the interim. The commenters cited what they believed is ample evidence, particularly from the RTI report and from MedPAC, that regression-based CCRs are appropriate as a short-term solution.
While several commenters agreed on the use of regression-based CCRs as a short-term solution to charge compression, many commenters gave varied suggestions as to how to implement these regression-based CCRs. The commenters suggested that CMS implement a 3-year phase-in of regression-based CCRs beginning in FY 2009 to mitigate any distributional impacts on hospitals. The commenters asked CMS to consider using a regression analysis for 25 percent of the estimated cost of medical supplies in FY 2009, then 50 percent in FY 2010, and 75 percent in FY 2011. The commenters further stated that once the data from the new cost centers for supplies and devices are available, the regression adjustments could be phased out, or remain in use even after FY 2012, should the data from the new cost centers still be incomplete at that time. Furthermore, the commenters believed that this transition would remove the need for a transition period to separate CCRs for medical devices and medical supplies once the cost report data are available.
Some commenters supported adoption of regression-based CCRs except for those within the radiology category. Other commenters suggested that CMS only implement regression-based CCRs for medical supplies and devices because the proposed changes to the cost report focused on the medical supplies and devices. They argued that CMS' proposed cost report changes for medical supplies and devices signifies that CMS believes it is most important to address charge compression in the medical supplies group.
One commenter recommended that, based on the findings in RTI's 2008 report, CMS should implement a total of 22 regression-based CCRs. (In its March 2007 report, RTI recommended that CMS expand the number of CCRs from 15 to 19 with the use of statistical adjustments to disaggregate medical devices from medical supplies, IV solutions and other drugs from drugs and CT scanning and MRI from radiology. In the interim RTI report posted on the CMS Web site on April 22, 2008, RTI increased the potential regression-based CCRs from 19 to 23 national CCRs after evaluating OPPS data with IPPS data.) The commenter believed that CMS should expand the number of CCRs from 15 to 22 with disaggregated CCRs for medical supplies, medical devices, IV solutions, other drugs and detail coded drugs, CT scans, MRI, therapeutic radiation and nuclear medicine. The commenter recommended implementing these regression-based CCRs to ensure payment equity across these types of services. Because of limited time to develop the final rule, the commenter recognized that it would be difficult for CMS to implement revised regression estimates. To account for this, the commenter recommended what the commenter believed is a relatively simple ratio technique, similar to RTI's methodology, to implement regression-based CCRs for the FY 2009 IPPS final rule. The commenter believed that CMS could use more detailed charge information from the Standard Analytic File (SAF) and the regression-based estimates from RTI's 2008 report to
We received public comments on the FY 2008 IPPS proposed rule raising concerns on the accuracy of using regression-based CCR estimates to determine the relative weights rather than on the Medicare cost report. The commenters noted that regression-based CCRs would not fix the underlying mismatch of hospital reporting of costs and charges. Instead, the commenters suggested that the impact of charge compression might be mitigated through an educational initiative that would encourage hospitals to improve their cost reporting. The commenters recommended that hospitals be educated to report costs and charges in a way that is consistent with how charges are grouped in the MedPAR file. In an effort to achieve this goal, hospital associations have launched an educational campaign to encourage consistent reporting, which would result in consistent groupings of the cost centers used to establish the cost-based relative weights. The commenters requested that CMS communicate to the fiscal intermediaries/MACs that such action is appropriate. In the FY 2008 IPPS final rule with comment period, we stated that we were supportive of the educational initiative of the industry, and we encouraged hospitals to report costs and charges consistently with how the data are used to determine relative weights (72 FR 47196). We would also like to affirm that the longstanding Medicare principles of cost apportionment in the regulations at 42 CFR 413.53 convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another ancillary department (for example, combining the cost of Medical Supplies Charged to Patients with the costs of Operating Room or any other ancillary cost center). (We note that, effective for cost reporting periods starting on or after January 1, 1979, the departmental method of apportionment replaced the combination method of apportionment where all the ancillary departments were apportioned in the aggregate (Section 2200.3 of the PRM–I).)
Furthermore, longstanding Medicare cost reporting policy has been that hospitals must include the cost and charges of separately “chargeable medical supplies” in the Medical Supplies Charged to Patients cost center (line 55 of Worksheet A), rather than in the Operating Room, Emergency Room, or other ancillary cost centers. Routine services, which can include “minor medical and surgical supplies” (Section 2202.6 of the PRM–1), and items for which a
We note that not only is accurate cost reporting important for IPPS hospitals to ensure that accurate relative weights are computed, but hospitals that are still paid on the basis of cost, such as CAHs and cancer hospitals, and SCHs and MDHs must adhere to Medicare cost reporting principles as well.
The CY 2008 OPPS/ASC final rule with comment period (72 FR 66600 through 66601) also discussed the issue of charge compression and regression-based CCRs, and noted that RTI is currently evaluating the cost estimation process underpinning the OPPS cost-based weights, including a reassessment of the regression models using both outpatient and inpatient charges, rather than inpatient charges only. In
On February 29, 2008, we issued Transmittal 321, Change Request 5928, to inform the fiscal intermediaries/MACs of the hospital associations' initiative to encourage hospitals to modify their cost reporting practices with respect to costs and charges in a manner that is consistent with how charges are grouped in the MedPAR file. We noted that the hospital cost reports submitted for FY 2008 may have costs and charges grouped differently than in prior years, which is allowable as long as the costs and charges are properly matched and the Medicare cost reporting instructions are followed. Furthermore, we recommended that fiscal intermediaries/MACs remain vigilant to ensure that the costs of items and services are not moved from one cost center to another without moving their corresponding charges. Due to a time lag in submittal of cost reporting data, the impact of changes in providers' cost reporting practices occurring during FY 2008 would be reflected in the FY 2011 IPPS relative weights.
In developing the FY 2009 IPPS proposed rule, we considered whether there were concrete steps we could take to mitigate the bias introduced by charge compression in both the IPPS and OPPS relative weights in a way that balances hospitals' desire to focus on improving the cost reporting process through educational initiatives with device industry interest in adopting regression-adjusted CCRs. Although RTI recommended adopting regression-based CCRs, particularly for medical supplies and devices, as a short-term solution to address charge compression, RTI also recommended refinements to the cost report as a long-term solution. RTI's draft interim March 2007 report discussed a number of options that could improve the accuracy and precision of the CCRs currently being derived from the Medicare cost report and also reduce the need for statistically-based adjustments. As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47193), we believe that RTI and many of the public commenters on the FY 2008 IPPS proposed rule concluded that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of cost weights. Therefore, in the FY 2009 IPPS proposed rule (73 FR 23544), we proposed to begin making cost report changes geared to improving the accuracy of the IPPS and OPPS relative weights. However, we also received comments last year asking that we proceed cautiously with changing the Medicare cost report to avoid unintended consequences for hospitals that are paid on a cost basis (such as CAHs, cancer hospitals, and, to some extent, SCHs and MDHs), and to consider the administrative burden associated with adapting to new cost reporting forms and instructions. Accordingly, we proposed to focus in the FY 2009 proposed rule on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the relative weights could result from correcting charge compression for devices and implants. When examining markup differences within the Medical Supplies Charged to Patients cost center, RTI found that its
Although we proposed to make improvements to mitigate the effects of charge compression only on the Medical Supplies and Equipment CCR as a first step, we invited public comments as to whether to make other changes to the Medicare cost report to refine other CCRs. In addition, we indicated that we were open to making further refinements to other CCRs in the future. Therefore, in the FY 2009 IPPS proposed rule, we proposed to add only one cost center to the cost report, such that, in general, the costs and charges for relatively inexpensive medical supplies would be reported separately from the costs and charges of more expensive devices (such as pacemakers and other implantable devices). We indicated that we would consider public comments submitted on the proposed rule for purposes of both the IPPS and the OPPS relative weights and, by extension, the calculation of the ambulatory surgical center (ASC) payment rates (73 FR XXXXX).
Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for chargeable medical supplies and equipment was computed based on line 55 for Medical Supplies Charged to Patients and lines 66 and 67 for DME Rented and DME Sold, respectively. To compute the 15 national CCRs used in developing the cost-based weights under the IPPS (explained in more detail under section II.H. of the preamble of the proposed rule and this final rule), we take the costs and charges for the 15 cost groups from Worksheet C, Part I of the Medicare cost report for all hospital patients and multiply each of these 15 CCRs by the Medicare charges on Worksheet D–4 for those same cost centers to impute the Medicare cost for each of the 15 cost groups. Under this proposal, the goal would be to split the current CCR for Medical Supplies and Equipment into one CCR for medical supplies, and another CCR for devices and DME Rented and DME Sold.
In considering how to instruct hospitals on what to report in the cost center for medical supplies and the cost center for devices, we looked at the existing criteria for the type of device that qualifies for payment as a transitional pass-through device category in the OPPS. (There are no such existing criteria for devices under the IPPS.) The provisions of the regulations under § 419.66(b) state that for a medical device to be eligible for pass-through payment under the OPPS, the medical device must meet the following criteria:
a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a Category B device by the FDA in accordance with §§ 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption.
b. The device is determined to be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act).
c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissues, and is surgically implanted or inserted whether or not it remains with the patient when the patient is released from the hospital.
d. The device is not any of the following:
• Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider Reimbursement Manual (CMS Pub. 15–1).
• A material or supply furnished incident to a service (for example, a suture, customized surgical kit, or clip, other than a radiological site marker).
• Material that may be used to replace human skin (for example, a biological or synthetic material).
These requirements are the OPPS criteria used to define a device for pass-through payment purposes and do not include additional criteria that are used under the OPPS to determine if a candidate device is new and represents a substantial clinical improvement, two other requirements for qualifying for pass-through payment.
For purposes of applying the eligibility criteria, we interpret “surgical insertion or implantation” to include devices that are surgically inserted or implanted via a natural or surgically created orifice as well as those devices that are inserted or implanted via a surgically created incision (70 FR 68630).
In proposing to modify the cost report to have one cost center for medical supplies and one cost center for devices, we proposed that hospitals would determine what should be reported in the Medical Supplies cost center and what should be reported in the Medical Devices cost center using criteria consistent with those listed above that are included under § 419.66(b), with some modification. Specifically, for purposes of the cost reporting instructions, we proposed that an item would be reported in the device cost center if it meets the following criteria:
a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a Category B device by the FDA in accordance with §§ 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption.
b. The device is reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act).
c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissue, is surgically implanted or inserted through a natural or surgically created orifice or surgical incision in the body, and remains in the patient when the patient is discharged from the hospital.
d. The device is not any of the following:
• Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider Reimbursement Manual (CMS Pub. 15–1).
• A material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker).
• Material that may be used to replace human skin (for example, a biological or synthetic material).
• A medical device that is used during a procedure or service and does not remain in the patient when the patient is released from the hospital.
We proposed to select the existing criteria for what type of device qualifies
However, we acknowledge that a definition of device based on whether an item is implantable and remains in the patient could, in some cases, include items that are relatively inexpensive (for example, urinary catheters, fiducial markers, vascular catheters, and drainage tubes), and which many would consider to be supplies. Thus, some modest amount of charge compression could still be present in the cost center for devices if the hospital does not have a uniform markup policy. In addition, requiring as a cost reporting criterion that the device is to remain in the patient at discharge could exclude certain technologies that are moderately expensive (for example, cryoablation probes, angioplasty catheters, and cardiac echocardiography catheters, which do not remain in the patient upon discharge). Therefore, some charge compression could continue for these technologies. We believe this limited presence of charge compression is acceptable, given that the proposed definition of device for cost reporting purposes would isolate virtually all of the expensive items, allowing them to be separately reported from most inexpensive supplies.
The criteria we proposed above for instructing hospitals as to what to report in the device cost center specify that a device is not a material or supply furnished incident to a service (for example, a surgical staple, a suture,
In summary, we proposed to modify the cost report to have one cost center for “Medical Supplies Charged to Patients” and one cost center for “Implantable Devices Charged to Patients.” We proposed to instruct hospitals to report only devices that meet the four criteria listed above (specifically including that the device is implantable and remains in the patient at discharge) in the proposed new cost center for Implantable Devices Charged to Patients. All other devices and nonchargeable supplies would be reported in the Medical Supplies cost center. This would allow for two distinct CCRs, one for medical supplies and one for implantable devices and DME rented and DME sold.
One commenter supported CMS' proposal for using the existing requirements for determining which devices qualify for pass-through payment under the OPPS, and whether a device is implantable and remains in the patient upon discharge, as the criteria for determining what types of implantable devices would be reported in the proposed new cost center. The commenter believed that the proposed criteria are objective and most accurately describe the type of medical devices that are most impacted by charge compression. However, a large number of commenters opposed CMS' proposed criteria for distinguishing between low-cost supplies and high-cost devices for reporting in the proposed new cost report cost centers. Rather than using CMS' proposed criteria which are based on the existing requirements for determining which devices qualify for pass-through payment under the OPPS, and whether a device is implantable and remains in the patient upon discharge, in addition to use of existing revenue codes, most commenters preferred that the cost report cost centers be defined exclusively based on the use of existing revenue codes and associated definitions. The commenters pointed out that using existing revenue codes and definitions as they have been currently established by the National Uniform Billing Committee (NUBC) makes sense, as these definitions have been in place for some time and are used across all payers, not just by CMS. The commenters believed that introduction of exceptions by CMS to what hospitals may include in certain revenue codes can be disruptive to hospitals' billing and accounting systems. Furthermore, they added, this method is consistent with the analytic approach and revenue centers used by RTI to develop the regression-based CCRs for medical devices. Accordingly, the commenters recommended that the proposed new cost centers on the cost report for “Medical Supplies Charged to Patients” and “Implantable Devices Charged to Patients” be defined exclusively on the following revenue code criteria: Specifically, revenue codes 0275 (Pacemaker), 0276 (Intraocular lens), 0278 (other implants), and 0624 (FDA investigational devices) would be used in the proposed new cost center for high-cost devices. The commenters noted that revenue code 0624 generally consists of higher cost implants, but indicated that this revenue code could be refined at a later point by the NUBC to provide a revenue code that could be reported when the FDA investigational device does not include implants. According to the commenters, all other revenue codes in the device/supply category (in 027x and 062x) would be reported in the lower cost medical supplies cost center on the cost report. The commenters acknowledged that distinguishing between low-cost supplies and high-cost devices through exclusive use of the existing revenue codes will not thoroughly separate low and high-cost items, and therefore, some amount of charge compression will remain in the proposed new “Implantable Devices Charged to Patients CCR.” Nevertheless, the commenters believed that use of existing revenue codes and definitions represents the most administratively simple and least burdensome approach to addressing charge compression; the incremental improvements of a more refined approach do not warrant more wholesale changes. One commenter, however, did recommend that CMS request new revenue codes from the NUBC as needed to identify all devices that would be reported in the new implantable devices cost center under the revised cost report definition of implantable device so as to minimize exclusion of innovative technologies and mitigate the impact of charge compression.
We have considered the comments in favor of finalizing our proposal to split the current cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients,” and the comments recommending that these cost centers be defined based solely on existing revenue codes. Although we believed that adopting the existing criteria for determining whether a device is eligible for pass-through payment under the OPPS to identify devices for the “Implantable Devices Charged to Patients” cost center was a reasonable proposal because the criteria are concrete and already familiar to the hospital community, we understand that hospitals are already familiar with the definitions of the existing revenue codes as well because they have been in place for some time. In addition, identifying devices based only on the existing revenue code definitions is more straightforward than also incorporating the criteria for devices that qualify for OPPS pass-through payment. Therefore, we agree with the commenters that use of the existing revenue code definitions is the simplest and least burdensome approach for hospitals to implement that would concretely, although not completely, address charge compression.
Accordingly, in this final rule, we are finalizing our proposed policy to split the current cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” However, when determining what should be reported in these respective cost centers, rather than finalize our proposed policy to use existing criteria for determining which devices qualify for OPPS pass-through payment, with the modification that the implantable device must remain in the patient at discharge, we are instead adopting the commenters' recommendation that hospitals should use revenue codes established by the NUBC to determine what should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. We note that use of the existing revenue codes will still generally result in implantable devices being reported in the “Implantable Devices Charged to Patients” cost center because revenue codes 0275 (Pacemaker), 0276 (Intraocular lens), 0278 (other implants), and 0624 (FDA investigational devices) for the most part, generally would be used for reporting higher cost implants. However, use of the existing NUBC definitions would not require that the implantable device remain in the patient when the patient is discharged; therefore, in this respect, the policy we are finalizing differs from the one we proposed.
In the FY 2009 IPPS proposed rule (73 FR 23547), in an effort to improve the match between the costs and charges included on the cost report and the charges in the MedPAR file, we recommended that certain revenue codes be used for items reported in the new “Medical Supplies Charged to Patients” cost center and the new “Implantable Devices Charged to Patients” cost center, respectively. These recommendations were similar to the commenters' suggested method for use of existing revenue codes in determining whether an item should be reported in the proposed new supply or device cost center in the cost report. In this final rule, we are finalizing our policy to create a cost center for implantable devices. Under this policy, charges reported with revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants), and 0624 (Investigational Device (IDE)) would correspond to implantable devices reported in the new “Implantable Devices Charged to Patients” cost center. Items for which a hospital may have previously used revenue code 0270 (General Classification), but actually are an implantable device, should instead be billed with an implantable device revenue code. Conversely, items and supplies that are not implantable would be reported in the new “Medical Supplies Charged to Patients” cost center on the cost report. We would expect these items and supplies to be billed with revenue codes 0270 (general classifications), 0271 (nonsterile supply), 0272 (sterile supply), and 0273 (take-home supplies). In the proposed rule, we indicated that revenue code 0274 (Prosthetic/Orthotic Devices) and revenue code 0277 (Oxygen—Take Home) might be associated with the cost centers for Durable Medical Equipment (DME)-Rented and DME-Sold on the cost report. We received comments that indicated that all other (not implantable) supply revenue codes, including 0274, 0277, 0621, and 0622, should be associated with the new “Medical Supplies Charged to Patients” cost center. For the purpose of this final policy, we are most concerned with identifying the revenue code costs and charges that define the new “Implantable Devices Charged to Patients” cost center. With the exception of the present proposal, CMS typically does not specify a revenue code-to-cost center crosswalk that hospitals must adopt to prepare their cost report. Beyond the supply revenue codes we identified above for “Medical Supplies Charged to Patients,” we assume hospitals will include other appropriate supply revenue codes in this new cost center, which may or may not include 0621, 0622, 0274, and 0277.
Hospitals must continue to report ICD–9–CM codes and charges with an appropriate UB revenue code consistent with NUBC requirements. When reporting the appropriate revenue codes for services, hospitals should choose the most precise revenue code, or subcode if appropriate. As NUBC guidelines dictate: “It is recommended that providers use the more detailed subcategory when applicable/available rather than revenue codes that end in “0” (General) or “9” (Other).” Furthermore, hospitals are required to follow the Medicare cost apportionment regulations at 42 CFR 413.53(a)(1), which convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another department. In order to comply with the requirements of this regulation,
In general, proper reporting would dictate that if an item is reported as an implantable device on the cost report, it is an item for which the NUBC would require use of revenue code 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants), or 0624 (Investigational Device). Likewise, items reported as Medical Supplies should receive an appropriate revenue code indicative of supplies. We did indicate in the proposed rule that we might consider requesting additional revenue codes from the NUBC, but we note that because the majority of commenters have requested that they be allowed to use existing revenue codes to distinguish between the low cost supplies and high cost devices, we may wait and see what the results of that approach are before we request the creation of additional codes from the NUBC.
We would also like to caution that, as the commenters themselves acknowledged, the use of existing revenue code definitions to crosswalk devices and supplies to the device cost center and supplies cost center, respectively, will not separate high and low cost items as thoroughly as would the use of the proposed criteria for implantable devices that remain in the patient at discharge. Therefore, some degree of charge compression will remain in the medical devices cost center. Furthermore, this methodology, and the accuracy of the relative weights, is heavily dependent upon hospitals' reporting practices. While CMS is responsible for issuing cost reporting instructions that are clear, hospitals are responsible for ensuring that their cost reporting and billing practices are consistent and conform to Medicare policy.
(a) Implement the recommendations of the RTI report to unbundle nursing care from current accommodation (room and board) revenue codes using the 023X Nursing Incremental Charge UB04 revenue code.
(b) Modify the Medicare cost report to separate out nursing costs and hours of care to allow construction of a nursing cost to charge ratio within the existing routine and intensive care cost centers.
(c) Develop a method to evaluate nursing performance by case mix within the new severity adjusted DRGs using the unbundled 023X nursing hours and costs data.
(d) Incorporate the inpatient nursing performance measure into the emerging value-based purchasing effort in the coming fiscal years to identify low performing hospitals relative to the mean nursing intensity within MS–DRG and high cost hospitals.
The commenters believed that accomplishing these four recommendations will “improve overall payment accuracy, lead to a better understanding of how nursing care hours and costs are allocated to individual patients and by DRG within and across hospitals, identify hospital nursing performance, and inform policy makers on the state of inpatient nursing care in the United States.”
The commenters requested that the cost report be modified to separate nursing costs and hours of care to allow for the calculation of CCRs for routine care and intensive care, and we believe this could possibly be a long-term goal. We note that RTI observes that given the inconsistent use of patient-level nursing acuity data systems, “it is difficult to imagine an administratively feasible way to incorporate nursing acuity measures into standard Medicare reporting as a long-term solution for reducing nursing cost compression” (page 118). However, we encourage the nursing community, the hospital industry, and others to consider researching ideas for how nursing intensity can be recognized in the cost weights.
Another commenter stated that “unbundling” the device from the surgical kit would increase administrative costs for hospitals and vendors, and that more medical errors would likely result, which surgical packs were designed to reduce. Another commenter noted the terms CMS used in describing the supplies that are part of surgical kits, such as “integral to” or “unrelated to,” and “free” or “bonus” items. The commenter recommended that CMS consider clarifying these terms via an issuance such as a transmittal or an MLN Matters article rather than the
One commenter stressed the value that packaging such items together has for hospitals, arguing that the kits reduce labor hours associated with the procedure, and that “hospitals do not purchase these packages for what CMS refers to as `bonus’ items, but for the efficiencies gained though the packaging of the items.” The commenter did not believe such kits should be considered a violation of the anti-kickback statute.
We have considered the public comments which essentially recommended that hospitals should not attempt to break out the costs of the expensive device from the attending supplies, but instead, that hospitals report the entire kit based on the single revenue code used for the device in the kit. We still believe that device manufacturers could make a better effort at refining their invoices to separately break out the charges and costs of the high-cost device from the low-cost supplies because this would likely lead to more accurate cost reporting and a further mitigation of charge compression. Certainly, if the supplies that are included in the kit are not integral to and necessary for the safe, surgical implementation of the device, we believe that it would be best for hospitals to report those costs and charges separately from the costs and charges for the implantable device. Nevertheless, because commenters are generally satisfied with an approach for reporting the costs and charges of the entire kit based on the revenue code that is used for the device in that kit, we will accept the commenters' recommendation and permit hospitals to follow this approach in reporting the costs and charges of surgical kits. As we noted in the proposed rule, even for an aggregated invoice that contains an expensive device, we believe that RTI's findings of significant differences in supply CCRs for hospitals with a greater percentage of charges in device revenue codes demonstrate that breaking the Medical Supplies Charged to Patients cost center into two cost centers, using appropriate revenue codes for devices, and mapping those costs to the new “Implantable Devices Charged to Patients” cost center, will result in an increase in estimated device costs that could lead to more accurate payment for those costs. However, we do appreciate the acknowledgement from the commenter that it is important for the industry to understand the rationale for compliance requirements and the recommendation of the commenter that a new revenue code for Integrated Supplies be created as a long-term solution for capturing costs and charges of incidental supplies, and we may consider this as part of other changes that may or may not require NUBC approval.
With respect to the commenter that argued that such kits should not be considered a violation of the anti-kickback statute, we note that we did not state that surgical kits should necessarily be considered a violation of the anti-kickback statute. The commenter made the point that hospitals do not purchase the kits for the value of the “bonus items,” but rather because of the increased efficiencies that result from packaging all the items necessary for a particular surgical procedure together. However, we point out that the IPPS proposed rule refers specifically to “free or `bonus’ items that are
With respect to blood transfusion/administration, to which the commenter refers, this service should not be billed under the Medical/Surgical Supplies code, regardless of the hospital's accounting system. “Blood Transfusion/Administration” is a service rather than an item, and the blood itself is also not treated as a medical supply item. The cost report includes a standard cost center for “Blood Storing, Processing, and Transfusion” (Line 47 of Worksheet A, under the “Ancillary Service Cost Centers”), and there is a UB revenue code 0391 for Blood Administration, in addition to revenue codes in the 038X category for various blood products. However, the revenue codes for Medical/Surgical Supplies fall within another category, 027x. Because blood transfusion and blood products are not specifically mentioned in the definition of “routine services” in the PRM–1 under Section 2202.6, or in the definition of “ancillary services” in Section 2202.8, the commenter is asking whether it is appropriate not to bill a separate ancillary charge for the transfusions occurring in the routine cost centers, but to consider that the charge is encompassed in the routine Room and Board Charge under one of the Room and Board UB revenue codes.
In accordance with PRM–I, Section 2202.8, if the provider does not impose a separate charge in addition to a routine service charge, the service is considered not to be “ancillary”. As mentioned above, under PRM–I, Section 2203, the provider must consider the established practice of the same class of providers in the same State as to whether to include blood transfusion in the routine service charge (for both Medicare and non-Medicare patients). For blood transfused in the Operating Room, Emergency Room, or other ancillary cost centers, providers should be billing a separate charge (just as for implantable devices in case of Implantable Devices Charged to Patients) under UB revenue code 0391 (Blood Administration), and the cost and charges should be reported on Line 47 of the cost report.
We also solicited comments on alternative approaches that could be used in conjunction with or in lieu of the four proposed criteria for distinguishing between what should be reported in the new cost centers for Implantable Devices and Medical Supplies, respectively. Another option we considered would distinguish between high-cost and low-cost items based on a cost threshold. Under this methodology, we would also have one cost center for Medical Supplies and one cost center for Devices, but we would instruct hospitals to report items that are not movable equipment or a capital expense but are above a certain cost threshold in the cost center for Devices. Items costing below that threshold would be reported in the cost center for Medical Supplies.
Establishing a cost threshold for cost reporting purposes would directly address the problem of charge compression and would enable hospitals to easily determine whether an item should be reported in the supply or the device cost center. A cost threshold would also potentially allow a broader variety of expensive, single use devices that do not remain in the patient at discharge to be reported in the device cost center (such as specialized catheters or ablation probes). While we have a number of concerns with the cost threshold approach, we nevertheless solicited public comments on whether such an approach would be worthwhile to pursue. Specifically, we are concerned that establishing a single cost threshold for pricing devices could possibly be inaccurate across hospitals. Establishing a threshold would require identifying a cost at which hospitals would begin applying reduced markup policies. Currently, we do not have data from which to derive a threshold. We have anecdotal reports that hospitals change their markup thresholds between $15,000 and $20,000 in acquisition costs. Recent research on this issue indicated that hospitals with average inpatient discharges in DRGs with supply charges greater than $15,000, $20,000, and $30,000 have higher supply CCRs (Advamed March 2006).
Furthermore, although a cost threshold directly addresses charge compression, it may not eliminate all charge compression from the device cost center because a fixed cost threshold may not accurately capture differential markup policies for an individual hospital. At the same time, we also are concerned that establishing a cost threshold may interfere with the pricing practices of device manufacturers in that the prices for certain devices or surgical kits could be inflated to ensure that the devices met the cost threshold. We believe our proposed approach of identifying a group of items that are relatively expensive based on the existing criteria for OPPS device pass-through payment status, rather than adopting a cost threshold, would not
Another option for distinguishing between high-cost and low-cost items for purposes of the cost report would be to divide the Medical Supplies Charged to Patients cost center based on markup policies by placing items with lower than average markups in a separate cost center. This approach would center on documentation requirements for differential charging practices that would lead hospitals to distinguish between the reporting of supplies and devices on different cost report lines. That is, because charge compression results from the different markup policies that hospitals apply to the supplies and devices they use based on the estimated costs of those supplies and devices, isolating supplies and devices with different markup policies mitigates aggregation in markup policies that cause charge compression and is specific to a hospital's internal accounting and pricing practices. If requested by the fiscal intermediaries/MACs at audit, hospitals could be required to submit documentation of their markup policies to justify the way they have reported relatively inexpensive supplies on one line and more expensive devices on the other line. We believe that it should not be too difficult for hospitals to document their markup practices because, as was pointed out by many commenters since the implementation of cost-based weights, the source of charge compression is varying markup practices. Greater knowledge of the specifics of hospital markup practices may allow ultimately for development of standard cost reporting instructions that instruct hospitals to report an item as a device or a supply based on the type of markup applied to that item. This option related to markup practices, the proposal to define devices based on four specific criteria, and the third alternative that would establish a cost threshold for purposes of distinguishing between high-cost and low-cost items could be utilized separately or in some combination for purposes of cost report modification. Again, in the proposed rule, we solicited comments on these alternative approaches. We also expressed interest in other recommendations for appropriate cost reporting improvements that address charge compression.
As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47198), we have begun a comprehensive review of the Medicare hospital cost report, and the finalized policy to split the current cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients,” as part of our initiative to update and revise the hospital cost
Therefore, we do not believe that it is necessary to significantly delay availability of the revised cost reporting form beyond the date that we proposed; that is, for cost reporting periods starting after the Spring of 2009. In practice, hospitals need not have modified their systems (to the extent necessary) by the Spring of 2009, but rather, by the time they are completing and submitting cost reports for cost reporting periods beginning after the Spring of 2009. Further, as we have stated previously, no change to the actual cost reporting form will be undertaken without first going through notice and comment procedures in accordance with the PRA.
An important first step in RTI's study (as explained in its March 2007 report) was determining how well the cost report charges used to compute CCRs matched to the charges in the MedPAR file. This match (or lack thereof) directly affects the accuracy of the DRG cost estimates because MedPAR charges are multiplied by CCRs to estimate cost. RTI found inconsistent reporting between the cost reports and the claims data for charges in several ancillary departments (Medical Supplies, Operating Room, Cardiology, and Radiology). For example, the data suggested that some hospitals often include costs and charges for devices and other medical supplies within the Medicare cost report cost centers for Operating Room, Radiology, or Cardiology, while other hospitals include them in the Medical Supplies Charged to Patients cost center. While the educational initiative undertaken by the national hospital associations is encouraging hospitals to consistently report costs and charges for devices and other medical supplies only in the Medical Supplies Charged to Patients cost center, equal attention must be paid to the way in which charges are grouped by hospitals in the MedPAR file. Several commenters on the FY 2008 IPPS proposed rule supported RTI's recommendation of including additional fields in the MedPAR file to disaggregate certain cost centers. One commenter stated that the assignment of revenue codes and charges to revenue centers in the MedPAR file should be reviewed and changed to better reflect hospital accounting practices as reflected on the cost report (72 FR 47198).
In an effort to improve the match between the costs and charges included on the cost report and the charges in the MedPAR file, in the FY 2009 IPPS proposed rule, we recommended that certain revenue codes be used for items reported in the proposed Medical Supplies Charged to Patients cost center and the proposed Implantable Devices Charged to Patients cost center, respectively. Specifically, under the proposal to create a cost center for implantable devices that remain in the patient upon discharge, revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), and 0278 (Other Implants) would correspond to implantable devices reported in the proposed Implantable Devices Charged to Patients cost center. Items for which a hospital may have previously used revenue code 0270 (General Classification), but actually meet the proposed definition of an implantable device that remains in the patient upon discharge should instead be billed with the 0278 revenue code. Conversely, relatively inexpensive items and supplies that are not implantable and do not remain in the patient at discharge would be reported in the proposed Medical Supplies Charged to Patients cost center on the cost report, and should be billed with revenue codes 0271 (nonsterile supply), 0272 (sterile supply), and 0273 (take-home supplies), as appropriate. Revenue code 0274 (Prosthetic/Orthotic devices) and revenue code 0277 (Oxygen—Take Home) should be associated with the costs reported on lines 66 and 67 for DME-Rented and DME-Sold on the cost report. Charges associated with supplies used incident to radiology or to other diagnostic services (revenue codes 0621 and 0622 respectively) should match those items used incident to those services on the Medical Supplies Charged to Patients cost center of the cost report, because, under this proposal, supplies furnished incident to a service would be reported in the Medical Supplies Charged to Patients cost center. (We refer readers to item b. as listed under the proposed definition of a device in section II.E.4. of the preamble of this final rule.) A revenue code of 0623 for surgical dressings would similarly be associated with the costs and charges of items reported in the proposed Medical Supplies Charged to Patients cost center, while a revenue code of 0624 for FDA investigational device, if that device does not remain in the patient upon discharge, could be associated with items reported on the Medical Supplies Charged to Patients cost center as well.
In general, proper reporting would dictate that if an item is reported as an implantable device on the cost report, it is an item for which the NUBC would require use of revenue code 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants), or 0624 (Investigational Device). Likewise, items reported as Medical Supplies Charged to Patients should receive an appropriate revenue code indicative of supplies. We understand that many of these revenue codes have been in existence for many years and have been added for purposes unrelated to the goal of refining the calculation of cost-based weights. Accordingly, in the proposed rule, we acknowledged that additional instructions relating to the appropriate use of these revenue codes may need to be issued. In addition, CMS or the hospital associations, or both, may need to request new revenue codes from the NUBC. In either case, we do not believe either action should delay use of the new Medical Supplies and Implantable Devices CCRs in setting payment rates. However, in light of our proposal to create two separate cost centers for Medical Supplies Charged to Patients and Implantable Devices Charged to Patients, respectively, we solicited comments on how the existing revenue codes or additional revenue codes could best be used in conjunction with the revised cost centers on the cost report.
• First, the method used by CMS to group hospital charges for the MedPAR files differs from that used by hospitals to group Medicare charges, total charges, and overall costs on the cost report.
• Second, hospitals group their Medicare charges, total charges, and overall costs in different departments on their cost reports for various reasons.
• Third, hospitals across the country complete their cost reports in different ways, as allowed by CMS. In addition, interpretations of Medicare allowable costs vary from one fiscal intermediary/MAC to another.
The commenters were concerned that CMS' proposal might require hospitals to manually track a patient bill through several departments of the hospital to obtain information about implantable devices used, an effort that is difficult and inefficient. The commenters also stated that the combined use of hospital-specific charges and a national CCR result in a distortion of the MS–DRG relative weights and a shifting of Medicare payments among hospitals, not based on resource utilization, but rather on a mathematical calculation. One commenter recommended that CMS continue to collaborate with the workgroup heading up the educational initiative to develop a mechanism for determining the cost of implantable devices.
In its landmark 1999 report “To Err is Human: Building a Safer Health System,” the Institute of Medicine found that medical errors, particularly hospital-acquired conditions (HACs) caused by medical errors, are a leading cause of morbidity and mortality in the United States. The report noted that the number of Americans who die each year as a result of medical errors that occur in hospitals may be as high as 98,000. The cost burden of HACs is also high. Total national costs of these errors due to lost productivity, disability, and health care costs were estimated at $17 to $29 billion.
As one approach to combating HACs, including infections, in 2005 Congress authorized CMS to adjust Medicare IPPS hospital payments to encourage the prevention of these conditions. The preventable HAC provision at section 1886(d)(4)(D) of the Act is part of an array of Medicare value-based purchasing (VBP) tools that CMS is using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. CMS' application of VBP tools through various initiatives, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.
Additionally, the President's FY 2009 Budget outlines another approach for addressing serious preventable adverse events (“never events”), including HACs (see section II.F.9. below for a discussion regarding which HACs are included in the list of Serious Reportable Adverse Events). The President's Budget proposal would: (1) Prohibit hospitals from billing the Medicare program for “never events” and prohibit Medicare payment for these events and (2) require hospitals to report any occurrence of these events or receive a reduced annual payment update.
Medicare's IPPS encourages hospitals to treat patients efficiently. Hospitals receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, complications acquired in the hospital do not generate higher payments than the hospital would otherwise receive for uncomplicated cases paid under the same DRG. To this extent, the IPPS encourages hospitals to avoid complications. However, complications, such as infections acquired in the hospital, can generate higher Medicare payments in two ways. First, the treatment of complications can increase the cost of a hospital stay enough to generate an outlier payment. However, the outlier payment methodology requires that a hospital experience a large loss on an outlier case, which serves as an incentive for hospitals to prevent outliers. Second, under the MS–DRGs that took effect in FY 2008, there are currently 258 sets of MS–DRGs that are split into 2 or 3 subgroups based on the presence or absence of a complicating condition (CC) or a major complicating condition (MCC). If a condition acquired during a hospital stay is one of the conditions on the CC or MCC list, the hospital currently receives a higher payment under the MS–DRGs (prior to the October 1, 2008 effective date of the HAC payment provision). Medicare will continue to assign a discharge to a higher paying MS–DRG if the selected condition is present on admission. (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).) The following is an example of how an MS–DRG may be paid under the HAC provision:
This example illustrates a payment scenario in which the CC/MCC indicates a single secondary diagnosis only. It is atypical for a hospitalized Medicare beneficiary to have only one secondary diagnosis.
Section 1886(d)(4)(D) of the Act required the Secretary to select at least two conditions by October 1, 2007, that are: (a) High cost, high volume, or both; (b) assigned to a higher paying MS–DRG when present as a secondary diagnosis; and (c) could reasonably have been prevented through the application of evidence-based guidelines. Beginning October 1, 2008, Medicare can no longer assign an inpatient hospital discharge to a higher paying MS–DRG if a selected HAC is not present on admission. That is, the case will be paid as though the secondary diagnosis were not present. Medicare will continue to assign a discharge to a higher paying MS–DRG if the selected condition is present on admission. However, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS–DRG rate; to cause a lower MS–DRG payment, all CCs/MCCs on the claim must be selected conditions for the HAC payment provision. Section 1886(d)(4)(D) of the Act provides that the list of conditions can be revised from time to time, as long as the list contains at least two conditions. Beginning October 1, 2007, we required hospitals to begin submitting information on Medicare claims specifying whether diagnoses were present on admission (POA).
The POA indicator reporting requirement and the HAC payment provision apply to IPPS hospitals only. At this time, non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's inpatient hospitals, and hospitals in Maryland operating under waivers, are exempt from POA reporting and the HAC payment provision. Throughout this section, “hospital” refers to IPPS hospitals.
In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public input regarding conditions with evidence-based prevention guidelines that should be selected in implementing section 1886(d)(4)(D) of the Act. The public comments we received were summarized in the FY 2007 IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS proposed rule (72 FR 24716), we sought formal public comment on conditions that we proposed to select. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we summarized the public comments we received on the FY 2008 IPPS proposed rule, presented our responses, selected eight conditions to which the HAC provision will apply, and noted that we would be seeking comments on additional HAC candidates in the FY 2009 IPPS proposed rule.
In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed several candidate HACs in addition to proposing refinements to the previously selected HACs. In this FY 2009 IPPS final rule, we summarize the public comments we received on the FY 2009 IPPS proposed rule, present our responses, select additional conditions to which the HAC payment provision will apply, and note that we will be seeking comments on additional HAC candidates in the FY 2010 IPPS proposed rule.
CMS experts worked closely with public health and infectious disease professionals from the CDC to identify the candidate preventable HACs, review comments, and select HACs. CMS and CDC staff also collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital Medicare claims and on the payment implications of the various POA reporting options.
On December 17, 2007, CMS and CDC hosted a jointly-sponsored HAC and POA Listening Session to receive input from interested organizations and individuals. The agenda, presentations, audio file, and written transcript of the listening session are available on the CMS Web site at:
In selecting proposed candidate conditions and finalizing conditions as HACs, CMS and CDC staff evaluated each condition against the criteria established by section 1886(d)(4)(D)(iv) of the Act.
• Cost or Volume—Medicare data
• Complicating Condition (CC) or Major Complicating Condition (MCC)—Selected conditions must be represented by ICD–9–CM diagnosis codes that clearly identify the condition, are designated as a CC or an MCC, and result in the assignment of the case to an MS–DRG that has a higher payment when the code is reported as a secondary diagnosis. That is, selected conditions must be a CC or an MCC that would, in the absence of this provision, result in assignment to a higher paying MS–DRG.
• Evidence-Based Guidelines—Selected conditions must be considered reasonably preventable through the application of evidence-based guidelines. By reviewing guidelines from professional organizations, academic institutions, and entities such as the Healthcare Infection Control Practices Advisory Committee (HICPAC), we evaluated whether guidelines are available that hospitals should follow to prevent the condition from occurring in the hospital.
• Reasonably Preventable—Selected conditions must be considered reasonably preventable through the application of evidence-based guidelines.
The conditions that were selected for the HAC payment provision through the FY 2008 IPPS final rule with comment period are listed below. The HAC payment provision implications for these selected HACs will take effect on October 1, 2008. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) for a detailed analysis supporting the selection of each of these HACs.
In the FY 2009 IPPS proposed rule (73 FR 23552), we sought public comments on the following refinements to two of the previously selected HACs:
In the FY 2009 IPPS proposed rule (73 FR 23552), we solicited public comments regarding the inclusion of ICD–9–CM diagnosis code 998.7 (Acute reaction to foreign substance accidentally left during a procedure) to more accurately and completely identify foreign object retained after surgery as an HAC.
After consideration of the public comments received, we are finalizing our proposal to include diagnosis code 998.7 as an additional code to code 998.4 selected in FY 2008 to identify foreign object retained after surgery as an HAC under the HAC payment provision.
In the FY 2009 IPPS proposed rule (73 FR 23552), we proposed that, beginning October 1, 2008, the codes used to make MS–DRG adjustments for pressure ulcers under the HAC provision would include proposed MCC codes 707.23 and 707.24 (pressure ulcer stages III and IV).
In response to the commenters' concerns regarding the CC/MCC classification for these codes, we refer readers to section II.G.12. of this preamble where we address specific concerns about the creation of new codes for identifying pressure ulcers.
After consideration of public comments received, we are adopting as final our proposal that, beginning October 1, 2008, the codes used to identify pressure ulcer stages III and IV as HACs include the following MCC codes:
CMS and CDC have diligently worked together and with other stakeholders to identify and select candidates for the HAC payment provision. The additional candidate HACs selected in this FY 2009 IPPS final rule will have payment implications beginning October 1, 2008.
As in the FY 2009 IPPS proposed rule, we present in this final rule the statutory criteria for each HAC candidate in tabular format. Each table contains the following:
• HAC Candidate—We sought public comment on all HAC candidates.
• Medicare Data—We sought public comment on the statutory criterion of high cost, high volume, or both as it applies to each HAC candidate.
• CC/MCC—We sought public comment on the statutory criterion that an ICD–9–CM diagnosis code(s) clearly identifies the HAC candidate.
• Selected Evidence-Based Guidelines—We sought public comment on whether guidelines are available that hospitals should follow to prevent the condition from occurring in the hospital.
• Reasonably Preventable—We sought public comment on whether each condition could be considered reasonably preventable through the application of evidence-based guidelines.
After consideration of the public comments received and in light of the three statutory criteria, we are finalizing several additional conditions for the HAC payment provision. The additional conditions are defined by specific codes within the broad categories of manifestations of poor glycemic control, surgical site infections, and deep vein thrombosis/pulmonary embolism, as discussed below.
Hyperglycemia and hypoglycemia are extremely common laboratory findings in hospitalized patients and can be complicating features of underlying diseases and some therapies. However, we believe that extreme manifestations of poor glycemic control are reasonably preventable through the application of evidence-based guidelines and sound medical practice while in the hospital setting; specifically, we believe that they are preventable through the use of routine serum glucose measurement and control which are basic elements of good hospital care.
We originally proposed the diagnosis codes representing four extreme manifestations of poor glycemic control as HACs, but we are not finalizing the following codes representing diabetic coma because the codes are nonspecific and more precise, specific codes are available to describe the condition: (1) Diabetes with coma, type II or unspecified type, not stated as controlled (250.30); (2) diabetes with coma, type I, not stated as controlled (250.31); (3) diabetes with coma, type II or unspecified type, uncontrolled (250.32); and (4) diabetes with coma, type I, uncontrolled (250.33).
We are finalizing manifestations of poor glycemic control as an HAC because we have determined after considering the comments received that these conditions meet the statutory criteria. The following chart includes the codes that describe manifestations of the poor glycemic control as an HAC:
In the FY 2009 IPPS proposed rule (73 FR 23553), we requested public comments on the applicability of each of the statutory criteria to surgical site infections following certain procedures. We were particularly interested in receiving comments on the degree of preventability of these infections. We also requested, and received, public comment on additional surgical procedures that would qualify for the HAC provision by meeting all of the statutory criteria.
• MS–DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal Fusion with MCC, CC and without CC/MCC);
• MS–DRGs 471, 472, and 473 (Cervical Spinal Fusion, with MCC, CC and without CC/MCC);
• MS–DRGs 507 and 508 (Major Shoulder or Elbow Joint Procedures, with CC/MCC and without CC/MCC).
In response to commenters' suggestions, we are selecting certain orthopedic procedures that fall within the MS–DRGs listed above in the HAC surgical site infection category. The category of surgical site infection following certain orthopedic surgeries includes selected procedures that are often elective and that involve the repair, replacement, or fusion of various joints including the shoulder, elbow, and spine. In future rulemaking, we will work with stakeholders to identify additional procedures, orthopedic and other types, for which surgical site infections can be considered reasonably preventable through the application of evidence-based guidelines.
The following chart includes the codes that describe surgical site infection following certain orthopedic procedures as an HAC:
We proposed surgical site infections following ligation and stripping of varicose veins as an HAC, but we are not finalizing this procedure because these MS–DRGs do not currently split into severity levels based on the presence of a CC, and the surgical site infection code is a CC. Thus, surgical site infection following ligation and stripping of varicose veins does not currently meet the second statutory HAC selection criterion of triggering the higher-paying MS–DRG.
We solicited comments on each of the statutory criteria as they apply to surgical site infections following laparoscopic bypass and gastroenterostomy. Laparoscopic gastroenterostomy (44.38) includes several different types of gastric bypass procedures, all of which are done using a laparoscope to avoid surgically opening the abdomen (laparotomy). Gastroenterostomy (44.39) is a general term that describes surgically connecting the stomach to another area of the intestine.
The following chart includes the codes that describe surgical site infection following bariatric surgery for obesity as an HAC:
In the FY 2009 IPPS proposed rule, we requested, and received, public comment on additional surgical procedures that would meet the statutory criteria for a surgical site infection HAC.
We are selecting surgical site infections following certain orthopedic procedures, and bariatric surgery for obesity. These procedures will join mediastinitis following coronary artery bypass graft (CABG), which was selected in the FY 2008 IPPS final rule with comment period, as surgical site infection HACs. We look forward to working with stakeholders to identify additional procedures, such as device procedures, in which surgical site infections can be considered reasonably preventable through the application of evidence-based guidelines.
In the FY 2009 IPPS proposed rule, we proposed DVT/PE as a candidate HAC. We solicited comments on each of the statutory criteria, with particular focus on the degree to which DVT can be diagnosed on hospital admission and can be considered reasonably preventable. DVT occurs when a blood clot forms in the deep veins of an extremity, usually the leg, and causes pain, swelling, and inflammation. PE occurs when a clot or piece of a clot migrates from its original site to the lungs, causing the death of lung tissue, which can be fatal.
The following chart includes the codes that describe DVT/PE following certain orthopedic surgeries as an HAC:
Delirium is a relatively abrupt deterioration in a patient's ability to sustain attention, learn, or reason. Delirium is strongly associated with aging and treatment of illnesses that are associated with hospitalizations. Delirium affects nearly half of hospital patient days for individuals age 65 and older, and approximately three-quarters of elderly individuals in intensive care units have delirium. About 14 to 24 percent of hospitalized elderly individuals have delirium at the time of admission. Having delirium is a very serious risk factor, with 1-year mortality of 35 to 40 percent, a rate as high as those associated with heart attacks and sepsis. The adverse effects of delirium routinely last for months. Delirium is a clinical diagnosis, commonly assisted by screening tests such as the Confusion Assessment Method. The clinician must establish that the onset has been abrupt and that the deficits affect the ability to maintain attention, maintain orderly thinking, and learn from new information. Delirium is substantially under-recognized and is regularly conflated with dementia. Because of the high rate of mortality and incidence noted above, we proposed delirium as a candidate HAC, and provided the following information for consideration:
We solicited comments on each of the statutory criteria, with particular focus on the degree to which delirium can be considered reasonably preventable through the application of evidence-based guidelines.
A number of commenters stated that it is difficult to define and diagnose a condition that varies in degree, such as delirium. They stated that symptoms of delirium may be intermittent. In addition, the commenters indicated that it may be difficult to differentiate between delirium and intensive care unit psychosis resulting from pre-admission hypoxia. Many commenters noted that delirium may be caused by many factors unrelated to clinical treatment. For example, commenters stated that delirium is a common symptom in Alzheimer's patients, who are likely to become disoriented in unfamiliar hospital surroundings. One commenter also noted that the diagnosis is difficult to make if a patient is intoxicated.
In addition to those commenters who expressed blanket support for selecting all candidate HACs, a few commenters explicitly supported inclusion of delirium as an HAC. One commenter suggested that delirium resulting from medication error could be reasonably prevented by implementation of computerized physician order entry systems. Another commenter suggested that prevention based on the six factors in the Confusion Assessment Model would improve intake assessment and health care quality.
VAP is a serious hospital-acquired infection associated with high mortality, significantly increased length of stay, and high cost. It is typically caused by the aspiration of contaminated gastric or oropharyngeal secretions. The presence of an endotracheal tube facilitates both the contamination of secretions and aspiration. We presented the following information in the FY 2009 IPPS proposed rule for consideration:
The CDC recently updated the ICD–9–CM coding guidelines for proper use of code 997.31, which goes into effect on October 1, 2008. The ICD–9–CM Official Coding Guidelines are available at:
We solicited comments on each of the statutory criteria, with particular focus on the degree to which evidence-based guidelines can reasonably prevent VAP.
In addition to problems related to its preventability, many commenters also argued that VAP may be difficult to diagnose based on shortfalls associated with clinical definitions and diagnostic tests. The commenters stated that clinical cultures are not predictive for pneumonia, radiographic evidence of pneumonia is difficult to standardize, and vaccines do not protect against infection during the current hospital stay. The commenters pointed out that no standard definition of VAP exists—the definition is constructed of nonspecific clinical signs common to many complications; thus, because of its imprecise definition, selection of VAP as an HAC could be especially susceptible to unintended consequences. One commenter stated that the flexibility inherent to VAP's imprecise definitions coupled with threat of nonpayment created a “perverse incentive” to diagnose VAP as another condition. Commenters noted that patient risk factors may also impact the risk of developing VAP. For example, burn patients are especially susceptible to infections.
While some commenters indicated that VAP is a serious condition and could be a good candidate HAC in the future, the many commenters argued that current evidence and technology are not well-enough developed at this time to meet the statutory requirement of reasonably preventable through the application of evidence-based guidelines. One commenter pointed out that the Institute for Healthcare Improvement and the Joint Commission are currently evaluating alternative standards for VAP prevention.
In the IPPS FY 2009 proposed rule, we presented the following information for consideration:
We solicited comments on each of the statutory criteria, with particular focus on the degree to which this condition can be considered reasonably preventable through the application of evidence-based guidelines.
A large number of commenters suggested that the CDC's guidelines specific to vascular catheter-associated infections do not extend to
In the IPPS FY 2009 proposed rule, we presented the following information for consideration:
We solicited comments on each of the statutory criteria, with particular focus on the degree to which CDAD can be reasonably prevented through the application of evidence-based guidelines.
Legionnaires' Disease is a type of pneumonia caused by the bacterium
In the FY 2009 IPPS proposed rule, we presented the following information for consideration:
We requested public comment regarding the applicability of each of the statutory criteria to Legionnaires' Disease, particularly addressing the degree of preventability of this condition through the application of evidence-based guidelines and the degree to which hospital-acquired Legionnaires' Disease can be distinguished from community-acquired cases. We also sought comments on additional water-borne pathogens that would qualify for the HAC provision by meeting the statutory criteria.
When addressing the degree to which hospital-acquired Legionnaires' Disease can be distinguished from community-acquired cases, the commenters noted that the epidemiologic strain causing the disease is widespread in the community.
Iatrogenic pneumothorax refers to the accidental introduction of air into the pleural space, which is the space between the lung and the chest wall, by medical treatment or procedure. When air is introduced into this space, it partially or completely collapses the lung. Iatrogenic pneumothorax can occur during any procedure where there is the possibility of air entering the pleural space, including needle biopsy of the lung, thoracentesis, central venous catheter placement, pleural biopsy, tracheostomy, and liver biopsy. Iatrogenic pneumothorax can also occur secondary to positive pressure mechanical ventilation when an air sac in the lung ruptures, allowing air into the pleural space. In the FY 2009 IPPS proposed rule, we presented the following information for consideration:
We solicited public comment on the applicability of each of the statutory criteria to this condition. We were particularly interested in receiving comments on the degree to which iatrogenic pneumothorax could be considered reasonably preventable through the application of evidence-based guidelines.
In October 2007, the CDC published in the
During its March 19–20, 2008 meeting, the ICD–9–CM Coordination and Maintenance Committee discussed several new codes to more accurately capture MRSA. The following new codes will be implemented on October 1, 2008:
Though we did not propose MRSA as a candidate HAC in the FY 2009 IPPS proposed rule, MRSA can trigger the HAC payment provision. For every infectious condition selected as an HAC, MRSA could be the etiology of that infection. For example, if MRSA were the cause of a vascular catheter-associated infection (one of the eight conditions selected in the FY 2008 IPPS final rule with comment period), the HAC payment provision would apply to that MRSA infection. As we noted in the FY 2008 IPPS final rule with comment period (72 FR 47212), colonization by MRSA is not a reasonably preventable condition according to the current evidence-based guidelines. Therefore, MRSA does not meet the “reasonably preventable” statutory criterion for an HAC.
CDC has carried out extensive research on the epidemiology of MRSA and effective techniques that could be used to treat the infection and reduce its spread. The following Web sites contain information that reflect CDC's commitment: (1)
AHRQ has made previous investments in systems research to help monitor MRSA and related infections in hospital settings, as reflected in material on its Web sites at:
Collection of present on admission (POA) indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision and for broader public health uses of Medicare data. Through Change Request (CR) No. 5679 (released June 20, 2007), CMS issued instructions requiring IPPS hospitals to submit POA indicator data for all diagnosis codes on Medicare claims. CMS also issued CR No. 6086 (released June 30, 2008) regarding instructions for processing non-IPPS claims. Specific instructions on how to select the correct POA indicator for each diagnosis code are included in the ICD–9–CM Official Guidelines for Coding and Reporting, available at the CDC Web site:
There are five POA indicator reporting options, as defined by the ICD–9–CM Official Coding Guidelines:
In the FY 2009 IPPS proposed rule for the HAC payment provision (73 FR 23559), we proposed to pay the CC/MCC MS–DRGs only for those HACs coded with “Y” and “W” indicators.
We proposed to not pay the CC/MCC MS–DRGs for HACs coded with the “N” indicator.
We plan to analyze whether both the “N” and “U” POA reporting options are being used appropriately. The American Health Information Management Association (AHIMA) has promulgated Standards of Ethical Coding that require accurate coding regardless of the payment implications of the diagnoses. That is, diagnoses and POA indicators must be reported accurately on claims regardless of the fact that diagnoses coded with an “N” or “U” indicator may no longer trigger a higher paying MS–DRG. Medicare program integrity initiatives closely monitor for inaccurate coding and coding inconsistent with medical record documentation.
Although we proposed, and are now finalizing, the policy of not paying the CC/MCC MS–DRGs for HACs coded with the “U” indicator, we recognize that there may be some exceptional circumstances under which payment might be made. Death, elopement (leaving against medical advice), and transfers out of a hospital may preclude making an informed determination of whether an HAC was present on admission. We sought public comments on the potential use of patient discharge status codes to identify exceptional circumstances.
In section II.F.9. of the FY 2009 IPPS proposed rule (73 FR 23560), we encouraged the public to provide ideas and models for combating preventable HACs through the application of VBP principles. We note that we are not proposing Medicare policy in this discussion. However, we believe that collaborating with stakeholders to improve the HAC policy is another step toward fulfilling VBP's potential to provide better health care for Medicare beneficiaries.
To stimulate reflection and creativity, we presented several enhancement options, including: (a) Applying risk adjustment to make the HAC payment provision more precise; (b) collecting HAC rates to obtain a more robust longitudinal measure of a hospital's incidence of these conditions; (c) using POA information in various ways to decrease the incidence of preventable HACs; (d) adopting ICD–10 to facilitate more precise identification of HACs; (e) applying the principle of the IPPS HAC payment provision to Medicare payments in other care settings; (f) using CMS' authority to address events on the NQF's list of Serious Reportable Adverse Events; and (g) additional potential candidate HACs, suggested through comment, for future consideration.
In the FY 2009 IPPS proposed rule, we suggested that payment adjustments made when one of the selected HACs occurs could be made more precise by reflecting various sources and degrees of individual patient or patient population risk. For example, a patient's medical history, current health status (including comorbidities), and severity of illness can affect the expected occurrence of conditions selected as HACs. Rather than not paying any additional amount when a selected HAC occurs during a hospitalization, payment reductions could be related to the expected occurrence of that condition (that is, the less likely the complication, the greater the payment reduction).
In general, most commenters supported the idea of risk-adjusted payments for HACs, noting that proportional payments could reduce the risk of unintended consequences, as compared to the current HAC payment policy, through more equitable treatment of both hospitals and patients. Specifically, a few commenters expressed concern that all-or-nothing payment for HACs may disproportionately impact urban, teaching, and academic hospitals that treat under-served populations. Commenters stated that, because these populations may be at greater risk for HACs, risk-adjusted payments could allow all hospitals to continue treating high-risk populations without being penalized for treating riskier patients.
Commenters proposed addressing patient risk factors on both the individual and population levels. The majority of commenters supported assessing risk at the individual patient level. Although this approach may offer
Other commenters emphasized that for certain HACs, risk adjustment strategies would not be appropriate. Commenters stated that payments for “never events,” such as retention of a foreign object after surgery, air embolism, and blood incompatibility, should never be adjusted for risk because such occurrences can be considered absolutely preventable.
In the FY 2009 IPPS proposed rule, we suggested that a hospital's rates of HACs could be included as a measurement domain within each hospital's total performance score under a pay-for-performance model like the Medicare Hospital Value-Based Purchasing Plan. (We refer readers to section IV.C. of this preamble for a discussion of the Plan.) We asserted that measurement of rates over time could be a more meaningful, actionable, and fair way to adjust a hospital's MS–DRG payments for the incidence of HACs. The consequence of a higher incidence of measured conditions would be a lower VBP incentive payment, while public reporting of the measured rates of HACs would give hospitals an additional, nonfinancial incentive to prevent occurrence of the conditions.
The majority of commenters preferred a standardized framework for rate-based measurement and VBP payment implications for HACs, as opposed to not being paid the higher MS–DRG amount. Many commenters suggested determining expected rates of HACs and using those expected rates as benchmark targets for comparison, rewarding providers who stay at or below benchmark, while decreasing payment for those who exceed the benchmark.
Though the majority of commenters supported rate-based measurement of HACs, some commenters raised issues. A number of commenters noted that the extremely low incidence of “never events” could preclude meaningful rate-based measurement of the occurrence of those events. Other commenters opposed public reporting of the rates as a nonfinancial VBP incentive.
In the FY 2009 IPPS proposed rule, we asserted that POA data could be used to better understand and prevent the occurrence of HACs. Medicare data could be analyzed separately or in combination with private sector or State POA data, which are currently available in certain States. Health services researchers could use these data in a variety of ways to assess the incidence of HACs and to identify best practices for HAC prevention. In addition, publicly reported POA data could also be used to support better health care decision making by Medicare beneficiaries, as well as other health care consumers, professionals, and caregivers.
Commenters addressed various uses of POA data, including informing risk adjustment, making benchmark comparisons between and within hospitals, and public reporting. Commenters noted that POA data have important applications to risk adjustment for quality measurement. In the absence of risk adjustment mechanisms, one commenter suggested that CMS expand POA codes beyond those discussed in section II.F.8. of the preamble of the proposed rule to include a code that would preclude reduced payment if the provider attests that “the HAC is believed to be the result of a natural disease process/severe patient condition and is not believed to be indicative of the level of the quality of care provided.” Nearly all commenters addressing the use of POA data urged CMS to provide hospitals with timely feedback of POA information. Specifically, many commenters wanted CMS to provide each hospital with its POA rates and comparisons to peer hospitals.
Commenters' responses to publicly reporting POA data were mixed. A large number of commenters opposed public reporting of POA data, arguing that only measures endorsed by the NQF and adopted by the HQA should be considered for public reporting. A few commenters voiced concern that public reporting would discourage hospitals from accurately reporting POA data. A few commenters suggested a phased-in public reporting timeline for POA data, allowing hospital data to remain confidential for a period while hospitals adjust to new coding and reporting requirements. Nearly all commenters stated that, if POA data were to be publicly reported, the data should be posted on
In the FY 2009 IPPS proposed rule, we suggested that adopting ICD–10 codes to replace the outdated, vague codes of ICD–9–CM would allow CMS to capture more accurate and precise information about HACs.
A number of commenters supported the adoption of ICD–10. Many of the commenters pointed out that the adoption of ICD–10 would facilitate more precise identification of HACs. Several commenters supported the adoption of ICD–10 with an appropriate 2-year transition period. Commenters stated that they have known since the 1990's that the ICD–9–CM coding structure was reaching its limits, and it was becoming increasingly difficult to identify new technologies that are commonly used in today's medical practices. The commenters stated that there is a critical need to move in a timely manner to CM and ICD–10–PCS because hospitals would have the ability to capture data more accurately, thus providing higher quality and more accurate data for reporting. Commenters urged the implementation of ICD–10 to ensure the availability of appropriate, consistent, and accurate clinical information reflective of patients' medical conditions and care provided. Commenters asserted that this would allow the nation to better measure quality, implement value-based purchasing, identify hospital-acquired conditions, and continue to refine a prospective payment system that improves recognition of variances in severity of illness.
One commenter expressed concern about the benefit of moving to ICD–10 and believed that its benefit in the outpatient setting had not been demonstrated. The commenter expressed concern about the cost of moving to a new coding system with the need to update software and redraft policies.
In the FY 2009 IPPS proposed rule, we suggested that the broad principle of Medicare not paying for preventable healthcare-associated conditions could potentially be applied in Medicare payment settings beyond IPPS hospitals, including for example, hospital outpatient departments, SNFs, and physician practices. Although the implementation would be different for each setting, alignment of incentives across settings of care is an important goal for all of CMS' VBP initiatives. To stimulate public input, we have included a discussion in several Medicare payment regulations regarding application of the broad principle of Medicare not paying for preventable healthcare-associated conditions in payment settings beyond IPPS. The discussion was included in the following regulations: FY 2009 IRF proposed rule (73 FR 22688), the CY 2009 OPPS/ASC proposed rule (73 FR 41547), the FY 2009 SNF proposed rule (73 FR 25932), and the FY 2009 LTCH final rule (73 FR 26829).
Commenters' reaction to the notion of applying the IPPS HAC payment provision to other settings was mixed. A number of commenters recognized that this use of payment incentives could promote better continuity of care (including documentation) and a reduction in avoidable readmissions. Commenters noted that aligned payment incentives would force pre- and post-acute care settings to share accountability for preventing healthcare-associated conditions. One commenter who supported expanding the policy to nursing homes suggested that CMS consider including dehydration measures for nonpayment in that setting.
While many commenters recognized potential benefits, many other commenters raised concerns or opposed implementing the IPPS HAC payment provision in other settings. Generally, commenters who were opposed to expanding the policy's reach believed that doing so would be premature until CMS assesses the impacts of the policy in the IPPS setting. Commenters also raised concerns about applying the policy in particular settings. For example, many commenters stated that Medicare payment for the physician setting is extremely different from that of the IPPS setting and that attribution issues in particular would make the policy difficult to accurately and fairly implement.
Commenters suggested that, if CMS did implement a similar policy in the physician setting, the agency should ensure that the policy does not create disincentives for treating high-risk patients. From the long-term care perspective, one commenter noted that the risk of an adverse event occurring increases with the duration of the stay and so such a policy would be particularly concerning for LTCHs.
In the FY 2009 IPPS proposed rule, we discussed how CMS has applied its authority to address the events on the NQF's list of Serious Reportable Adverse Events (also known as “never events”). We have adopted a number of items from the NQF's list of events as HACs. However, we also discussed that the HAC payment provision is not ideally suited to address every condition on the NQF's list.
Commenters unanimously asserted that CMS should not pay for never events. However, many commenters were concerned about the widespread misperception that HACs are never events, which can be considered absolutely preventable. Commenters urged CMS to explicitly differentiate its “reasonably preventable” HACs from the “never events” on the NQF's list of Serious Reportable Adverse Events.
Commenters suggested alternatives to Medicare's existing authority under the HAC provision to address never events. One commenter suggested that no higher CC/MCC MS–DRG payment should be made for claims including a selected HAC if that HAC overlaps with a never event. This would preclude a higher MS–DRG payment regardless of whether any other CC/MCCs that would otherwise trigger a higher MS–DRG payment are present on the claim.
We received the following suggestions of potential candidates for the HAC payment provision:
• Surgical site infection following device procedures
• Failure to rescue
• Death or disability associated with drugs, devices, or biologics
• Events on the NQF's list of Serious Reportable Adverse Events, not previously addressed by the HAC payment provision
• Dehydration
• Malnutrition
• Water-borne pathogens, not previously addressed by the HAC payment provision.
We reiterate that we are not making policy in this subsection; rather, we are providing a summary of the comments. We would like to thank commenters for the thoughtful comments received, and we will take this input into consideration as we develop any future regulatory and/or legislative proposals to refine and enhance the HAC payment provision.
This HAC coding section addresses additional coding issues that were raised by commenters regarding the selected and candidate HACs.
As justification for this request, the commenter pointed out that the predecessor codes for 038.12 and 482.42 are MCCs. The predecessor code for 038.12 is 038.11 (
The commenter's justification for making 041.12 a CC is not based on the predecessor code's CC/MCC assignment. The commenter acknowledged the predecessor code, 041.11 (
However, the commenter believed that the new MRSA specific code, 041.12, will allow differentiation between MRSA and other infections and will likely show that these MRSA infections are significantly more difficult and expensive to treat. Therefore, the commenter requested that code 041.12 be classified as a CC.
We disagree with classifying code 041.12 (Methicillin-resistant
We do not believe it is appropriate to change the CC/MCC classification of one of the codes in the category of bacterial infection in conditions classified elsewhere and of unspecified site to a CC while leaving all of the others as non-CCs. Further, we believe it is more appropriate to assign a CC/MCC classification based on the more precise description of the patient's infection such as pneumonia, septicemia, or nail bed infection. Therefore, we have made code 041.12 a non-CC, as shown in Table 6A of the Addendum to this final rule.
The following table sets out a complete list of the HACs selected for implementation on October 1, 2008 in this final rule and in the FY 2008 IPPS final rule with comment period:
Heart failure affects more than 5 million patients in the United States with 550,000 new cases each year, and causes more than 55,000 deaths annually. It is a progressive disease that is medically managed at all stages, but over time leads to continued deterioration of the heart's ability to pump sufficient amounts of adequately oxygenated blood throughout the body. When medical management becomes inadequate to continue to support the patient, the patient's heart failure would be considered to be the end stage of the disease. At this point, the only remaining treatment options are a heart transplant or mechanical circulatory support. A device termed an artificial heart has been used only for severe failure of both the right and left ventricles, also known as biventricular failure. Relatively small numbers of patients suffer from biventricular failure, but the exact numbers are unknown. There are about 4,000 patients approved and waiting to receive heart transplants in the United States at any given time, but only about 2,000 hearts per year are transplanted due to a scarcity of donated organs. There are a number of mechanical devices that may be used to support the ventricles of a failing heart on either a temporary or permanent basis. When it is apparent that a patient will require long-term support, a ventricular support device is generally implanted and may be considered either as a bridge to recovery or a bridge to transplantation. Sometimes a patient's prognosis is uncertain, and with device support the native heart may recover its function. However, when recovery is not likely, the patient may qualify as a transplant candidate and require mechanical circulatory support until a donor heart becomes available. This type of support is commonly supplied by ventricular assist devices (VADs), which are surgically attached to the native ventricles but do not replace them.
Devices commonly called artificial hearts are biventricular heart replacement systems that differ from VADs in that a substantial part of the native heart, including both ventricles, is removed. When the heart remains intact, it remains possible for the native heart to recover its function after being assisted by a VAD. However, because the artificial heart device requires the resection of the ventricles, the native heart is no longer intact and such recovery is not possible. The designation “artificial heart” is somewhat of a misnomer because some portion of the native heart remains and there is no current mechanical device that fully replaces all four chambers of the heart. Over time, better descriptive language for these devices may be adopted.
In 1986, CMS made a determination that the use of artificial hearts was not covered under the Medicare program. To conform to that decision, we placed ICD–9–CM procedure code 37.52 (Implantation of total replacement heart system) on the GROUPER program's MCE in the noncovered procedure list.
On August 1, 2007, CMS began a national coverage determination process for artificial hearts. SynCardia Systems, Inc. submitted a request for reconsideration of the longstanding noncoverage policy when its device, the CardioWest
CMS determined that a broader analysis of artificial heart coverage was deemed appropriate, as another manufacturer, Abiomed, Inc., has developed an artificial heart device, AbioCor® Implantable Replacement Heart Device, with different indications. SynCardia Systems, Inc. has received approval of its device from the FDA for humanitarian use as destination therapy for patients in end-stage biventricular failure who cannot qualify as transplant candidates. The AbioCor® Implantable Replacement Heart Device is indicated for use in severe biventricular end-stage heart disease patients who are not cardiac transplant candidates and who are less than 75 years old, who require multiple inotropic support, who are not treatable by VAD destination therapy, and who cannot be weaned from biventricular support if they are on such support. The desired outcome for this device is prolongation of life and discharge to home.
On February 1, 2008, CMS published a proposed coverage decision memorandum for artificial hearts which stated, in part, that while the evidence is inadequate to conclude that the use of an artificial heart is reasonable and necessary for Medicare beneficiaries, the evidence is promising for the uses of artificial heart devices as described above. CMS supports additional research for these devices, and therefore proposed that the artificial heart will be covered by Medicare when performed under the auspices of a clinical study. The study must meet all of the criteria listed in the proposed decision memorandum. This proposed coverage decision memorandum may be found on the CMS Web site at:
Following consideration of the public comments received, CMS made a final decision to cover artificial heart devices for Medicare beneficiaries under “Coverage with Evidence Development” when beneficiaries are enrolled in a clinical study that meets all of the criteria set forth by CMS. These criteria can be found in the final decision memorandum on the CMS Web site at:
The topic of coding of artificial heart devices was discussed at the September 27–28, 2007 ICD–9–CM Coordination and Maintenance Committee meeting held at CMS in Baltimore, MD. We note that this topic was placed on the Committee's agenda because any proposed changes to the ICD–9–CM coding system must be discussed at a Committee meeting, with opportunity for comment from the public. At the September 2007 Committee meeting, the Committee accepted oral comments from participants and encouraged attendees or anyone with an interest in the topic to comment on proposed changes to the code, inclusion terms, or exclusion terms. We accepted written comments until October 12, 2007. As a result of discussion and comment from the Committee meeting, the Committee revised the title of procedure code 37.52 for artificial hearts to read “Implantation of internal biventricular heart replacement system” with an inclusion note specifying that this is the code for an artificial heart. This code can be found in Table 6F, Revised Procedure Code Titles, in the Addendum to this final rule. In addition, the Committee created new code 37.55 (Removal of internal biventricular heart replacement system) to identify explantation of the artificial heart prior to heart transplantation. This code can be found in Table 6B, New Procedure Codes, in the Addendum to this final rule.
To make conforming changes to the IPPS system with regard to the proposed revision to the coverage decision for artificial hearts, in the FY 2009 IPPS proposed rule (73 FR 23563), we proposed to remove procedure code 37.52 from MS–DRG 215 (Other Heart Assist System Implant) and assign it to MS–DRG 001 (Heart Transplant or Implant of Heart Assist System with Major Comorbidity or Complication (MCC)) and MS–DRG 002 (Heart Transplant or Implant of Heart Assist System without Major Comorbidity or Complication (MCC)). In addition, we proposed to remove procedure code 37.52 from the MCE “Non-Covered Procedure” edit and assign it to the “Limited Coverage” edit. In addition, we proposed to include in this edit the requirement that ICD–9–CM diagnosis code V70.7 (Examination of participant in clinical trial) also be present on the claim. We proposed that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the proposed coverage policy.
With regard to the alternative suggestion of assigning all VADs to MS–DRG 001, irrespective of the presence of an MCC, we point out that when the MS–DRGs were originally created for use beginning FY 2008, the data suggested the appropriateness of separating the patients based on their severity as determined by the presence of an MCC or a CC. We do not have convincing evidence that hospitals are not being adequately reimbursed for the VAD procedures. Therefore, we are not adopting this suggestion.
After consideration of the public comments received, in this final rule, we are assigning code 37.52 (now titled “Implantation of total internal biventricular heart replacement system”) to MS–DRGs 001 and 002, as
To reiterate, during FY 2008, we made mid-year changes to portions of the GROUPER program not affecting MS–DRG assignment or ICD–9–CM coding. However, as the final coverage decision memorandum for artificial hearts was published after the CMS contractor's testing and release of the mid-year product, changes to the MCE included in the proposed rule were not included in that revision of the GROUPER Version 25.0. GROUPER Version 26.0, which will be in use for FY 2009, contains the final changes that we are adopting in this final rule. The edits in the MCE Version 25.0 will be effective retroactive to May 1, 2008. (To reduce confusion, we note that the version number of the MCE is one digit lower than the current GROUPER version number; that is, Version 26.0 of the GROUPER uses Version 25.0 of the MCE.)
In 1996, the FDA approved the use of tissue plasminogen activator (tPA), one type of thrombolytic agent that dissolves blood clots. In 1998, the ICD–9–CM Coordination and Maintenance Committee created code 99.10 (Injection or infusion of thrombolytic agent) in order to be able to uniquely identify the administration of these agents. Studies have shown that tPA can be effective in reducing the amount of damage the brain sustains during an ischemic stroke, which is caused by blood clots that block blood flow to the brain. tPA is approved for patients who have blood clots in the brain, but not for patients who have a bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to be most effective when used within the first 3 hours after the onset of an embolic stroke, but it is contraindicated in hemorrhagic strokes.
For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and Precerebral Occlusion without Infarction) by removing the diagnostic ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute Ischemic Stroke with Use of Thrombolytic Agent) which increased reimbursement for patients who sustained an ischemic or embolic stroke and who also had administration of tPA. The intent of this DRG was not to award higher payment for a specific drug, but to recognize the need for better overall care for this group of patients. Even though tPA is indicated only for a small proportion of stroke patients, that is, those patients experiencing ischemic strokes treated within 3 hours of the onset of symptoms, our data suggested that there was a sufficient quantity of patients to support the DRG change. While our goal is to make payment relate more closely to resource use, we also note that use of tPA in a carefully selected patient population may lead to better outcomes and overall care and may lessen the need for postacute care.
For FY 2008, with the adoption of MS–DRGs, CMS DRG 559 became MS–DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC). Stroke cases in which no thrombolytic agent was administered were grouped to MS–DRGs 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC), 065 (Intracranial Hemorrhage or Cerebral Infarction with CC), or 066 (Intracranial Hemorrhage or Cerebral Infarction without CC/MCC). The MS–DRGs that reflect use of a thrombolytic agent, that is, MS–DRGs 061, 062, and 063, have higher relative weights than the hemorrhagic or cerebral infarction MS–DRGs 064, 065, and 066.
The American Society of Interventional and Therapeutic Neuroradiology (ASITN) (now the Society of NeuroInterventional Surgery (SNIS)) and the American Academy of Neurology Professional Association (AANPA) have made us aware of a treatment issue that is of concern to the stroke provider's community. In some instances, patients suffering an embolytic or thrombolytic stroke are evaluated and given tPA in a community hospital's emergency department, and then are transferred to a larger facility's stroke center that is able to provide the level of services required by the increased severity of these cases. The facility providing the administration of tPA in its emergency department does not realize increased reimbursement, as the patient is often transferred as soon a possible to a stroke center. The facility to which the patient is transferred does not realize increased reimbursement, as the tPA was not administered there. The ASITN/SNIS requested that CMS give permission to code the administration of tPA as if it had been given in the receiving facility. This would result in the receiving facility being paid the higher weighted MS–DRGs 061, 062, or 063 instead of MS–DRGs 064, 065, or 066. The ASITN/SNIS's rationale was that the patients who received tPA in another facility (even though administration of tPA may have alleviated some of the worst consequences of their strokes) are still extremely compromised and require increased health care services that are much more resource consumptive than patients with less severe types of stroke. We have advised the ASITN/SNIS that hospitals may not report services that were not performed in their facility.
We recognize that the ASITN/SNIS's concerns potentially have merit but the quantification of the increased resource consumption of these patients is not currently possible in the existing ICD–9–CM coding system. Without specific length of stay and average charges data, we are unable to determine an appropriate MS–DRG for these cases. Therefore, we advised the ASITN/SNIS and AANAP to present a request at the diagnostic portion of the ICD–9–CM Coordination and Maintenance Committee meeting on March 20, 2008, for creation of a code that would recognize the fact that the patient had received a thrombolytic agent for treatment of the current stroke. In the proposed rule, we indicated that if this request was presented at the March 20, 2008 meeting, it could not be approved in time to be published as a new code in Table 6A in the proposed rule. However, we indicated that if a diagnosis code was created by the National Centers for Health Statistics as a result of that meeting, it would be added to the list of codes published in the FY 2009 IPPS final rule effective on October 1, 2008. With such information appearing on subsequent claims, we will have a better idea of how to classify these cases within the MS–DRGs. Therefore, because we did not have data to identify these patients at the time we issued the FY 2009 IPPS proposed rule, we did not propose an MS–DRG modification for the stroke patients receiving tPA in one facility prior to being transferred to another facility.
The AANPA did make such a request at the Coordination and Maintenance Committee Meeting on March 20, 2008, which resulted in the creation of code V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility). This code can be found
The commenters agreed with CMS' suggestion to recognize these patients by specific diagnostic coding, and suggested that CMS gather data in order to appropriately categorize these patients in the MS–DRG system. One commenter specifically suggested that data be collected via the new diagnostic code in FY 2009 with a view toward establishing a new MS–DRG or set of MS–DRGs in FY 2010.
There are currently six stroke MS–DRGs as described above, with MS–DRGs 061, 062, and 063 identifying cases of acute ischemic stroke with use of thrombolytic agents, by severity, and MS–DRGs 064, 065, and 066 identifying cases of intracranial hemorrhage or cerebral infarction, again divided by severity as determined by the presence of an MCC, a CC, or neither a CC or an MCC. We believe to arbitrarily assign the “drip and ship” cases to any one of these six DRGs is capricious and lacks objectivity. Further, in the interest of longitudinal data, we point out that epidemiologists will be able to gather their statistics more logically if we ultimately assign the cases to the most appropriate MS–DRG(s) after it has been proven that the patients consume a certain level of resources during their inpatient hospital course of treatment.
In addition, we reiterate our position regarding the submission of an ICD–9–CM code for a service that was not specifically performed at a facility receiving the transferred patient. Hospitals are not permitted to report services that were not performed in their facilities.
The commenters also suggested that, if a new code describing the administration of tPA at another facility was not created, a proxy code that is already in the list of MCCs could be assigned to the “drip and ship” cases that would then allow hospitals to be compensated for this category of more severe patients. The commenters suggested code 286.5 (Hemorrhagic disorder due to intrinsic circulating anticoagulants) as a proxy code.
After consideration of the public comments received, we are specifying that, for FY 2009 and absent any other conditions or procedures that would result in an alternative MS–DRG assignment, stroke cases involving patients who receive intravenous tPA administration at one facility but are then transferred to a tertiary hospital's stroke center will continue to be assigned to MS–DRGs 064, 065, and 066. We will continue to monitor the cases of patients suffering an embolytic or thrombolytic stroke who are evaluated and given tPA in a community hospital's emergency department and then are transferred to another facility. In the future, we will evaluate our data for potential MS–DRG reassignment based on the use of the new diagnostic code V45.88, and we are strongly encouraging receiving hospitals to include this code on appropriate claims.
As we did for FY 2008, we received a request from an individual representing the National Association of Epilepsy Centers to consider further refinements to the MS–DRGs describing seizures. Specifically, the representative recommended that a new MS–DRG be established for patients with intractable epilepsy who receive an electroencephalogram with video monitoring (vEEG) during their hospital stay. Similar to the initial recommendation, the representative stated that patients who suffer from uncontrolled seizures or intractable epilepsy are admitted to an epilepsy center for a comprehensive evaluation to identify the epilepsy seizure type, the cause of the seizure, and the location of the seizure. These patients are admitted to the hospital for 4 to 6 days with 24-hour monitoring that includes the use of EEG video monitoring along with cognitive testing and brain imaging procedures.
Effective October 1, 2007, MS–DRG 100 (Seizures with MCC) and MS–DRG 101 (Seizures without MCC) were implemented as a result of refinements to the DRG system to better recognize severity of illness and resource utilization. Once again, the representative applauded CMS for making changes in the DRG structure to better recognize differences in patient severity. However, the representative stated that a subset of patients in MS–DRG 101 who have a primary diagnosis of intractable epilepsy and are treated with vEEG are substantially more costly to treat than other patients in this MS–DRG and represent the majority of patients being evaluated by specialized epilepsy centers. Alternatively, the representative stated that he was not requesting any change in the structure of MS–DRG 100. According to the representative, the number of cases that would fall into this category is not significant. The representative further noted that this is a change from last year's request.
Epilepsy is currently identified by ICD–9–CM diagnosis codes 345.0x through 345.9x. There are two fifth digits that may be assigned to a subset of the epilepsy codes depending on the physician documentation:
• “0” for without mention of intractable epilepsy
• “1” for with intractable epilepsy
With the assistance of an outside reviewer, the representative analyzed cost data for MS–DRGs 100 and 101, which focused on three subsets of patients identified with a primary diagnosis of epilepsy or convulsions who also received vEEG (procedure code 89.19):
• Patients with a primary diagnosis of epilepsy with intractability specified (codes 345.01 through 345.91)
• Patients with a primary diagnosis of epilepsy without intractability specified (codes 345.00 through 345.90)
• Patients with a primary diagnosis of convulsions (codes 780.39)
The representative acknowledged that the association did not include any secondary diagnoses in its analyses. Based on its results, the representative recommended that CMS further refine MS–DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS–DRG that would be defined as “MS–DRG XXX'' (Epilepsy Evaluation without MCC).
According to the representative, these cases are substantially more costly than the other cases within MS–DRG 101 and are consistent with the criteria for dividing MS–DRGs on the basis of CCs and MCCs. In addition, the representative stated that the request would have a minimal impact on most hospitals but would substantially improve the accuracy of payment to hospitals specializing in epilepsy care.
In the FY 2009 IPPS proposed rule, we discussed our performance of an analysis using FY 2007 MedPAR data. As shown in the table below, we found a total of 54,060 cases in MS–DRG 101 with average charges of $14,508 and an average length of stay of 3.69 days. There were 879 cases with intractable epilepsy and vEEG with average charges of $19,227 and an average length of stay of 5 days.
In applying the criteria to establish subgroups, the data do not support the creation of a new subdivision for MS–DRG 101 for cases with intractable epilepsy and vEEG, nor does the data support moving the 879 cases from MS–DRG 101 to MS–DRG 100. Moving the 879 cases to MS–DRG 100 would mean moving cases with average charges of approximately $19,000 into an MS–DRG with average charges of $28,000. Therefore, we did not propose to refine
The commenter acknowledged that CMS has set specific criteria for the establishment of a new MS–DRG. According to the commenter, the FY 2007 data analyzed by the Association reported that the intractable epilepsy with vEEG cases exceed the average charge criteria as well as the minimum number of cases needed to establish a separate DRG. However, the total number of cases in the subgroup represents less than 2 percent of the cases in MS–DRG 101, while the criterion calls for a threshold of 5 percent. The commenter stated that the number of cases is small because most patients with intractable epilepsy admitted to the hospital for vEEG are younger than 65 years of age and are eligible for Medicare due to their disability. In addition, the commenter indicated that the population is typically covered by private insurance or Medicaid. The commenter asserted that the Medicare intractable epilepsy with vEEG cases will remain small, but asked that CMS establish the separate MS–DRG as it has done for pediatric and other small subgroups of patients.
Lastly, like the Association, the commenter noted that most of the admissions of the epilepsy subgroup occur in a relatively small number of hospitals with specialized epilepsy centers. The commenter believed that the establishment of a separate MS–DRG for the epilepsy subgroup would have a minimal impact on most hospitals, but would substantially improve the accuracy of payment to hospitals that specialize in epilepsy care.
As mentioned elsewhere in this final rule, we received several comments acknowledging CMS' discussion of the FY 2008 implementation of MS–DRGs and lack of data to support major MS–DRG changes for FY 2009. The commenters accepted CMS' proposal of not making significant revisions to the MS–DRGs until claims data under the new MS–DRG system are available. Therefore, as final policy for FY 2009, we are not modifying MS–DRG 101.
In the FY 2008 IPPS final rule with comment period (72 FR 47257), we created a separate, stand alone DRG for automatic implantable cardioverter-defibrillator (AICD) generator replacements and defibrillator lead replacements. The new MS–DRG 245 (AICD lead and generator procedures) contains the following codes:
• 00.52, Implantation or replacement of transvenous lead [electrode] into left ventricular coronary venous system
• 00.54, Implantation or replacement of cardiac resynchronization defibrillator pulse generator device only [CRT–D]
• 37.95, Implantation of automatic cardioverter/defibrillator lead(s) only
• 37.96, Implantation of automatic cardioverter/defibrillator pulse generator only
• 37.97, Replacement of automatic cardioverter/defibrillator lead(s) only
• 37.98, Replacement of automatic cardioverter/defibrillator pulse generator only
Commenters on the FY 2008 IPPS proposed rule supported this MS–DRG, which recognizes the distinct differences in resource utilization between pacemaker and defibrillator generators and leads. One commenter suggested that CMS consider additional refinements for the defibrillator generator and leads. In reviewing the standardized charges for the AICD leads, the commenter believed that the leads may be more appropriately assigned to another DRG such as MS–DRG 243 (Permanent Cardiac Pacemaker Implant with CC) or MS–DRG 258 (Cardiac Pacemaker Device Replacement with MCC). The commenter recommended that CMS consider moving the defibrillator leads back into a pacemaker DRG, either MS–DRG 243 or MS–DRG 258.
In response to the commenter, we indicated that the data supported separate MS–DRGs for these very different devices (72 FR 47257). We indicated that moving the defibrillator leads back into a pacemaker MS–DRG defeated the purpose of creating separate MS–DRGs for defibrillators and pacemakers. Therefore, we finalized MS–DRG 245 as proposed with the leads and generator codes listed above.
After publication of the FY 2008 IPPS final rule with comment period, we received a request from a manufacturer that recommended a subdivision for MS–DRG 245 (AICD Lead and Generator Procedures). The requestor suggested creating a new MS–DRG to separate the implantation or replacement of the AICD leads from the implantation or replacement of the AICD pulse generators to better recognize the differences in resource utilization for these distinct procedures.
The requestor applauded CMS' decision to create separate MS–DRGs for the pacemaker device procedures from the AICD procedures in the FY 2008 IPPS final rule (72 FR 47257). The requestor further acknowledged its support of the clinically distinct MS–DRGs for pacemaker devices. Currently, MS–DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with MCC and without MCC, respectively) describe the implantation or replacement of pacemaker generators, while MS–DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, without CC/MCC, respectively) describe the insertion or replacement of pacemaker leads.
The requestor believed that the IPPS “needs to continue to evolve to accurately reflect clinical differences and costs of services.” As such, the requestor recommended that CMS follow the same structure as it did with the pacemaker MS–DRGs for MS–DRG 245 to separately identify the implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) from the implantation or replacement of the pulse generators (codes 37.96, 37.98 and 00.54).
In the FY 2009 IPPS proposed rule, we discussed our analysis of the FY 2007 MedPAR data, in which we found a total of 5,546 cases in MS–DRG 245 with average charges of $62,631 and an average length of stay of 3.3 days. We
We agree with the requestor that the IPPS should accurately recognize differences in resource utilization for clinically distinct procedures. As the data demonstrate, average charges for the implantation or replacement of the AICD pulse generators are significantly higher than for the implantation or replacement of the AICD leads. Therefore, we proposed to create a new MS–DRG 265 to separately identify these distinct procedures.
Therefore, in this final rule, we are finalizing our proposals to revise the title of MS–DRG 245 to read “AICD Generator Procedures”, which includes procedure codes 37.96, 37.98, 00.54 and to create a new MS–DRG 265 (AICD Lead Procedures) to include procedure codes 37.95, 37.97 and 00.52, effective October 1, 2009.
Atrial fibrillation (AF) is the primary cardiac abnormality associated with ischemic or embolytic stroke. Most ischemic strokes associated with AF are possibly due to an embolism or thrombus that has formed in the left atrial appendage. Evidence from studies such as transesophageal echocardiography shows left atrial thrombi to be more frequent in AF patients with ischemic stroke as compared to AF patients without stroke. While anticoagulation medication can be efficient in ischemic stroke prevention, there can be problems of safety and tolerability in many patients, especially those older than 75 years. Chronic warfarin therapy has been proven to reduce the risk of embolism but there can be difficulties concerning its administration. Frequent blood tests to monitor warfarin INR are required at some cost and patient inconvenience. In addition, because warfarin INR is affected by a large number of drug and dietary interactions, it can be unpredictable in some patients and difficult to manage. The efficacy of aspirin for stroke prevention in AF patients is less clear and remains controversial. With the known disutility of warfarin and the questionable effectiveness of aspirin, a device-based solution may provide added protection against thromboembolism in certain patients with AF.
At the April 1, 2004 ICD–9–CM Coordination and Maintenance Committee meeting, a proposal was presented for the creation of a unique procedure code describing insertion of the left atrial appendage filter system. Subsequently, ICD–9–CM code 37.90 (Insertion of left atrial appendage device) was created for use beginning October 1, 2004. This code was designated as a non-operating room (non-O.R.) procedure, and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or Acute Myocardial Infarction). With the adoption of MS–DRGs in FY 2008, CMS DRG 518 was divided into MS–DRGs 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC) and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC).
We have reviewed the data concerning this procedure code annually. Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases were reported, and the average charges ($27,620) closely mimicked the average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As the charges were comparable, we made no recommendations to change the CMS DRG assignment for FY 2007.
Using FY 2006 MedPAR data for the FY 2008 IPPS final rule, we divided CMS DRG 518 into the cases that would be reflected in the MS–DRG configuration; that is, we divided the cases based on the presence or absence of an MCC. There were 35 cases without an MCC with average charges of $24,436, again mimicking the 38,002 cases with average charges of $32,546. There were 3 cases with an MCC with average charges of $62,337, compared to the 5,458 cases also with an MCC with average charges of $53,864. Again, it was deemed that cases with code 37.90 were comparable to the rest of the cases in CMS DRG 518, and the decision was made not to make any changes in the DRG assignment for this procedure code. As noted above, CMS DRG 518 became MS–DRGs 250 and 251 in FY 2008.
We have received a request regarding code 37.90 and its placement within the MS–DRG system for FY 2009. The requestor, a manufacturer's representative, asked for either the reassignment of code 37.90 to an MS–DRG that would adequately cover the costs associated with the complete procedure or the creation of a new MS–DRG that would reimburse hospitals adequately for the cost of the device. The requestor reported that the device's IDE clinical trial is nearing completion, with the conclusion of study enrollment in May 2008. The requestor will continue to enroll patients in a Continued Use Registry following completion of the trial. The requestor reported that it did not charge hospitals for the atrial appendage device, estimated to cost $6,000, during the trial period, but it will begin to charge hospitals upon the completion of the trial in May. The requestor provided us with its data showing what it believed to be a differential of $107 more per case than the payment average for MS–DRG 250, and a shortfall of $3,808 per case than the payment average for MS–DRG 251.
The requestor pointed out that code 37.90 is assigned to both MS–DRGs 250 and 251, but stated that the final MS–DRG assignment would be MS–DRG 251 when the patient has a principal diagnosis of atrial fibrillation (code 427.31) because AF is not presently listed as a CC or an MCC. We note that it is the principal diagnosis that is used to determine assignment of a case to the correct MDC and subsequently the MS–DRG. Secondary or additional diagnosis codes are the only codes that can be used to determine the presence of a CC or an MCC.
With regard to the request to create a specific MS–DRG for the insertion of this device titled “Percutaneous Cardiovascular Procedures with Implantation of a Left Atrial Appendage Device without CC/MCC”, we point out that the payments under a prospective
Using FY 2007 MedPAR data, for the FY 2009 IPPS proposed rule, we reviewed MS–DRGs 250 and 251 for the presence of the left atrial appendage device. The following table displays our results:
There were a total of 105 cases assigned code 37.90 that were reported for Medicare beneficiaries in the 2007 MedPAR data. There are 4 cases with an atrial appendage device in MS–DRG 250 that have higher average charges than the other 6,420 cases in the MS–DRG, and that have slightly shorter lengths of stay by 1.25 days. However, the more telling data are located in MS–DRG 251, which shows that the 101 cases in which an atrial appendage device was implanted have much lower average charges ($20,846.09) than the other 39,355 cases in the MS–DRG with average charges of $35,758.98. The difference in the average charges is approximately $14,912, so even when the manufacturer begins charging the hospitals the estimated $6,000 for the device, there is still a difference of approximately $8,912 in average charges based on the comparison within the total MS–DRG 251. Interestingly, the 101 cases also have an average length of stay of less than half of the average length of stay compared to the other cases assigned to that MS–DRG.
Because the data did not support either the creation of a unique MS–DRG or the assignment of procedure code 37.90 to another higher-weighted MS–DRG, we did not propose any change to MS–DRGs 250 and 251, or to code 37.90 for FY 2009. We believe, based on the past 3 years' comparisons, that this code is appropriately located within the MS–DRG structure.
We did not receive any comments on our proposal to make no changes to MS–DRGs 250 or 251, or on the assignment of code 37.90 (Insertion of left atrial appendage device) within the MS–DRG structure. Therefore, in the absence of comment to the contrary, and in the presence of what we believe to be compelling evidence concerning the accuracy of the placement of code 37.90 in the current MS–DRG structure, we are not modifying MS–DRG 250 or 251 or procedure code 37.90 for FY 2009.
As an additional note, we point out that the titles of MS–DRGs 250 and 251 have been changed for FY 2009. We have removed the reference to AMI, as that portion of the title was a holdover from the CMS DRGs last used in FY 2007. The correct titles are: MS–DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent with MCC) and MS–DRG 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent without MCC). The entire list of MS–DRGs can be found in Table 5 of the Addendum to this final rule.
For FY 2009, we again received a request from the American Association of Hip and Knee Surgeons (AAHKS), a specialty group within the American Academy of Orthopedic Surgeons (AAOS), concerning modifications of the lower joint procedure MS–DRGs. The request is similar, in some respects, to the AAHKS' request in FY 2008, particularly as it relates to separating routine and complex procedures. For the benefit of the reader, we are republishing a history of the development of DRGs for hip and knee replacements and a summary of the AAHKS FY 2008 request that were included in the FY 2008 IPPS final rule with comment period (72 FR 47222 through 47224) before we discuss the AAHKA's more recent request.
In the FY 2006 IPPS final rule (70 FR 47303), we deleted CMS DRG 209 (Major Joint and Limb Reattachment Procedures of Lower Extremity) and created two new CMS DRGs: 544 (Major Joint Replacement or Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee Replacement). The two new CMS DRGs were created because revisions of joint replacement procedures are significantly more resource intensive than original hip and knee replacements procedures. CMS DRG 544 included the following procedure code assignments:
• 81.51, Total hip replacement
• 81.52, Partial hip replacement
• 81.54, Total knee replacement
• 81.56, Total ankle replacement
• 84.26, Foot reattachment
• 84.27, Lower leg or ankle reattachment
• 84.28, Thigh reattachment
CMS DRG 545 included the following procedure code assignments:
• 00.70, Revision of hip replacement, both acetabular and femoral components
• 00.71, Revision of hip replacement, acetabular component
• 00.72, Revision of hip replacement, femoral component
• 00.73, Revision of hip replacement, acetabular liner and/or femoral head only
• 00.80, Revision of knee replacement, total (all components)
• 00.81, Revision of knee replacement, tibial component
• 00.82, Revision of knee replacement, femoral component
• 00.83, Revision of knee replacement, patellar component
• 00.84, Revision of knee replacement, tibial insert (liner)
• 81.53, Revision of hip replacement, not otherwise specified
• 81.55, Revision of knee replacement, not otherwise specified
Further, we created a number of new ICD–9–CM procedure codes effective October 1, 2005, that better distinguish the many different types of joint replacement procedures that are being performed. In the FY 2006 IPPS final rule (70 FR 47305), we indicated a commenter had requested that, once we receive claims data using the new procedure codes, we closely examine data from the use of the codes under the two new CMS DRGs to determine if future additional DRG modifications are needed.
Prior to this year, the AAHKS had recommended that we make further refinements to the CMS DRGs for knee and hip arthroplasty procedures. The AAHKS previously presented data to CMS on the important differences in clinical characteristics and resource utilization between primary and revision total joint arthroplasty procedures. The AAHKS stated that CMS' decision to create a separate DRG for revision of total joint arthroplasty (TJA) in October 2005 resulted in more equitable reimbursement for hospitals that perform a disproportionate share of complex revision of TJA procedures, recognizing the higher resource utilization associated with these cases. The AAHKS stated that this important payment policy change led to increased access to care for patients with failed total joint arthroplasties, and ensured that high volume TJA centers could continue to provide a high standard of care for these challenging patients.
The AAHKS further stated that the addition of new, more descriptive ICD–9–CM diagnosis and procedure codes for TJA in October 2005 gave it the opportunity to further analyze differences in clinical characteristics and resource intensity among TJA patients and procedures. Inclusive of the preparatory work to submit its recommendations, the AAHKS compiled, analyzed, and reviewed detailed clinical and resource utilization data from over 6,000 primary and revision TJA procedure codes from 4 high volume joint arthroplasty centers located within different geographic regions of the United States: University of California, San Francisco, CA; Mayo Clinic, Rochester, MN; Massachusetts General Hospital, Boston, MA; and the Hospital for Special Surgery, New York, NY. Based on its analysis, the AAHKS recommended that CMS examine Medicare claims data and consider the creation of separate DRGs for total hip and total knee arthroplasty procedures. The AAHKS stated that based on the differences between patient characteristics, procedure characteristics, resource utilization, and procedure code payment rates between total hip and total knee replacements, separate DRGs were warranted. Furthermore, the AAHKS recommended that CMS create separate base DRGs for routine versus complex joint revision or replacement procedures as shown below.
• 00.73, Revision of hip replacement, acetabular liner and/or femoral head only
• 00.85, Resurfacing hip, total, acetabulum and femoral head
• 00.86, Resurfacing hip, partial, femoral head
• 00.87, Resurfacing hip, partial, acetabulum
• 81.51, Total hip replacement
• 81.52, Partial hip replacement
• 81.53, Revision of hip replacement, not otherwise specified
• 00.70, Revision of hip replacement, both acetabular and femoral components
• 00.71, Revision of hip replacement, acetabular component
• 00.72, Revision of hip replacement, femoral component
• 00.83, Revision of knee replacement, patellar component
• 00.84, Revision of knee replacement, tibial insert (liner)
• 81.54, Revision of knee replacement, not otherwise specified
• 81.55, Revision of knee replacement, not otherwise specified
• 81.56, Total ankle replacement
• 00.80, Revision of knee replacement, total (all components)
• 00.81, Revision of knee replacement, tibial component
• 00.82, Revision of knee replacement, femoral component
• 84.26, Foot reattachment
• 84.27, Lower leg or ankle reattachment
• 84.28, Thigh reattachment
The AAHKS also recommended the continuation of CMS DRG 471 (Bilateral or Multiple Major Joint Procedures of Lower Extremity) without modifications. CMS DRG 471 included any combination of two or more of the following procedure codes:
• 00.70, Revision of hip replacement, both acetabular and femoral components
• 00.80, Revision of knee replacement, total (all components)
• 00.85, Resurfacing hip, total, acetabulum and femoral head
• 00.86, Resurfacing hip, partial, femoral head
• 00.87, Resurfacing hip, partial, acetabulum
• 81.51, Total hip replacement
• 81.52, Partial hip replacement
• 81.54, Total knee replacement
• 81.56, Total ankle replacement
In the FY 2008 IPPS final rule with comment period (72 FR 47222 through 47226), we adopted MS–DRGs to better recognize severity of illness for FY 2008. The MS–DRGs include two new severity of illness levels under the then current base DRG 544. We also added three new severity of illness levels to the base DRG for Revision of Hip or Knee Replacement. The new MS–DRGs are as follows:
• MS–DRG 466 (Revision of Hip or Knee Replacement with MCC)
• MS–DRG 467 (Revision of Hip or Knee Replacement with CC)
• MS–DRG 468 (Revision of Hip or Knee Replacement without CC/MCC)
• MS–DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity with MCC)
• MS–DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity without MCC)
We found that the MS–DRGs greatly improved our ability to identify joint procedures with higher resource costs. In the final rule, we presented data indicating the average charges for each new MS–DRG for the joint procedures.
In the FY 2008 IPPS final rule with comment period, we acknowledged the valuable assistance the AAHKS had provided to CMS in creating the new joint replacement procedure codes and modifying the joint replacement DRGs beginning in FY 2006. These efforts greatly improved our ability to categorize significantly different groups of patients according to severity of illness. Commenters on the FY 2008 proposed rule had encouraged CMS to continue working with the orthopedic
The AAHKS recommended that the base DRG for the proposed two severity subdivision MS–DRGs for major joint replacement or reattachment of lower extremity with and without CC/MCC (MS–DRGs 483 and 484) be subdivided into three severity levels, as was the case for the revision of hip and knee replacement MS–DRGs. AAHKS also recommended that the two severity subdivision MS–DRGs for bilateral or multiple major joint procedures of lower extremity with and without MCC (MS–DRGs 461 and 462) be subdivided three ways for this base DRG. AAHKS acknowledged that the three way split would not meet all five of the criteria for establishing a subgroup, and stated that these criteria were too restrictive, lack face validity, and create perverse admission selection incentives for hospitals by significantly overpaying for cases without a CC and underpaying for cases with a CC. It recommended that the existing five criteria be modified for low volume subgroups to assure materiality. For higher volume MS–DRG subgroups, the AAHKS recommended that two other criteria be considered, particularly for nonemergency, elective admissions:
• Is the per-case underpayment amount significant enough to affect admission vs. referral decisions on a case-by-case basis?
• Is the total level of underpayments sufficient to encourage systematic admission vs. referral policies, procedures, and marketing strategies?
The AAHKS also recommended refining the five existing criteria for MCC/CC/without subgroups as follows:
• Create subgroups if they meet the five existing criteria, with cost difference between subgroups ($1,350) substituted for charge difference between subgroups ($4,000);
• If a proposed subgroup meets criteria number 2 and 3 (at least 5 percent and at least 500 cases) but fails one of the others, then create the subgroup if either of the following criteria are met:
• At least $1,000 cost difference per case between subgroups; or
• At least $1 million overall cost should be shifted to cases with a CC (or MCC) within the base DRG for payment weight calculations.
In response, we indicated that we did not believe it was appropriate to modify our five criteria for creating severity subgroups. Our data did not support creating additional subdivisions based on the criteria. At that time, we believed the criteria we established to create subdivisions within a base DRG were reasonable and establish the appropriate balance between better recognition of severity of illness, sufficient differences between the groups, and a reasonable number of cases in each subgroup. However, we indicated that we may consider further modifications to the criteria at a later date once we have had some experience with MS–DRGs created using the proposed criteria.
The AAHKS indicated in its response to the FY 2008 proposed rule that it continued to support the separation of routine and complex joint procedures. It believed that certain joint replacement procedures have significantly lower average charges than do other joint replacements. The AAKHS' data suggest that more routine joint replacements are associated with substantially less resource utilization than other more complex revision procedures. The AAHKS stated that leaving these procedures in the revision MS–DRGs results in substantial overpayment for these relatively simple, less costly revision procedures, which in turn results in a relative underpayment for the more complex revision procedures.
In response, we examined data on this issue and identified two procedure codes for partial knee revisions that had significantly lower average charges than did other joint revisions. The two codes are as follows:
• 00.83 Revision of knee replacement, patellar component
• 00.84 Revision of total knee replacement, tibial insert (liner)
The data suggest that these less complex partial knee revisions are less resource intensive than other cases assigned to MS–DRGs 466, 467, or 468. We examined other orthopedic DRGs to which these two codes could be assigned. We found that these cases have very similar average charges to those in MS–DRG 485 (Knee Procedures with Principal Diagnosis of Infection with MCC), MS–DRG 486 (Knee Procedures with Principal Diagnosis of Infection with CC), MS–DRG 487 (Knee Procedures with Principal Diagnosis of Infection without CC), MS–DRG 488 (Knee Procedures without Principal Diagnosis of Infection with CC or MCC), and MS–DRG 489 (Knee Procedures without Principal Diagnosis of Infection without CC).
Given the very similar resource requirements of MS–DRG 485 and the fact that these DRGs also contain knee procedures, we moved codes 00.83 and 00.84 out of MS–DRGs 466, 467, and 468 and into MS–DRGs 485, 486, 487, 488, and 489. We also indicated that we would continue to monitor the revision MS–DRGs to determine if additional modifications are needed.
The AAHKS' current request involves the following recommendations:
• That CMS consolidate and reassign certain joint procedures that have a diagnosis of an infection or malignancy into MS–DRGs that are similar in terms of clinical characteristics and resource utilization. The AAKHS further identifies groups called Stage 1 and 2 procedures that it believes require significant differences in resource utilization.
• That CMS reclassify certain specific joint procedures, which AAHKS refers to as “routine,” out of their current MS–DRG assignments. The three joint procedures that AAHKS classifies as “routine” are codes 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only), 00.83 (Revision of knee replacement, patellar component), and 00.84 (Revision of total knee replacement, tibial insert (liner)). The AAHKS advocated removing these three “routine” procedures from the following DRGs: MS–DRGs 466, 467, and 468, MS–DRGs 485, 486, and 487, and MS–DRGs 488 and 489. The AAHKS refers to MS–DRGs 466, 467, and 468 as “complex” revision MS–DRGs, and recommended that the three “routine” procedures be moved out of MS–DRGs 466, 467, and 468 and MS–DRGs 485, 486, and 489 and into MS–DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity with and without MCC, respectively). The AAHKS contended that the three “routine” procedures have similar clinical characteristics and resource utilization to those in MS–DRGs 469.
The recommendations suggested by AAHKS are quite complex and involve a number of specific code lists and MS–DRG assignment changes. We discuss each of these requests in detail below.
(1) AAHKS Recommendation 1: Consolidate and reassign patients with
The AAHKS pointed out that deep infection is one of the most devastating complications associated with hip and knee replacements. These infections have been reported to occur in approximately 0.5 percent to 3 percent of primary and 4 percent to 6 percent of revision total joint replacement procedures. These infections often result in the need for multiple reoperations, prolonged use of intravenous and oral antibiotics, extended inpatient and outpatient rehabilitation, and frequent followup visits. Furthermore, clinical outcomes following single- and two-stage revision total joint arthroplasty procedures have been less favorable than revision for other causes of failure not associated with infection.
In addition to the clinical impact, the AAHKS stated that infected total joint replacement procedures also have substantial economic implications for patients, payers, hospitals, physicians, and society in terms of direct medical costs, resource utilization, and the indirect costs associated with lost wages and productivity. The AAHKS stated that the considerable resources required to care for these patients have resulted in a strong financial disincentive for physicians and hospitals to provide care for patients with infected total joint replacements, an increased economic burden on the high volume tertiary care referral centers where patients with infected hip replacement procedures are frequently referred for definitive management. The AAHKS further stated that, in some cases, there are compromised patient outcomes due to treatment delays as patients with infected joint replacements seek providers who are willing to care for them.
Once a deep infection of a total joint prosthesis is identified, the first stage of treatment involves a hospital admission for removal of the infected prosthesis and debridement of the involved bone and surrounding tissue. During the same procedure, an antibiotic-impregnated cement spacer is typically inserted to maintain alignment of the limb during the course of antibiotic therapy. The patient is then discharged to a rehabilitation facility/nursing home (or to home if intravenous therapy can be safely arranged for the patient) for a 6-week course of IV antibiotic treatment until the infection has cleared.
After the completion of antibiotic therapy, the hip or knee may be reaspirated to look for evidence of persistent infection or eradication of infection. A second stage procedure is then undertaken, where the patient is readmitted, the hip or knee is reexplored, and the cement spacer removed. If there are no signs of persistent infection, a hip or knee prosthesis is reimplanted, often using bone graft and costly revision implants in order to address extensive bone loss and distorted anatomy. Thus, the entire course of treatment for patients with infected joint replacements is 4 to 6 months, with an additional 6 to 12 months of rehabilitation. Furthermore, clinical outcomes following revision for infection are poor relative to outcomes following revision for other aseptic causes. The AAHKS noted that patients with bone malignancy have a similar treatment focus—surgery to remove diseased tissue, chemotherapy to treat the malignancy, and implantation of the new prosthesis. They also have similar resource use. For simplicity, the AAHKS' discussion focused on infected joint prostheses, but it suggested that the issues it raises would apply to patients with a malignancy as well.
The AAHKS stated that these patients are currently grouped in multiple MS–DRGs, and the cases are often “outliers” in each one. AAHKS proposed to consolidate these patients with similar clinical characteristics and treatment into MS–DRGs reflective of their resource utilization.
The AAHKS states that these more severe patients are currently classified into the following MS–DRGs:
• MS–DRGs 463, 463, and 465 (Wound Debridement and Skin Graft Excluding Hand, for Musculoskeletal-Connective Tissue Disease with MCC, with CC, without CC/MCC, respectively)
• MS–DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, without CC/MCC, respectively)
• MS–DRGs 485, 486, and 487 (Knee Procedures with Principal Diagnosis of Infection and with MCC, with CC, and without CC/MCC, respectively)
• MS–DRGs 488 and 489 (Knee Procedures without Principal Diagnosis of Infection and with CC/MCC and without CC/MCC, respectively)
• MS–DRGs 495, 496, and 497 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur with MCC, with CC, and without CC/MCC, respectively)
• Other MS–DRGs (The AAHKS did not specify what these other MS–DRGs were.)
The AAHKS indicated that cases with the severe diagnoses of infections, neoplasms, and structural defects have similarities. These similarities are due to an overlap of a severe diagnosis (including a principal diagnosis of code 996.66 (Infected joint prosthesis) and the resulting need for more extensive surgical procedures. The AAHKS stated that currently these patients are grouped into MS–DRGs by major procedure alone. AAHKS recommended that these cases be grouped into what it refers to as Stages 1 and 2 as follows:
• Stage 1 would include the removal of an infected prosthesis and includes cases in MS–DRGs 463, 464, and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497. Stage 1 joint procedure codes would include codes 80.05 (Arthrotomy for removal of prosthesis, hip), 80.06 (Arthrotomy for removal of prosthesis, knee), 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only), and 00.84 (Revision of knee replacement, tibial insert (liner)).
• Stage 2 would include the implant of a new prosthesis and includes cases in MS–DRGs 461 and 462, 463, 464, and 465, 466, 467, and 468, and 469 and 470. Stage 2 joint procedure codes would include codes 00.70 (Revision of hip replacement, both acetabular and femoral components), 00.71 (Revision of hip replacement, acetabular component), 00.72 (Revision of hip replacement, femoral component), 00.80 (Revision of knee replacement, total (all components)), 00.81 (Revision of knee replacement, tibial component), 00.82 (Revision of knee replacement, femoral component), 00.85 (Resurfacing hip, total, acetabulum and femoral head), 00.86 (Resurfacing hip, partial, femoral head), 00.87 (Resurfacing hip, partial, acetabulum), 81.51 (Total hip replacement), 81.52 (Partial hip replacement), 81.53 (Revise hip replacement), 81.54 (Total knee replacement), 81.55 (Revise knee replacement), and 81.56 (Total ankle replacement).
As stated earlier, the AAHKS recommended patients with certain more severe diagnoses be grouped into a higher severity level. While most of AAHKS' comments focused on joint replacement patients with infections, the AAHKS also believed that patients with certain neoplasms require greater resources. To this group of infections and neoplasms, the AAHKS recommended the addition of four codes that capture acquired deformities. The AAHKS believed that these codes would capture admissions for the second stage of the treatment for an infected joint. The AAHKS stated that the significance of these diagnoses when they are reported as the principal code position was significant in predicting resource utilization. However, the impact was not as significant when the diagnosis was reported as a secondary diagnosis.
• 170.7 (Malignant neoplasm of long bones of lower limb)
• 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip)
• 711.05 (Pyogenic arthritis, pelvic region and thigh)
• 711.06 (Pyogenic arthritis, lower leg)
• 730.05 (Acute osteomyelitis, pelvic region and thigh)
• 730.06 (Acute osteomyelitis, lower leg)
• 730.15 (Chronic osteomyelitis, pelvic region and thigh)
• 730.16 (Chronic osteomyelitis, lower leg)
• 730.25 (Unspecified osteomyelitis, pelvic region and thigh)
• 730.26 (Unspecified osteomyelitis, lower leg)
• 996.66 (Infection and inflammatory reaction due to internal joint prosthesis)
• 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft)
• 170.7 (Malignant neoplasm of long bones of lower limb)
• 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip)
• 198.5 (Secondary malignant neoplasm of bone and bone marrow) *
• 711.05 (Pyogenic arthritis, pelvic region and thigh)
• 711.06 (Pyogenic arthritis, lower leg)
• 730.05 (Acute osteomyelitis, pelvic region and thigh)
• 730.06 (Acute osteomyelitis, lower leg)
• 730.15 (Chronic osteomyelitis, pelvic region and thigh)
• 730.16 (Chronic osteomyelitis, lower leg)
• 730.25 (Unspecified osteomyelitis, pelvic region and thigh)
• 730.26 (Unspecified osteomyelitis, lower leg)
• 736.30 (Acquired deformities of hip, unspecified deformity)
• 736.39 (Other acquired deformities of hip) *
• 736.6 (Other acquired deformities of knee) *
• 736.89 (Other acquired deformities of other parts of limbs) *
• 996.66 (Infection and inflammatory reaction due to internal joint prosthesis) *
• 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft) *
For the Stage 2 procedures, AAHKS also suggested the use of the following secondary diagnosis codes to assign the cases to a higher severity level. These conditions would not be the reason the patient was admitted to the hospital. They would instead represent secondary conditions that were also present on admission or conditions that were diagnosed after admission.
• 170.7 (Malignant neoplasm of long bones of lower limb)
• 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip)
• 711.05 (Pyogenic arthritis, pelvic region and thigh)
• 711.06 (Pyogenic arthritis, lower leg)
• 730.05 (Acute osteomyelitis, pelvic region and thigh)
• 730.06 (Acute osteomyelitis, lower leg)
• 730.15 (Chronic osteomyelitis, pelvic region and thigh)
• 730.16 (Chronic osteomyelitis, lower leg)
• 730.25 (Unspecified osteomyelitis, pelvic region and thigh)
• 730.26 (Unspecified osteomyelitis, lower leg)
• 996.66 (Infection and inflammatory reaction due to internal joint prosthesis)
• 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft)
(2) AAHKS Recommendation 2: Reclassify certain specific joint procedures.
The AAHKS suggested that cases with the infection/neoplasm/defect diagnoses listed above be segregated according to the Stage 1 and 2 groups listed above. The AAHKS made one final recommendation concerning joint procedure cases with infections. It identified a subset of patients who had a principal diagnosis of code 996.66 (Infection and inflammatory reaction due to internal joint prosthesis) and who also had a secondary diagnosis of sepsis or septicemia. The AAHKS believed that these patients are for the most part admitted with both the joint infection and sepsis/septicemia present at the time of admission. The codes for sepsis/septicemia are classified as MCCs under MS–DRGs. The AAHKS believed it is inappropriate to count the secondary diagnosis of sepsis/septicemia as an MCC when it is reported with code 996.66. The AAHKS believed that counting sepsis and septicemia as an MCC results in double counting the infections. It believed that the joint infection and septicemia are the same infection. The AAHKS recommended that the following sepsis and septicemia codes not count as an MCC when reported with code 996.66:
• 038.0 (Streptococcal septicemia)
• 038.10 (Staphylococcal septicemia, unspecified)
• 038.11 (Staphylococcal aureus septicemia)
• 038.19 (Other staphylococcal septicemia)
• 038.2 (Pneumococcal septicemia [streptococcus pneumonia septicemia])
• 038.3 (Septicemia due anaerobes)
• 038.40 (Septicemia due to gram-negative organisms)
• 038.41 (Hemophilus influenzae [H. Influenzae])
• 038.42 (Escherichia coli [E. Coli])
• 038.43 (Pseudomonas)
• 038.44 (Serratia)
• 038.49 (Other septicemia due to gram-negative organisms)
• 038.8 (Other specified septicemias)
• 038.9 (Unspecified septicemia)
• 995.91 (Sepsis)
• 995.92 (Severe sepsis)
The MS–DRG modifications proposed by the AAHKS are quite complex and have many separate parts. We made changes to the MS–DRGs in FY 2008 as a result of a request by the AAHKS as discussed above, to recognize two types of partial knee replacements as less complex procedures. We have no data on how effective the new MS–DRGs for joint procedures are in differentiating patients with varying degrees of severity. Therefore, as we indicated in the proposed rule, we analyzed data reported prior to the adoption of MS–DRGs to analyze each of the recommendations made. We begin our analysis by focusing first on the more simple aspects of the recommendations made by the AAHKS.
(1) Changing the MS–DRG assignment for codes 00.73, 00.83, and 00.84.
As discussed previously, in FY 2008, the AAHKS recommended that CMS classify certain joint procedures as either routine or complex. We examined the data for these cases and found that the following two codes had significantly lower charges than the other joint revisions: 00.83 (Revision of knee replacement, patellar component) and 00.84 (Revision of knee replacement, tibial insert (liner)). Therefore, we moved these two codes to MS–DRGs 485, 486, and 487, and MS–DRGs 488 and 489.
As a result of AAHKS' most recent recommendations, we once again
The tables show that codes 00.73, 00.83, and 00.84 are appropriately assigned to their current MS–DRGs. The data do not support moving these three codes to MS–DRGs 469 and 470. Therefore, we did not propose a change of MS–DRG assignment for codes 00.73, 00.83, and 00.84 for FY 2009.
(2) Excluding sepsis and septicemia from being an MCC with code 996.66.
There are cases where a patient may be admitted with an infection of a joint prosthesis (code 996.66) and also have sepsis. In these cases, it may be possible to perform joint procedures as suggested by AAHKS. However, in other cases, a patient may be admitted with an infection of a joint prosthesis and then develop sepsis during the stay. Because our current data do not indicate whether a condition is present on admission, we could not determine whether or not the sepsis occurred after admission. Our data have consistently shown that cases of sepsis and septicemia require significant resources. Therefore, we classified the sepsis and septicemia codes as MCCs. Our clinical advisors do not believe it is appropriate to exclude all cases of sepsis and septicemia that are reported as a secondary diagnosis with code 996.66 from being classified as a MCC. We discuss septicemia as part of the HAC provision under section II.F. of the preamble of the proposed rule and this final rule. For the purposes of classifying sepsis and septicemia as non-CCs when reported with code 996.66, we do not support this recommendation. Therefore, in the proposed rule, we did not propose that the sepsis and septicemia codes be added to the CC exclusion list for code 996.66.
(3) Differences between Stage 1 and 2 cases with severe diagnoses.
As indicated in the proposed rule, we next examined data on AAHKS' suggestion that there are significant differences in resource utilization for cases they refer to as Stage 1 and 2. AAHKS stated that this is particularly true for those with infections, neoplasms, or structural defects. We used the list of procedure codes listed above that AAHKS describes as Stage 1 and 2 procedures. We also used AAHKS' designated lists of Stage 1 and 2 principal diagnosis codes to examine this proposal. This proposal entails moving cases with a Stage 1 or 2 principal diagnosis and procedure out of their current MS–DRG assignment in the following 19 MS–DRGs and into a newly consolidated set of MS–DRGs: MS–DRGs 463, 464, and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497.
As can be seen from the information below, there was not a significant difference in average charges between these Stage 1 and Stage 2 cases that have an MCC.
Average charges for Stage 1 cases with an MCC was $79,232 compared to $80,781 for Stage 2. Stage 1 cases without an MCC had average charges of $44,716 compared to $57,355. These data do not support reconfiguring the current MS–DRGs based on this new subdivision.
(4) Moving joint procedure cases to new MS–DRGs based on secondary diagnoses of infection.
We examined AAHKS' recommendation that Stage 2 joint cases with specific secondary diagnoses of infection or neoplasm be moved out of their current MS–DRG assignments and into a newly constructed MS–DRG. We indicated in the proposed rule that we are reluctant to make this type of significant DRG change to the joint MS–DRGs based on the presence of a secondary diagnosis. This results in the movement of cases out of MS–DRGs which were configured based on the reason for the admission (for example, principal diagnosis) and surgery. The cases would instead be assigned based on conditions that are reported as secondary diagnoses. In some cases, the infection may have developed or be diagnosed during the admission. This would be a significant logic change to the MS–DRGs for joint procedures. This logic change would involve setting a new precedent of reassigning cases to a different MS–DRG if an infection is reported as a secondary diagnosis. The secondary diagnosis of infection could be present on admission or develop after the admission. Currently, secondary diagnoses are evaluated to determine if they are an MCC or CC, and then they can lead to the case being assigned to a higher severity level. The secondary diagnoses do not currently lead to the removal of the case from the MS–DRG and reassignment to a new MS–DRG. We have not had an opportunity to examine claims data based on hospital discharges under the MS–DRGs which began October 1, 2008. Our clinical advisors believe it would be more appropriate to wait for data under the new MS–DRG system to determine how well the new severity levels are addressing accurate payment for these cases before considering this approach to assigning cases to a MS–DRG.
(5) Moving cases with infection, neoplasms, or structural defects out of 19 MS–DRGs and into two newly developed MS–DRGs.
The last recommended by AAHKS that we considered was moving cases with a principal diagnosis of infection, neoplasm, or structural defect from their list of Stage 1 and 2 diagnoses and consolidating them into newly constructed and modified MS–DRGs. AAHKS could not identify an existing set of MS–DRGs with similar resource utilizations into which the Stage 1 cases could be assigned. Therefore, the AAHKS recommended that CMS create three new MS–DRGs for Stage 1 cases with infections, neoplasms and structural defects which would be titled “Arthrotomy/Removal/Component exchange of Infected Hip or Knee Prosthesis with MCC, with CC, and without CC/MCC”, respectively.
The AAHKS recommended moving Stage 2 cases out of MS–DRGs 466, 467, and 468, and 469 and 470 and into MS–DRGs 461 and 462. AAHKS recommended that MS–DRGs 461 and 462 be renamed “Major Joint Procedures of Lower Extremity—Bilateral/Multiple/Infection/Malignancy”.
As we indicated in the proposed rule, in reviewing these proposed changes, we had a number of concerns. The first concern was that these proposed changes would result in the removal of cases with varying average charges from 19 current MS–DRGs and consolidating them into two separate sets of MS–DRGs. As the data below indicate, the average charges vary from as low as $29,181 in MS–DRG 487 to $81,089 in MS–DRG 463. Furthermore, the average charges for these infection/neoplasm/structural defect cases are very similar to other cases in their respective MS–DRG assignments for many of these MS–DRGs. There are cases where the average charges are higher. In MS–DRG 469 and 470, the infection/neoplasm/structural defect cases are significantly higher. However, there are only 136 cases in MS–DRG 469 out of a total of 29,030 cases with these diagnoses. There are only 673 cases in MS–DRG 470 out of a total of 385,123 cases with one of these diagnoses. The table below clearly demonstrates the wide variety of charges for cases with these diagnoses.
Given the wide variety of charges and the small number of cases where there are differences in charges, we do not believe the data support the AAKHS' recommendations. The data do not support removing these cases from the 19 MS–DRGs above and consolidating them into a new set of MS–DRGs, either newly created, or by adding them to MS–DRG 461 or 462, which have average charges of $80,718 and $57,355, respectively.
A second major concern involves redefining MS–DRGs 461 and 462 is that these MS–DRGs currently capture bilateral and multiple joint procedures. These MS–DRGs were specifically created to capture a unique set of patients who undergo procedures on more than one lower joint. Redefining these MS–DRGs to include both single and multiple joints undermines the clinical coherence of this MS–DRG. It would create a widely diverse group of patients based on either a list of specific diagnoses or the fact that the patient had multiple lower joint procedures.
Several commenters suggested an alternative way of capturing the more resource intensive joint procedure cases, particularly those involving an infected joint. The commenters recommended moving codes 80.05 (Arthrotomy for removal of hip prosthesis) and 80.06 (Arthrotomy for removal of knee prosthesis) into MS–DRGs 463 through 465 (Wound Debridement and Skin Graft Except Hand, for Musculoskeletal-Connective Tissue Disease with MCC, with CC, and without CC/MCC, respectively). (We note that code 80.05 is currently assigned to MS–DRGs 480 through 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, and without CC/MCC, respectively). Code 80.06 is currently assigned to MS–DRGs 495 through 497 (Local Excision and Removal Internal Fixation Devices Except Hip and Femur with MCC, with CC, and without CC/MCC, respectively).)
The commenters stated that a deep infection is one of the most devastating complications associated with hip and knee joint replacements, and that these cases require increased costs and resource utilization. The commenters believed that there is a strong financial disincentive for physicians and hospitals to provide care for patients with infected joint replacements. They indicated that this leads to an increased economic burden on tertiary care referral centers where patients with infected joint replacements are frequently referred for definitive management.
The commenters believed that codes 80.05 and 80.06 were a good proxy for cases of infected joints containing a previously implanted joint prosthesis. The commenters suggested that moving these two codes was considerably less complex than the previously discussed revisions to the joint DRGs. They also believed these two codes clearly captured cases with infected joint prostheses. The commenters believed that these codes would only be reported in cases of an infected joint where the previous infected prosthesis was removed and no new prosthesis was inserted. The commenters stated that when a previously implanted joint prosthesis is removed and replaced with a new prosthesis, coders assign only the code for the insertion of the new prosthesis. They added that they do not routinely assign an additional code for the removal of the joint prosthesis (code 80.05 or 80.06). The commenters also stated that when there is an infected joint, the joint prosthesis may be removed and extensive debridement may be provided involving bone and surrounding tissue. The commenters further stated that an antibiotic-impregnated cement spacer may be inserted to maintain alignment of the limb during the course of antibiotic therapy. According to the commenters, the new prosthesis will not be inserted until such time as the infection is fully resolved. In this case, the commenter stated that code 80.05 or 80.06 would be reported.
The commenters believed that when codes 80.05 or 80.06 are reported to capture the removal of a joint prosthesis, one can assume that the patient had a joint infection. Therefore, the commenters requested that codes 80.05 and 80.06 be reassigned to MS–DRGs 463, 464, and 465 because wound debridement is a treatment for infected joints.
We evaluated the alternative suggestion of moving codes 80.05 and 80.06 into MS–DRGs 463, 464, and 465. We disagree with the suggestion that the use of codes 80.05 and 80.06 serves as a good proxy for cases of infected joint prostheses. These two codes are used to capture the fact that a previously inserted joint prosthesis is now being removed. These prostheses can be removed for a variety of reason including wearing, breakage, and infection. Assuming that these cases are infections and then moving the cases to the debridement DRGs, MS–DRGs 463, 464, and 465, is inappropriate. We acknowledge that when a patient has an infected joint prosthesis, the prosthesis may be removed and treatment for the infection instituted, such as debridement. However, the most specific way of identifying these cases would be to examine the diagnosis code for the presence of an infection and to look for a debridement procedure code.
Furthermore, the current codes for removal of joint prostheses do not have specific instructions indicating that a coder must not report codes 80.05 and 80.06 when also reporting one of the joint revision codes. While the coding index implies that one does not need to report a code for the removal of the prosthesis when it is being replaced, it is not precluded under the codes. If a code is reported for the removal of the previous joint prosthesis along with a code for the joint revision, the proposed logic change would result in the case being assigned to MS–DRGs 463, 464, and 465 even though the patient did not have an infection or a debridement performed. This DRG assignment would be a result of the surgical hierarchy which places the debridement DRGs (MS–DRGs 463, 464, and 465) higher than the joint revision DRGs (MS–DRGs 466, 467, and 468). The proposed MS–DRG logic change could lead to the misclassification of many joint revision cases that did not have an infection or a debridement into the debridement DRGs.
We plan to discuss the need to provide more definitive coding notes under codes 80.05 and 80.06 at the September 24–25, 2008 ICD–9–CM Coordination and Maintenance Committee meeting to better clarify that one would not assign a code for the removal of a joint prosthesis if a new prosthesis is inserted. This clarification may be useful when considering future refinements to the joint procedure DRGs. However, at this time, we believe that codes 80.05 and 80.06 cannot be used as a definitive means of capturing cases of an infected joint prosthesis. We believe it is more appropriate to utilize diagnosis codes to clearly identify joint infections and debridement codes to indicate debridement. We will continue to examine means to better classify joint infections under the MS–DRGs. However, we are not moving codes 80.05 and 80.06 into MS–DRGs 463, 464, and 465 at this time. In addition, as stated previously, we also are not moving codes 00.73, 00.83, and 00.84 to MS–DRGs 469 and 470. We are making no changes to the joint procedure MS–DRGs for FY 2009.
MS–DRGs 466, 467, and 468 contain revisions for both total and partial joint revisions. For instance, MS–DRGs 466, 467, and 468 includes revisions of the total hip joint as well as a partial hip revision of only the femoral component. The commenter believed that a subset of the revision cases, those with a total revision, are more clinically similar to the revision cases than to the debridement cases. For this reason, the commenter recommended that the surgical hierarchy be changed so that revision of a hip and knee prosthesis in MS–DRGs 466, 467, and 468 should be placed above the debridement MS–DRGs (MS–DRGs 463, 464, and 465). We point out that the surgical hierarchy is based on all cases within each DRG, not a subset. Furthermore, we have no MS–DRG claims data on which to evaluate the need to change the surgical hierarchy based on this recommendation. We note that this discussion reinforces the point that the current codes for debridement of an infection and joint revisions seem to correctly assign cases to the most appropriate MS–DRG. Therefore, in this final rule, we are not making any changes to the joint procedure MS–DRGs for FY 2009. We are deferring the examination of infections of joint replacements until such time as we have MS–DRG claims data.
• Changing the following codes from non-CCs to CCs: 731.3 (Major osseous defects); 278.0 (Overweight and obesity); V85.35 (Body Mass index 35.0–35.9, adult); V85.36 (Body Mass index 36.0–36.9, adult); and V85.37 (Body Mass index 37.0–37.9, adult).
• Changing the following codes from non-CCs to MCCs: 278.01 (Morbid obesity); V85.38 (Body Mass index 38.0–38.9, adult); and V85.39 (Body Mass index 39.0–39.9, adult).
• Changing code V85.40 (Body Mass index 40 and over, adult) from a CC to an MCC.
The commenters also recommended that CMS continue to evaluate the MS–DRG assignments for codes 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only) and 00.84 (Revision of total knee replacement, tibial insert (liner)). The commenters stated that once CMS receives MS–DRG data, these data may
Therefore, in this final rule, we are not changing the MCC/CC classifications or the MS–DRG reassignments for codes 00.73, 00.83, or 00.84 for FY 2009. We also are not making changes to the joint procedure MS–DRGs for FY 2009.
The AAHKS recommended a number of complicated, interrelated MS–DRG changes to the joint procedure MS–DRGs. We have not yet had the opportunity to review data for these cases under the new MS–DRGs. We did analyze the impact of these recommendations using cases prior to the implementation of MS–DRGs. The recommendations were difficult to analyze because there were so many separate logic changes that impacted a number of MS–DRGs. We did examine each major suggestion separately, and found that our data and clinical analysis did not support making these changes. Therefore, in the FY 2009 IPPS proposed rule, we did not propose any revisions to the joint procedure MS–DRGs for FY 2009, nor are we making any revisions in this final rule. We look forward to examining these issues once we receive data under the MS–DRG system. As we indicated in the proposed rule, we also welcome additional recommendations from the AAHKS and others on a more incremental approach to resolving its concerns about the ability of the current MS–DRGs to adequately capture differences in severity levels for joint procedure patients.
We received a request from a manufacturer to modify the titles for three MS–DRGs with the most significant concentration of severe sepsis patients. The manufacturer stated that modification of the titles will assist in quality improvement efforts and provide a better reflection on the types of patients included in these MS–DRGs. Specifically, the manufacturer urged CMS to incorporate the term “severe sepsis” into the titles of the following MS–DRGs that became effective October 1, 2007 (FY 2008)
• MS–DRG 870 (Septicemia with Mechanical Ventilation 96+ Hours)
• MS–DRG 871 (Septicemia without Mechanical Ventilation 96+ Hours with MCC)
• MS–DRG 872 (Septicemia without Mechanical Ventilation 96+ Hours without MCC)
These MS–DRGs were created to better recognize severity of illness among patients diagnosed with conditions including septicemia, severe sepsis, septic shock, and systemic inflammatory response syndrome (SIRS) who are also treated with mechanical ventilation for a specified duration of time.
According to the manufacturer, “severe sepsis is a common, deadly and costly disease, yet the number of patients impacted and the outcomes associated with their care remain largely hidden within the administrative data set.” The manufacturer further noted that, although improvements have been made in the ICD–9–CM coding of severe sepsis (diagnosis code 995.92) and septic shock (diagnosis code 785.52), results of an analysis demonstrated an unacceptably high mortality rate for patients reported to have those conditions. The manufacturer believed that revising the titles to incorporate “severe sepsis” will provide various clinicians and researchers the opportunity to improve outcomes for these patients. Therefore, the manufacturer recommended revising the current MS–DRG titles as follows:
• Proposed Revised MS–DRG 870 (Septicemia or Severe Sepsis with Mechanical Ventilation 96+ Hours)
• Proposed Revised MS–DRG 871 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours with MCC)
• Proposed Revised MS–DRG 872 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours without MCC)
According to the commenter's study, 43.1 percent of cases in MS–DRG 853 represent patients with severe sepsis. As a result of these findings, the commenter stated that revising the title for MS–DRG 853 to include the term “severe sepsis and other” would be consistent with the rationale for proposing to modify the titles to MS–DRGs 870, 871, and 872. The commenter asserted that this additional MS–DRG modification would also better assist in the recognition and identification of severe sepsis, leading to better clinical outcomes and quality improvement efforts.
With regard to modifying the title to MS–DRG 853, we point out that the MS–DRG titles generally do not reflect all of the diagnoses or conditions that may have a significant concentration of patients within that particular MS–DRG.
We have also received several comments acknowledging CMS' discussion of the FY 2008 implementation of MS–DRGs and the lack of data to support major MS–DRG changes at this time. Overall, the commenters accepted CMS' proposal of not making significant revisions to the MS–DRGs until claims data under this new system are available. Therefore, as final policy for FY 2009, we are not making any change to the title for MS–DRG 853.
The commenter believed that it would be essential to continue making modifications to the MS–DRG classification system to recognize newer technologies and treatments. Specifically, this commenter asked that CMS consider endotoxemia as an MCC, stating this would be consistent with the current MS–DRG system's designation of sepsis and septicemia as MCCs.
In response to the commenter's recommendation that the MS–DRG classification system continue to be modified for purposes of recognizing new technologies or treatments, we do have a process in place under which we annually evaluate data and specific issues brought to our attention to determine if revisions are warranted. We refer the reader to section II.B.2 of the preamble in this final rule for a discussion on this process, as well as section II.J. of the preamble of this final rule for a discussion on the new technology add-on payment policy.
The term “endotoxemia” is defined as the presence of endotoxins in the blood. This condition (or finding) is established on the basis of a laboratory test. The ICD–9–CM coding system currently indexes the term “endotoxemia” with the instructional note to “
Traumatic compartment syndrome is a condition in which increased pressure within a confined anatomical space that contains blood vessels, muscles, nerves, and bones causes a decrease in blood flow and may lead to tissue necrosis.
There are five ICD–9–CM diagnosis codes that were created effective October 1, 2006, to identify traumatic compartment syndrome of various sites.
• 958.90 (Compartment syndrome, unspecified)
• 958.91 (Traumatic compartment syndrome of upper extremity)
• 958.92 (Traumatic compartment syndrome of lower extremity)
• 958.93 (Traumatic compartment syndrome of abdomen)
• 958.99 (Traumatic compartment syndrome of other sites)
Cases with one of the diagnosis codes listed above reported as the principal diagnosis and no operating room procedure are assigned to either MS–DRG 922 (Other Injury, Poisoning and Toxic Effect Diagnosis with MCC) or MS–DRG 923 (Other Injury, Poisoning and Toxic Effect Diagnosis without MCC) in MDC 21.
In the FY 2008 IPPS final rule with comment period when we adopted the MS–DRGs, we inadvertently omitted the addition of these traumatic compartment syndrome codes 958.90 through 958.99 to the multiple trauma MS–DRGs 963 (Other Multiple Significant Trauma with MCC), MS–DRG 964 (Other Multiple Significant Trauma with CC), and MS–DRG 965 (Other Multiple Significant Trauma without CC/MCC) in MDC 24 (Multiple Significant Trauma). Cases are assigned to MDC 24 based on the principal diagnosis of trauma and at least two significant trauma diagnosis codes (either as principal or secondary diagnoses) from different body site categories. There are eight different body site categories as follows:
• Significant head trauma
• Significant chest trauma
• Significant abdominal trauma
• Significant kidney trauma
• Significant trauma of the urinary system
• Significant trauma of the pelvis or spine
• Significant trauma of the upper limb
• Significant trauma of the lower limb
Therefore, in the FY 2009 IPPS proposed rule, we proposed to add traumatic compartment syndrome codes 958.90 through 958.99 to MS–DRGs 963 and MS–DRG 965 in MDC 24. Under this proposal, codes 958.90 through 958.99 would be added to the list of principal diagnosis of significant trauma. In addition, code 958.91 would be added to the list of significant trauma of upper limb, code 958.92 would be added to the list of significant trauma of lower limb, and code 958.93 would be added to the list of significant abdominal trauma.
We did not address the consolidation of heart transplant MS–DRGs or liver transplant MS–DRGs in the FY 2009 IPPS proposed rule. However, we received a comment on these issues.
In this final rule, we are adopting as final our proposal to add traumatic compartment syndrome codes 958.90 through 958.99 to MS–DRGs 963 and MS–DRG 965 in MDC 24. Codes 958.90 through 958.99 are added to the list of principal diagnosis of significant trauma. In addition, code 958.91 is added to the list of significant trauma of upper limb, code 958.92 is added to the list of significant trauma of lower limb, and code 958.93 is added to the list of significant abdominal trauma.
As explained under section II.B.1. of the preamble of this final rule, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into a DRG.
Diagnosis code V62.84 (Suicidal ideation) was created for use beginning October 1, 2005. At the time the diagnosis code was created, it was not clear that the creation of this code was requested in order to describe the principal reason for admission to a facility or the principal reason for treatment. The NCHS Official ICD–9–CM Coding Guidelines therefore categorized the group of codes in V62.X for use only as additional or secondary diagnoses. It has been brought to the government's attention that the use of this code is hampered by its designation as an additional-only diagnosis. NCHS has therefore modified the Official Coding Guidelines for FY 2009 by making this code acceptable as a principal diagnosis as well as an additional diagnosis. In order to conform to this change by NCHS, we proposed to remove code V62.84 from the MCE list of “Unacceptable Principal Diagnoses” for FY 2009.
We did not receive any public comments on this proposal. Therefore, in this final rule, we are adopting as final our proposal to remove code V62.84 from the MCE list of “Unacceptable Principal Diagnoses” for FY 2009.
There are four diagnosis codes that were inadvertently left off of the MCE edit titled “Diagnoses Allowed for Males Only.” These codes are located in the chapter of the ICD–9–CM diagnosis codes entitled “Diseases of Male Genital Organs.” We are proposing to add the following four codes to this MCE edit: 603.0 (Encysted hydrocele), 603.1 (Infected hydrocele), 603.8 (Other specified types of hydrocele), and 603.9 (Hydrocele, unspecified). We have had no reported problems or confusion with the omission of these codes from this section of the MCE, but in order to have an accurate product, we proposed that these codes be added for FY 2009.
We did not receive any public comments on these proposed MCE revisions. Therefore, for FY 2009, we are implementing the proposed changes as final by adding codes 603.0, 603.1, 603.8, and 603.9 to the MCE edit of diagnosis allowed for males only.
As explained in section II.G.1. of the preamble of the proposed rule, we proposed to remove procedure code 37.52 (Implantation of internal biventricular heart replacement system) from the MCE “Non-Covered Procedure” edit and to assign it to the “Limited Coverage” edit. We proposed to include in this proposed edit the requirement that ICD–9–CM diagnosis code V70.7 (Examination of participant in clinical trial) also be present on the claim. We proposed that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the coverage policy explained in section II.G.1. of this preamble.
We did not receive any public comments on this proposed MCE revision. Therefore, for FY 2009, we are implementing the proposed changes as final by removing code 37.52 from the “Non-Covered Procedures” edit and assigning it to the “Limited Coverage” edit. In addition, included in this edit is the requirement that ICD–9–CM diagnosis code V70.7 also be present on the claim. Claims submitted on behalf of Medicare beneficiaries that do not have both procedure code 37.52 and diagnosis code V70.7 will be denied, retroactive to May 1, 2008 (the date of the coverage decision memorandum described in section II.G.1. of the preamble of this final rule).
Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS–DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS–DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS–DRG associated with the most resource-intensive surgical class.
Because the relative resource intensity of surgical classes can shift as a function of MS–DRG reclassification and recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.
A surgical class can be composed of one or more MS–DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS–DRG (MS–DRG 652) and the class “kidney, ureter and major bladder procedures” consists of three MS–DRGs (MS–DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS–DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS–DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS–DRGs 1 and 2 and surgical class B includes MS–DRGs 3, 4, and 5. Assume also that the average charge of MS–DRG 1 is higher than that of MS–DRG 3, but the average charges of MS–DRGs 4 and 5 are higher than the average charge of MS–DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge of each MS–DRG in the class by frequency (that is, by the number of cases in the MS–DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.
This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS–DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average charge is ordered above a surgical class with a higher average charge. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average charge for the MS–DRG or MS–DRGs in that surgical class may be higher than that for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.
A second example occurs when the difference between the average charges for two surgical classes is very small.
For FY 2009, we proposed to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of the Circulatory System) by reordering MS–DRG 245 (AICD Generator Procedures) above new MS–DRG 265 (AICD Lead Procedures).
We did not receive any public comments on the proposed change to the surgical hierarchy described above. Based on the test of the proposed revision using the March 2008 update of the FY 2007 MedPAR file and the revised GROUPER software, we found that the revision is still supported by the data. Therefore, we are incorporating the proposed revision to the surgical hierarchy as final for FY 2009.
As indicated earlier in the preamble of this final rule, under the IPPS DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. We refer readers to section II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS–DRGs we adopted for FY 2008 (72 FR 47152 through 47121).
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.
For FY 2009, as we proposed, in this final rule we are making limited revisions to the CC Exclusions List to take into account the changes that will be made in the ICD–9–CM diagnosis coding system effective October 1, 2008. (See section II.G.11. of the preamble of this final rule for a discussion of ICD–9–CM changes.) We are making these changes in accordance with the principles established when we created the CC Exclusions List in 1987. In addition, as discussed in section II.D.3. of the preamble of this final rule, we are indicating on the CC exclusion list some updates to reflect the exclusion of a few codes from being an MCC under the MS–DRG system that we adopted for FY 2008.
Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, which will be effective for discharges occurring on or after October 1, 2008, are not being published in this final rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at:
A complete updated MCC, CC, and Non-CC Exclusions List is also available through the Internet on the CMS Web site at:
To assist readers in the review of changes to the MCC and CC lists that occurred as a result of updates to the ICD–9–CM codes, as described in Tables 6A, 6C, and 6E, we are providing the following summaries of those MCC and CC changes.
In the summary tables, the diagnosis codes with an asterisk (*) were discussed at the March 19–20, 2008 ICD–9–CM Coordination and Maintenance Committee meeting and were not finalized in time to include in the proposed rule. Code 998.33 in Table 6J1, marked with two asterisks (**), had a change in code title subsequent to the
Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 25.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 26.0 of this manual, which includes the final FY 2009 DRG changes, is available in hard copy for $250.00. Version 26.0 of the manual is also available on a CD for $200.00; a combination hard copy and CD is available for $400.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949–0303. Please specify the revision or revisions requested.
Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS–DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS–DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 476 became MS–DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC). CMS DRG 477 became MS–DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC).
MS–DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS–DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:
• 60.0, Incision of prostate
• 60.12, Open biopsy of prostate
• 60.15, Biopsy of periprostatic tissue
• 60.18, Other diagnostic procedures on prostate and periprostatic tissue
• 60.21, Transurethral prostatectomy
• 60.29, Other transurethral prostatectomy
• 60.61, Local excision of lesion of prostate
• 60.69, Prostatectomy, not elsewhere classified
• 60.81, Incision of periprostatic tissue
• 60.82, Excision of periprostatic tissue
• 60.93, Repair of prostate
• 60.94, Control of (postoperative) hemorrhage of prostate
• 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.
For FY 2009, we did not propose to change the procedures assigned among these DRGs. We did not receive any public comments on our proposal and, therefore, are adopting it as final for FY 2009 in this final rule.
We annually conduct a review of procedures producing assignment to MS–DRGs 981 through 983 (formerly CMS DRG 468) or MS–DRGs 987 through 989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these DRGs into one of the surgical DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.
We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical DRGs for the MDC in which the diagnosis falls. For FY 2009, we did not propose to remove any procedures from MS–DRGs 981 through 983 or MS–DRGs 987 through 989. We did not receive any public comments on our proposal and, therefore, we are adopting it as final for FY 2009 in this final rule.
We also annually review the list of ICD–9–CM procedures that, when in combination with their principal
For FY 2009, we did not propose to move any procedure codes among these DRGs. We did not receive any public comments on our proposal and, therefore, we are adopting it as final for FY 2009 in this final rule.
Based on our review this year, as we proposed, we are not adding any diagnosis codes to MDCs for FY 2009. We did not receive any public comments on this subject.
As described in section II.B.1. of the preamble of this final rule, the ICD–9–CM is a coding system used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD–9–CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD–9–CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD–9–CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.
The Official Version of the ICD–9–CM contains the list of valid diagnosis and procedure codes. (The Official Version of the ICD–9–CM is available from the Government Printing Office on CD–ROM for $27.00 by calling (202) 512–1800.) Complete information on ordering the CD–ROM is also available at:
The NCHS has lead responsibility for the ICD–9–CM diagnosis codes included in the
The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.
The Committee presented proposals for coding changes for implementation in FY 2009 at a public meeting held on September 27–28, 2007 and finalized the coding changes after consideration of comments received at the meetings and in writing by December 3, 2007. Those coding changes are announced in Tables 6A through 6F in the Addendum to this final rule. The Committee held its 2008 meeting on March 19–20, 2008. New codes for which there was a consensus of public support and for which complete tabular and indexing changes were made by May 2008 will be included in the October 1, 2008 update to ICD–9–CM. Code revisions that were discussed at the March 19–20, 2008 Committee meeting but that could not be finalized in time to include them in the Addendum to the proposed rule are included in Tables 6A through 6F of this final rule and are marked with an asterisk (*).
Copies of the minutes of the procedure codes discussions at the Committee's September 27–28, 2007 meeting and March 19–20, 2008 meeting can be obtained from the CMS Web site at:
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:
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:
The ICD–9–CM code changes that have been approved will become effective October 1, 2008. The new ICD–9–CM codes are listed, along with their DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in the Addendum to this final rule. As we stated above, the code numbers and their titles were presented for public comment at the ICD–9–CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved. In the FY 2009 IPPS proposed rule, we only solicited comments on the proposed classification of these new codes.
For codes that have been replaced by new or expanded codes, and the corresponding new or expanded diagnosis codes are included in Table 6A. New procedure codes are shown in Table 6B. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2008. Table 6D contains invalid procedure codes. These
In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. As stated previously, ICD–9–CM codes discussed at the March 19–20, 2008 Committee meeting that received consensus and that were finalized by May 2008, are included in Tables 6A through 6F of the Addendum to this final rule.
According to the commenter, a specific code dedicated to this disease will provide more information regarding the prevalence of the condition and the cost associated with treating the disease. The increased focus on this condition can in turn promote proper screening to avoid its occurrence and improve patient safety. Accurate diagnosis and coding will also ensure that proper protocols are put in place and HIT specific treatment is rendered, thereby reducing adverse events when HIT does arise.
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
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, 2008 implementation of an ICD–9–CM code at the September 27–28, 2007 Committee meeting. Therefore, there were no new ICD–9–CM codes implemented on April 1, 2008.
We believe that this process captures the intent of section 1886(d)(5)(K)(vii) of the Act. This requirement was included in the provision revising the standards and process for recognizing new technology under the IPPS. In addition, the need for approval of new codes outside the existing cycle (October 1) arises most frequently and most acutely where the new codes will identify new technologies that are (or will be) under consideration for new technology add-on payments. Thus, we believe this provision was intended to expedite data collection through the assignment of new ICD–9–CM codes for new technologies seeking higher payments.
Current addendum and code title information is published on the CMS Web site at:
CMS also sends copies of all ICD–9–CM coding changes to its contractors for use in updating their systems and providing education to providers.
These same means of disseminating information on new, revised, and deleted ICD–9–CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD–9–CM codes that are implemented in April. The code titles are adopted as part of the ICD–9–CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same DRG in which its predecessor code was assigned so there will be no DRG impact as far as DRG assignment. Any midyear coding updates will be available through the Web sites indicated above and through the
The commenter stated that one factor that influences hospital costs and lengths of stay is the characteristics of the donor organ. The commenter stated that the donor risk index (DRI) and the model for end-stage liver disease (MELD) system which prioritizes patients waiting for liver transplants by severity of illness are two important factors for any severity index for transplant DRGs. This information is not identified in the MedPAR data. The commenter acknowledged that it is in the process of developing a proposal for NCHS to incorporate this information into potential ICD–9–CM diagnosis codes. The commenter stated that, until these factors can be incorporated into the data, it is not appropriate to have severity-based DRGs for heart and liver transplant procedures based on CC or MCC that have not been validated as predictors in the transplant population.
The commenter also requested that CMS create a new MS–DRG for combined liver/kidney transplants. These cases are currently assigned to the liver transplant DRGs 005–006 (Liver Transplant with MCC or Intestinal Transplant and Liver Transplant without MCC). While the commenter acknowledged that most of these cases would be assigned to MS–DRG 005, the MCC group, the commenter contended that a separate DRG is needed to address the significantly higher costs and length of stay associated with combined liver/kidney transplants.
As discussed in the FY 2008 IPPS final rule with comment period (72 FR 47205–47206), we referred the need for more detailed ICD–9–CM pressure ulcer codes to the CDC. The topic of expanding pressure ulcer codes to capture the stage of the ulcer was addressed at the September 27–28, 2007, meeting of the ICD–9–CM Coordination and Maintenance Committee. A summary report of that meeting is available on the Web site at:
At the September 2007 meeting of the ICD–9–CM Coordination and Maintenance Committee, numerous wound care professionals supported modifying the pressure ulcer codes to capture staging information. The stage of the pressure ulcer is a powerful predictor of severity and resource utilization. At the meeting, the ICD–9–CM Coordination and Maintenance Committee discussed the creation of pressure ulcer codes to capture staging information. The new codes, along with their CC/MCC classifications, are shown in Table 6A of the Addendum to the proposed rule and this final rule. The new codes are as follows:
• 707.20 (Pressure ulcer, unspecified stage)
• 707.21 (Pressure ulcer stage I)
• 707.22 (Pressure ulcer stage II)
• 707.23 (Pressure ulcer stage III)
• 707.24 (Pressure ulcer stage IV)
• 707.25 (Pressure ulcer unstageable)
• Recommended new code: 707.25 (Deep tissue injury)
• Recommended new code: 707.26 (Unstageable pressure ulcers)
The commenters asked that both of these proposed new codes be classified as MCCs because either condition can progress to a stage III or stage IV pressure ulcer. In addition, the commenters stated that unstageable pressure ulcers will be a stage III or stage IV if debridement takes place. However, the commenters added, debridement is not always indicated in unstageable pressure ulcers, so the wound may remain unstageable throughout the entire stay. The commenters further stated that deep tissue injury can deteriorate rapidly into a stage III or stage IV pressure ulcer, even with optimal treatment.
We do not support the request to make ICD–9–CM code 707.25 (Pressure ulcer, unstageable) an MCC. Unstageable indicates that the stage of the pressure ulcer cannot be determined because it is covered by a dressing or because it is covered by a black eschar. If the ulcer does deteriorate and is determined to be a stage III or stage IV pressure ulcer, then stage III or IV codes will be reported. To classify an unstageable pressure ulcer as the same severity as a stage III or stage IV because it may become a stage III or stage IV is inappropriate. Therefore, we are not changing the MCC/CC classification of code 707.25 (Pressure ulcer, unstageable), and it will remain a non-CC.
The CDC has recently updated the ICD–9–CM coding guidance for pressure ulcers. Code assignments for pressure ulcer stages may be based on medical record documentation from clinicians who are not the patient's provider. The coding guidelines are available at:
This topic was not raised by CMS in the proposed rule. However, four commenters have taken this opportunity to comment on the content of MS–DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), and 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents) in MDC 5 (Diseases and Disorders of the Circulatory System).
For a comprehensive review of the most recent discussion concerning coronary stents, both drug-eluting and non-drug-eluting, we refer readers to FY 2006 IPPS final rule (70 FR 47929 through 47295). In Table 6B of that rule, we published the new ICD–9–CM procedure codes describing newly created adjunct codes 00.40 through 00.43 (codes describing the number of blood vessels upon which a procedure had been performed) and 00.45 through 00.48 (codes describing the number of vascular stents which had been inserted). These codes were available for use beginning October 1, 2006, for FY 2007. We note that under the former CMS DRG structure, the DRGs containing either drug-eluting or non-drug-eluting stents were located in CMS DRG 556 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without Major Cardiovascular Diagnosis), CMS DRG 557 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with Major Cardiovascular Diagnosis), or CMS DRG 558 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without Major Cardiovascular Diagnosis).
In response to a late comment during the last update cycle regarding insertion of four or more stents, CMS had reviewed, but did not publish, FY 2007 MedPAR data containing some statistics included in MS–DRGs 246 and 248. The ICD–9–CM procedure codes we reviewed were:
• 00.66 (Percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy)
• 00.40 (Procedure on single vessel)
• 00.41 (Procedure on two vessels)
• 00.42 (Procedure on three vessels)
• 00.43 (Procedure on four or more vessels)
• 00.44 (Procedure on vessel bifurcation)
• 00.45 (Insertion of one vascular stent)
• 00.46 (Insertion of two vascular stents)
• 00.47 (Insertion of three vascular stents)
• 00.48 (Insertion of four or more vascular stents)
We arrayed the data several ways, looking at PTCA cases with 4+ vessels without 4+ stents (codes 00.66 with 00.43), with 4+ stents without 4+ vessels (codes 00.66 with 00.48), and the balance of the contents of MS–DRGs 246 and 248 eliminating PTCA plus 4+ vessels and 4+ stents (codes 00.66 plus 00.43) and (codes 00.66 plus 00.48). In addition, we reviewed the data on cases involving 1–3 vessels with 4+ stents (codes 00.40 through 00.42 with 00.48) and 1–3 stents with 4+ vessels (codes 00.45 through 00.47 with 00.43). We also reviewed MS–DRGs 246, 247, 248, and 249 containing the code for vessel bifurcation (code 00.44). The data we reviewed are represented in the tables below.
The results of our review do not suggest to us that there should be any proposal for change to MS–DRGs 246 or 248 for FY 2009 because there was no compelling evidence that the cases involving either 4+ vessels or 4+ stents were inappropriately placed in the MS–DRGs.
We note that evaluation of CMS's data comparing insertion of 1–3 stents with 4+ vessels shows an average length of stay almost 3 days lower than the average length of stay for the entire MS–DRG 246, as well as average charges $15,000 lower than the average for the entire DRG. Another evaluation of CMS's data comparing insertion in 1–3 vessels with 4+ stents shows an average length of stay of 2.7 days lower than the average length of stay for the entire MS–DRG 246, as well as average charges more than $1,000 lower than the average for the entire DRG. We believe that these data do not support an MS–DRG change.
As stated above, the topic of reassigning certain procedure codes for numbers of cardiac stents in cardiac vessels was not discussed in the FY 2009 IPPS proposed rule; therefore, no proposals had been made by CMS. We believe it is inappropriate to make these MS–DRG modifications without claims data under the MS–DRG system. Therefore, we will continue to monitor MDC 5 and the stent MS–DRGs. Should there be evidence-based justification for reassignment of codes within these MS–DRGs, we will be open to proposing to make changes to the structure of the MS–DRG in the future.
This topic was not discussed in the FY 2009 IPPS proposed rule. However, one commenter addressed this subject.
TherOx, manufacturer of the Downstream® System, also known as SuperSaturated Oxygen Therapy (SSO
At the September 27, 2007, a request was made before the ICD–9–CM Coordination and Maintenance Committee to consider establishing a new code to describe this intervention. A new code, 00.49 (SuperSaturated oxygen therapy) was created for use beginning October 1, 2008, for FY 2009. This code can be found in Table 6B of the Addendum to this final rule.
The manufacturer also encouraged CMS to help ensure that hospitals adopt this unique and beneficial treatment option in a timely manner after its FDA approval by assigning cases using the technology to MS–DRG 246, stating that: “This action will provide appropriate reimbursement [to hospitals] for its use”. The manufacturer further noted that in 2002, CMS established DRG assignments for drug-eluting stents, a technology that had not yet been approved by the FDA. The manufacturer requested that CMS take similar action [to the precedent set for drug-eluting stents] for cases involving patients that have had an anterior ST-elevated myocardial infarction (STEMI) and have received a stent and the Downstream® System.
The manufacturer further noted that assigning all cases using the Downstream® System to MS–DRG 246 is
When we created the severity-based MS–DRGs for use beginning in FY 2008, we thoroughly reviewed over 13,000 diagnosis codes in order to establish realistic severity measures. We had two major goals: To create DRGs that would more accurately reflect the severity of the cases assigned to them; and to create groups that would have sufficient volume so that meaningful and stable payment weights could be developed. We developed a set of five criteria to determine whether an MS–DRG should be subdivided into subgroups based on the presence of a CC or an MCC, and determined that a subgroup had to meet all five criteria in order to be so subdivided. These criteria can be reviewed in the FY 2008 final rule with comment period (72 FR 47169). There was no criteria suggesting that device-based procedures be assigned to the MS–DRG with an MCC designation in order for additional reimbursement to be made available to hospitals.
The commenter used the example of our review of the Gliadel® Wafer and subsequent MS–DRG reassignment to bolster the argument that these Downstream® System cases should be assigned to MS–DRG 246. We point out that the commenter himself noted that this reassignment took place after CMS had reviewed the MedPAR data and was able to determine that the average charges for Gliadel® cases in MS–DRG 024 were 27 percent greater than the average charges for non-Gliadel® cases, thereby warranting such a change.
Without evidence-based data, we are reluctant to subjectively assign a technology to an MS–DRG based on assumption. Further, to ignore the structure of the MS–DRG system solely for the purpose of increasing payment for one device would set an unwelcome precedent for defining all of the other MS–DRGs in the system, as previously stated in the FY 2007 IPPS final rule (71 FR 47943). We believe that the MS–DRG structure for the percutaneous procedures with stent insertion (MS–DRGs 246, 247, 248, and 249, with and without volume of vessels and/or stents, and with or without CC/MCC) are appropriate MS–DRG assignments for the Downstream® System, and the cases will be assigned based on the presence of either a drug-eluting or a non-drug eluting stent, and the presence or absence of an MCC. Therefore, for FY 2009, because there is no data to support the assignment of procedure code 00.49 to MS–DRG 246, we are not making the change requested by the commenter. Should there be evidence-based justification for assignment of code 00.49 in the future, we will be open to making a proposal to change the structure of these MS–DRGs.
This topic was not discussed in the FY 2009 IPPS proposed rule. However, one commenter addressed this subject.
With regards to the creation of a new MS–DRG for the procedure codes 84.59, 84.62, and 84.65, we refer the reader to the FY 2008 IPPS proposed rule (72 FR 24733 through 24735) and the FY 2008 IPPS final rule with comment period (72 FR 47226 through 47232) for a discussion on the comprehensive evaluation of all the spinal DRGs in the development of the MS–DRG classification system. Effective October 1, 2007, all the aforementioned procedures were grouped together in MS–DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator). The modifications made to the spinal DRGs for FY 2008 recognized the similar utilization of resources, differences in levels of severity and the complexity of the services being performed on patients undergoing those types of procedures.
In response to the suggested creation of a new, separate MS–DRG to combine spinal procedures that utilize expensive implantable devices, we note that the MS–DRG classification system (and more importantly, the IPPS), is not based solely on the cost of devices; it is not a device classification system. We refer the reader to section II.B.2. of the preamble to this final rule for a summary of the process and criteria utilized in determining whether specific MS–DRG modifications are warranted in a given year.
We note that several commenters acknowledged CMS' discussion of the FY 2008 implementation of the MS–DRGs and the lack of data to support major MS–DRG changes for FY 2009. In addition, several commenters accepted CMS' proposal of not making significant revisions to the MS–DRGs until claims data under the new MS–DRG system are available. Therefore, because we do not have claims data at this time to evaluate the need for revisions to MS–DRGs, we are not making any revisions to the MS–DRGs involving implantable spinal devices for FY 2009.
This topic was not discussed in the FY 2009 IPPS proposed rule. However, one commenter addressed this subject.
As a result of CMS' final policy for FY 2008 that assigned procedure code 84.82 to MS–DRG 490, the commenter reported that it conducted a number of analyses that included: (1) A clinical comparison of the implant procedure of dynamic stabilization and instrumented spinal fusion; (2) a comparison of average charge data in MS–DRGs 460 and 490 utilizing FY 2007 MedPAR data; and (3) a cost comparison of claims including the implant of the Dynesys® system compared to those of spinal fusion.
Due to the fact that claims data on procedure code 84.82 was unavailable in the MedPAR file, the commenter stated it utilized procedure code 84.59 (Insertion of other spinal devices) and conducted the same analysis CMS had done for FY 2008. Results of the commenter's analysis showed a large increase in the volume of cases with procedure code 84.59 assigned, which, according to the commenter, provided a more reliable number of cases to compare average charges.
As stated in the FY 2008 final rule with comment period (72 FR 47228), we conducted a comprehensive review of the entire group of spine DRGs in the development of the MS–DRG system. In the analysis that we conducted, the data demonstrated that procedures assigned to MS–DRG 490 were not the same in terms of resource utilization, severity of illness, and complexity of care, as those assigned to MS–DRG 460 (Spinal Fusion Except Cervical without MCC). As we stated earlier, we received several comments acknowledging CMS' discussion of the recent implementation of MS–DRGs and lack of data to support major MS–DRG changes for FY 2009. The commenters accepted CMS' proposal of not making significant revisions to the MS–DRGs until claims data under the new MS–DRG system are available. Therefore, as final policy for FY 2009, we are not reassigning procedure code 84.82 from MS–DRG 490 to MS–DRG 460.
In our existing regulations under 42 CFR 412.104, we provide that CMS will make an additional payment to a hospital for inpatient services furnished to a beneficiary with end-stage renal disease (ESRD) who is discharged and who receives a dialysis treatment during a hospital stay, if the hospital has established that ESRD beneficiary discharges constitute 10 percent or more of its total Medicare discharges. However, as specified in the regulations, in determining a hospital's eligibility for this additional payment, we excluded from the hospital's ESRD beneficiary discharge count discharges classified into the following CMS DRGs: DRG 302 (Kidney Transplant); DRG 316 (Renal Failure); or DRG 317 (Admit for Renal Dialysis). As discussed in section II.C. of the preamble of this final rule, we adopted the MS–DRG classification system for FY 2008 to better recognize severity of illness. Under the MS–DRG system, these three DRGs have been changed. Therefore, we are revising § 412.104 to make the three DRG numbers and titles consistent with their replacement MS–DRGs. DRG 302 (Kidney Transplant) became MS–DRG 652; DRG 316 (Renal Failure) became MS–DRG 682 (Renal Failure with MCC), MS–DRG 683 (Renal Failure with CC), and MS–DRG 684 (Renal Failure without CC/MCC); and DRG 317 (Admit for Renal Dialysis) became MS–DRG 685 (Admit for Renal Dialysis).
In section II.E. of the preamble of this final rule, we state that we are fully implementing the cost-based DRG relative weights for FY 2009, which is the third year in the 3-year transition period to calculate the relative weights at 100 percent based on costs. In the FY 2008 IPPS final rule with comment period (72 FR 47267), as recommended by RTI, for FY 2008, we added two new CCRs for a total of 15 CCRs: One for “Emergency Room” and one for “Blood and Blood Products,” both of which can be derived directly from the Medicare cost report.
As we proposed, in developing the FY 2009 system of weights, we used two data sources: Claims data and cost report data. As in previous years, the claims data source is the MedPAR file. This file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2007 MedPAR data used in this final rule include discharges occurring on October 1, 2006, through September 30, 2007, based on bills received by CMS through March 2008, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which are under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2007 MedPAR file used in calculating the relative weights includes data for approximately 11,554,993 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost-based relative weighting methodology is the FY 2006 Medicare cost report data files from HCRIS (that is, cost reports beginning on or after October 1, 2005, and before October 1, 2006), which represents the most recent full set of cost report data available. We used the March 31, 2008 update of the HCRIS cost report files for FY 2006 in setting the relative cost-based weights.
The methodology we used to calculate the DRG cost-based relative weights from the FY 2007 MedPAR claims data and FY 2006 Medicare cost report data is as follows:
• To the extent possible, all the claims were regrouped using the FY 2009 MS–DRG classifications discussed in sections II.B. and G. of the preamble of this final rule.
• The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS–DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2007 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
• Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition
• Claims with total charges or total length of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.
• At least 95.9 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 cost centers were deleted.
• Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each DRG.
Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, DSH payments, and IME adjustments under the capital IPPS as well. Charges were then summed by DRG for each of the 15 cost groups so that each DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2006 cost report data.
The 15 cost centers that we used in the relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 15 national cost center CCRs.
We developed the national average CCRs as follows:
Taking the FY 2006 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland as we are including their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost 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 DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 “costs” across each DRG to produce a total standardized cost for the DRG. The average standardized cost for each DRG was then computed as the total standardized cost for the DRG divided by the transfer-adjusted case count for the DRG. The average cost for each DRG was then divided by the national average standardized cost per case to determine the relative weight.
The new cost-based relative weights were then normalized by an adjustment factor of 1.50598 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 national average CCRs for FY 2009 are as follows:
As we explained in section II.E. of the preamble of this final rule, we are completing our 2-year transition to the MS–DRGs. For FY 2008, the first year of the transition, 50 percent of the relative weight for an MS–DRG was based on the two-thirds cost-based weight/one-third charge-based weight calculated using FY 2006 MedPAR data grouped to the Version 24.0 (FY 2007) DRGs. The remaining 50 percent of the FY 2008 relative weight for an MS–DRG was based on the two-thirds cost-based weight/one-third charge-based weight calculated using FY 2006 MedPAR grouped to the Version 25.0 (FY 2008) MS–DRGs. In FY 2009, the relative weights are based on 100 percent cost
When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. We are using that same case threshold in recalibrating the MS–DRG weights for FY 2009. Using the FY 2007 MedPAR data set, there are 8 MS–DRGs that contain fewer than 10 cases. Under the MS–DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients age 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients age 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have heard frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS–DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. All of the low-volume MS–DRGs listed below are for newborns. Newborns are unique and require separate DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate DRGs for newborns. In FY 2009, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS–DRGs, we are computing weights for the low-volume MS–DRGs by adjusting their FY 2008 weights by the percentage change in the average weight of the cases in other MS–DRGs. The crosswalk table is shown below:
We did not receive any public comments on this section. Therefore, we are adopting the national average CCRs as proposed, with the MS–DRG weights recalibrated based on these CCRs.
Section 123 of the BBRA requires that the Secretary implement a PPS for LTCHs (that is, a per discharge system with a diagnosis-related group (DRG)-based patient classification system reflecting the differences in patient resources and costs). Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the long-term care hospital (LTCH) PPS] on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients, as well as the use of the most recently available hospital discharge data.”
When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system (that is, the CMS DRGs) that was utilized at that time under the IPPS. As a component of the LTCH PPS, we refer to the patient classification system as the “long-term care diagnosis-related groups (LTC–DRGs).” As discussed in greater detail below, although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in LTC–DRG relative weights that reflect “the differences in patient resource use * * *” of LTCH patients (section 123(a)(1) of the BBRA (Pub. L. 106–113). As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), the MS–DRGs and the Medicare severity long-term care diagnosis-related groups (MS–LTC–DRGs) were adopted for the IPPS and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008). For a full description of the development and implementation of the MS–DRGs and MS–LTC–DRGs, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that, in that same final rule, we revised the regulations at § 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for policy descriptions and payment calculations, all references to LTC–DRGs would be considered a reference to MS–LTC–DRGs. For the remainder of this section, we present the discussion in terms of the current MS–LTC–DRG patient classification system unless specifically referring to the previous LTC–DRG patient classification system that was in effect before October 1, 2007.) We believe the MS–DRGs (and by extension, the MS–LTC–DRGs) represent a substantial improvement over the previous CMS DRGs in their ability to differentiate cases based on severity of illness and resource consumption.
The MS–DRGs represent an increase in the number of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In addition to improving the DRG system's recognition of severity of illness, we believe the MS–DRGs are responsive to the public comments that were made on the FY 2007 IPPS proposed rule with respect to how we should undertake further DRG reform. The MS–DRGs use the CMS DRGs as the starting point for revising the DRG system to better recognize resource complexity and severity of illness. We have generally retained all of the refinements and improvements that have been made to the base DRGs over the years that recognize the significant advancements in medical technology and changes to medical practice.
Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and § 412.515, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS–LTC–DRGs based on clinical characteristics and estimated resource needs. We then assign an appropriate weight to the MS–LTC–DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCHs.
Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge; and that payment varies by the MS–LTC–DRG to which a beneficiary's stay is assigned. Cases are classified into MS–LTC–DRGs for payment based on the following six data elements:
• Principal diagnosis.
• Up to eight additional diagnoses.
• Up to six procedures performed.
• Age.
• Sex.
• Discharge status of the patient.
Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the most current version of the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD–9–CM). HIPAA Transactions and Code Sets Standards regulations at 45 CFR parts 160 and 162 require that no later than October 16, 2003, all covered entities must comply with the applicable requirements of Subparts A and I through R of Part 162. Among other requirements, those provisions direct covered entities to use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, Version 4010, and the applicable standard medical data code sets for the institutional health care claim or equivalent encounter information transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional information on the ICD–9–CM Coding System, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47241 through 47243 and 47277 through 47281). We also refer readers to the detailed discussion on correct coding practices in the August 30, 2002 LTCH PPS final rule (67 FR 55981 through 55983). Additional coding instructions and examples are published in the
Medicare contractors (that is, fiscal intermediaries or MACs) enter the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS–LTC–DRG can be made. During this process, the following types of cases are selected for further development:
• Cases that are improperly coded. (For example, diagnoses are shown that are inappropriate, given the sex of the patient. Code 68.69 (Other and unspecified radical abdominal hysterectomy) would be an inappropriate code for a male.)
• Cases including surgical procedures not covered under Medicare. (For example, organ transplant in a nonapproved transplant center.)
• Cases requiring more information. (For example, ICD–9–CM codes are required to be entered at their highest level of specificity. There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262 (Other severe protein-calorie malnutrition) contains all appropriate digits, but if it is reported with either fewer or more than 3 digits, the claim will be rejected by the MCE as invalid.)
After screening through the MCE, each claim is classified into the appropriate MS–LTC–DRG by the Medicare LTCH GROUPER software. The Medicare GROUPER software, which is used under the LTCH PPS, is specialized computer software, and is the same GROUPER software program used under the IPPS. The GROUPER software was developed as a means of classifying each case into a MS–LTC–DRG on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). Following the MS–LTC–DRG assignment, the Medicare contractor determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH to review the MS–LTC–DRG assignments made by the Medicare contractor and to submit additional information within a specified timeframe as provided in § 412.513(c).
The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the MS–LTC–DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible MS–DRG and MS–LTC–DRG classification changes and to recalibrate the MS–DRG and MS–LTC–DRG relative weights during our annual update under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively.
In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed the LTCH PPS annual payment rate update cycle to be effective July 1 through June 30 instead of October 1 through September 30. In addition, because the patient classification system utilized under the LTCH PPS uses the same DRGs as those used under the IPPS for acute care hospitals, in that same final rule, we explained that the annual update of the LTC–DRG classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the DRGs used under the IPPS. Therefore, we specified that we will continue to update the LTC–DRG classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. We further stated that we will publish the annual proposed and final update of the LTC–DRGs in the same notice as the proposed and final update for the IPPS (69 FR 34125).
In the RY 2009 LTCH PPS final rule (73 FR 26798), due to administrative considerations as well as in response to numerous comments urging CMS to establish one rulemaking cycle that would encompass the update of the LTCH PPS payment rates, which has been updated on a rate year basis, effective July 1 as well as the development of the MS–LTC–DRG weights, which are updated on a fiscal year basis, effective October 1, we amended the regulations at § 412.503 and § 412.535 in order to consolidate the rate year and fiscal year rulemaking cycles. Specifically, the annual update of the LTCH PPS payment rates (and description of the methodology and data used to calculate these payment rates) and the annual update of the MS–LTC–
In the past, the annual update to the DRGs used under the IPPS has been based on the annual revisions to the ICD–9–CM codes and was effective each October 1. As discussed in the FY 2009 IPPS proposed rule (73 FR 23591 through 23592), with the implementation of section 503(a) of Public Law 108–173, there is the possibility that one feature of the GROUPER software program may be updated twice during a Federal fiscal year (October 1 and April 1) as required by the statute for the IPPS. Section 503(a) of Public Law 108–173 amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) which states that “the Secretary shall provide for the addition of new diagnosis and procedure codes in [sic] April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS by accounting for those ICD–9–CM codes in the MedPAR claims data earlier than the agency had accounted for new technology in the past. In implementing the statutory change, the agency has provided that ICD–9–CM diagnosis and procedure codes for new medical technology may be created and assigned to existing DRGs in the middle of the Federal fiscal year, on April 1. However, this policy change does not impact the DRG relative weights in effect for that year, which will continue to be updated only once a year (October 1). The use of the ICD–9–CM code set is also compliant with the current requirements of the Transactions and Code Sets Standards regulations at 45 CFR parts 160 and 162, promulgated in accordance with HIPAA.
As noted above, the patient classification system used under the LTCH PPS is the same patient classification system that is used under the IPPS. Therefore, the ICD–9–CM codes currently used under both the IPPS and the LTCH PPS have the potential of being updated twice a year. This requirement is included as part of the amendments to the Act relating to recognition of new medical technology under the IPPS.
Because we do not publish a midyear IPPS rule, any April 1 ICD–9–CM coding update will not be published in the
In implementing section 503(a) of Public Law 108–173, there will only be an April 1 update if new technology diagnosis and procedure code revisions are requested and approved. We note that any new codes created for April 1 implementation will be limited to those primarily needed to describe new technologies and medical services. However, we reiterate that the process of discussing updates to the ICD–9–CM is an open process through the ICD–9–CM Coordination and Maintenance Committee. Requestors will be given the opportunity to present the merits for a new code and to make a clear and convincing case for the need to update ICD–9–CM codes for purposes of the IPPS new technology add-on payment process through an April 1 update (as also discussed in section II.G.11. of the preamble of this final rule).
At the September 27, 2007 ICD–9–CM Coordination and Maintenance Committee meeting, there were no requests for an April 1, 2008 implementation of ICD–9–CM codes. Therefore, the next update to the ICD–9–CM coding system will occur on October 1, 2008 (FY 2009). Because there were no coding changes suggested for an April 1, 2008 update, the ICD–9–CM coding set implemented on October 1, 2008, will continue through September 30, 2009 (FY 2009). The update to the ICD–9–CM coding system for FY 2009 is discussed in section II.G.11. of the preamble of this final rule.
Accordingly, in this final rule, as discussed in greater detail below and as we proposed, we are modifying and revising the MS–LTC–DRG classifications and relative weights to be effective October 1, 2008 through September 30, 2009 (FY 2009). As discussed in greater detail below, the MS–LTC–DRGs for FY 2009 in this final rule are the same as the MS–DRGs for the IPPS for FY 2009 (GROUPER Version 26.0) discussed in section II.B. of the preamble to this final rule.
As discussed earlier, section 123 of Public Law 106–113 specifically requires that the agency implement a PPS for LTCHs that is a per discharge system with a DRG-based patient classification system reflecting the differences in patient resources and costs in LTCHs. Section 307(b)(1) of Public Law 106–554 modified the requirements of section 123 of Public Law 106–113 by specifically requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the LTCH PPS] on the use of existing (or refined) hospital diagnosis-related groups (DRGs) that have been modified to account for different resource use of long-term care hospital patients as well as the use of the most recently available hospital discharge data.”
Consistent with section 123 of Public Law 106–113 as amended by section 307(b)(1) of Public Law 106–554 and § 412.515 of our existing regulations, the
Consistent with our historical practice of having LTC–DRGs correspond to the DRGs applicable under the IPPS, under the broad authority of section 123(a) of Public Law 106–113, as modified by section 307(b) of Public Law 106–554, under the LTCH PPS for FY 2008, we adopted the use of MS–LTC–DRGs, which correspond to the MS–DRGs we adopted under the IPPS. In addition, as stated above, we are using the final FY 2009 GROUPER Version 26.0, established in section II.B. of this final rule, to classify cases effective for LTCH discharges occurring on or after October 1, 2008, and through September 30, 2009. The changes to the MS–DRG classification system that we are using under the IPPS for FY 2009 (GROUPER Version 26.0) are discussed in section II.B. of the preamble to this final rule.
Under the LTCH PPS, as described in greater detail below, we determine relative weights for each of the MS–LTC–DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients. (Unless otherwise noted in this final rule, our MS–LTC–DRG analysis is based on LTCH data from the March 2008 update of the FY 2007 MedPAR file, which contains hospital bills received through March 31, 2008, for discharges occurring in FY 2007.)
LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. Therefore, as we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and the FY 2008 IPPS final rule with comment period (72 FR 47283), we use low-volume quintiles in determining the DRG relative weights for DRGs with less than 25 LTCH cases (low-volume MS–LTC–DRGs). Specifically, we group those low-volume DRGs into 5 quintiles based on average charges per discharge. (A listing of the composition of low-volume quintiles for the FY 2008 MS–LTC–DRGs (based on FY 2006 MedPAR data) appears in section II.I.3. of the FY 2008 IPPS final rule with comment period (72 FR 47281 through 47288).) We also adjust for cases in which the stay at the LTCH is less than or equal to five-sixths of the geometric average length of stay; that is, short-stay outlier (SSO) cases, as discussed below in section II.I.4. of the preamble of this final rule.
Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that is, payment varies by the DRG to which a beneficiary's stay is assigned. Just as cases have been classified into the MS–DRGs for acute care hospitals under the IPPS (discussed in section II.B. of the preamble of this final rule), cases have been classified into MS–LTC–DRGs for payment under the LTCH PPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as demographic information about the patient. The diagnosis and procedure information is reported by the hospital using the ICD–9–CM coding system. Under the MS–DRGs for the IPPS and the MS–LTC–DRGs for the LTCH PPS, these factors will not change.
Section II.B. of the preamble of this final rule discusses the organization of the existing MS–DRGs, which we are maintaining under the MS–LTC–DRG system. As noted above, the patient classification system for the LTCH PPS is derived from the IPPS DRGs and is similarly organized into 25 major diagnostic categories (MDCs). Most of these MDCs are based on a particular organ system of the body and the remainder involves multiple organ systems (such as MDC 22, Burns). Accordingly, the principal diagnosis determines MDC assignment. Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Under the MS–DRGs, some surgical and medical DRGs are further defined for severity purposes based on the presence or absence of MCCs or CCs. The existing MS–LTC–DRGs are similarly categorized. (We refer readers to section II.B. of the preamble of this final rule for further discussion of surgical DRGs and medical DRGs.)
Therefore, consistent with the MS–DRGs, a base MS–LTC–DRG may be subdivided according to three alternatives. The first alternative includes division of the DRG into one, two, or three severity levels. The most severe level has cases with at least one code that is a major CC, referred to as “with MCC”. The next lower severity level contains cases with at least one CC, referred to as “with CC”. Those DRGs without an MCC or a CC are referred to as “without CC/MCC”. When data do not support the creation of three severity levels, the base DRG is divided into either two levels or the base is not subdivided.
The two-level subdivisions consist of one of the following subdivisions: “with CC/MCC” or “without CC/MCC.” In this type of subdivision, cases with at least one code that is on the CC or MCC list are assigned to the “with CC/MCC” DRG. Cases without a CC or an MCC are assigned to the “without CC/MCC” DRG.
The other type of two-level subdivision is as follows: “with MCC” and without MCC.” In this type of subdivision, cases with at least one code that is on the MCC list are assigned to the “with MCC” DRG. Cases that do not have an MCC are assigned to the “without MCC' DRG. This type of subdivision could include cases with a CC code, but no MCC.
As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55981), one of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix in order to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is more costly. To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment system rate by the applicable relative weight in determining payment to LTCHs for each case. (As we have noted above, we adopted the MS–LTC–DRGs for the LTCH PPS beginning in FY 2008. However, this change in the patient classification system does not affect the basic principles of the development of relative weights under a DRG–based prospective payment system.)
Although the adoption of the MS–LTC–DRGs resulted in some modifications of existing procedures for assigning weights in cases of zero volume and/or nonmonotonicity, as discussed in the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS
In the FY 2009 IPPS proposed rule (73 FR 23593), to calculate the proposed MS–LTC–DRG relative weights for FY 2009, we obtained total Medicare allowable charges from FY 2007 Medicare LTCH bill data from the December 2007 update of the MedPAR file, which were the best available data at that time, and we used the proposed Version 26.0 of the CMS GROUPER that was also proposed for use under the IPPS to classify LTCH cases for FY 2009. We also proposed that if more recent data became available, we would use those data and the finalized Version 26.0 of the CMS GROUPER in establishing the FY 2009 MS–LTC–DRG relative weights in the final rule. Consistent with that proposal, to calculate the MS–LTC–DRG relative weights for FY 2009, in this final rule, we obtained total Medicare allowable charges from FY 2007 Medicare LTCH bill data from the March 2008 update of the FY 2007 MedPAR file, which are the best available data at this time, and we used the Version 26.0 of the CMS GROUPER that will be used under the IPPS (as discussed in section III.B. of the preamble of this final rule).
Consistent with our historical methodology, as proposed, we have excluded the data from LTCHs that are all-inclusive rate providers and LTCHs that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Public Law 90–248 or section 222(a) of Public Law 92–603. (We refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47282).) Therefore, in the development of the FY 2009 MS–LTC–DRG relative weights in this final rule, we have excluded the data of the 17 all-inclusive rate providers and the 2 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2007 MedPAR file.
By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation and wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. This nonarbitrary distribution of cases with relatively high (or low) charges in specific MS–LTC–DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, as we proposed, in this final rule, we used a hospital-specific relative value (HSRV) methodology to calculate the MS–LTC–DRG relative weights instead of the methodology used to determine the MS–DRG relative weights under the IPPS described in section II.H. of the preamble of this final rule. We believe this method will remove this hospital-specific source of bias in measuring LTCH average charges. Specifically, we are reducing the impact of the variation in charges across providers on any particular MS–LTC–DRG relative weight by converting each LTCH's charge for a case to a relative value based on that LTCH's average charge.
Under the HSRV methodology, we standardize charges for each LTCH by converting its charges for each case to hospital-specific relative charge values and then adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, average 1.0 for each LTCH). The average relative weight for a LTCH is its case-mix, so it is reasonable to scale each LTCH's average relative charge value by its case-mix. In this way, each LTCH's relative charge value is adjusted by its case-mix to an average that reflects the complexity of the cases it treats relative to the complexity of the cases treated by all other LTCHs (the average case-mix of all LTCHs).
In accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991), we continue to standardize charges for each case by first dividing the adjusted charge for the case (adjusted for SSOs under § 412.529 as described in section II.I.4. (step 3) of the preamble of this final rule) by the average adjusted charge for all cases at the LTCH in which the case was treated. SSO cases are cases with a length of stay that is less than or equal to five-sixths the average length of stay of the MS–LTC–DRG (§ 412.529 and § 412.503). The average adjusted charge reflects the average intensity of the health care services delivered by a particular LTCH and the average cost level of that LTCH. The resulting ratio is multiplied by that LTCH's case-mix index to determine the standardized charge for the case.
Multiplying by the LTCH's case-mix index accounts for the fact that the same relative charges are given greater weight at a LTCH with higher average costs than they would at a LTCH with low average costs, which is needed to adjust each LTCH's relative charge value to reflect its case-mix relative to the average case-mix for all LTCHs. Because we standardize charges in this manner, we count charges for a Medicare patient at a LTCH with high average charges as less resource intensive than they would be at a LTCH with low average charges. For example, a $10,000 charge for a case at a LTCH with an average adjusted charge of $17,500 reflects a higher level of relative resource use than a $10,000 charge for a case at a LTCH with the same case-mix, but an average adjusted charge of $35,000. We believe that the adjusted charge of an individual case more accurately reflects actual resource use for an individual LTCH because the variation in charges due to systematic differences in the markup of charges among LTCHs is taken into account.
Under the MS–LTC–DRGs, for purposes of the setting of the relative weights, as we discussed in the FY 2009 IPPS proposed rule (73 FR 23594), there would be three different categories of DRGs based on volume of cases within specific MS–LTC–DRGs. MS–LTC–DRGs with at least 25 cases are each assigned a unique relative weight; low-volume MS–LTC–DRGs (that is, MS–LTC–DRGs that contain between one and 24 cases annually) are grouped into quintiles (described below) and assigned the weight of the quintile. No-volume MS–LTC–DRGs (that is, no cases in the database were assigned to those MS–LTC–DRGs) are crosswalked to other MS–LTC–DRGs based on the clinical similarities and assigned the relative weight of the crosswalked MS–LTC–DRG. (We provide in-depth discussions of our policy regarding weight setting for low-volume MS–LTC–
As described above, in response to the need to account for severity and pay appropriately for cases, we developed a severity-adjusted patient classification system which we adopted for both the IPPS and the LTCH PPS in FY 2008. As described in greater detail above, the MS–LTC–DRG system can accommodate three severity levels: “with MCC” (most severe); “with CC,” and “without CC/MCC” (the least severe) with each level assigned an individual MS–LTC–DRG number. In cases with two subdivisions, the levels are either “with CC/MCC” and “without CC/MCC” or “with MCC” and “without MCC”. For example, under the MS–LTC–DRG system, multiple sclerosis and cerebellar ataxia with MCC is MS–LTC–DRG 58; multiple sclerosis and cerebellar ataxia with CC is MS–LTC–DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC is MS–LTC–DRG 60. For purposes of discussion in this section, the term “base DRG” is used to refer to the DRG category that encompasses all levels of severity for that DRG. For example, when referring to the entire DRG category for multiple sclerosis and cerebellar ataxia, which includes the above three severity levels, we would use the term “base-DRG.”
As noted above, while the LTCH PPS and the IPPS use the same patient classification system, the methodology that is used to set the DRG weights for use in each payment system differs because the overall volume of cases in the LTCH PPS is much less than in the IPPS. As a general rule, consistent with the methodology we used when we adopted the MS–LTC–DRGs in the FY 2008 IPPS final rule with comment period (72 FR 47278 through 47281), as we proposed, we determined the FY 2009 relative weights for the MS–LTC–DRGs using the following steps: (1) If an MS–LTC–DRG has at least 25 cases, it is assigned its own relative weight; (2) if an MS–LTC–DRG has between 1 and 24 cases, it is assigned to a quintile for which we compute a relative weight for all of the MS–LTC–DRGS assigned to that quintile; and (3) if an MS–LTC–DRG has no cases, it is crosswalked to another MS–LTC–DRG based upon clinical similarities to assign an appropriate relative weight (as described below in detail in Step 5 of the Steps for Determining the FY 2009 MS–LTC–DRG Relative Weights). Furthermore, in determining the FY 2009 MS–LTC–DRG relative weights, when necessary, as we proposed, we are making adjustments to account for nonmonotonicity, as explained below.
Theoretically, cases under the MS–LTC–DRG system that are more severe require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels, weights should increase with severity, from lowest to highest. If the weights do not increase (that is, if based on the relative weight methodology outlined above, the MS–LTC–DRG with MCC would have a lower relative weight than one with CC, or the MS–LTC–DRG without CC/MCC would have a higher relative weight than either of the others), there is a problem with monotonicity. Since the start of the LTCH PPS for FY 2003 (67 FR 55990), in determining the LTC–DRG relative weights, we have made adjustments in order to maintain monotonicity by grouping both sets of cases together and establishing a new relative weight for both LTC–DRGs. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments because, in a nonmonotonic system, cases that are more severe and require greater expenditure of medical care resources would be paid based on a lower relative weight than cases that are less severe and require lower resource use. The procedure for dealing with nonmonotonicity under the MS–LTC–DRG classification system is discussed in greater detail below in section II.I.4. (Step 6) of the preamble of this final rule.
In order to account for MS–LTC–DRGs with low volume (that is, with fewer than 25 LTCH cases), consistent with the methodology we established when we implemented the LTCH PPS (August 30, 2002; 67 FR 55984 through 55995), we group those “low-volume MS–LTC–DRGs” (that is, MS–LTC–DRGs that contained between 1 and 24 cases annually) into one of five categories (quintiles) based on average charges, for the purposes of determining relative weights (72 FR 47283 through 47288). In determining the FY 2009 MS–LTC–DRG relative weights in this final rule, as we proposed, we continue to employ this quintile methodology for low-volume MS–LTC–DRGs. In addition, in cases where the initial assignment of a low-volume MS–LTC–DRG to quintiles results in nonmonotonicity within a base-DRG, in order to ensure appropriate Medicare payments, consistent with our historical methodology, we are making adjustments to the treatment of low-volume MS–LTC–DRGs to preserve monotonicity, as discussed in detail below in section II.I.4 (Step 6 of the methodology for determining the FY 2009 MS–LTC–DRG relative weights). In this final rule, using LTCH cases from the March 2008 update of the FY 2007 MedPAR file, we identified 290 MS–LTC–DRGs that contained between 1 and 24 cases. This list of MS–LTC–DRGs was then divided into one of the 5 low-volume quintiles, each containing 58 MS–LTC–DRGs (290/5 = 58). As proposed, we assigned a low-volume MS–LTC–DRG to a specific low-volume quintile by sorting the low-volume MS–LTC–DRGs in ascending order by average charge in accordance with our established methodology. Specifically, for this final rule, the 290 low-volume MS–LTC–DRGs were sorted by ascending order by average charge and assigned to a specific low-volume quintile (as described below). After sorting the 290 low-volume MS–LTC–DRGs by average charge in ascending order, we grouped the first fifth (1st through 58th) of low-volume MS–LTC–DRGs (with the lowest average charge) into Quintile 1. This process was repeated through the remaining low-volume MS–LTC–DRGs so that each of the 5 low-volume quintiles contains 58 MS–LTC–DRGs. The highest average charge cases are grouped into Quintile 5. (We note that, consistent with our historical methodology, if the number of low-volume MS–LTC–DRGs had not been evenly divisible by 5, we would have used the average charge of the low-volume MS–LTC–DRG to determine which low-volume quintile would have received the additional low-volume MS–LTC–DRG.)
Accordingly, in order to determine the relative weights for the MS–LTC–DRGs with low-volume for FY 2009, as proposed, we used the five low-volume quintiles described above. The composition of each of the five low-volume quintiles shown in the chart below was used in determining the MS–LTC–DRG relative weights for FY 2009 (Table 11 of the Addendum to this final rule). We determined a relative weight and (geometric) average length of stay for each of the five low-volume quintiles using the methodology that we applied to the regular MS–LTC–DRGs (25 or more cases), as described in section II.I.4. of the preamble of this final rule. As we proposed, we assigned the same relative weight and average length of stay to each of the low-volume MS–LTC–DRGs that make up an individual low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of
We note that we will continue to monitor the volume (that is, the number of LTCH cases) in the low-volume quintiles to ensure that our quintile assignments result in appropriate payment for such cases and do not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases.
In general, as we proposed, the FY 2009 MS–LTC–DRG relative weights in this final rule were determined based on the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). In summary, for FY 2009, we grouped LTCH cases to the appropriate MS–LTC–DRG, while taking into account the low-volume MS–LTC–DRGs (as described above), before the FY 2009 MS–LTC–DRG relative weights were determined. After grouping the cases to the appropriate MS–LTC–DRG (or low-volume quintile), we calculated the relative weights for FY 2009 by first removing statistical outliers and cases with a length of stay of 7 days or less (as discussed in greater detail below). Next, we adjusted the number of cases in each MS–LTC–DRG (or low-volume quintile) for the effect of SSO cases (as also discussed in greater detail below). The SSO adjusted discharges and corresponding charges were used to calculate “relative adjusted weights” in each MS–LTC–DRG (or low-volume quintile) using the HSRV method (described above). In general, to determine the FY 2009 MS–LTC–DRG relative weights in this final rule, as we proposed, we used the same methodology we used in determining the FY 2008 MS–LTC–DRG relative weights in the FY 2008 IPPS final rule with comment period (72 FR 47281 through 47299). However, as we proposed, we made a modification to our methodology for determining relative weights for MS–LTC–DRGs with no LTCH cases (as discussed in greater detail in Step 5 below). Also, we note that, although we are generally using the same methodology in this final rule (with the exception noted above) as the
As discussed in the FY 2008 IPPS final rule with comment when we adopted the MS–LTC–DRGs, the adoption of the MS–LTC–DRGs with either two or three severity levels resulted in some slight modifications of procedures for assigning relative weights in cases of zero volume and/or nonmonotonicity (described in detail below) from the methodology we established when we implemented the LTCH PPS in the August 30, 2002 LTCH PPS final rule. As also discussed in the FY 2008 IPPS final rule with comment when we adopted the MS–LTC–DRGs, we implemented the MS–LTC–DRGs with a 2-year transition beginning in FY 2008. For FY 2008, the first year of the transition, 50 percent of the relative weight for a MS–LTC–DRG was based on the average LTC–DRG relative weight under Version 24.0 of the LTC–DRG GROUPER. The remaining 50 percent of the relative weight was based on the MS–LTC–DRG relative weight under Version 25.0 of the MS–LTC–DRG GROUPER. In FY 2009, the MS–LTC–DRG relative weights are based on 100 percent of the MS–LTC–DRG relative weights. Accordingly, in determining the FY 2009 MS–LTC–DRG relative weights in this final rule, there was no longer a need to include a step to calculate MS–LTC–DRG transition blended relative weights (see Step 7 in the FY 2008 IPPS final rule with comment period (72 FR 47295). Therefore, as we proposed, in this final rule, we determined the FY 2009 MS–LTC–DRG relative weights based solely on the MS–LTC–DRG relative weight under Version 26.0 of the MS–LTC–DRG GROUPER, which is discussed in section II.B. of the preamble of this final rule. Furthermore, as we proposed, we determined the final FY 2009 MS–LTC–DRG relative weights in this final rule based on the final Version 26.0 of the MS–LTC–DRG GROUPER that is presented in this final rule.
Below we discuss in detail the steps for calculating the FY 2009 MS–LTC–DRG relative weights. We note that, as we stated above in section II.I.3.b. of the preamble of this final rule, we have excluded the data of all-inclusive rate LTCHs and LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2007 MedPAR file.
As we proposed, the first step in the calculation of the FY 2009 MS–LTC–DRG relative weights is to remove statistical outlier cases. Consistent with our historical relative weight methodology, we continue to define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each MS–LTC–DRG. These statistical outliers are removed prior to calculating the relative weights because we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among the MS–LTC–DRGs.
The MS–LTC–DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay of 7 days or less do not belong in a LTCH because these stays do not fully receive or benefit from treatment that is typical in a LTCH stay, and full resources are often not used in the earlier stages of admission to a LTCH. If we were to include stays of 7 days or less in the computation of the FY 2009 MS–LTC–DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH, by including data from these very short-stays. Therefore, consistent with our historical relative weight methodology, in determining the FY 2009 MS–LTC–DRG relative weights, as we proposed, we removed LTCH cases with a length of stay of 7 days or less.
After removing cases with a length of stay of 7 days or less, we are left with cases that have a length of stay of greater than or equal to 8 days. As we proposed, as the next step in the calculation of the FY 2009 MS–LTC–DRG relative weights, consistent with our historical relative weight methodology, we adjusted each LTCH's charges per discharge for those remaining cases for the effects of SSOs (as defined in § 412.529(a) in conjunction with § 412.503 for LTCH discharges occurring on or after October 1, 2008). (We note that even if a case was removed in Step 2 (that is, cases with a length of stay of 7 days or less), it was paid as an SSO if its length of stay was less than or equal to five-sixths of the average length of stay of the MS–LTC–DRG.)
We made this adjustment by counting an SSO case as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay for the MS–LTC–DRG for non-SSO cases. This has the effect of proportionately reducing the impact of the lower charges for the SSO cases in calculating the average charge for the MS–LTC–DRG. This process produces the same result as if the actual charges per discharge of an SSO case were adjusted to what they would have been had the patient's length of stay been equal to the average length of stay of the MS–LTC–DRG.
Counting SSO cases as full discharges with no adjustment in determining the FY 2009 MS–LTC–DRG relative weights would lower the FY 2009 MS–LTC–DRG relative weight for affected MS–LTC–DRGs because the relatively lower charges of the SSO cases would bring down the average charge for all cases within an MS–LTC–DRG. This would result in an “underpayment” for non-SSO cases and an “overpayment” for SSO cases. Therefore, as we proposed, we adjusted for SSO cases under § 412.529 in this manner because it results in more appropriate payments for all LTCH cases.
Consistent with our historical relative weight methodology, as we proposed, we calculated the MS–LTC–DRG relative weights using the HSRV methodology, which is an iterative process. First, for each LTCH case, we calculate a hospital-specific relative charge value by dividing the SSO adjusted charge per discharge (see step 3) of the LTCH case (after removing the statistical outliers (see step 1)) and LTCH cases with a length of stay of 7 days or less (see step 2) by the average charge per discharge for the LTCH in which the case occurred. The resulting ratio was then multiplied by the LTCH's case-mix index to produce an adjusted hospital-specific relative charge value for the case. An initial case-mix index value of 1.0 is used for each LTCH.
For each MS–LTC–DRG, the FY 2009 relative weight was calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the MS–LTC–DRG by
As we stated above, we determined the FY 2009 relative weight for each MS–LTC–DRG using total Medicare allowable charges reported in the best available LTCH claims data (that is, the March 2008 update of the FY 2007 MedPAR file for this final rule). Of the FY 2009 MS–LTC–DRGs, we identified a number of MS–LTC–DRGs for which there were no LTCH cases in the database. That is, based on data from the FY 2007 MedPAR file used for this final rule, no patients who would have been classified to those MS–LTC–DRGs were treated in LTCHs during FY 2007 and, therefore, no charge data were available for those MS–LTC–DRGs. Thus, in the process of determining the MS–LTC–DRG relative weights, we were unable to calculate relative weights for these MS–LTC–DRGs with no LTCH cases using the methodology described in Steps 1 through 4 above. However, because patients with a number of the diagnoses under these MS–LTC–DRGs may be treated at LTCHs, consistent with our historical methodology, as we proposed, we assigned relative weights to each of the no-volume MS–LTC–DRGs based on clinical similarity and relative costliness (with the exception of “transplant” MS–LTC–DRGs and “error” MS–LTC–DRGs as discussed below). In general, we determined FY 2009 relative weights for the MS–LTC–DRGs with no LTCH cases in the FY 2007 MedPAR file used in this final rule (that is, “no-volume MS–LTC–DRGs) by crosswalking each no-volume MS–LTC–DRG to another MS–LTC–DRG with a calculated relative weight (determined in accordance with the methodology described above). Then, the “no-volume” MS–LTC–DRG was assigned the same relative weight of the MS–LTC–DRG to which it was crosswalked (as described in greater detail below). As noted above, as proposed, we made a modification to our methodology for determining relative weights for MS–LTC–DRGs with no LTCH cases in this final rule, which is discussed in greater detail below. As also noted above, even where we are not changing our existing methodology, as we did in the FY 2009 IPPS proposed rule, we took this opportunity to refine our description to more precisely explain our proposed methodology for determining the MS–LTC–DRG relative weights in this final rule.
Specifically, in this final rule, as we proposed, we determined the relative weight for each MS–LTC–DRG using total Medicare allowable charges reported in the March 2008 update of the FY 2007 MedPAR file. Of the 746 MS–LTC–DRGs for FY 2009, we identified 203 MS–LTC–DRGs for which there were no LTCH cases in the database (including the 8 “transplant” MS–LTC–DRGs and 2 “error” MS–LTC–DRGs). For this final rule, as noted above and as we proposed, we assigned relative weights for each of the 203 no-volume MS–LTC–DRGs (with the exception of the 8 “transplant” MS–LTC–DRGs and the 2 “error” MS–LTC–DRGs, which are discussed below) based on clinical similarity and relative costliness to one of the remaining 543 (746−203= 543) MS–LTC–DRGs for which we were able to determine relative weights, based on FY 2007 LTCH claims data. (For the remainder of this discussion, we refer to one of the 543 MS–LTC–DRGs for which we were able to determine relative weight as the “crosswalked” MS–LTC–DRG.) Then, as we proposed, we assigned the no-volume MS–LTC–DRG the relative weight of the crosswalked MS–LTC–DRG. As discussed in the FY 2009 IPPS proposed rule (73 FR 23602), this approach differs from the one we used to determine the FY 2008 MS–LTC–DRG relative weights when there were no LTCH cases (72 FR 47290). Specifically, in determining the FY 2008 MS–LTC–DRG relative weights in the FY 2008 IPPS final rule with comment period, if the no volume MS–LTC–DRG was crosswalked to a MS–LTC–DRG that had 25 or more cases and, therefore, was not in a low-volume quintile, we assigned the relative weight of a quintile to a no-volume MS–LTC–DRG (rather than assigning the relative weight of the crosswalked MS–LTC–DRG). While we believe this approach would result in appropriate LTCH PPS payments (because it is consistent with our methodology for determining relative weights for MS–LTC–DRGs that have a low volume of LTCH cases (which is discussed above in section II.I.3.e. of this preamble)), upon further review during the development of the FY 2009 MS–LTC–DRG relative weights in this final rule, we now believe that assigning the relative weight of the crosswalked MS–LTC–DRG to the no-volume MS–LTC–DRG would result in more appropriate LTCH PPS payments because those cases generally require equivalent relative resource (and therefore should generally have the same LTCH PPS payment). The relative weight of each MS–LTC–DRG should reflect relative resource of the LTCH cases grouped to that MS–LTC–DRG. Because the no-volume MS–LTC–DRGs are crosswalked to other MS–LTC–DRGs based on clinical similarity and relative costliness, which usually require equivalent relative resource use, we believe that assigning the no-volume MS–LTC–DRG the relative weight of the crosswalked MS–LTC–DRG would result in appropriate LTCH PPS payments. (As explained below in Step 6, when necessary, we made adjustments to account for nonmonotonicity.)
In this final rule, we are adopting the methodology we proposed for determining the relative weights for the no-volume MS–LTC–DRGs. Our methodology for determining the relative weights for the no-volume MS–LTC–DRGs is as follows: We crosswalk the no-volume MS–LTC–DRG to an MS–LTC–DRG for which there are LTCH cases in the FY 2007 MedPAR file and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. We then assign the relative weight of the crosswalked MS–LTC–DRG as the relative weight for the no-volume MS–LTC–DRG such that both of these MS–LTC–DRGs (that is, the no-volume MS–LTC–DRG and the crosswalked MS–LTC–DRG) would have the same relative weight. We note that if the crosswalked MS–LTC–DRG has 25 cases or more, its relative weight, which is calculated using the methodology described in steps 1 through 4 above, is assigned to the no-volume MS–LTC–DRG as well. Similarly, if the MS–LTC–DRG to which the no-volume MS–LTC–DRG is crosswalked has 24 or less cases, and therefore is designated to one of the low-volume quintiles for purposes of determining the relative weights, we assign the relative weight of the applicable low-volume quintile to the no-volume MS–LTC–DRG such that both of these MS–LTC–DRGs (that is, the no-volume MS–LTC–DRG and the crosswalked MS–LTC–DRG) have the same relative weight. (As we noted above, in the infrequent case where nonmonotonicity involving a no-volume MS–LTC–DRG results, additional measures as described in Step 6 are required in order to maintain monotonically increasing relative weights.)
For this final rule, a list of the no-volume FY 2009 MS–LTC–DRGs and the FY 2009 MS–LTC–DRG to which it is crosswalked (that is, the crosswalked MS–LTC–DRG) is shown in the chart below.
To illustrate this methodology for determining the relative weights for the MS–LTC–DRGs with no LTCH cases, we are providing the following example, which refers to the no-volume MS–LTC–DRGs crosswalk information for FY 2009 provided in the chart above.
There were no cases in the FY 2007 MedPAR file used for this final rule for MS–LTC–DRG 61 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC). We determined that MS–LTC–DRG 70 (Nonspecific Cerebrovascular Disorders with MCC) was similar clinically and based on resource use to MS–LTC–DRG 61. Therefore, we assigned the same relative weight of MS–LTC–DRG 70 of 0.8718 for FY 2009 to MS–LTC–DRG 61 (Table 11 of the Addendum to this final rule).
Furthermore, for FY 2009, consistent with our historical relative weight methodology, as we proposed, we are establishing MS–LTC–DRG relative weights of 0.0000 for the following transplant MS–LTC–DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS–LTC–DRG 1); Heart Transplant or Implant of Heart Assist System without MCC (MS–LTC–DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS–LTC–DRG 5); Liver Transplant without MCC (MS–LTC–DRG 6); Lung Transplant (MS–LTC–DRG 7); Simultaneous Pancreas/Kidney Transplant (MS–LTC–DRG 8); Pancreas Transplant (MS–LTC–DRG 10); and Kidney Transplant (MS–LTC–DRG 652). This is because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. Based on our research, we found that most LTCHs only perform minor surgeries, such as minor small and large bowel procedures, to the extent any surgeries are performed at all. Given the extensive criteria that must be met to become certified as a transplant center for Medicare, we believe it is unlikely that any LTCHs will become certified as a transplant center. In fact, in the more than 20 years since the implementation of the IPPS, there has never been a LTCH that even expressed an interest in becoming a transplant center.
If in the future a LTCH applies for certification as a Medicare-approved transplant center, we believe that the application and approval procedure would allow sufficient time for us to determine appropriate weights for the
Again, we note that, as this system is dynamic, it is entirely possible that the number of MS–LTC–DRGs with no volume of LTCH cases based on the system will vary in the future. We used the most recent available claims data in the MedPAR file to identify no-volume MS–LTC–DRGs and to determine the relative weights in this final rule.
As discussed in section II.B. of the preamble of this final rule, the MS–DRGs (used under the IPPS) on which the MS–LTC–DRGs are based provide a significant improvement in the DRG system's recognition of severity of illness and resource usage. The MS–DRGs contain base DRGs that have been subdivided into one, two, or three severity levels. Where there are three severity levels, the most severe level has at least one code that is referred to as an MCC. The next lower severity level contains cases with at least one code that is a CC. Those cases without an MCC or a CC are referred to as without CC/MCC. When data did not support the creation of three severity levels, the base was divided into either two levels or the base was not subdivided. The two-level subdivisions could consist of the CC/MCC and the without CC/MCC. Alternatively, the other type of two level subdivision could consist of the MCC and without MCC.
In those base MS–LTC–DRGs that are split into either two or three severity levels, cases classified into the “without CC/MCC” MS–LTC–DRG are expected to have a lower resource use (and lower costs) than the “with CC/MCC” MS–LTC–DRG (in the case of a two-level split) or the “with CC” and “with MCC” MS–LTC–DRGs (in the case of a three-level split). That is, theoretically, cases that are more severe typically require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels, relative weights should increase by severity, from lowest to highest. If the relative weights do not increase (that is, if within a base MS–LTC–DRG, an MS–LTC–DRG with MCC has a lower relative weight than one with CC, or the MS–LTC–DRG without CC/MCC has a higher relative weight than either of the others, they are nonmonotonic). We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments. Consequently, in general, as we proposed, we combined MS–LTC–DRG severity levels within a base MS–LTC–DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. In determining the FY 2009 MS–LTC–DRG relative weights in this final rule, in general, we are using the same methodology to adjust for nonmonotonicity that we used to determine the FY 2008 MS–LTC–DRG relative weights in the FY 2008 IPPS final rule with comment (72 FR 47293 through 47295). However, as noted above and as we did in the proposed rule, we are taking this opportunity to refine our description to more precisely explain our methodology for determining the MS–LTC–DRG relative weights in this final rule. We note that we did not receive any comments on our refinement to the description of our methodology for adjusting for nonmonotonicity in determining the relative weights for FY 2009 that was presented in the FY 2009 IPPS proposed rule. In determining the FY 2009 MS–LTC–DRG relative weights in this final rule, under each of the example scenarios provided below, we combined severity levels within a base MS–LTC–DRG as follows:
The first example of nonmonotonically increasing relative weights for a MS–LTC–DRG pertains to a base MS–LTC–DRG with a three-level split and each of the three levels has 25 or more LTCH cases and, therefore, none of those MS–LTC–DRGs is assigned to one of the five low-volume quintiles. In this final rule, if nonmonotonicity was detected in the relative weights of the MS–LTC–DRGs in adjacent severity levels (for example, the relative weight of the “with MCC” (the highest severity level) is less than the “with CC” (the middle level), or the “with CC” is less than the “without CC/MCC”), we combined the nonmonotonic adjacent MS–LTC–DRGs and redetermined a relative weight based on the case-weighted average of the combined LTCH cases of the nonmonotonic MS–LTC–DRGs. The case-weighted average charge is calculated by dividing the total charges for all LTCH cases in both severity levels by the total number of LTCH cases for both MS–LTC–DRGs. The same relative weight is assigned to both affected levels of the base MS–LTC–DRG. If nonmonotonicity remains an issue because the above process resulted in a relative weight that was still nonmonotonic to the remaining MS–LTC–DRG relative weight within the base MS–LTC–DRG, we combined all three of the severity levels to redetermine the relative weights based on the case-weighted average charge of the combined severity levels. This same relative weight was then assigned to each of the MS–LTC–DRGs in that base MS–LTC–DRG.
A second example of nonmonotonically increasing relative weights for a base MS–LTC–DRG pertains to the situation where there are three severity levels and one or more of the severity levels within a base MS–LTC–DRG has less than 25 LTCH cases (that is, low volume). In this final rule, if nonmonotonicity occurs in the case where either the highest or lowest severity level (“with MCC” or “without CC/MCC”) has 25 LTCH cases or more and the other two severity levels are low volume (and therefore the other two severity levels are otherwise assigned the relative weight of the applicable low-volume quintile(s)), we combined the data for the cases in the two adjacent low-volume MS–LTC–DRGs for the purpose of determining a relative weight. If the combination resulted in at least 25 cases, we redetermined one relative weight based on the case-weighted average charge of the combined severity levels and assigned this same relative weight to each of the severity levels. If the combination resulted in less than 25 cases, based on the case-weighted average charge of the combined low-volume MS–LTC–DRGs, both MS–LTC–DRGs were assigned to the appropriate low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on the case-weighted average charge of the combined low-volume MS–LTC–DRGs. Then the relative weight of the affected low-volume quintile was redetermined and that relative weight was assigned to each of the affected severity levels (and all of the MS–LTC–DRGs in the affected low-volume quintile). If nonmonotonicity persisted, we combined all three severity levels and redetermined one relative weight based on the case-weighted average charge of the combined severity levels and this same relative weight was assigned to each of the three levels.
Similarly, in nonmonotonic cases where the middle level has 25 cases or more but either or both of the lowest or highest severity level has less than 25 cases (that is, low volume), we combined the nonmonotonic low-volume MS–LTC–DRG with the middle level MS–LTC–DRG of the base MS–
In the case where all three severity levels in the base MS–LTC–DRGs were low-volume MS–LTC–DRGs and two of the severity levels were nonmonotonic in relation to each other, we combined the two adjacent nonmonotonic severity levels. If that combination resulted in less than 25 cases, both low-volume MS–LTC–DRGs were assigned to the appropriate low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on the case-weighted average charge of the combined low-volume MS–LTC–DRGs. Then the relative weight of the affected low-volume quintile was redetermined and that relative weight was assigned to each of the affected severity levels (and all of the MS–LTC–DRGs in the affected low-volume quintile). If the nonmonotonicity persisted, we combined all three levels of that base MS–LTC–DRG for the purpose of redetermining a relative weight based on the case-weighted average charge of the combined severity levels, and assigned that relative weight to each of the three severity levels. If that combination of all three severity levels resulted in less than 25 cases, we assigned that “combined” base MS–LTC–DRG to the appropriate low-volume quintile based on the case-weighted average charge of the combined low-volume MS–LTC–DRGs. Then the relative weight of the affected low-volume quintile was redetermined and that relative weight was assigned to each of the affected severity levels (and all of the MS–LTC–DRGs in the affected low-volume quintile).
Another example of nonmonotonicity involves a base MS–LTC–DRG with three severity levels where at least one of the severity levels has no cases. As discussed above in greater detail in Step 5, based on resource use intensity and clinical similarity, as we proposed, we crosswalked a no-volume MS–LTC–DRG to an MS–LTC–DRG that had at least one case. Under our methodology for the treatment of no-volume MS–LTC–DRGs, the no-volume MS–LTC–DRG was assigned the same relative weight as the MS–LTC–DRG to which the no-volume MS–LTC–DRG was crosswalked. For many no-volume MS–LTC–DRGs, as shown in the chart above in Step 5, the application of our methodology resulted in a crosswalked MS–LTC–DRG that is the adjacent severity level in the same base MS–LTC–DRG. Consequently, in most instances, the no-volume MS–LTC–DRG and the adjacent MS–LTC–DRG to which it was crosswalked did not result in nonmonotonicity because both of these severity levels would have the same relative weight. (In this final rule, under our methodology for the treatment of no-volume MS–LTC–DRGs, in the case where the no-volume MS–LTC–DRG was either the highest or lowest severity level, the crosswalked MS–LTC–DRG would be the middle level (“with CC”) within the same base MS–LTC–DRG, and therefore the no-volume MS–LTC–DRG (either the “with MCC” or the “without CC/MCC”) and the crosswalked MS–LTC–DRG (the “with CC”) would have the same relative weight. Consequently, no adjustment for monotonicity was necessary.) However, if our methodology for determining relative weights for no-volume MS–LTC–DRGs resulted in nonmonotonicity with the third severity level in the base MS–LTC–DRG, all three severity levels were combined for the purpose of redetermining one relative weight based on the case-weighted average charge of the combined severity levels. This same relative weight was assigned to each of the three severity levels in the base MS–LTC–DRG.
Thus far in the discussion, we have presented examples of nonmonotonicity in a base MS–LTC–DRG that has three severity levels. We apply the same process where the base MS–LTC–DRG contains only two severity levels. For example, if nonmonotonicity occurs in a base MS–LTC–DRG with two severity levels (that is, the relative weight of the higher severity level is less than the lower severity level), where both of the MS–LTC–DRGs have at least 25 cases or where one or both of the MS–LTC–DRGs is low volume (that is, less than 25 cases), we combine the two MS–LTC–DRGs of that base MS–LTC–DRG for the purpose of redetermining a relative weight based on the combined case-weighted average charge for both severity levels. This same relative weight is assigned to each of the two severity levels in the base MS–LTC–DRG. Specifically, if the combination of the two severity levels results in at least 25 cases, we redetermine one relative weight based on the case-weighted average charge and assign that relative weight to each of the two MS–LTC–DRGs. If the combination results in less than 25 cases, we assign both MS–LTC–DRGs to the appropriate low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on their combined case-weighted average charge. Then the relative weight of the affected low-volume quintile is redetermined and that relative weight is assigned to each of the affected severity levels.
As we established in the RY 2008 LTCH PPS final rule (72 FR 26882), under the broad authority conferred upon the Secretary under section 123 of Public Law 106–113 as amended by section 307(b) of Public Law 106–554 to develop the LTCH PPS, beginning with the MS–LTC–DRG update for FY 2008, the annual update to the MS–LTC–DRG classifications and relative weights is done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS–LTC–DRG classification and relative weight changes. Specifically, in that same final rule, we established under § 412.517(b) that the annual update to the MS–LTC–DRG classifications and relative weights be done in a budget neutral manner. For a detailed discussion on the establishment of the requirement to update the MS–LTC–DRG classifications and relative weights in a budget neutral manner, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 26880 through 26884). Updating the MS–LTC–DRGs in a budget neutral manner results in an annual update to the individual MS–LTC–DRG classifications and relative weights based on the most recent available data to reflect changes in relative LTCH resource use. To accomplish this, for each annual update, the MS–LTC–DRG relative weights are uniformly adjusted to ensure that estimated aggregate payments under the LTCH PPS would not be affected (that is, decreased or increased). Consistent with that provision, as we proposed, we updated the MS–LTC–DRG classifications and relative weights for FY 2009 based on the most recent available data and included a budget neutrality adjustment that was applied in determining the MS–LTC–DRG relative weights.
To ensure budget neutrality in updating the MS–LTC–DRG classifications and relative weights under § 412.517(b), consistent with the budget neutrality methodology we established in the FY 2008 IPPS final rule with comment period (72 FR 47295
To calculate the normalization factor for FY 2009, as we proposed, we used the following steps: (1) We use the most recent available claims data (FY 2007) and the MS–LTC–DRG relative weights (determined above in Steps 1 through 6 above) to calculate the average CMI; (2) we group the same claims data (FY 2007) using the FY 2008 GROUPER (Version 25.0) and FY 2008 relative weights (established in the FY 2008 IPPS final rule with comment period (72 FR 47295 through 47296)) and calculate the average CMI: and (3), we compute the ratio of these average CMIs by dividing the average CMI determined in step (2) by the average CMI determined in step (1). In determining the MS–LTC–DRG relative weights for FY 2009, based on the latest available LTCH claims data, the normalization factor is estimated as 1.03887, which is applied in determining each MS–LTC–DRG relative weight. That is, each MS–LTC–DRG relative weight is multiplied by 1.03887 in the first step of the budget neutrality process. Accordingly, the relative weights in Table 11 in the Addendum of this final rule reflect this normalization factor. We also ensured that estimated aggregate LTCH PPS payments (based on the most recent available LTCH claims data) after reclassification and recalibration (the new FY 2009 MS–LTC–DRG classifications and relative weights) are equal to estimated aggregate LTCH PPS payments (for the same most recent available LTCH claims data) before reclassification and recalibration (the existing FY 2008 MS–LTC–DRG classifications and relative weights). Therefore, we calculated the budget neutrality adjustment factor by simulating estimated total payments under both sets of GROUPERs and relative weights using current LTCH PPS payment policies (RY 2009) and the most recent available LTCH claims data (FY 2007). As we discussed in the FY 2009 IPPS proposed rule (73 FR 23608), we have established payments rates and policies for RY 2009 prior to the development of the FY 2009 IPPS final rule (73 FR 26788 through 26874). Therefore, for purposes of determining the FY 2009 budget neutrality factor in this final rule, as we proposed, we simulated estimated total payments using the most recent LTCH PPS payment policies and LTCH claims data that are available at this time. As noted above, the most recent available LTCH claims data are from the March 2008 update of the FY 2007 MedPAR file.
Accordingly, we used RY 2009 LTCH PPS rates and policies in determining the FY 2009 budget neutrality adjustment in this final rule, using the following steps: (1) We simulated estimated total payments using the normalized relative weights under GROUPER Version 26.0 (as described above); (2) we simulated estimated total payments using the FY 2008 GROUPER (Version 25.0) and FY 2008 MS–LTC–DRG relative weights (as established in the FY 2008 IPPS final rule (72 FR 47295 through 47296)); and (3) we calculated the ratio of these estimated total payments by dividing the estimated total payments determined in step (2) by the estimated total payments determined in step (1). Then, each of the normalized relative weights was multiplied by the budget neutrality factor to determine the budget neutral relative weight for each MS–LTC–DRG.
Accordingly, in determining the MS–LTC–DRG relative weights for FY 2009 in this final rule, based on the most recent available LTCH claims data, we are establishing a budget neutrality factor of 1.04186, which was applied to the normalized relative weights (described above). The FY 2009 MS–LTC–DRG relative weights in Table 11 in the Addendum of this final rule reflect this budget neutrality factor.
Table 11 in the Addendum to this final rule lists the MS–LTC–DRGs and their respective budget neutral relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (used in the determination of SSO payments under § 412.529) for FY 2009.
Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that the process must apply to a new medical service or technology if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.”
The regulations implementing this provision establish three criteria for new medical services and technologies to receive an additional payment. First, 42 CFR 412.87(b)(2) states that a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the DRG weights through recalibration. Typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) and when data reflecting the use of the medical service or technology are used to calculate the DRG weights. For example, data from discharges occurring during FY 2007 are used to calculate the FY 2009 DRG weights in this final rule. Section 412.87(b)(2) of our existing regulations provides that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD–9–CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs based on available data to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered ‘new’ under the criterion for this section.”
The 2-year to 3-year period during which a medical service or technology can be considered new would ordinarily begin on the date on which the medical service or technology received FDA approval or clearance. (We note that, for purposes of this section of the final rule, we refer to both FDA approval and FDA clearance as FDA “approval.”) However, in some cases, initially there may be no Medicare data available for the new service or technology following FDA approval. For example, the newness period could extend beyond the 2-year to 3-year period after FDA approval is received in cases where the product initially was generally unavailable to Medicare patients following FDA approval, such as in cases of a national noncoverage determination or a documented delay in bringing the product onto the market after that approval (for instance, component production or drug production has been postponed following FDA approval due to shelf life concerns or manufacturing issues). After the DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the medical service or technology is no longer eligible for special add-on payment for new medical services or technologies (§ 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2007 and entered the market at that time may be eligible to receive add-on payments as a new technology for discharges occurring before October 1, 2010 (the start of FY 2011). Because the FY 2011 DRG weights would be calculated using FY 2009 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2011 DRG weights. Therefore, the new technology would no longer be eligible to receive add-on payments as a new technology for discharges occurring in FY 2011 and thereafter.
Section 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable DRG-prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. In the FY 2004 IPPS final rule (68 FR 45385), we established the threshold at the geometric mean standardized charge for all cases in the DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and converted back to charges) for all cases in the DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant DRGs, if the new medical service or technology occurs in more than one DRG).
However, section 503(b)(1) of Public Law 108–173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, CMS will apply “a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation for the diagnosis-related group involved.” (We refer readers to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion of the revision of the regulations to incorporate the change made by section 503(b)(1) of Pub. L. 108–173.) Table 10 in section XIX. of the interim final rule with comment period published in the
We note that section 124 of Public Law 110–275 extends, through FY 2009, wage index reclassifications under section 508 of Public Law 108–173 (the MMA) and special exceptions contained in the final rule promulgated in the
In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. Specifically, we explained that health plans, including Medicare, and providers that conduct certain transactions electronically, including the hospitals that would be receiving payment under the FY 2001 IPPS final rule, are required to comply with the HIPAA Privacy Rule. We further explained how such entities could meet the applicable HIPAA requirements by discussing how the HIPAA Privacy Rule permitted providers to share with health plans information needed to ensure correct payment, if they had obtained consent from the patient to use that patient's data for treatment, payment, or health care operations. We also explained that, because the information to be provided within applications for new technology add-on payment would be needed to ensure correct payment, no additional consent would be required. The HHS Office of Civil Rights has since amended the HIPAA Privacy Rule, but the results remain. The HIPAA Privacy Rule no longer requires covered entities to obtain consent from patients to use or disclose protected health information for treatment, payment, or health care operations, and expressly permits such entities to use or to disclose protected health information for any of these purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and 164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually Identifiable Health Information published in the
Section 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. (We refer readers to the September 7, 2001 final rule for a complete discussion of this criterion (66 FR 46902).)
The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, if the costs of the discharge (determined by applying CCRs as described in § 412.84(h)) exceed the full DRG payment (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 DRG payment plus 50 percent of the estimated costs of the new technology.
Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year, while at the same time estimating the payment effect of changes to the DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. However, section 503(d)(2) of Public Law 108–173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, following section 503(d)(2) of Public 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.
Applicants for add-on payments for new medical services or technologies for FY 2010 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on our Web site at:
The Council on Technology and Innovation (CTI) at CMS oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes for Medicare with respect to new technologies and procedures, including new drug therapies, as well as promoting the exchange of information on new technologies between CMS and other entities. The CTI, composed of senior CMS staff and clinicians, was established under section 942(a) of Public Law 108–173. The Council is co-chaired by the Director of the Office of Clinical Standards and Quality (OCSQ) and the Director of the Center for Medicare Management (CMM), who is also designated as the CTI's Executive Coordinator.
The specific processes for coverage, coding, and payment are implemented by CMM, OCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements rather than replaces these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care, and at the same time to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for
CMS plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI is developing an “innovator's guide” to these processes. This guide will, for example, outline regulation cycles and application deadlines. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format.
In the meantime, we invite any product developers with specific issues involving the agency to contact us early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.
The CTI aims to provide 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
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 2009 prior to publication of the FY 2009 IPPS proposed rule, we published a notice in the
Approximately 70 individuals attended the town hall meeting in person, while approximately 20 additional participants listened over an open telephone line. Each of the four FY 2009 applicants presented information on its technology, including a focused discussion of data reflecting the substantial clinical improvement aspect of the technology. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on each applicant's application, in our evaluation of the new technology add-on applications for FY 2009 in the FY 2009 proposed rule and in this final rule. We received two comments during the town hall meeting. In the proposed rule, we summarized the comments we received at the town hall meeting or, if applicable, indicated at the end of the discussion of each application that no comments were received on that new technology. We refer readers to the FY 2009 IPPS proposed rule at 73 FR 23611 for those comments and responses.
In addition to the comment summaries and our responses presented in the proposed rule, we received additional comments as summarized below.
We did not approve any applications for new technology add-on payments for FY 2008. For additional information, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47305 through 47307).
We received four applications to be considered for new technology add-on payment for FY 2009. A discussion of each of these applications is presented below. We note that, in the past, we have considered applications during the rulemaking process that had not yet received FDA approval, but were anticipating FDA approval prior to publication of the IPPS final rule. In such cases, we generally provide a more limited discussion of those technologies in the proposed rule because it is not known if these technologies will meet the newness criterion in time for us to conduct a complete analysis in the final rule. This year, three out of four applicants had not yet received FDA approval of their technologies (Emphasys Medical Zephyr® Endobronchial Valve, Oxiplex®, and the TherOx Downstream® System) prior to
SynCardia Systems, Inc. submitted an application for approval of the CardioWest
The TAH–t was approved by the FDA on October 15, 2004, for use as a bridge to transplant device in cardiac transplant-eligible candidates at risk of imminent death from biventricular failure. The TAH–t is intended to be used in hospital inpatients. One of the FDA's post-approval requirements is that the manufacturer agrees to provide a post-approval study demonstrating success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who would be followed up to 1 year, including (but not limited to) the following endpoints; survival to transplant, adverse events, and device malfunction.
In the past, Medicare did not cover artificial heart devices, including the TAH–t. However, on February 1, 2008, CMS proposed to reverse a national noncoverage determination that would extend coverage to this technology within the confines of an approved clinical study. (To view the proposed national coverage determination (NCD), we refer readers to the CMS Web site at
Because Medicare's previous coverage policy with respect to this device has precluded payment from Medicare, we do not expect the costs associated with this technology to be currently reflected in the data used to determine MS–DRGs relative weights. As we have indicated in the past, and as we discussed in the proposed rule, although we generally believe that the newness period would begin on the date that FDA approval was granted, in cases where the applicant can demonstrate a documented delay in market availability subsequent to FDA approval, we would consider delaying the start of the newness period. This technology's situation represents such a case. We also note that section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years “beginning on the date on which an inpatient hospital code is issued with respect to the service or technology.” Furthermore, the statute specifies that the term “inpatient hospital code” means any code that is used with respect to inpatient hospital services for which payment may be made under the IPPS and includes ICD–9–CM codes and any subsequent revisions. Although the TAH–t has been described by the ICD–9–CM code(s) (described below in the cost threshold discussion) since the time of its FDA approval, because the TAH–t has not been covered under the Medicare program (and, therefore, no Medicare payment has been made for this technology), this code is not “used with respect to inpatient hospital services for which payment” is made under the IPPS, and thus we assume that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS–DRG weights for FY 2009. For this reason, as discussed in the proposed rule, despite its FDA approval date, it appeared that this technology would still be eligible to be considered “new” for purposes of the new technology add-on payment if and when the proposal to reverse the national noncoverage determination concerning this technology was finalized. Therefore, based on this information, we stated that we believed that the TAH–t would meet the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD. Because the final NCD was issued and became effective on May 1, 2008, we believe that the TAH–t meets the newness criterion as of May 1, 2008.
In an effort to demonstrate that TAH–t would meet the cost criterion, as presented in the proposed rule, the applicant submitted data based on 28 actual cases of the TAH–t. The data included 6 cases (or 21.4 percent of cases) from 2005, 13 cases (or 46.5 percent of cases) from 2006, 7 cases (or 25 percent of cases) from 2007, and 2 cases (or 7.1 percent of cases) from 2008. Currently, cases involving the TAH–t are assigned to MS–DRG 215 (Other Heart Assist System Implant). As discussed below in this section, we are proposing to remove the TAH–t from MS–DRG 215 and reassign the TAH–t to MS–DRGs 001 (Heart Transplant or Implant of Heart Assist System with MCC) and 002 (Heart Transplant or Implant of Heart Assist System without MCC). Therefore, to determine if the technology meets the cost criterion, it is appropriate to compare the average standardized charge per case to the thresholds for MS–DRGs 001, 002, and 215 included in Table 10 of the
In addition to analyzing the costs of actual cases involving the TAH–t, the applicant searched the FY 2006 MedPAR file to identify cases involving patients who would have potentially been eligible to receive the TAH–t. The applicant submitted three different MedPAR analyses. The first MedPAR analysis involved a search for cases using ICD–9–CM diagnosis code 428.0 (Congestive heart failure) in combination with ICD–9–CM procedure code 37.66 (Insertion of implantable heart assist system), and an inpatient hospital length of stay greater than or equal to 60 days. The applicant found two cases that met this criterion, which had an average standardized charge per case of $821,522. The second MedPAR analysis searched for cases with ICD–9–CM diagnosis code 428.0 (Congestive heart failure) and one or more of the following ICD–9–CM procedure codes: 37.51 (Heart transplant), 37.52 (Implantation of total heart replacement system), 37.64 (Removal of heart assist system), 37.66 (Insertion of implantable heart assist system), or 37.68 (Insertion of percutaneous external heart assist device), and a length of stay greater than or equal to 60 days. The applicant found 144 cases that met this criterion, which had an average standardized charge per case of $841,827. The final MedPAR analysis searched for cases with ICD–9–CM procedure code 37.51 (Heart transplant) in combination with one of the following ICD–9–CM procedure codes: 37.52 (Implantation of total heart replacement system), 37.65 (Implantation of external heart system), or 37.66 (Insertion of implantable heart assist system). The applicant found 37 cases that met this criterion, which had an average standardized charge per case of $896,601. Because only two cases met the criterion for the first analysis, consistent with historical practice, we would not consider it to be of statistical significance and, therefore, would not rely upon it to demonstrate whether the TAH–t would meet the cost threshold. However, both of the additional analyses seem to provide an adequate number of cases to demonstrate whether the TAH–t would meet the cost threshold. We assume that none of the costs associated with this technology would be reflected in the MedPAR analyses that the applicant used to demonstrate that the technology would meet the cost criterion. We note that, under all three of the analyses the applicant performed, it identified cases that would have been eligible for the TAH–t, but did not remove charges that were unrelated to the TAH–t, nor did the applicant insert a proxy of charges related to the TAH–t. However, as stated above, the average standardized charge per case is much greater than any of the thresholds for MS–DRGs 001, 002, and 215. Therefore, even if the applicant were to approximate what the costs of cases eligible to receive the TAH–t would have been by removing non-TAH–t associated charges and inserting charges related to the TAH–t, it appears that the average standardized charges per case for cases eligible for the TAH–t would exceed the relevant thresholds included in Table 10 (as discussed above) and would therefore appear to meet the cost criterion. In the FY 2009 IPPS proposed rule, we invited public comment on whether TAH–t met the cost criterion.
As noted in section II.G.1. of the preamble to the FY 2009 IPPS proposed rule, we proposed to remove the TAH–t from MS–DRG 215 and reassign the TAH–t to MS–DRGs 001 and 002. As stated earlier, on May 1, 2008, CMS issued an NCD that extends coverage to artificial heart devices within the confines of an FDA-approved clinical study. Therefore, as of May 1, 2008, the MCE will require both procedure code 37.52 (Implantation of total replacement heart system) and diagnosis code reflecting clinical trial—V70.7 (Examination of participant in clinical trial). As we stated in the proposed rule, the TAH–t appeared to meet the cost thresholds for MS–DRGs 001, 002, and 215. Therefore, we noted, its proposed reassignment from MS–DRG 215 to MS–DRGs 001 and 002 would not appear to have a material effect on meeting the cost thresholds in MS–DRGs 001 and 002 should the reassignment proposal be finalized. In section II.G.1. of the preamble of this final rule, we finalized the proposal to reassign cases involving the TAH–t from MS–DRG 215 to MS–DRGs 001 and 002. We refer readers to that section for additional information.
The manufacturer stated that the TAH–t is the only mechanical circulatory support device intended as a bridge-to-transplant for patients with irreversible biventricular failure. It also asserted that the TAH–t improves clinical outcomes because it has been shown to reduce mortality in patients who are otherwise in end-stage heart failure. In addition, the manufacturer claimed that the TAH–t provides greater hemodynamic stability and end-organ perfusion, thus making patients who receive it better candidates for eventual heart transplant.
We did not receive any written comments or public comments at the town hall meeting regarding whether this technology represents a substantial clinical improvement in the treatment of inpatients with end-stage biventricular heart failure relative to previous technology available to the Medicare population. However, in the FY 2009 IPPS proposed rule, we welcomed comments from the public regarding whether the TAH–t represents a substantial clinical improvement.
However, we agree with the commenter's assertion that the TAH–t “fulfills a role that no other mechanical circulatory support device can for patients in irreversible biventricular failure.” We note that the TAH–t is the only available FDA-approved temporary total artificial heart device. Clinical evidence submitted by the applicant supports the manufacturer's assertion that the TAH–t provides a treatment option for patients suffering from biventricular failure who may be unresponsive to, or ineligible for, currently available treatments (including other mechanical circulatory devices). Specifically, the applicant referred to the FDA approved multicenter IDE clinical trial in which 81 patients at risk of imminent death from biventricular heart failure received the device. At 30 days, 69.1 percent of those patients met the treatment success criteria for the study, which included: Having an improvement in heart failure from New York Heart Association Class IV to Class I or II, not being bedridden, not being ventilator dependent and not being on dialysis. Therefore, the TAH–t appears to provide a viable treatment option to patients who might otherwise be at risk for imminent death, and who, by virtue of successful bridge to transplant, may ultimately benefit from the extended survival that is possible with heart transplant. We acknowledge that there were some patients who did not survive despite receiving the TAH–t, but we believe at this time that the benefit provided by the device to patients who might otherwise be at risk for imminent death outweighs the risks associated with the device. Therefore, we believe that this device has demonstrated that it is a substantial clinical improvement over existing technology for those patients who meet the specific criteria for inclusion in an approved clinical trial for purposes of FY 2009 new technology add-on payments.
After evaluation of the three new technology add-on criteria (newness, costs, and substantial clinical improvement) and consideration of the public comments received, we are approving the TAH–t for FY 2009 new technology add-on payment. As discussed above, we believe that the TAH–t offers a new treatment option that previously did not exist for patients with end-stage biventricular failure. However, we recognize that the TAH–t's Medicare coverage is limited to approved clinical trial settings. The new technology add-on payment status does not negate the restrictions under the NCD nor does it obviate the need for continued monitoring of clinical evidence for the TAH–t, and we remain interested in seeing whether the clinical evidence from the CED parameters demonstrates that the TAH–t continues to be effective. If evidence is found that the TAH–t may no longer offer a substantial clinical improvement, we reserve the right to discontinue new technology add-on payments, even within the 2 to 3 year period that the device may still be considered to be new. The new technology add-on payment for FY 2009 will be triggered by the presence of ICD–9–CM procedure code 37.52 (Implantation of total heart replacement system), condition code 30, and diagnosis code reflecting clinical trial—V70.7 (Examination of participant in clinical trial). As noted in the proposed rule, the manufacturer submitted data to support its estimated operating cost per case involving the TAH–t procedure of $106,000. Accordingly, we are finalizing a maximum add-on payment of $53,000 (that is, 50 percent of the estimated operating costs of the device) for cases that involve this technology.
Emphasys Medical submitted an application for new technology add-on payments for FY 2009 for the Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV). The Zephyr® EBV is intended to treat patients with emphysema by reducing volume in the diseased, hyperinflated portion of the emphysematous lung with fewer risks and complications than with more invasive surgical alternatives. Zephyr® EBV therapy involves placing small, one-way valves in the patients' airways to allow air to flow out of, but not into, the diseased portions of the lung thus reducing the hyperinflation. A typical procedure involves placing three to four valves in the target lobe using a bronchoscope, and the procedure takes approximately 20 to 40 minutes to complete. The Zephyr® EBVs are designed to be relatively easy to place, and are intended to be removable so that, unlike more risky surgical alternatives such as Lung Volume Reduction Surgery (LVRS) or Lung Transplant, the procedure has the potential to be fully reversible.
In the proposed rule, we noted that the Zephyr® EBV had yet to receive approval from the FDA, but the manufacturer indicated to CMS that it expected to receive its FDA approval in the second or third quarter of 2008. Because the technology had not yet been approved by the FDA, we limited our discussion of this technology in the proposed rule to data that the applicant submitted, rather than make specific proposals with respect to whether the device would meet the new technology add-on criteria.
In an effort to demonstrate that the Zephyr® EBV would meet the cost criterion, as discussed in the proposed rule, the applicant searched the FY 2006 MedPAR file for cases with one of the following ICD–9–CM diagnosis codes: 492.0 (Emphysematous bleb), 492.8 (Other emphysema, NEC), or 496 (Chronic airway obstruction, NEC). Based on the diagnosis codes searched by the applicant, cases of the Zephyr® EBV would be most prevalent in MS– DRGs 190 (Chronic Obstructive Pulmonary Disease with MCC), 191 (Chronic Obstructive Pulmonary Disease with CC), and 192 (Chronic Obstructive Pulmonary Disease without CC/MCC). The applicant found 1,869 cases (or 12.8 percent of cases) in MS–DRG 190, 5,789 cases (or 39.5 percent of cases) in MS–DRG 191, and 6,995 cases (or 47.7 percent of cases) in MS–DRG 192 (which equals a total of 14,653 cases). The average standardized charge per case was $21,567 for MS–DRG 190, $15,494 for MS–DRG 191, and $11,826 for MS–DRG 192. The average standardized charge per case does not include charges related to the Zephyr® EBV; therefore, it is necessary to add the charges related to the device to the average standardized charge per case in
In the FY 2009 IPPS proposed rule, we invited public comment on whether Zephyr® EBV met the cost criterion.
As discussed in the proposed rule, the applicant also asserted that the Zephyr® EBV is a substantial clinical improvement because it provides a new therapy along the continuum of care for patients with emphysema that offers improvement in lung function over standard medical therapy while incurring significantly less risk than more invasive treatments such as LVRS and lung transplant. Specifically, the applicant submitted data from the ongoing pivotal Endobronchial Valve for Emphysema Palliation (VENT) trial,
While CMS recognizes that the Zephyr® EBV therapy is significantly less risky than LVRS and lung transplant, we are concerned that the benefits as shown in the VENT pivotal trial may not outweigh the risks when compared with medical therapy alone. Further, we note that, according to the applicant, the Zephyr® EBV is intended for use in many patients who are ineligible for LVRS and/or lung transplant (including those too sick to undergo more invasive surgery and those with lower lobe predominant disease distribution), but that certain patients (that is, those with upper lobe predominant disease distribution) could be eligible for either surgery or the Zephyr® EBV.
In the FY 2009 IPPS proposed rule, we welcomed comments from the public on both the patient population who would be eligible for the technology, and whether the Zephyr® EBV represented a substantial clinical improvement in the treatment of patients with emphysema.
As noted in the proposed rule, we also received written comments from the manufacturer and its presenters at the town hall meeting clarifying some questions that were raised at the town hall meeting. Specifically, these commenters explained that, in general, the target population for the Zephyr® EBV device was the same population that could benefit from LVRS, and also includes some patients who were too sick to undergo surgery. The commenters also explained that patients with emphysema with more heterogeneous lung damage were more likely to benefit from the device.
In the FY 2009 IPPS proposed rule, we welcomed public comments regarding where exactly this technology falls in the continuum of care of patients with emphysema, and for whom the risk/benefit ratio is most favorable.
As we previously stated, because the Zephyr® EBV has not yet received FDA approval, it does not meet the newness criterion. Therefore, it cannot be approved for FY 2009 IPPS new technology add-on payments.
FzioMed, Inc. submitted an application for new technology add-on payments for FY 2009 for Oxiplex®. Oxiplex® is an absorbable, viscoelastic gel made of carboxymethylcellulose (CMC) and polyethylene oxide (PEO) that is intended to be surgically implanted during a posterior discectomy, laminotomy, or laminectomy. The manufacturer asserted that the gel reduces the potential for inflammatory mediators that injure, tether, or antagonize the nerve root in the epidural space by creating an acquiescent, semi-permeable environment to protect against localized debris. These proinflammatory mediators (phospholipase A and nitric oxide), induced or extruded by intervertebral discs, may be responsible for increased pain during these procedures. The manufacturer also asserted that Oxiplex® is a unique material in that it coats tissue, such as the nerve root in the epidural space, to protect the nerve root from the effects of inflammatory mediators originating from either the nucleus pulposus, from blood derived inflammatory cells, or cytokines during the healing process.
Oxiplex® indicated to CMS that it was expecting to receive premarket approval from the FDA by June 2008. As discussed earlier in this section, Oxiplex® had not received FDA approval prior to the development of this final rule. Because the technology had not yet received FDA approval at the time the proposed rule was developed, we indicated in the proposed rule that we were limiting our discussion of this technology to data that the applicant submitted, rather than make specific proposals with respect to whether the device would meet the new technology add-on payment criteria.
In the proposed rule, we noted that we were concerned that Oxiplex® may be substantially similar to adhesion barriers that have been on the market for several years. We also noted that Oxiplex® has been marketed as an adhesion barrier in other countries outside of the United States. The manufacturer maintained that Oxiplex® is different from adhesion barriers in several ways, including chemical composition, method of action, surgical application (that is, it is applied liberally to the nerve root and surrounding neural tissues as opposed to minimally only to nerve elements), and tissue response (noninflammatory as opposed to inflammatory).
In the FY 2009 IPPS proposed rule, we welcomed comments from the public on this issue.
In an effort to demonstrate that the technology meets the cost criterion, as discussed in the proposed rule, the applicant searched the FY 2006 MedPAR file for cases with ICD–9–CM procedure codes 03.09 (Other exploration and decompression of spinal canal) or 80.51 (Excision of interveterbral disc) that mapped to CMS DRGs 499 and 500 (CMS DRGs 499 and 500 are crosswalked to MS–DRGs 490 and 491 (Back and Neck Procedures except Spinal Fusion with or without CC)). Because these cases do not include charges associated with the technology, the applicant determined it was necessary to add an additional $7,143 in charges to the average standardized charge per case of cases that map to MS–DRGs 490 and 491. (To do this, the applicant used a methodology of inflating the costs of the technology by the average CCR computed by using the average costs and charges for supplies for cases with ICD–9–CM procedure codes 03.09 and 80.51 that map to MS–DRGs 490 and 491). Of the 221,505 cases the applicant found, 95,340 cases (or 43 percent of cases) would map to MS–DRG 490, which has an average standardized charge of $60,301, and 126,165 cases (or 57 percent of cases) would map to MS–DRG 491, which has an average standardized charge per case of $43,888. This resulted in a case-weighted average standardized charge per case of $50,952. The case-weighted threshold for MS–DRGs 490 and 491 was $27,481. Because the case-weighted average standardized charge per case exceeds the case-weighted threshold in MS–DRGs 490 and 491, the applicant maintained that Oxiplex® would meet the cost criterion.
In the FY 2009 IPPS proposed rule, we invited public comment on whether Oxiplex® met the cost criterion.
As discussed in the proposed rule, the manufacturer maintained that Oxiplex® is a substantial clinical improvement because it “creates a protective environment around the neural tissue that limits nerve root exposure to post-surgical irritants and damage and thus reduces adverse outcomes associated with Failed Back Surgery Syndrome (FBSS) following surgery.” The manufacturer also claimed that the Oxiplex® gel reduces leg and back pain after discetomy, laminectomy, and laminotomy. The manufacturer also asserted that the use of Oxiplex® is consistent with fewer revision surgeries. (During the FDA Investigational Device Exemption (IDE) trial, one Oxiplex® patient required revision surgery compared to six control patients.) However, as we noted in the proposed rule, we had concerns that Oxiplex® may be substantially similar to adhesion barriers that have been on the market for several years. We also stated that we were concerned that even if we were to determine that Oxiplex® is not substantially similar to existing adhesion barriers, there may still be insufficient evidence to support the manufacturer's claims that Oxiplex® reduces pain associated with spinal surgery. In addition, as discussed in the proposed rule, we have found no evidence to support the manufacturer's claims regarding mode of action, degree of dural healing, degree of wound
We did not receive any written comments or public comments at the town hall meeting regarding the substantial clinical improvement aspects of this technology. However, in the FY 2009 IPPS proposed rule, we welcomed comments from the public regarding whether Oxiplex® represented a substantial clinical improvement.
As we previously stated, Oxiplex® does not meet the newness criterion and, therefore, cannot be approved for FY 2009 IPPS new technology add-on payments.
TherOx, Inc. submitted an application for new technology add-on payments for FY 2009 for the TherOx Downstream® System (Downstream® System). The TherOx Downstream® System uses SuperSaturatedOxygen Therapy (SSO2) that is designed to limit myocardial necrosis by minimizing microvascular damage in acute myocardial infarction (AMI) patients following intervention with Percutaneous Transluminal Coronary Angioplasty (PTCA), and coronary stent placement by perfusing the affected myocardium with blood that has been supersaturated with oxygen. SSO2 therapy refers to the delivery of superoxygenated arterial blood directly to areas of myocardial tissue that have been reperfused using PTCA and stent placement, but which may still be at risk. The desired effect of SSO2 therapy is to reduce infarct size and thus preserve heart muscle and function. The TherOx DownStream® System is the console portion of a disposable cartridge-based system that withdraws a small amount of the patient's arterial blood, mixes it with a small amount of saline, and supersaturates it with oxygen to create highly oxygen-enriched blood. The superoxygenated blood is delivered directly to the infarct-related artery via the TherOx infusion catheter. SSO2 therapy is a catheter laboratory-based procedure. Additional time in the catheter lab area is an average of 100 minutes. The manufacturer claimed that the SSO2 therapy duration lasts 90 minutes and requires an additional 10 minutes post-procedure preparation for transfer time. The TherOx Downstream® System was not FDA approved at the time that the proposed rule was published; however, the manufacturer indicated to CMS that it expected to receive FDA approval in the second quarter of 2008. Because the technology was not approved by the FDA during the development of the proposed rule, we limited our discussion of this technology to data that the applicant submitted, rather than make specific proposals with respect to whether the device would meet the new technology add-on criteria in the proposed rule. At the time of the development of this final rule, the TherOx Downstream® System had not yet received FDA approval.
In an effort to demonstrate that it would meet the cost criterion as we discussed in the proposed rule, the applicant submitted two analyses. The applicant stated that it believed that cases that would be eligible for the Downstream® System would most frequently group to MS–DRGs 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), and 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC). The first analysis used data based on 83 clinical trial patients from 10 clinical sites. Of the 83 cases, 78 were assigned to MS–DRGs 246, 247, 248, or 249. The data showed that 32 of these patients were 65 years old or older. There were 12 cases (or 15.4 percent of cases) in MS–DRG 246, 56 cases (or 71.8 percent cases) in MS–DRG 247, 2 cases (or 2.6 percent of cases) in MS–DRG 248, and 8 cases (or 10.3 percent of cases) in MS–DRG 249. (The remaining five cases grouped to MS–DRGs that the technology would not frequently group to and therefore are not included in this analysis.) The average standardized charge per case for MS–DRGs 246, 247, 248, and 249 was $66,730, $53,963, $54,977, and $41,594, respectively. The case-weighted average standardized charge per case for the four MS–DRGs listed above is $54,665. Based on the threshold from Table 10 (72 FR 66890), the case-weighted threshold for the four MS–DRGs listed above was $49,303. The applicant also searched the FY 2006 MedPAR file to identify cases that would be eligible for the Downstream® System. The applicant specifically searched for cases with primary ICD–9–CM diagnosis code 410.00 (Acute myocardial infarction of anterolateral wall with episode of care unspecified), 410.01 (Acute myocardial infarction of anterolateral wall with initial episode of care), 410.10 (Acute myocardial infarction of other anterior wall with episode of care unspecified), or 410.11 (Acute myocardial infarction of other anterior wall with initial episode of care) in combination with ICD–9–CM procedure code of 36.06 (Insertion of non-drug-eluting coronary artery stent(s)) or 36.07 (Insertion of drug-eluting coronary artery stent(s)). The applicant's search found 13,527 cases within MS–DRGs 246, 247, 248, and 249 distributed as follows: 2,287 cases (or 16.9 percent of cases) in MS–DRG 246; 9,691 cases (or 71.6 percent of cases) in MS–DRG 247; 402 cases (or 3 percent of cases) in MS–DRG 248; and 1,147 cases (or 8.5 percent of cases) in MS–DRG 249. Not including the charges associated with the technology, the geometric mean standardized charge per case for MS–DRGs 246, 247, 248, and 249 was $59,631, $42,357, $49,718 and $37,446, respectively. Therefore, based on this analysis, the total case-weighted geometric mean standardized charge per case across these MS–DRGs was $45,080. The applicant estimated that it was necessary to add an additional $21,620 in charges to the total case-weighted geometric mean standardized charge per case. In the additional charge amount, the applicant included charges for supplies and tests related to the technology, charges for 100 minutes of additional procedure time in the catheter laboratory and charges for the technology itself. The inclusion of these charges would result in a total case-weighted geometric mean standardized charge per case of $66,700. The case-weighted threshold for MS–DRGs 246, 247, 248, and 249 (from Table 10 (72 FR 66889)) was $49,714. Because the total case-weighted average standardized charge per case from the first analysis and the case-weighted geometric mean standardized charge per case from the second analysis exceeds the applicable case-weighted threshold, the applicant maintained the Downstream® System would meet the cost criterion.
In the FY 2009 IPPS proposed rule, we invited public comment on whether
As discussed in the proposed rule, the applicant asserted that the Downstream® System is a substantial clinical improvement because it reduces infarct size in acute AMI where PTCA and stent placement have also been performed. Data was submitted from the Acute Myocardial Infarction Hyperbaric Oxygen Treatment (AMIHOT) II trial which was presented at the October 2007 Transcatheter Cardiovascular Therapeutics conference, but has not been published in peer reviewed literature, that showed an average of 6.5 percent reduction in infarct size as measured with Tc-99m Sestamibi imaging in patients who received supersaturated oxygen therapy. We note that those patients also showed a significantly higher incidence of bleeding complications. While we recognize that a reduction of infarct size may correlate with improved clinical outcomes, we question whether the degree of infarct size reduction found in the trial represents a substantial clinical improvement, particularly in light of the apparent increase in bleeding complications.
As noted in the proposed rule, we received one written comment from the manufacturer clarifying questions that were raised at the town hall meeting. Specifically, the commenter explained the methodology of Tc-99m sestamibi scanning and interpretation in the AMIHOT II trial. In addition, the commenter explained that the AMIHOT
In the FY 2009 IPPS proposed rule, we welcomed comments from the public on this matter.
As we previously stated, because the Downstream® System does not meet the newness criterion, it cannot be approved for FY 2009 IPPS new technology add-on payments.
Section 1886(d)(5)(K)(i) of the Act directs us to establish a mechanism to recognize the cost of new medical services and technologies under the IPPS, with such mechanism established after notice and opportunity for public comment. In accordance with this authority, we established at § 412.87(b) of our regulations criteria that a medical service or technology must meet in order to qualify for the additional payment for new medical services and technologies. Specifically, we evaluate applications for new medical service or technology add-on payment by determining whether they meet the criteria of newness, adequacy of payment, and substantial clinical improvement.
As stated in section III.J.1. of the preamble of this final rule, § 412.87(b)(2) of our existing regulations provides that a specific medical service or technology will be considered new for purposes of new medical service or technology add-on payments after the point at which data begin to become available reflecting the ICD–9–CM code assigned to the new service or technology. The point at which these data become available typically begins when the new medical service or technology is first introduced on the market, generally on the date that the medical service or technology receives FDA approval. Accordingly, for purposes of the new medical service or technology add-on payment, a medical service or technology cannot be considered new prior to the date on which FDA approval is granted.
In addition, as stated in section III.J.1. of the preamble of this final rule, § 412.87(b)(3) of our existing regulations provides that, to be eligible for the add-on payment for new medical services or technologies, the DRG prospective payment rate otherwise applicable to the discharge involving the new medical service or technology must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new medical service or technology paid under the applicable DRG prospective payment rate, we evaluate whether the charges for cases involving the new medical service or technology exceed certain threshold amounts.
Section 412.87(b)(1) of our existing regulations provides that, to be eligible for the add-on payment for new medical services or technologies, the new medical service or technology must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. In addition, § 412.87(b)(1) states that CMS will announce its determination as to whether a new medical service or technology meets the substantial clinical improvement criteria in the
Since the implementation of the policy on add-on payments for new medical services and technologies, we accept applications for add-on payments for new medical services and technologies on an annual basis by a specified deadline. For example, applications for FY 2009 were submitted in November 2007. After accepting applications, CMS then evaluates them in the annual IPPS proposed and final rules to determine whether the medical service or technology is eligible for the new medical service or technology add-on payment. If an application meets each of the eligibility criteria, the medical service or technology is eligible for new medical service or technology add-on payments beginning on the first day of the new fiscal year (that is, October 1).
We have advised prior and potential applicants that we evaluate whether a medical service or technology is eligible for the new medical service or technology add-on payments prior to publication of the final rule setting forth the annual updates and changes to the IPPS, with the results of our determination announced in the final rule. We announce our results in the final rule for each fiscal year because we believe predictability is an important aspect of the IPPS and that it is important to apply a consistent payment methodology for new medical services
Because we make our determination regarding whether a medical service or technology meets the eligibility criteria for the new medical service or technology add-on payments prior to publication of the final rule, we have advised both past and potential applicants that their medical service or technology must receive FDA approval early enough in the IPPS rulemaking cycle to allow CMS enough time to fully evaluate the application prior to the publication of the IPPS final rule. Moreover, because new medical services or technologies that have not received FDA approval do not meet the newness criterion, it would not be necessary or prudent for us to make a final determination regarding whether a new medical service or technology meets the cost threshold and substantial clinical improvement criteria prior to the medical service or technology receiving FDA approval. In addition, we do not believe it is appropriate for CMS to determine whether a medical service or technology represents a substantial clinical improvement over existing technologies before the FDA makes a determination as to whether the medical service or technology is safe and effective. For these reasons, we first determine whether a medical service or technology meets the newness criteria, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. For example, even if an application has FDA approval, if the medical service or technology is beyond the timeline of 2–3 years to be considered new, in the past we have not made a determination on the cost threshold and substantial clinical improvement. Further, as we have discussed in prior final rules (69 FR 49018–49019 and 70 FR 47344), it is our past and present practice to analyze the new medical service or technology add-on payment criteria in the following sequence: Newness, cost threshold, and finally substantial clinical improvement.
In the FY 2009 IPPS proposed rule (73 FR 23616) we proposed to continue this practice of analyzing the eligibility criteria in this sequence and announce in the annual
We did not receive any public comments on this proposal. Therefore, in this final rule, we are adopting as final our proposal to § 412.87(b)(1) to remove the duplicative text.
We also proposed in new paragraph (c) of § 412.87 to set July 1 of each year as the deadline by which IPPS new medical service or technology add-on payment applications must receive FDA approval. This deadline would provide us with enough time to fully consider all of the new medical service or technology add-on payment criteria for each application and maintain predictability in the IPPS for the coming fiscal year.
Finally, under our proposal, applications that have not received FDA approval by July 1 would not be considered in the final rule, even if they were summarized in the corresponding IPPS proposed rule. However, applications that receive FDA approval of the medical service or technology after July 1 would be able to reapply for the new medical service or technology add-on payment the following year (at which time they would be given full consideration in both the IPPS proposed and final rules).
After consideration of the public comments received, we are adopting as final our proposal to revise § 412.87 to remove the second sentence of (b)(1), thereby codifying our current practice of how CMS evaluates new medical service or technology add-on payment applications. We are also finalizing our proposal in paragraph (c) of § 412.87 which establishes a date of July 1 of each year as the deadline by which IPPS new medical service or technology add-on payment applications must receive FDA approval in order to be fully evaluated in the applicable IPPS final rule each year.
Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the definitions of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2009 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.C. of this preamble.
Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2009 is discussed in section II.B. of the Addendum to this final rule.
As discussed below in section III.I. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2009 is discussed in section II.A.4.b. of the Addendum to this final 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 applying beginning October 1, 2008 (the FY 2009 wage index) appears under section III.D. of this preamble.
After the issuance of the FY 2009 IPPS proposed rule, a new law, the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110–275) was enacted on July 15, 2008. Section 124 of Public Law 110–275 extended certain hospital wage index reclassifications originally provided for under section 508 of Public Law 108–173, as well as certain special exceptions, through September 30, 2009 (FY 2009). A discussion of the provisions of section 124 and its implementation in a separate
Section 106(b)(1) of the MIEA–TRHCA (Pub. L. 109–432) required MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare wage index classification system applied under the Medicare IPPS. Section 106(b) of MIEA–TRHCA required the report to include any alternatives that MedPAC recommends to the method to compute the wage
In addition, section 106(b)(2) of the MIEA–TRHCA instructed the Secretary of Health and Human Services, taking into account MedPAC's recommendations on the Medicare wage index classification system, to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also to consider each of the following:
• Problems associated with the definition of labor markets for the wage index adjustment.
• The modification or elimination of geographic reclassifications and other adjustments.
• The use of Bureau of Labor of Statistics (BLS) data or other data or methodologies to calculate relative wages for each geographic area.
• Minimizing variations in wage index adjustments between and within MSAs and statewide rural areas.
• The feasibility of applying all components of CMS' proposal to other settings.
• Methods to minimize the volatility of wage index adjustments while maintaining the principle of budget neutrality.
• The effect that the implementation of the proposal would have on health care providers on each region of the country.
• Methods for implementing the proposal(s), including methods to phase in such implementations.
• Issues relating to occupational mix such as staffing practices and any evidence on quality of care and patient safety including any recommendation for alternative calculations to the occupational mix.
In its June 2007 Report to Congress, “Report to the Congress: Promoting Greater Efficiency in Medicare” (Chapter 6 with Appendix), MedPAC made three broad recommendations regarding the wage index:
(1) Congress should repeal the existing hospital wage index statute, including reclassifications and exceptions, and give the Secretary authority to establish a new wage index system;
(2) The Secretary should establish a hospital compensation index that—
• Uses wage data from all employers and industry-specific occupational weights;
• Is adjusted for geographic differences in the ratio of benefits to wages;
• Is adjusted at the county level and smoothes large differences between counties; and
• Is implemented so that large changes in wage index values are phased in over a transition period; and
(3) The Secretary should use the hospital compensation index for the home health and skilled nursing facility prospective payment systems and evaluate its use in the other Medicare fee-for-service prospective payment systems.
The full June 2007 Report to Congress is available at the Web site:
In the presentation and analysis of its alternative wage index system, MedPAC addressed almost all of the nine points for consideration under section 106(b)(2) of Public Law 109–432. Following are the highlights of the alternative wage index system recommended by MedPAC:
• Although the MedPAC recommended wage index generally retains the current labor market definitions, it supplements the metropolitan areas with county-level adjustments and eliminates single wage index values for rural areas.
• In the MedPAC recommended wage index, the county-level adjustments, together with a smoothing process that constrains the magnitude of differences between and within contiguous wage areas, serve as a replacement for geographical reclassifications.
• The MedPAC recommended wage index uses BLS data instead of the CMS hospital wage data collected on the Medicare cost report. MedPAC adjusts the BLS data for geographic differences in the ratio of benefits to wages using Medicare cost report data.
• The BLS data are collected from a sample of all types of employers, not just hospitals. The MedPAC recommended wage index could be adapted to other providers such as HHAs and SNFs by replacing hospital occupational weights with occupational weights appropriate for other types of providers.
• In the MedPAC recommended wage index, volatility over time is addressed by the use of BLS data, which is based on a 3-year rolling sample design.
• MedPAC recommended a phased implementation for its recommended wage index in order to cushion the effect of large wage index changes on individual hospitals.
• MedPAC suggested that using BLS data automatically addresses occupational mix differences, because the BLS data are specific to health care occupations, and national industry-wide occupational weights are applied to all geographic areas.
• The MedPAC report does not provide any evidence of the impact of its wage index on staffing practices or the quality of care and patient safety.
To assist CMS in meeting the requirements of section 106(b)(2) of Public Law 109–432, in February 2008, CMS awarded a Task Order to Acumen, LLC. The two general responsibilities of the Task Order are to (1) conduct a detailed impact analysis that compares the effects of MedPAC's recommended wage and hospital compensation indices with the CMS wage index and (2) provide analysis and research that assist CMS in developing a proposal (or proposals) that addresses the nine points for consideration under section 106(b)(2) of Public Law 109–432. Specifically, the tasks under the Task Order include, but are not limited to, an evaluation of whether differences between the two types of wage data (that is, CMS cost report and occupational mix data and BLS data) produce significant differences in wage index values among labor market areas, a consideration of alternative methods of incorporating benefit costs into the construction of the wage index, a review of past and current research on alternative labor market area definitions, and a consideration of how aspects of the MedPAC recommended wage index can be applied to the CMS wage data in constructing a new methodology for the wage index. Acumen has completed the first phase of its study (that is, a comparative and impact analysis of the CMS wage index and the MedPAC recommended wage indices). A summary of Acumen's findings is included in section III.B.1.e. of the preamble to this final rule. Acumen will post on its Web site, subsequent to the publication of this final rule, an interim report that includes the full set of findings from this analysis. Acumen's Web site is:
We received many public comments regarding the MedPAC's recommendations for reforming the wage index, as well as on CMS' and Acumen's study and analysis. The public comments vary greatly, and at this time, we are not proposing or finalizing the specific recommendations made by MedPAC discussed above. For
• Wage index reclassifications and exceptions process should not be eliminated. Exceptions are necessary for hospitals with labor costs that are atypical for their local area but comparable to other areas.
• Reclassifications and other wage index exceptions should be modified or eliminated. As the MedPAC noted, 40 percent of hospitals receive a wage index exception, thereby indicating that the current system is broken.
• CMS should adopt the MedPAC's recommendations to use BLS data. A wage index based on a 3-year average, instead of a single year of 4-year-old data, would better reflect hospitals' average hourly wages.
• BLS data may be inappropriate to use for the hospital wage index because it includes data from all employers, not just short term acute hospitals.
• Wages for contract or temporary employees are included in BLS data, but they reflect the lower salary paid by the agency to the employee and not the higher salary of what the hospital paid the agency.
• Unlike CMS's public process for reviewing and correcting wage index data at the hospital level, BLS has a strict confidentiality policy. Hospitals would be unable to verify any inaccuracies in the BLS data. Complete transparency is needed for the entire wage index process.
• Every 6 months, BLS surveys 200,000 establishments and builds the database to include 1.2 million unique establishments over a 3-year period. The data are then inflated to a certain month and year using a “single national estimate” of wage growth for broad occupational divisions. This approach fails to account for any differences in wage growth between markets over the 3-year period.
• To determine average hourly wages, CMS collects data over a 12-month period, while the BLS collects data from 2 payroll periods, with each period capturing data from one-sixth of the total number of sampled establishments. Integrity in the wage index may be compromised using data from only two payroll periods rather than from 12 months of data.
• BLS data exclude overtime pay, jury duty pay, and shift differentials. Excluding these costs, which are often associated with tight labor market areas, could understate areas that have higher utilization of these items.
• BLS data do not include employee fringe benefits costs. The MedPAC relied on benefit data from the CMS hospital, home health agency, and SNF cost reports, which negates the potential benefit of eliminating the collection of hospital-specific wage data. There are also concerns about mixing data from two sources.
• Full-time and part-time employees are equally weighted in the BLS data.
• Estimates from using a sampling methodology like the BLS uses are subject to sampling errors and will be less reliable than CMS' current methodology of using data from all PPS hospitals.
• CMS data are mandatory while BLS data are voluntary. Data that are voluntarily submitted may have less integrity than mandatory data.
• BLS imputes data for nonresponsive employers. The use of imputed data is inappropriate.
• BLS data do not reflect premiums that hospitals must pay for certain workers; for example, premiums for registered nurses with additional training and certification in specialties such as critical care. Payment premiums for these workers would not be adequately reflected in the BLS data because the BLS survey does not capture information on nurse specialty areas.
• On the BLS survey, hospitals simply report data for occupational categories by average hourly wage ranges. Hospitals do not report actual hours worked. BLS' method for weighting the data in computing hourly rates is confusing because it does not have hours as a basis for the weighting.
• The MedPAC used 2000 census data to establish the relationship between counties within a MSA. Using old data may create differences in wage indices that are inconsistent with actual geographic differences in wages.
• Using counties as the units of analysis may not be optimal. Some counties tend to be quite large and topographically diverse, while other counties are small and relatively homogeneous.
• CMS' current methodology, with the exception of commuting pattern adjustments, assumes there is no interrelationship between areas. More refined areas, such as resulting from the MedPAC's smoothing methodology, may be more realistic and less arbitrary.
• Smoothing may mask actual variation between labor market areas.
• The 10-percent cliffs used in the MedPAC's smoothing process are set subjectively and, as the MedPAC noted, a percentage of 8 or 12 percent could alternatively be used. Depending on the area, changing the percentage could cause swings of millions of dollars.
• Volatility in hospital wage indices from one year to the next makes it difficult for hospitals to estimate Medicare payments for budgeting purposes. While the 3-year rolling average used by BLS may reduce volatility, alternative approaches should be examined, including those that do not rely on BLS data.
• While a rolling average may make the wage data look better from a statistical point, it may not result in a fair wage distribution tool. As hospitals make adjustments for current market conditions, an average will mask the change.
• Comments were favorable and supportive of CMS' contract with Acumen. One commenter found Acumen's analysis plan “very thorough” and was pleased with the “wide variety of options and issues
• The majority of commenters suggested that comprehensive wage index reform was necessary as opposed to incremental, interim changes. To that end, the commenters strongly urged that CMS make no changes to the wage index system until the Acumen study has been completed. The commenters also stated that the process to consider changes to the existing wage index should be very thorough and include a wide range of options beyond MedPAC's recommendations. In addition, the commenters recommended that CMS' review include the reasons that CMS replaced the BLS data with cost report data in the 1980s.
• Commenters commended CMS for the open door forum on the wage index held in May 2008 and believed that, given the importance the wage index has on hospital payment and the need for reform, the industry and interested stakeholders be given every opportunity for input through such open door forums. The commenters recommended transparency in the process and that CMS provide ample time for public review and comment on the study and any proposals stemming from CMS' and Acumen's study results.
• Several commenters suggested alternatives to the MedPAC recommendations and CMS proposals. For example, some commenters recommended that CMS implement a stop-loss to reduce wage index decreases from one year to the next. The commenters explained that a stop-loss would reduce volatility and increase predictability within the hospital wage index. In addition, many commenters expressed the need for a transition period for any changes to the wage index to ensure less volatility in the wage index and prevent significant reallocation of Medicare funds.
Acumen conducted an analysis comparing use of the MedPAC recommended wage indices to the current CMS wage index. In the following discussion, we use a variety of terminology to refer to the wage indices recommended by MedPAC, as well as the wage indices currently used by CMS.
• When we refer to MedPAC's “hospital compensation index” or “compensation index”, we are discussing the wage index that MedPAC developed that includes an adjustment to account for differences in the ratio of benefits to wages in different labor market areas. MedPAC developed this ratio of benefits using Medicare cost report data.
• When we refer to MedPAC's recommended “wage index”, we are discussing the MedPAC-developed index without any adjustment for nonwage benefits. This wage index was developed using BLS data.
• When we refer to CMS' “pre-reclassification wage index” or “pre-reclassification, pre-floor wage index”, we are discussing the wage index developed by CMS but without any adjustments for geographic reclassifications or the rural floor. This wage index also does not include any adjustments for outmigration, section 508 reclassifications, Lugar redesignations, section 401 urban-to-rural reclassifications, or for any special exceptions.
• When we refer to CMS' “final wage index”, we are discussing the wage index developed by CMS that is the final wage index received by or to be received by a hospital. Thus, this wage index does account for all geographic reclassifications as well as the rural floor. This final wage index also includes any adjustments as a result of outmigration, section 508 reclassifications, Lugar redesignations, section 401 urban-to-rural reclassifications, or any other special exceptions.
Acumen analyzed and compared all four of the wage indices discussed above. In other words, Acumen compared (A) CMS' pre-reclassification, pre-floor wage index for FY 2008 (which was provided by CMS and is based on hospital cost reports from FY 2004) and CMS' final wage index for FY 2008 with (B) both the MedPAC recommended hospital compensation index and wage index for FY 2007. Acumen's comparisons of the CMS wage index to the MedPAC recommended indices indicate the effects of various components of the alternative wage indices. All of the comparisons reflect differences between the CMS and BLS wage data. The comparison of the CMS pre-reclassification index to the MedPAC compensation index reflects the additional impact of MedPAC's method of using county level adjustors to smooth differences in index values among the CMS wage areas. The comparison of the CMS pre-reclassification index to the MedPAC recommended wage index includes the effect of county-level smoothing and indicates the incremental effect of removing the MedPAC adjustment for benefits. The comparison of the CMS final wage index to the MedPAC recommended wage index adds the incremental effect of geographic reclassifications and other wage index exceptions (for example, the rural and imputed floors) to the preceding comparison. Finally, the comparison of the CMS final wage index to the MedPAC recommended compensation index yields the combined effects of all the differences between the two indices.
First, Acumen analyzed the overall impacts of the MedPAC recommended indices. Acumen conducted the analysis at two levels: the hospital level and the county level. At the hospital level, Acumen analyzed all four comparisons described above. However, at the county level, Acumen did not include comparisons using the CMS final wage index because it includes reclassifications and other changes which are granted to hospitals, not counties. As a result, hospitals in the same county or wage area can have different final index values. Acumen's analysis was based on 3,426 hospitals, for which all four wage index values were available (the CMS pre-reclassification wage index, the CMS
Second, Acumen estimated the impact for several subgroups of hospitals and counties. At the hospital level, Acumen assessed the impact by geographic area (for example, urban hospitals and rural hospitals), hospital size (number of beds), geographic region, teaching status, DSH status, SCH status, RRC status, MDH status, type of ownership (government, proprietary, voluntary), and reclassification status. At the county level, Acumen presented results for metropolitan area counties and rural counties.
Third, Acumen calculated the change in the wage index that each hospital (or county) could expect to experience from adopting the MedPAC recommendations and reported statistics on these expected differences (mean, median, standard deviation, minimum and maximum). Acumen did not model changes in Medicare payments that would result from using different wage indices. Instead, Acumen normalized all four wage indices by setting their discharge weighted means equal to 1.00. Normalization puts all four wage indices on the same scale so that differences in wage index values between one index and another index are directly comparable. As a result, the wage index differences reported by Acumen imply payment differences, but do not precisely measure the magnitude of those payment differences.
The main findings of Acumen's impact analysis are summarized as follows:
• Adopting the MedPAC recommendations would reduce the differentials between wage index values across geographic areas. Both the MedPAC wage and compensation indices are less dispersed than either the CMS pre-reclassification wage index or the final wage index.
• Under either of the MedPAC recommended indices, differences between the highest and lowest wage index hospitals would be reduced. For example, the range or difference that exists from the highest wage index hospital to the lowest wage index hospital (the “high-low range”) under the MedPAC compensation index (0.752 versus 1.499, or a difference of 0.747) is roughly 11 percent smaller than the high-low range in the CMS final wage index (0.732 versus 1.569, or a difference of 0.837). Using the CMS pre-reclassification wage index as a comparison (with a high-low range of 0.716 versus 1.600), the MedPAC recommended compensation index is roughly 16 percent smaller. The minimum value of the MedPAC recommended compensation index (0.752) is roughly 5 percent larger than the minimum value of the CMS pre-reclassification wage index (0.716), and the maximum value of the MedPAC recommended compensation index (1.499) is roughly 6 percent less than the maximum value of the CMS pre-reclassification index (1.600).
• Adopting the MedPAC recommendations would also lower the wage dispersion among both rural and urban hospitals (whether classified by geography or payment), among hospitals of all sizes, and among all hospitals categorized by teaching status, DSH status, ownership status, and Medicare utilization status. These findings are generally consistent, regardless of whether the MedPAC recommended compensation index is compared to the CMS final wage index or to the CMS pre-reclassification wage index.
• Adopting the MedPAC recommendations would have a differential impact on urban hospitals across geographic regions of the country. In moving from the CMS final wage index to the MedPAC compensation index, the largest reduction in standard deviations would occur for urban hospitals in the New England region (−19.0 percent), the Middle Atlantic region (−27.8 percent), and the Pacific region (−19.0 percent). However, for urban hospitals in the West North Central region, the standard deviation of wage index values would increase by 11.7 percent.
• Adopting the MedPAC recommendations would decrease the standard deviation among hospitals with most types of reclassifications. For example, compared to the CMS final wage index, the MedPAC compensation index would reduce the standard deviation by 11.6 percent.
• The adoption of the MedPAC recommended indices would lead a substantial number of hospitals to experience a large change in their index values in the transition. If the MedPAC compensation index is compared to the CMS final wage index, 37 percent of all hospitals would see either increases or decreases of more than 5 percent. For approximately 34 percent of the reclassified hospitals (or 278 hospitals), wage index values would decrease by more than 5 percent. Reclassified hospitals comprise more than one-half of all hospitals that would likely experience wage index decreases greater than 5 percent in moving from the CMS final wage index to the MedPAC compensation index.
• Under a move from the CMS pre-reclassification wage index to the MedPAC recommended compensation index, counties in rural areas would experience fewer decreases and more increases in their wage index compared to counties in urban areas. (As noted above, county level comparisons were not performed using the CMS final wage index.)
The above findings are discussed in more detail in Acumen's interim report, which will be available after the publication of this final rule, at the Web site:
As discussed in section III.A. of this preamble, the purpose of the hospital wage index is to adjust the IPPS standardized payment to reflect labor market area differences in wage levels. The geographic reclassification system exists in order to assist “hospitals which are disadvantaged by their current geographic classification because they compete with hospitals that are located in the geographic area to which they seek to be reclassified” (56 FR 25469). Geographic reclassification is established under section 1886(d)(10) of the Act and is implemented through 42 CFR part 412, subpart L. (We refer readers to section III.I. of this preamble for a detailed discussion of the geographic reclassification system and other area wage index exceptions.)
In its June 2007 Report to Congress, MedPAC discussed its findings that geographic reclassification, and numerous other area wage index exceptions added to the system over the years, have created major complexities and “troubling anomalies” in the hospital wage index. A review of the IPPS final rules reveals a long history of legislative changes that have permitted certain hospitals, that otherwise would not be able to reclassify under section 1886(d)(10) of the Act, to receive a higher wage index than calculated for their geographic area. MedPAC reports that more than one-third of hospitals now receive a higher wage index due to geographic reclassification or other wage index exceptions. We are concerned about the integrity of the current system, and agree with MedPAC that the process has become burdensome.
As noted above, MedPAC recommended the elimination of geographic reclassification and other
Regulations at 42 CFR 413.230(d)(1) set forth the average hourly wage comparison criteria that an individual hospital must meet in order for the MGCRB to approve a geographic reclassification application. Our current criteria (requiring an urban hospital to demonstrate that its average hourly wage is at least 108 percent of the average hourly wage of hospitals in the area in which the hospital is located and at least 84 percent of the average hourly wage of hospitals in the area to which it seeks redesignation) were adopted in the FY 1993 IPPS final rule (57 FR 39825). In that final rule, we explained that the 108 percent threshold “is based on the national average hospital wage as a percentage of its area wage (96 percent) plus one standard deviation (12 percent).” We also explained that we would use the 84-percent threshold to reflect the average hospital wage of the hospital as a percentage of its area wage less one standard deviation. We stated that “to qualify for a wage index reclassification, a hospital must have an average hourly wage that is more than one national standard deviation above its original labor market area and not less than one national standard deviation below its new labor market area” (57 FR 39770). In response to numerous public comments we received, we expressed our policy and legal justifications for adopting the specific thresholds. Among other things, we stated that geographic reclassifications must be viewed not just in terms of those hospitals that are reclassifying, but also in terms of the nonreclassifying hospitals that, through a budget neutrality adjustment, are required to bear a financial burden associated with the higher wage indices received by those hospitals that reclassify. We also indicated that the Secretary has ample legal authority under section 1886(d)(10) of the Act to set the wage comparison thresholds and to revise such thresholds upon further review. We refer readers to that final rule for a full discussion of our justifications for the standards.
In the FY 2000 IPPS final rule (65 FR 47089 through 47090), the wage comparison criteria for rural hospitals seeking individual hospital reclassifications were reduced to 82 percent and 106 percent to compensate for the historic economic underperformance of rural hospitals. The 2-percent drop in both thresholds was determined to allow a significant benefit to some hospitals that were close to meeting the existing criteria but would not make the reclassification standards overly liberal for rural hospitals.
CMS had not evaluated or recalibrated the average hourly wage criteria for geographic reclassification since they were established in FY 1993. In consideration of the MIEA–TRHCA requirements and MedPAC's finding that over one-third of hospitals are receiving a reclassified wage index or other wage index adjustment, we decided to reevaluate the average hourly wage criteria for geographic reclassification. We ran simulations with more recent wage data to determine what would be the appropriate average hourly wage criteria. We found that the average hospital average hourly wage as a percentage of its area's wage has increased from approximately 96 percent in FY 1993 to closer to 98 percent over FYs 2006, 2007, and 2008 (97.8, 98.1, and 98.1 percent, respectively). We also determined that the standard deviation has been reduced from approximately 12 percent in FY 1993 to closer to 10 percent over the same 3-year period (10.7, 10.3, and 10.1 percent, respectively); that is, assuming normal distributions, approximately 68 percent of all hospitals would have an average hourly wage that deviates less than 10 percentage points above or below the mean. This assessment indicates that the new baseline criteria for reclassification should be set to 88/108 percent. While the 108 criterion does not require adjustment, the current 84 percent standard is too low a threshold to serve the purpose of establishing wage comparability with a proximate labor market area.
To assess the impact that these changes would have had on hospitals that reclassified in FY 2008, we ran models that set urban individual reclassification standards to 88/108 percent and the county group reclassification standard to 88 percent. We retained the 2-percent benefit for rural hospitals by setting an 86/106 percent standard. We used 3-year average hourly wage figures from the 2005, 2006, and 2007 wage surveys and compared them to 3-year average hourly wage figures for CBSAs over the same 3-year period.
Of the 295 hospitals that applied for and received individual reclassifications in FY 2008, 45 of them (15.3 percent) would not meet the proposed 88/86 percent threshold. Of the 66 hospitals that applied for and received county group reclassification in FY 2008, 6 hospitals (9.1 percent) in 3 groups would not have qualified with the new standards. We also ran comparisons for hospitals that reclassified in FY 2006 and FY 2007 to determine if they would have been able to reclassify in FY 2008, using 3-year averages available in FY 2008. We found that, of all hospitals that were reclassified in FY 2008 (that is, applications approved for FYs 2006 through 2008), 14.7 percent of individual reclassifications and 8.5 percent of county group reclassification would not have qualified to reclassify in FY 2008.
Section 106 of MIEA–TRHCA requires us to propose revisions to the hospital wage index system after considering the recommendations of MedPAC. To address this requirement, in the FY 2009 IPPS proposed rule (73 FR 23620), we proposed that the 84/108 criteria for urban hospital reclassifications and the 82/106 criteria for rural hospital reclassifications be recalibrated using the methodology published in the FY 1993 final rule and more recent wage data (that is, data used in computing the FYs 2006, 2007, 2008 wage indices). As we stated in the proposed rule, we believe that hospitals that are seeking to reclassify to another area should be required to demonstrate more similarity to the area than the current criteria permit, and our recent analysis demonstrates that those criteria are no longer appropriate. Therefore, we proposed to change the criterion for the comparison of a hospital's average hourly wage to that of the area to which the hospital seeks reclassification to 88 percent for urban hospitals and 86 percent for rural hospitals for new reclassifications beginning with the FY 2010 wage index and, accordingly, revise our regulations at 42 CFR 412.230 to reflect these changes. The criterion for the comparison of a hospital's average hourly wage to that of its geographic area would be unchanged
We considered raising the group reclassification criterion to 89 percent in order to preserve the historical policy of the standard being set at 1 percent higher than the individual reclassification standard. However, we determined that making the group standard equal to the individual standard would adequately address our stated concerns.
The proposed changes in the reclassification criteria would apply only to new reclassifications beginning with the FY 2010 wage index. Any hospital or county group that is in the midst of a 3-year reclassification in FY 2010 would not be affected by the proposed criteria change until they reapply for a geographic reclassification. Therefore, we proposed that the effective date for these changes would be September 1, 2008, the deadline for hospitals to submit applications for reclassification for the FY 2010 wage index.
In response to concerns expressed about the assumptions and validity of our methodology, we refer to the chart at the end of this response. We agree that, in using standard deviations from the mean to establish threshold criteria, it is important for the data to be normally distributed (for example, a bell-shaped curve). While some commenters stated that a mean of 98 percent (versus a mean of 100 percent or 1.00) shows that the distribution was necessarily skewed, using FY 2008 data, we found that the analyzed ratios formed a consistent bell-curve and demonstrated only a minor negative skew which tested well within the bounds of statistical significance of a normal distribution. Rural hospitals show a greater variability and less central tendency than urban providers. However, even if the original methodology was applied to urban and rural providers separately, the mean and standard deviation would support a comparison criterion still more restrictive than the proposed 86-percent standard for rural providers. Furthermore, additional statistical analysis would suggest that the 106-percent standard is not restrictive enough for rural providers. Certain outliers are removed from the chart at the end of this response to provide a clearer visual representation. Inclusion or exclusion of these outliers did not greatly affect the statistical significance of the analysis. With the nearly perfectly distributed nature of the comparison data, and the additional 2 percent benefit that rural providers receive, we are not convinced that an alternative methodology would yield a truer representation of typical variations in any given labor market area.
After consideration of the public comments we received, we are adopting in this final rule the policy to adjust the reclassification average hourly wage standard, comparing a reclassifying hospital's (or county hospital group's) average hourly wage relative to the average hourly wage of the area to which it seeks reclassification. However, we will be phasing in the adjustment over two years. For the first transitional year, FY 2010, the average hourly wage standards will be changed to 86 percent for urban and group reclassifications and to 84 percent for rural hospitals. In the second year, FY 2011, the average hourly wage standards will be changed to 88 percent for urban and group reclassifications and to 86 percent for rural hospitals (revised §§ 412.230, 412.232, and 412.234). The purpose of the wage index is to provide, as accurate as possible, a measure of geographic labor cost variations. The reclassification process was intended to provide hospitals that, due to imperfections in the labor market boundaries and/or definitions, compete with hospitals in higher waged labor market areas. It is a fundamental flaw in the reclassification system if payments are inappropriately redistributed because hospitals without statistically comparable labor costs are reclassified to areas with higher wage index values. Therefore, for reclassifications beginning in FY 2010 (for which the application deadline is September 2, 2008), the transitional average hourly wage comparison criteria will be in effect. For reclassifications beginning in FY 2011, the new average hourly wage comparison criteria will be fully in effect.
Section 4410 of the Balanced Budget Act of 1997 (BBA) established the rural floor by requiring that the wage index for a hospital in an urban area of a State cannot be less than the area wage index received by rural hospitals in that State. Section 4410(b) of the BBA imposed the budget neutrality requirement and stated that the Secretary shall “adjust the area wage index referred to in subsection (a) for hospitals not described in such subsection.” Therefore, in order to compensate for the increased wage indices of urban hospitals receiving the rural floor, a nationwide budget neutrality adjustment is applied to the wage index to account for the additional payment to these hospitals. As a result, urban hospitals that qualify for their State's rural floor wage index receive enhanced payments at the expense of all rural hospitals nationwide and all other urban hospitals that do not receive their State's rural floor. Tentatively, for the final wage index, we find that 277 hospitals in 28 States would receive the rural floor. (Due to the intervening requirements of section 124 of Pub. L. 110–275, these numbers could change in the final FY 2009 wage index to be published in a separate
The above charts demonstrate how, at a State-by-State level, the rural floor is creating a benefit for a minority of States that is then funded by a majority of States, including States that are overwhelmingly rural in character. The rural floor was established to address anomalous occurrences where certain urban areas in a State have unusually depressed wages when compared to the State's rural areas. However, as we indicated in the proposed rule, because these comparisons occur at the State level, we believe it also would be sound policy to make the budget neutrality adjustment specific to the State, redistributing payments among hospitals within the State, rather than adjusting payments to hospitals in other States.
In addition, we stated in the proposed rule that we believed a statewide budget neutrality adjustment would address the situation we discussed in the FY 2008 IPPS final rule with comment period (72 FR 47324) in which rural CAHs were converting to IPPS status, apparently to raise the State's rural wage index to a level whereby all urban hospitals in the State would receive the rural floor. Medicare payments to CAHs are based
For the above reasons, in the FY 2009 IPPS proposed rule (73 FR 23622), we proposed to apply a State level rural floor budget neutrality adjustment to the wage index beginning in FY 2009. We proposed that States that have no hospitals receiving a rural floor wage index would no longer have a negative budget neutrality adjustment applied to their wage indices. Conversely, hospitals in States with hospitals receiving a rural floor would have their wage indices downwardly adjusted to achieve budget neutrality within the State. We proposed that all hospitals within each State would, in effect, be responsible for funding the rural floor adjustment applicable within that specific State.
In the FY 2005 IPPS final rule and the FY 2008 IPPS final rule with comment period (69 FR 49109 and 72 FR 47321, respectively), we temporarily adopted an “imputed” floor measure to address a concern by some individuals that hospitals in all-urban States were disadvantaged by the absence of rural hospitals. Because no rural wage index could be calculated, no rural floor could be applied within such States. We originally limited application of the policy to FYs 2005 through 2007 and then extended it one additional year, through FY 2008. In the FY 2009 IPPS proposed rule (73 FR 23623), we proposed to extend the imputed floor for 3 additional years, through FY 2011, and to revise the introductory text of § 412.64(h)(4) of our regulations to reflect this extension. For FY 2009, 26 hospitals in New Jersey (33.8 percent) would receive the imputed floor. Rhode Island, the only other all-urban State, has no hospitals that would receive the imputed floor. In past years, we applied a national budget neutrality adjustment to the standardized amount to ensure that payments remained constant to payments that would have occurred in the absence of the imputed floor policy. As a result, payments to all other hospitals in the Nation were adjusted downward to subsidize the higher payments to New Jersey hospitals receiving the imputed floor. As the intent of the imputed floor is to create a protection to all-urban States similar to the protection offered to urban-rural mixed States by the rural floor, and the effect of the measure is also State-specific like the rural floor, we indicated that we believe that the budget neutrality adjustments for the imputed floor and the rural floor should be applied in the same manner. Therefore, beginning with FY 2009, we also proposed to apply the imputed floor budget neutrality adjustment to the wage index and at the State level.
In the proposed rule, we specifically requested public comments from national and State hospital associations regarding the proposals, particularly the national associations, as they represent member hospitals that are both positively and negatively affected by the proposed policies, and were, therefore, in the best position to comment on the policy merits of the proposals. We indicated that we would view the absence of any comments from the national hospital associations as a sign that they do not object to our proposed policies.
However, the majority of commenters, including most national and State hospital associations, did not support the proposal to apply a State level budget neutrality adjustment for the rural and imputed floors. Many commenters stated that a major policy initiative should be postponed and included in discussions and planning for more broad-based wage index reform. They suggested that such a policy decision by CMS only makes the Medicare wage index system more variable and unstable, creating onerous difficulties for hospital administrators to plan operations and potentially harming the quality of care provided. Many of the commenters, particularly in States that benefit most from the current national budget neutrality adjustment for the rural and imputed floors, cited the financial losses that would result from our proposal.
Some commenters stated that it is inconsistent with prior CMS policy to apply any wage index adjustment on a State-by-State basis. They suggested that, because the intent of Congress for the rural floor was to address “anomalous” situations where urban areas may have lower wages than nearby rural areas, the adjustment should be shared by all hospitals to maximize the benefit of the floor, while minimizing the individual costs to fund it. Similarly, the commenters contended that, “budget neutrality must remain a national policy in accordance with current practice in order to retain balance and symmetry within a complex wage index environment.”
Therefore, we have decided to adopt our proposal for State level budget neutrality for the rural and imputed floors as final in this final rule, to be effective beginning with the FY 2009 wage index. However, in response to the public's concerns and taking into account the potentially drastic payment cuts that may occur to hospitals in some States, we have decided to phase in, over a 3-year period, the transition from the national budget neutrality adjustment to the State level budget neutrality adjustment. In FY 2009, hospitals will receive a blended wage index that is 20 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 80 percent of a wage index with the national budget neutrality adjustment. In FY 2010, the blended wage index will reflect 50 percent of the State level adjustment and 50 percent of the national adjustment. In FY 2011, the adjustment will be completely transitioned to the State level methodology.
We are incorporating this final policy in our regulation text at new § 412.64(e)(4). Specifically, we are providing that CMS makes an adjustment to the wage index to ensure that aggregate payments after implementation of the rural floor under section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105–33) and the imputed rural floor under § 412.64(h)(4) are made in a manner that ensures that aggregate payments to hospitals are not affected. Beginning October 1, 2008, such adjustments will transition from a nationwide to a statewide adjustment, with a statewide adjustment fully in place by October 1, 2011.
In the proposed rule, we indicated that based on our impact analysis of these proposals for FY 2009, of the 49 States (Maryland is excluded because it is under a State waiver), the District of Columbia, and Puerto Rico, 39 would see either no change or an increase in total Medicare payments as a result of applying a budget neutrality adjustment to the wage index for the rural and imputed floors at the State level rather than the national level. The total payments of the remaining 12 States would decrease 0.1 percent to 3.4 percent compared to continuing our prior national adjustment policy. For this final rule, the full impact analysis of the final policy is reflected in the two charts presented in section III.B.2.b. of the preamble of this final rule. Table 4D–1, which will be included in a separate
As discussed in the FY 2009 IPPS proposed rule (73 FR 23623), the FY 2009 President's Budget includes a legislative proposal to apply geographic reclassification budget neutrality at the State level (available at the Web site:
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
As with the FY 2008 final rule, in the FY 2009 IPPS proposed rule (73 FR 23623), we proposed to provide that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we proposed to determine a wage index for FY 2009 employing wage index data from hospital cost reports for cost reporting periods beginning during FY 2005 and using the CBSA labor market definitions. We consider CBSAs that are MSAs to be urban, and CBSAs that are Micropolitan Statistical Areas as well as areas outside of CBSAs to be rural. In addition, it has been our longstanding policy that where an MSA has been divided into Metropolitan Divisions, we consider the Metropolitan Division to comprise the labor market areas for purposes of calculating the wage index (69 FR 49029). We proposed to codify this longstanding policy into our regulations at § 412.64(b)(1)(ii)(A).
On November 20, 2007, OMB announced the revision of titles for eight urban areas (OMB Bulletin No. 08–01). The revised titles are as follows:
• Hammonton, New Jersey qualifies as a new principal city of the Atlantic City, New Jersey CBSA. The new title is Atlantic City-Hammonton, New Jersey CBSA;
• New Brunswick, New Jersey, located in the Edison, New Jersey Metropolitan Division, qualifies as a new principal city of the New York-Northern New Jersey-Long Island, New York, New Jersey, Pennsylvania CBSA. The new title for the Metropolitan Division is Edison-New Brunswick, New Jersey CBSA;
• Summerville, South Carolina qualifies as a new principal city of the Charleston-North Charleston, South Carolina CBSA. The new title is Charleston-North Charleston-Summerville, South Carolina;
• Winter Haven, Florida qualifies as a new principal city of the Lakeland, Florida CBSA. The new title is Lakeland-Winter Haven, Florida;
• Bradenton, Florida replaces Sarasota, Florida as the most populous principal city of the Sarasota-Bradenton-Venice, Florida CBSA. The new title is Bradenton-Sarasota-Venice, Florida. The new CBSA code is 14600;
• Frederick, Maryland replaces Gaithersburg, Maryland as the second most populous principal city in the Bethesda-Gaithersburg-Frederick, Maryland CBSA. The new title is Bethesda-Frederick-Gaithersburg, Maryland;
• North Myrtle Beach, South Carolina replaces Conway, South Carolina as the second most populous principal city of the Myrtle Beach-Conway-North Myrtle Beach, South Carolina CBSA. The new title is Myrtle Beach-North Myrtle Beach-Conway, South Carolina;
• Pasco, Washington replaces Richland, Washington as the second most populous principal city of the Kennewick-Richland-Pasco, Washington CBSA. The new title is Kennewick-Pasco-Richland, Washington.
The OMB bulletin is available on the OMB Web site at
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.
On October 14, 2005, we published a notice in the
We made the changes to the occupational categories in response to MedPAC comments to the FY 2005 IPPS final rule (69 FR 49036). Specifically, MedPAC recommended that CMS assess whether including subcategories of registered nurses would result in a more accurate occupational mix adjustment. MedPAC believed that including all registered nurses in a single category may obscure significant wage differences among the subcategories of registered nurses, for example, the wages of surgical registered nurses and floor registered nurses may differ. Also, to offset additional reporting burden for hospitals, MedPAC recommended that CMS should combine the general service categories that account for only a small percentage of a hospital's total hours with the “all other occupations” category because most of the occupational mix adjustment is correlated with the nursing general service category.
In addition, in response to the public comments on the October 14, 2005 notice, we modified the 2006 survey. On February 10, 2006, we published a
The 2006 survey provided for the collection of hospital-specific wages and hours data, a 6-month prospective reporting period (that is, January 1, 2006, through June 30, 2006), the transfer of each general service category that comprised less than 4 percent of total hospital employees in the 2003 survey to the “all other occupations” category (the revised survey focused only on the mix of nursing occupations), additional clarification of the definitions for the occupational categories, an expansion of the registered nurse category to include functional subcategories, and the exclusion of average hourly rate data associated with advance practice nurses.
The 2006 survey included only two general occupational categories: nursing and “all other occupations.” The nursing category has four subcategories: Registered nurses, licensed practical nurses, aides, orderlies, attendants, and medical assistants. The registered nurse subcategory includes two functional subcategories: Management personnel and staff nurses or clinicians. As indicated above, the 2006 survey provided for a 6-month data collection period, from January 1, 2006 through June 30, 2006. However, we allowed flexibility for the reporting period beginning and ending dates to accommodate some hospitals' biweekly payroll and reporting systems. That is, the 6-month reporting period had to begin on or after December 25, 2005, and end before July 9, 2006.
As we proposed in the FY 2009 IPPS proposed rule (73 FR 23624), we are using the entire 6-month 2006 survey data to calculate the occupational mix adjustment for the FY 2009 wage index. The original timelines for the collection, review, and correction of the 2006 occupational mix data were discussed in detail in the FY 2007 IPPS final rule (71 FR 48008). The revision and correction process for all of the data, including the 2006 occupational mix survey data to be used for computing the FY 2009 wage index, is discussed in detail in section III.K. of the preamble of this final rule.
For FY 2009 (as we did for FY 2008), we are calculating the occupational mix adjustment factor using the following steps:
If the hospital's adjusted average hourly rate is less than the national average hourly rate (indicating the hospital employs a less costly mix of nursing employees), the occupational mix adjustment factor is greater than 1.0000. If the hospital's adjusted average hourly rate is greater than the national average hourly rate, the occupational mix adjustment factor is less than 1.0000.
The remaining portion of the hospital's total salaries and wage-related costs that is attributable to all other employees of the hospital is not adjusted by the occupational mix. A hospital's all other portion is determined by subtracting the hospital's nursing category percentage from 100 percent.
To compute a hospital's occupational mix adjusted average hourly wage, divide the hospital's total occupational mix adjusted salaries and wage-related costs by the hospital's total hours (from Step 4 of the unadjusted wage index calculation in section III.G. of this preamble).
The table below is an illustrative example of the occupational mix adjustment.
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 FY 2009 wage index.
For the FY 2008 wage index, if a hospital did not respond to the occupational mix survey, or if we determined that a hospital's submitted data were too erroneous to include in the wage index, we assigned the hospital the average occupational mix adjustment for the labor market area (72 FR 47314). We believed this method had the least impact on the wage index for other hospitals in the area. For areas where no hospital submitted data for purposes of calculating the occupational mix adjustment, we applied the national occupational mix factor of 1.0000 in calculating the area's FY 2008 occupational mix adjusted wage index. We indicated in the FY 2008 IPPS final rule that we reserve the right to apply a different approach in future years, including potentially penalizing nonresponsive hospitals (72 FR 47314).
For the FY 2009 wage index, as we proposed, we are handling the data for hospitals that did not respond to the occupational mix survey (neither the 1st quarter nor 2nd quarter data) in the same manner as discussed above for the FY 2008 wage index. In addition, if a hospital submitted survey data for either the 1st quarter or 2nd quarter, but not for both quarters, we are using the data the hospital submitted for one quarter to calculate the hospital's FY 2009 occupational mix adjustment factor. Lastly, if a hospital submitted a survey(s), but that survey data can not be used because we determine it to be aberrant, we also assigned the hospital the average occupational mix adjustment for its labor market area. For example, if a hospital's individual nurse category average hourly wages were out of range (that is, unusually high or low), and the hospital did not provide sufficient documentation to explain the aberrancy, or the hospital did not submit any registered nurse staff salaries or hours data, we assigned the hospital the average occupational mix adjustment for the labor market area in which it is located.
In calculating the average occupational mix adjustment factor for a labor market area, we replicated Steps 1 through 6 of the calculation for the occupational mix adjustment. However, instead of performing these steps at the hospital level, we aggregated the data at the labor market area level. In following these steps, for example, for CBSAs that contain providers that did not submit occupational mix survey data, the occupational mix adjustment factor ranged from a low of 0.9060 (CBSA 12020, Athens-Clarke County, GA), to a high of 1.0805 (CBSA 22500, Florence, SC). Also, in computing a hospital's occupational mix adjusted salaries and wage-related costs for nursing employees (Step 7 of the calculation), in the absence of occupational mix survey data, we multiplied the hospital's total salaries and wage-related costs by the percentage of the area's total workers attributable to the area's total nursing category. For FY 2009, there are no CBSAs for which we did not have occupational mix data for any of its providers.
In the FY 2007 IPPS final rule, we also indicated that we would give serious consideration to applying a hospital-specific penalty if a hospital does not comply with regulations requiring submission of occupational mix survey data in future years. We stated that we believe that section 1886(d)(5)(I)(i) of the Act provides us with the authority to penalize hospitals that do not submit occupational mix survey data. That section authorizes us to provide for exceptions and adjustments to the payment amounts under IPPS as the Secretary deems appropriate. We also indicated that we would address this issue in the FY 2008 IPPS proposed rule.
In the FY 2008 IPPS proposed rule, we solicited comments and suggestions for a hospital-specific penalty for hospitals that do not submit occupational mix survey data. In response to the FY 2008 IPPS proposed rule, some commenters suggested a 1-percent to 2-percent reduction in the hospital's wage index value or a set percentage of the standardized amount. We noted that any penalty that we would determine for nonresponsive hospitals would apply to a future wage index, not the FY 2008 wage index.
In the FY 2008 final rule with comment period, we assigned nonresponsive hospitals the average occupational mix adjustment for the labor market area. For areas where no hospital submitted survey data, we applied the national occupational mix adjustment factor of 1.0000 in calculating the area's FY 2008 occupational mix adjusted wage index. We appreciate the suggestions we received regarding future penalties for hospitals that do not submit occupational mix survey data. We stated in the FY 2008 final rule with comment period that we may consider proposing a policy to penalize hospitals that do not submit occupational mix survey data for FY 2010, the first year of the application of the new 2007–2008 occupational mix survey, and that we expected that any such penalty would be proposed in the FY 2009 IPPS proposed rule so hospitals would be aware of the policy before the deadline for submitting the data to the fiscal intermediaries/MAC. However, in the FY 2009 IPPS proposed rule, we did not propose a penalty for FY 2010. Rather, we reserved the right to propose a penalty in the FY 2010 IPPS proposed rule, once we collect and analyze the FY 2007–2008 occupational mix survey data. Hospitals are still on notice that any failure to submit occupational mix data for the FY 2007–2008 survey year may result in a penalty in FY 2010, thus achieving our policy goal of ensuring that hospitals are aware of the consequences of failure to submit data in response to the most recent survey.
As stated earlier, section 304(c) of Public Law 106–554 amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. We used occupational mix data collected on the 2006 survey to compute the occupational mix adjustment for FY 2009. In the FY 2008 IPPS final rule with comment period (72 FR 47315), we discussed how we modified the occupational mix survey. The revised 2007–2008 occupational mix survey provides for the collection of hospital-specific wages and hours data for the 1-year period of July 1, 2007, through June 30, 2008, additional clarifications to the survey instructions, the elimination of the registered nurse subcategories, some refinements to the definitions of the occupational categories, and the inclusion of additional cost centers that typically provide nursing services. The revised 2007–2008 occupational mix survey will be applied beginning with the FY 2010 wage index.
On February 2, 2007, we published in the
The FY 2009 wage index values (effective for hospital discharges occurring on or after October 1, 2008, and before October 1, 2009, and to be published in a separate
The FY 2009 wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):
• Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty)
• Home office costs and hours
• Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315))
• Wage-related costs, including pensions and other deferred compensation costs. We note that, on March 28, 2008, CMS published a technical clarification to the cost reporting instructions for pension and deferred compensation costs (sections 2140 through 2142.7 of the Provider Reimbursement Manual, Part I). These instructions are used for developing pension and deferred compensation costs for purposes of the wage index, as discussed in the instructions for Worksheet S–3, Part II, Lines 13 through 20 and in the FY 2006 final rule (70 FR 47369).
Consistent with the wage index methodology for FY 2008, the wage index for FY 2009 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The FY 2009 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).
Data collected for the IPPS wage index are also currently used to calculate wage indices applicable to other providers, such as SNFs, home health agencies, and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note that, in the IPPS rules, we do not address comments pertaining to the wage indices for non-IPPS providers. Such comments should be made in response to separate proposed rules for those providers.
The wage data for the FY 2009 wage index were obtained from Worksheet S–3, Parts II and III of the FY 2005 Medicare cost reports. Instructions for completing Worksheet S–3, Parts II and III are in the Provider Reimbursement Manual (PRM), Part II, sections 3605.2 and 3605.3. The data file used to construct the wage index includes FY 2005 data submitted to us as of February 29, 2008. As in past years, we performed an intensive review of the wage data, mostly through the use of edits designed to identify aberrant data.
We asked our fiscal intermediaries/MAC to revise or verify data elements that resulted in specific edit failures. For the proposed FY 2009 wage index, we identified and excluded 37 providers with data that was too aberrant to include in the proposed wage index, although we stated that if data elements for some of these providers were corrected, we intended to include some of these providers in the FY 2009 final wage index. However, because some unresolved data elements were included in the proposed FY 2009 wage index, we instructed fiscal intermediaries/MACs to complete their data verification of questionable data elements and to transmit any changes to the wage data no later than April 14, 2008. While the data for four hospitals were resolved, the data for two other hospitals were identified as too aberrant to include in the final wage index. Therefore, we determined that the data for 35 hospitals should not be included in the FY 2009 final wage index.
In constructing the FY 2009 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2005; inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness.
In the FY 2008 final rule with comment period (72 FR 47317), we discussed our policy for allocating a multicampus hospital's wages and hours data, by full-time equivalent (FTE) staff, among the different labor market areas where its campuses are located. During the FY 2009 wage index desk review process, we requested fiscal intermediaries/MACs to contact multicampus hospitals that had campuses in different labor market areas to collect the data for the allocation. The FY 2009 wage index in this final rule includes separate wage data for campuses of three multicampus hospitals.
For FY 2009, we are again allowing hospitals to use FTE or discharge data for the allocation of a multicampus hospital's wage data among the different labor market areas where its campuses are located. The Medicare cost report was updated in May 2008 to provide for the reporting of FTE data by campus for multicampus hospitals. Because the data from cost reporting periods that begin in FY 2008 will not be used in calculating the wage index until FY 2012, a multicampus hospital will still have the option, through the FY 2011 wage index, to use either FTE or discharge data for allocating wage data among its campuses by providing the information from the applicable cost reporting period to CMS through its fiscal intermediary/MAC. Two of the three multicampus hospitals chose to have their wage data allocated by their Medicare discharge data for the FY 2009 wage index. One of the hospitals provided FTE staff data for the allocation. The average hourly wage associated with each geographical location of a multicampus hospital is reflected in Table 2 of the Addendum to this final rule.
Since 2005 when Hurricane Katrina devastated the Gulf States, we have received numerous comments suggesting that current Medicare payments to hospitals in New Orleans, Louisiana are inadequate, and the wage index does not accurately reflect the increase in labor costs experienced by the city after the storm. The post-Katrina effects on the New Orleans wage index will not be realized in the wage index until FY 2010, when the wage index will be based on cost reporting periods beginning during FY 2006 (that is, beginning on or after October 1, 2005 and before October 1, 2006).
In responding to the health-related needs of people affected by the hurricane, the Federal Government, through the Deficit Reduction Act of 2005 (DRA), appropriated $2 billion in FY 2006. These funds allowed the Secretary to make available $160 million in February 2007 to Louisiana, Mississippi, and Alabama for payments to hospitals and skilled nursing facilities facing financial stress because of changing wage rates not yet reflected in Medicare payment methodologies. In March and May 2007, the Department provided two additional DRA grants of $15 million and $35 million, respectively, to Louisiana for professional health care workforce recruitment and sustainability in the greater New Orleans area, namely the Orleans, Jefferson, St. Bernard, and Plaquemines Parishes. In addition, the Department issued a supplemental award of $60 million in provider stabilization grant funding to Louisiana, Mississippi, and Alabama to continue to help health care providers meet changing wage rates not yet reflected by Medicare's payment policies. On July 23, 2007, HHS awarded to Louisiana a new $100 million Primary Care Grant to help increase access to primary care in the Greater New Orleans area. The resulting stabilization and expansion of the community based primary care infrastructure, post Katrina, helps provide a viable alternative to local hospital emergency rooms for all citizens of New Orleans, especially those who are poor and uninsured. In other Department efforts, the OIG has performed an in-depth review of the post-Katrina infrastructure of five New Orleans hospitals, including the hospitals' staffing levels and wage costs. The OIG's final reports and recommendations, which were published in the Spring of 2008, are available on the following Web site:
The method used to compute the FY 2009 wage index without an occupational mix adjustment follows:
We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 18) are excluded if no corresponding salaries are reported for those employees on Line 4.
For example, the midpoint of a cost reporting period beginning January 1, 2005, and ending December 31, 2005, is June 30, 2005. An adjustment factor of 1.02596 would be applied to the wages of a hospital with such a cost reporting period. In addition, for the data for any cost reporting period that began in FY 2005 and covered a period of less than 360 days or more than 370 days, we annualize the data to reflect a 1-year cost report. Dividing the data by the number of days in the cost report and then multiplying the results by 365 accomplishes annualization.
In the FY 2005 IPPS final rule (69 FR 49109), we adopted the “imputed” floor as a temporary 3-year measure to address a concern by some individuals that hospitals in all-urban States were disadvantaged by the absence of rural hospitals to set a wage index floor in those States. The imputed floor was originally set to expire in FY 2007, but we are extending it an additional year in the FY 2008 IPPS final rule with comment period (72 FR 47321). As explained in section III.B.2.b. of the preamble of this final rule, we are extending the imputed floor for an additional 3 years, through FY 2011.
As discussed in section III.D. of this preamble, for FY 2009, we apply the occupational mix adjustment to 100 percent of the FY 2009 wage index. We calculated the occupational mix adjustment using data from the 2006 occupational mix survey data, using the methodology described in section III.D.3. of this preamble.
Using the first and second quarter occupational mix survey data and applying the occupational mix adjustment to 100 percent of the FY 2009 wage index results in a national average hourly wage of $32.2449 and a Puerto-Rico specific average hourly wage of $13.7851. After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2005 Worksheet S–3 cost report data for use in calculating the FY 2009 wage index, we calculated the FY 2009 wage index using the occupational mix survey data from 3,365 hospitals. Using the Worksheet S–3 cost report data of 3,534 hospitals and occupational mix first and/or second quarter survey data from 3,365 hospitals represents a 95.2 percent survey response rate. The FY 2009 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:
The national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $28.7265. 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 January through June 2006 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 42.97 percent, and the national percentage of hospital employees in the All Other Occupations category is 57.03 percent. At the CBSA level, the percentage of hospital employees in the Nurse category ranged from a low of 27.26 percent in one CBSA, to a high of 85.30 percent in another CBSA.
The final wage index values for FY 2009 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act) will be shown in Tables 4A, 4B, 4C, and 4F that are to be published in a separate
Tables 3A and 3B in the Addendum to this final rule list the 3-year average hourly wage for each labor market area before the redesignation 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 in the Addendum to this final rule includes the adjusted average hourly wage for each hospital from the FY 2003 and FY 2004 cost reporting periods, as well as the FY 2005 period used to calculate the FY 2009 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 wage index values in Tables 4A, 4B, 4C, and 4F (to be published in a subsequent
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
Section 1886(d)(10)(D)(v) of the Act provides that, beginning with FY 2001, a MGCRB decision on a hospital reclassification for purposes of the wage index is effective for 3 fiscal years, unless the hospital elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of the Act provides that the MGCRB must use average hourly wage data from the 3 most recently published hospital wage surveys in evaluating a hospital's reclassification application for FY 2003 and any succeeding fiscal year.
Section 304(b) of Public Law 106–554 provides that the Secretary must establish a mechanism under which a statewide entity may apply to have all of the geographic areas in the State treated as a single geographic area for purposes of computing and applying a single wage index, for reclassifications beginning in FY 2003. The implementing regulations for this provision are located at 42 CFR 412.235.
Section 1886(d)(8)(B) of the Act requires the Secretary to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an urban area under the standards for designating MSAs and if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of all contiguous MSAs. In light of the CBSA definitions and the Census 2000 data that we implemented for FY 2005 (69 FR 49027), we undertook to identify those counties meeting these criteria. Eligible counties are discussed and identified under section III.I.5. of this preamble.
Section 1886(d)(8)(C) of the Act provides that the application of the wage index to redesignated hospitals is dependent on the hypothetical impact that the wage data from these hospitals would have on the wage index value for the area to which they have been redesignated. These requirements for determining the wage index values for redesignated hospitals are applicable both to the hospitals deemed urban under section 1886(d)(8)(B) of the Act and hospitals that were reclassified as a result of the MGCRB decisions under section 1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C) of the Act, the wage index values were determined by considering the following:
• If including the wage data for the redesignated hospitals would reduce the wage index value for the area to which the hospitals are redesignated by 1 percentage point or less, the area wage index value determined exclusive of the wage data for the redesignated hospitals applies to the redesignated hospitals.
• If including the wage data for the redesignated hospitals reduces the wage index value for the area to which the hospitals are redesignated by more than 1 percentage point, the area wage index determined inclusive of the wage data for the redesignated hospitals (the combined wage index value) applies to the redesignated hospitals.
• If including the wage data for the redesignated hospitals increases the wage index value for the urban area to which the hospitals are redesignated, both the area and the redesignated hospitals receive the combined wage index value. Otherwise, the hospitals located in the urban area receive a wage index excluding the wage data of hospitals redesignated into the area.
Rural areas whose wage index values would be reduced by excluding the wage data for hospitals that have been redesignated to another area continue to have their wage index values calculated as if no redesignation had occurred (otherwise, redesignated rural hospitals are excluded from the calculation of the rural wage index). The wage index value for a redesignated rural hospital cannot be reduced below the wage index value for the rural areas of the State in which the hospital is located.
CMS has also adopted the following policies:
• The wage data for a reclassified urban hospital is included in both the wage index calculation of the area to which the hospital is reclassified (subject to the rules described above) and the wage index calculation of the urban area where the hospital is physically located.
• In cases where urban hospitals have reclassified to rural areas under 42 CFR 412.103, the urban hospital wage data are: (a) Included in the rural wage index calculation, unless doing so would reduce the rural wage index; and (b) included in the urban area where the hospital is physically located.
Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in 42 CFR 412.230 through 412.280.
At the time this final rule was constructed, the MGCRB had completed its review of FY 2009 reclassification requests. Based on such reviews, there were 314 hospitals approved for wage index reclassifications by the MGCRB for FY 2009. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2009, hospitals reclassified during FY 2007 or FY 2008 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications. There were 175 hospitals approved for wage index reclassifications in FY 2007 and 324 hospitals approved for wage index reclassifications in FY 2008. Of all of the hospitals approved for reclassification for FY 2007, FY 2008, and FY 2009, based upon the review at the time of the final rule, 813 hospitals are in a reclassification status for FY 2009.
Under 42 CFR 412.273, hospitals that have been reclassified by the MGCRB were permitted to withdraw their applications within 45 days of the publication of the proposed rule. Generally stated, the request for withdrawal of an application for reclassification or termination of an existing 3-year reclassification that would be effective in FY 2009 had to be received by the MGCRB within 45 days of the publication of the proposed rule. (We note that special rules for areas affected by section 124 of Pub. L. 110–275 are discussed in section III.I.7. of this preamble.) Hospitals may also cancel prior reclassification withdrawals or terminations in certain circumstances. For further information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer the reader to 42 CFR 412.273, as well as the August 1, 2002, IPPS final rule (67 FR 50065), and the August 1, 2001, IPPS final rule (66 FR 39887).
Changes to the wage index that result from withdrawals of requests for reclassification, wage index corrections, appeals, and the Administrator's review process will be incorporated into the wage index values published in a separate
Applications for FY 2010 reclassifications are due to the MGCRB by September 2, 2008 (the first working day of September 2008). 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 2008, via the CMS Internet Web site at:
We note below several policies related to geographic reclassification that were clarified or revised in the FY 2008 IPPS final rule with comment period (72 FR 47333):
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Section 1886(d)(8)(B) of the Act requires us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA if certain criteria are met. Effective beginning FY 2005, we use OMB's 2000 CBSA standards and the Census 2000 data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area. Hospitals located in these counties have been known as “Lugar” hospitals and the counties themselves are often referred to as “Lugar” counties. We provide the FY 2009 chart below with the listing of the rural counties containing the hospitals designated as urban under section 1886(d)(8)(B) of the Act. For discharges occurring on or after October 1, 2008, hospitals located in the rural county in the first column of this chart will be redesignated for purposes of using the wage index of the urban area listed in the second column.
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
As discussed in last year's FY 2008 IPPS final rule with comment period (72 FR 47336–47337), Lugar hospitals are treated like reclassified hospitals for purposes of determining their applicable wage index and receive the reclassified wage index (Table 4C in a separate notice to be published in the
Hospitals not located in a Lugar county seeking reclassification to the urban area where the Lugar hospitals have been redesignated are not permitted to measure to the Lugar county to demonstrate proximity (no more than 15 miles for an urban hospital, and no more than 35 miles for a rural hospital or the closest urban or rural area for RRCs or SCHs) in order to be reclassified to such urban area. These hospitals must measure to the urban area exclusive of the Lugar County to meet the proximity or nearest urban or rural area requirement. As discussed in the FY 2008 final rule with comment period, we treat New England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to 72 FR 47337 for a discussion of this policy.)
On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008, Public Law 110–275 was enacted. Section 124 of Public Law 110–275 extends through FY 2009 wage index reclassifications under section 508 of Public Law 108–173 and certain special exceptions (for example, those special exceptions contained in the final rule promulgated in the
Under section 508 of Public Law 108–173, a qualifying hospital could appeal the wage index classification otherwise applicable to the hospital and apply for reclassification to another area of the State in which the hospital is located (or, at the discretion of the Secretary), to an area within a contiguous State. We implemented this process through notices published in the
Section 124 of Public Law 110–275 has now extended the hospital reclassifications provisions of section 508 and certain special exceptions through September 30, 2009 (FY 2009). Because of the timing of enactment of Public Law 110–275, we are not able to recompute the FY 2009 wage index values for any hospital that would be reclassified under the section 508 and special exceptions provisions in time for inclusion in this final rule. Instead, we will issue the final FY 2009 wage index values and other related tables, as specified in the Addendum to this final rule, in a separate
Hospitals will have 15 days from the date of publication of the separate notice to notify us if they wish to revise the decision that CMS makes on their behalf. Members of a group reclassification must ensure that all members of the group (except hospitals whose reclassifications were extended by section 124 of Pub. L. 110–275) have signed the revision request. Written requests to revise CMS' wage index decision must be received at the following address by no later than 5 p.m. EST 15 days from the date of publication of the separate notice in the
If we do not receive notice from the hospital within this 15-day timeframe, the determination made by CMS on behalf of the hospital in the separate notice will be deemed final for FY 2009. We will not further recalculate the wage indices or standardized amounts based on hospitals' decisions that further revise decisions made by CMS on the hospitals' behalf. If CMS makes a decision on a hospital's behalf to terminate or withdraw a reclassification so that a hospital will receive a higher qualifying wage index for FY 2009, and the hospital does not reverse or modify CMS' decision within the 15-day timeframe, we will deem the hospital's reclassification is withdrawn or terminated for FY 2009 only, as section 508 reclassifications and special
Our special procedural rules for FY 2009 are authorized under section 1886(d)(10)(D)(v) of the Act, which requires the Secretary to “establish procedures under which a subsection (d) hospital may elect to terminate” a reclassification. While the section authorizes the Secretary to establish procedures, it does not dictate the specifics of such procedures. Given the intervening legislation for FY 2009, and the need to expeditiously engage in a series of recalculations for FY 2009, we believe the most reasonable course at this point is for us to make our best efforts to give affected hospitals their highest wage index values, and then allow hospitals to opt out of such selections.
The special procedural rules will be effective upon publication and supersede conflicting procedures included in 42 CFR 412.273. Because these rules are effective only for FY 2009, we are not revising the general rules included in the regulation at § 412.273.
In accordance with the broad discretion under section 1886(d)(13) of the Act, as added by section 505 of Public Law 108–173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Such adjustments to the wage index are effective for 3 years, unless a hospital requests to waive the application of the adjustment. A county will not lose its status as a qualifying county due to wage index changes during the 3-year period, and counties will receive the same wage index increase for those 3 years. However, a county that qualifies in any given year may no longer qualify after the 3-year period, or it may qualify but receive a different adjustment to the wage index level. Hospitals that receive this adjustment to their wage index are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. Adjustments under this provision are not subject to the budget neutrality requirements under section 1886(d)(3)(E) of the Act.
Hospitals located in counties that qualify for the wage index adjustment are to receive an increase in the wage index that is equal to the average of the differences between the wage indices of the labor market area(s) with higher wage indices and the wage index of the resident county, weighted by the overall percentage of hospital workers residing in the qualifying county who are employed in any labor market area with a higher wage index. Beginning with the FY 2008 wage index, we use post-reclassified wage indices when determining the out-migration adjustment (72 FR 47339).
For the FY 2009 wage index, we will calculate the out-migration adjustment using the same formula described in the FY 2005 IPPS final rule (69 FR 49064), with the addition of using the post-reclassified wage indices, to calculate the out-migration adjustment. This adjustment is calculated as follows:
These adjustments will be effective for each county for a period of 3 fiscal years. For example, hospitals that received the adjustment for the first time in FY 2008 will be eligible to retain the adjustment for FY 2009. For hospitals in newly qualified counties, adjustments to the wage index are effective for 3 years, beginning with discharges occurring on or after October 1, 2008.
Hospitals receiving the wage index adjustment under section 1886(d)(13)(F) of the Act are not eligible for reclassification under sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-migration adjustment. Consistent with our FY 2005, 2006, 2007, and 2008 IPPS final rules, we are specifying that hospitals redesignated under section 1886(d)(8) of the Act or reclassified under section 1886(d)(10) of the Act will be deemed to have chosen to retain their redesignation or reclassification. Section 1886(d)(10) hospitals that wish to receive the out-migration adjustment, rather than their reclassification, had to
Table 4J in the Addendum to this final rule lists the out-migration wage index adjustments for FY 2009. A revised table 4J will be published in a separate
The preliminary, unaudited Worksheet S–3 wage data and occupational mix survey data files for the FY 2009 wage index were made available on October 5, 2007, through the Internet on the CMS Web site at:
In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we posted 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 did not alter the current wage index process or schedule. We notified the hospital community of the availability of these data as we do with the current public use wage data files through our Hospital Open Door forum. We encouraged hospitals to sign up for automatic notifications of information about hospital issues and the scheduling of the Hospital Open Door forums at:
In a memorandum dated October 5, 2007, 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 5, 2007 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 7, 2007. Hospitals were notified of this deadline and of all other possible deadlines and requirements, including the requirement to review and verify their data as posted on the preliminary wage index data files on the Internet, through the October 5, 2007 memorandum referenced above.
In the October 5, 2007 memorandum, we also specified that a hospital requesting revisions to its first and/or second quarter occupational mix survey data was to copy its record(s) from the CY 2006 occupational mix preliminary files posted to our Web site in October, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete documentation to its fiscal intermediary/MAC no later than December 7, 2007.
The fiscal intermediaries (or, if applicable, the MACs) notified the hospitals by mid-February 2008 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 2008. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 25, 2008. In a memorandum also dated February 25, 2008, we instructed fiscal intermediaries/MACs to notify all hospitals regarding the availability of the proposed wage index public use files and the criteria and process for requesting corrections and revisions to the wage index data. Hospitals had until March 11, 2008, to submit requests to the fiscal intermediaries/MACs for reconsideration of adjustments made by the fiscal intermediaries/MACs as a result of the desk review, and to correct errors due to CMS's or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the wage index data. Hospitals were also 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 14, 2008. The deadline for a hospital to request CMS intervention in cases where the hospital disagreed with the fiscal intermediary's (or, if applicable, the MAC's) policy interpretations was April 21, 2008.
Hospitals were given the opportunity to examine Table 2 in the Addendum to the proposed rule. Table 2 in the Addendum to the proposed rule contained each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2005 data used to construct the proposed FY 2009 wage index. We noted that the hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data and transmitted to CMS by February 29, 2008.
We released the final wage index data public use files in early May 2008 on the Internet at
Each request also had to be sent to the fiscal intermediary/MAC. The fiscal intermediary/MAC reviewed requests upon receipt and contacted CMS immediately to discuss any findings.
At this point in the process, that is, after the release of the May 2008 wage index data files, changes to the wage and occupational mix data were only made only 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 approved 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 21, 2008.
• Requests for correction of errors that were not, but could have been, identified during the hospital's review of the February 25, 2008 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 9, 2008) were incorporated into the final wage index in this FY 2009 IPPS final rule, which will be effective October 1, 2008.
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 2009 payment rates. Accordingly, hospitals that did not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the fiscal intermediary's (or, if applicable the MAC's) decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the Provider Reimbursement Review Board, the failure of CMS to make a requested data revision. (See
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 had access to the final wage index data by early May 2008, they had 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 2009 wage index by August 1, 2008, and the implementation of the FY 2009 wage index on October 1, 2008. If hospitals availed themselves of the opportunities afforded to provide and make corrections to the wage and occupational mix data, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after June 9, 2008, 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 9th deadline for making corrections to the wage data for the following fiscal year's wage index. This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the fiscal intermediaries or the MAC notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.
In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the fiscal intermediary (or if applicable the MAC) and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 9, 2008 deadline for the FY 2009 wage index); and (3) CMS agreed that the fiscal intermediary (or if applicable, the MAC) or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.
In those circumstances where a hospital requested a correction to its wage index data before CMS calculates the final wage index (that is, by the June 9th 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.
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
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.” We interpret this to mean that 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.
We have continued our research into the assumptions employed in calculating the labor-related share. Our research involves analyzing the compensation share separately for urban and rural hospitals, using regression analysis to determine the proportion of costs influenced by the area wage index, and exploring alternative methodologies to determine whether all or only a portion of professional fees and nonlabor intensive services should be considered labor-related.
In the FY 2006 IPPS final rule (70 FR 47392), we presented our analysis and conclusions regarding the methodology for updating the labor-related share for FY 2006. We also recalculated a labor-related share of 69.731 percent, using the FY 2002-based PPS market basket for discharges occurring on or after October 1, 2005. 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 PPS base payment rate to which the area wage index is applied. In this final rule, as we proposed, we are not making any changes to the national average proportion of operating costs that are attributable to wages and salaries, fringe benefits, professional fees, contract labor, and labor intensive services. Therefore, we are continuing to use a labor-related share of 69.731 percent for discharges occurring on or after October 1, 2008. Tables 1A and 1B in the Addendum to this final rule reflect this labor-related share. However, as noted in the Addendum, these figures are tentative only and will be revised as a result of section 124 of Public Law 110–275 in a separate
As we proposed, we also are continuing to use a labor-related share for the Puerto Rico-specific standardized amounts of 58.7 percent for discharges occurring on or after October 1, 2008. 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, nonmedical professional fees, and other labor-intensive services 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. For Puerto Rico hospitals, the national labor-related share will always be 62 percent because the wage index for all Puerto Rico hospitals is less than 1.0. A Puerto Rico-specific wage index is applied to the Puerto Rico-specific portion of payments to the hospitals. The labor-related share of a hospital's Puerto Rico-specific rate will be either 62 percent or the Puerto Rico-specific labor-related share 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 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 58.7 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 58.7 percent for FY 2008 is reflected in the tentative Table 1C of the Addendum to this final rule. (As explained in this preamble and the Addendum to this final rule, section 124 of Pub. L. 119–275 will require us to recalculate the final rates and publish such rates in a separate
Existing regulations at § 412.4(a) define discharges under the IPPS as situations in which a patient is formally released from an acute care hospital or dies in the hospital. Section 412.4(b) defines transfers from one acute care hospital to another. Section 412.4(c) establishes the conditions under which we consider a discharge to be a transfer for purposes of our postacute care transfer policy. In accordance with § 412.4(f), in transfer situations, the transferring hospital is paid based on a per diem rate for each day of the stay, not to exceed the full MS–DRG payment that would have been made if the patient had been discharged without being transferred.
The per diem rate paid to a transferring hospital is calculated by dividing the full MS–DRG payment by the geometric mean length of stay for the MS–DRG. Based on an analysis that showed that the first day of hospitalization is the most expensive (60 FR 5804), our policy generally provides for payment that is double the per diem amount for the first day, with each subsequent day paid at the per diem amount up to the full DRG payment (§ 412.4(f)(1)). Transfer cases are also eligible for outlier payments. The outlier threshold for transfer cases is equal to the fixed-loss outlier threshold for nontransfer cases (adjusted for geographic variations in costs), divided by the geometric mean length of stay for the MS–DRG, multiplied by the length of stay for the case plus one day. The purpose of the IPPS postacute care transfer payment policy is to avoid providing an incentive for a hospital to transfer patients to another hospital, a SNF, or home under a written plan of care for home health services early in the patients' stay in order to minimize costs while still receiving the full MS–DRG payment. The transfer policy adjusts the payments to approximate the reduced costs of transfer cases.
Beginning with the FY 2006 IPPS, the regulations at § 412.4 specified that, effective October 1, 2005, a DRG would be subject to the postacute care transfer policy if, based on Version 23.0 of the DRG Definitions Manual (FY 2006), using data from the March 2005 update of FY 2004 MedPAR file, the DRG meets the following criteria:
• The DRG had a geometric mean length of stay of at least 3 days;
• The DRG had at least 2,050 postacute care transfer cases; and
• At least 5.5 percent of the cases in the DRG were discharged to postacute care prior to the geometric mean length of stay for the DRG.
In addition, if the DRG was one of a paired set of DRGs based on the presence or absence of a CC or major cardiovascular condition (MCV), both paired DRGs would be included if either one met the three criteria above.
If a DRG met the above criteria based on the Version 23.0 DRG Definitions Manual and FY 2004 MedPAR data, we made the DRG subject to the postacute care transfer policy. We noted in the FY 2006 final rule that we would not revise the list of DRGs subject to the postacute care transfer policy annually unless we made a change to a specific CMS DRG. We established this policy to promote certainty and stability in the postacute care transfer payment policy. Annual reviews of the list of CMS DRGs subject to the policy would likely lead to great volatility in the payment methodology with certain DRGs qualifying for the policy in one year, deleted the next year, only to be reinstated the following year. However, we noted that, over time, as treatment practices change, it was possible that some CMS DRGs that qualified for the policy will no longer be discharged with great frequency to postacute care. Similarly, we explained that there may be other CMS DRGs that at that time had a low rate of discharges to postacute care, but which might have very high rates in the future.
The regulations at § 412.4 further specify that if a DRG did not exist in Version 23.0 of the DRG Definitions Manual or a DRG included in Version 23.0 of the DRG Definitions Manual is revised, the DRG will be a qualifying DRG if it meets the following criteria based on the version of the DRG Definitions Manual in use when the new or revised DRG first became effective, using the most recent complete year of MedPAR data:
• The total number of discharges to postacute care in the DRG must equal or exceed the 55th percentile for all DRGs; and
• The proportion of short-stay discharges to postacute care to total discharges in the DRG exceeds the 55th percentile for all DRGs. A short-stay discharge is a discharge before the geometric mean length of stay for the DRG.
A DRG also is a qualifying DRG if it is paired with another DRG based on the presence or absence of a CC or MCV that meets either of the above two criteria.
The MS–DRGs that we adopted for FY 2008 were a significant revision to the CMS DRG system (72 FR 47141). Because the MS–DRGs were not reflected in Version 23.0 of the DRG Definitions Manual, consistent with § 412.4, we established policy to recalculate the 55th percentile thresholds in order to determine which MS–DRGs would be subject to the postacute care transfer policy (72 FR 47186 through 47188). Further, under the MS–DRGs, the subdivisions within the base DRGs are different than those under the previous CMS DRGs. Unlike the CMS DRGs, the MS–DRGs are not divided based on the presence or absence of a CC or MCV. Rather, the MS–DRGs have up to three subdivisions based on: (1) The presence of an MCC; (2) the presence of a CC; or (3) the absence of either an MCC or a CC. Consistent with our previous policy under which both CMS DRGs in a CC/non-CC pair were qualifying DRGs if one of the pair qualified, we established that each MS–DRG that shared a base MS–DRG will be a qualifying DRG if one of the MS–DRGs that shared the base DRG qualifies. We revised § 412.4(d)(3)(ii) to codify this policy.
Similarly, the adoption of the MS–DRGs also necessitated a revision to one of the criteria used in § 412.4(f)(5) of the regulations to determine whether a DRG meets the criteria for payment under the “special payment methodology.” Under the special payment methodology, a case subject to the special payment methodology that is transferred early to a postacute care setting will be paid 50 percent of the total IPPS payment (excluding any outlier payments and add-on payments for new technology) plus the average per diem for the first day of the stay. In addition, the hospital will receive 50 percent of the per diem amount for each subsequent day of the stay, up to the full MS–DRG payment amount. A CMS DRG was subject to the special payment methodology if it met the criteria in the regulations under § 412.4(f)(5). Section 412.4(f)(5)(iv) specifies that, for discharges occurring on or after October 1, 2005, and prior to October 1, 2007, if a DRG meets the criteria specified under § 412.4(f)(5)(i) through (f)(5)(iii), any DRG that is paired with it based on the presence or absence of a CC or MCV is also subject to the special payment methodology. Given that this criterion was no longer applicable under the MS–DRG system, in the FY 2008 IPPS final rule with comment period, we added a new § 412.4(f)(6) (42 FR 47188 and 47410). Section 412.4(f)(6) provides that, for discharges on or after October 1, 2007, if an MS–DRG meets the criteria specified under §§ 412.4(f)(6)(i) through (f)(6)(iii), any other MS–DRG that is part of the same MS–DRG group is also subject to the special payment methodology. We updated this criterion so that it conformed to the changes associated with adopting MS–DRGs for FY 2008. The revision makes an MS–DRG subject to the special payment methodology if it shares a base MS–DRG with an MS–DRG that meets the criteria for receiving the special payment methodology.
Section 1886(d)(5)(J) of the Act provides that, effective for discharges on or after October 1, 1998, a “qualified discharge” from one of DRGs selected by the Secretary to a postacute care provider would be treated as a transfer case. This section required the Secretary to define and pay as transfers all cases assigned to one of the DRGs selected by the Secretary, if the individuals are discharged to one of the following postacute care settings:
• A hospital or hospital unit that is not a subsection 1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the hospitals and hospital units that are excluded from the term “subsection (d) hospital” as psychiatric hospitals and units, rehabilitation hospitals and units, children's hospitals, long-term care hospitals, and cancer hospitals.)
• A skilled nursing facility (as defined at section1819(a) of the Act).
• Home health services provided by a home health agency, if the services relate to the condition or diagnosis for which the individual received inpatient hospital services, and if the home health services are provided within an appropriate period (as determined by the Secretary). In the FY 1999 IPPS final rule (63 FR 40975 through 40976 and 40979 through 40981), we specified that a patient discharged to home would be considered transferred to postacute care if the patient received home health services within 3 days after the date of discharge. In addition, in the FY 1999 IPPS final rule, we did not include patients transferred to a swing-bed for skilled nursing care in the definition of postacute care transfer cases (63 FR 40977).
As noted above, in the FY 1999 IPPS final rule (63 FR 40975 through 40976 and 40979 through 40981), we determined that 3 days is an appropriate period within which home health services should begin following a beneficiary's discharge to the home in order for the discharge to be considered a “qualified discharge” subject to the payment adjustment for postacute care transfer cases. In that same final rule, we noted that we would monitor whether 3 days would remain an appropriate timeframe.
Section 1886(d)(5)(J)(ii)(III) of the Act provides that the discharge of an individual who receives home health services upon discharge will be treated as a transfer if “such services are provided within an appropriate period (as determined by the Secretary. * * *”. The statute thus confers upon the Secretary the authority to determine an appropriate timeframe for the application of the postacute care transfer policy in cases where home health services commence subsequent to discharge from an acute care hospital. In the FY 1999 final IPPS rule, we established the policy that the postacute care transfer policy would apply to cases in which the home health care begins within 3 days after the date of discharge from an acute care hospital. We noted in that rule that we did not believe that it was appropriate to limit the transfer definition to cases in which home health care begins on the same day as the patient is discharged from the hospital. We observed that data indicated that less than 8 percent of discharged patients who receive home health care begin receiving those services on the date of discharge. We stated that we did not believe that it was reasonable to expect that patients who are discharged later in the day would receive a home health visit that same day. Furthermore, we believed that the financial incentive to delay needed home health care for only a matter of hours would be overwhelming if we limited the timeframe to one day. At the time of that final rule, we explained that we believed that 3 days would be a more appropriate timeframe because it would mitigate the incentive to delay home health services to avoid the application of the postacute care transfer policy, and because a 3-day timeframe was consistent with existing patterns of care.
In that final rule, we also noted that a number of commenters had raised issues and questions concerning the proposal to adopt 3 days as the appropriate timeframe for the application of the postacute care transfer policy in these cases. While most of the commenters advocated shorter timeframes, on the grounds that postacute care beginning 3 days after a discharge should not be considered a substitute for inpatient hospital care, others suggested that a 3-day window might still allow for needlessly prolonged hospital care or delayed home health in order to avoid the application of the postacute care transfer policy. Although MedPAC agreed with the commenters who asserted that home health care services furnished after a delay of more than one day may not necessarily be regarded as substituting for inpatient acute care, they also noted that a 3-day window allows for the fact that most home health patients do not receive care every day, as well as for those occasions in which there may be a delay in arranging for the provision of planned care (for example, an intervening weekend). MedPAC also stated that a shorter period may create a stronger incentive to delay the provision of necessary care beyond the window so that the hospital will receive the full DRG payment. In the light of these comments and, in particular, of the concern that a 3-day timeframe still allowed for some incentive to delay necessary home health services in order to avoid the application of the postacute care transfer policy, we indicated that we would continue to monitor this policy in order to track any changes in practices that may indicate the need for revising the window.
Since the adoption of this policy in FY 1999, we have continued to receive reports that some providers discharge patients prior to the geometric mean length of stay but intentionally delay home health services beyond 3 days after the acute hospital discharge in order to avoid the postacute care transfer payment adjustment policy. These reports, and the concerns expressed by some commenters in FY 1999 about the adequacy of a 3-day window to reduce such incentives, have prompted us to examine the available data concerning the initiation and program payments for home health care subsequent to discharge from postacute care.
We merged the FY 2004 MedPAR file with postacute care bill files matching beneficiary identification numbers and discharge and admission dates and looked at the 10 DRGs that were subject to the postacute care transfer policy from FYs 1999 through 2003 (DRG 14 (Intracranial Hemorrhage and Stroke with Infarction (formerly “Specific Cerebrovascular Disorders Except Transient Ischemic Attack”)); DRG 113 (Amputation for Circulatory System Disorders Except Upper Limb and Toe); DRG 209 (Major Joint Limb Reattachment Procedures of Lower Extremity); DRG 210 (Hip and Femur Procedures Except Major Joint Procedures Age ≤17 with CC); DRG 211 (Hip and Femur Procedures Except Major Joint Procedures Age ≤17 without CC); DRG 236 (Fractures of Hip and Pelvis); DRG 263 (Skin Graft and/or Debridement for Skin Ulcer or Cellulitis with CC); DRG 264 (Skin Graft and/or Debridement for Skin Ulcer or Cellulitis without CC); DRG 429 (Organic Disturbances and Mental Retardation); and DRG 483 (Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except Face, Mouth, and Neck Diagnoses (formerly “Tracheostomy Except for Face, Mouth, and Neck Diagnoses”)). We selected the original 10 “qualified DRGs” because they were the DRGs to which the postacute care transfer policy applied for FYs 1999 through 2003 and because we expect that trends that we found in the data with those DRGs would be likely to accurately reflect provider practices after the inception of the postacute care transfer policy. We expect that provider practices for the original 10 DRGs would be consistent even with the expansion of the DRGs that are subject to the postacute care transfer policy. We note that providers may have even a greater incentive to delay the initiation of home health care in an effort to avoid the postacute care transfer policy now that there are more DRGs to which the policy applies. We compared data on home health services provided to patients who were discharged prior to the geometric mean length of stay to patients who were discharged at or beyond the geometric mean length of stay. For purposes of this analysis, we assumed that home health was the first discharge designation from the acute care hospital setting.
The data showed that, on average, the Medicare payment per home health visit was higher for patients who were discharged prior to the geometric mean length of stay (as compared to patients who were discharged at or beyond the geometric mean length of stay). Specifically, we found that average Medicare payments per home health care visit were consistently higher for patients discharged prior to the geometric mean length of stay than for patients discharged at or after the geometric mean length of stay. The average home health care per visit
In the light of these data, we indicated in the FY 2009 IPPS proposed rule (73 FR 23641) that we believed it was appropriate to propose extending the applicable timeframe in order to reduce the incentive for providers to delay home health care when discharging patients from the acute care setting. Further examination of the data indicated that the average per day Medicare payments for home health care for those patients, in the DRGs to which the postacute care transfer policy applies, who are discharged from the hospital prior to the geometric mean length of stay, stabilizes at a somewhat lower amount when the initiation of home health visits begins on the seventh and subsequent days after discharge. Specifically, average payments per visit for this group fall from $182 when home health services began on the sixth day after the acute care hospital discharge to $174 on the seventh day, and then remain relatively steady at $171, $177, and $172 on the eighth, ninth, and tenth days. This suggested to us that a 7-day period might be an appropriate point at which to establish a new timeframe.
As a consequence of this analysis, in the proposed rule, we proposed to revise the regulations at § 412.4(c)(3) to extend the timeframe to within 7 days after the date of discharge to home under a written plan for the provision of home health services, effective October 1, 2008. We stated that we believed extending the applicable timeframe would lessen the incentive for providers to delay the start of home health care after discharging patients from the acute care hospital setting. We also indicated that during the comment period on the proposed rule, we planned to continue to search our data on postacute care discharges to home health services. We welcomed comments and suggestions on other data analyses that could be performed to determine an appropriate timeframe for which the postacute care transfer policy would apply.
In addition to the reasons noted above, we stated that we believed that 7 days is currently an appropriate timeframe because we believe that it accommodates current practices and it is sufficiently long enough to lessen the likelihood that providers would delay the initiation of necessary home health services. At the same time, we stated that we believed that 7 days is narrow enough that we would still expect the majority of the home health services to be related to the condition to which the acute inpatient hospital stay was necessary. Further, we noted that there may be some cases for which it is not clinically appropriate to begin home health services immediately following an acute care discharge, and that even when home health services are clinically appropriate sooner than within 7 days of acute care discharge, home health services may not be immediately available.
We note that, as we stated in the FY 2000 IPPS final rule (65 FR 47081), if the hospital's continuing care plan for the patient is not related to the purpose of the inpatient hospital admission, a condition code 42 must be entered on the claim. In addition, if the proposed policy were to be adopted and the continuing care plan is related to the purpose of the inpatient hospital admission but begins after 7 days after discharge, a condition code 43 would have to be entered on the claim. Under the present policy, condition code 43 applies when the home health services begin within 3 days after the date of discharge from the acute care hospital. The presence of either of these condition codes in conjunction with patient status discharge code 06 (Discharged/Transferred to Home under Care of Organized Home Health Service Organization in Anticipation of Covered Skilled Care) will result in full payment rather than the transfer payment amount.
We received many comments on this proposal. The commenters included hospitals, hospital industry associations, HHAs, representatives of the home health care industry, and MedPAC. The comments were almost uniformly opposed to the proposal. As we discuss in more detail below, we are not proceeding with finalizing this proposal.
We also do not find persuasive the comments arguing that because physicians typically order home health care rather than hospitals, decisions regarding the commencement of the provision of home health care are made outside of the hospital's control. We note that, even under the current 3-day policy, physicians, not hospitals, typically discharge patients from the acute care hospital setting and that the postacute care transfer policy applies when a “qualified” discharge occurs prior to the geometric mean length of stay and the hospital receives a reduced payment even under the current policy. Furthermore, because the physician who orders both the early discharge and the initiation of home health care for the patient is typically employed, contracted, or at least, has privileges at the affected hospital, we believe that the hospital has a relationship with the physician and should have knowledge of the physician's practices. Therefore, we disagree with the contention that the hospital is being inappropriately penalized for actions outside its control. Similarly, in response to the comment related to reducing physician payments, we note that section 1886(d)(5)(J)(ii)(III) of the Act requires that the postacute care transfer policy apply to acute care hospital payments under the IPPS, and not to physicians under the Medicare PFS. Therefore, we disagree with the contention that physician payments under the Medicare PFS should be affected by this provision. We also note that it is the hospital, not the physician, that stands to gain financially from the early discharge of a patient.
We also note that the commenters who expressed the concern that home health care initiated more than 4 days after the discharge would be unrelated to the acute care stay failed to mention an important feature of the postacute care transfer policy. Specifically, it is important to recognize that CMS allows hospitals, through use of a condition code on the claim, to bypass the reduced transfer payment for home health care that is unrelated to the acute care stay. Therefore, we disagree that acute hospitals are financially penalized for appropriate transfers to home health that are unrelated to the acute care stay.
Providers made similar arguments when we adopted the 3-day window in FY 1999, which we responded to at that time. We refer readers to the FY 1999 IPPS final rule (63 FR 40979 through 40980) for a complete discussion. We have not become aware of any widespread pattern of providers being unaware of the postacute care received by recently discharged patients, although, as we mentioned in the FY 1999 IPPS final rule (63 FR 40980), there may be occasional instances in which the hospital is unaware that a physician has ordered home health services for a recently discharged patient. Therefore, we are not persuaded by these comments.
In response to the comment related to recent changes in the home health PPS, we again note that the postacute care transfer policy applies to acute IPPS hospital payments, not to home health PPS payments. Based on information provided by the commenter (which did not point out any specific changes in the home health PPS that could potentially have an effect on the postacute care transfer policy), it is unclear exactly how changes to home health payments might have an effect on payments made under the postacute care transfer policy provision. Additionally, the commenter did not provide specific information on how the CARE Tool demonstration is related to postacute care transfer payments to acute care hospitals, and we see no evidence that one should effect the other.
After consideration of the public comments received, we are not adopting as final our proposed change to the regulations at § 412.4(c)(3) relating to the proposed 7-day window for postacute care transfers to home health care services. As we indicated above, we will continue to monitor the existing policy and may address the issue in a subsequent rulemaking.
For FY 2009, we did not propose to make any changes to the criteria by which an MS–DRG would qualify for inclusion in the postacute care transfer policy. However, because we proposed to revise some existing MS–DRGs and to add one new MS–DRG (discussed under section II.G. of this preamble), we proposed to evaluate those MS–DRGs under our existing postacute care transfer criteria in order to determine whether any of the revised or new MS–DRGs will meet the postacute care transfer criteria for FY 2009. Therefore, we indicated that, for 2009, we were evaluating MS–DRGs 001, 002, 215, 245, 901 through 909, 913 through 923, 955 through 959, and 963 through 965. We noted that any revisions made would not constitute a change to the application of the postacute care transfer policy. We included a list indicating which MS–DRGs would be subject to the postacute care transfer policy for FY 2009 in Table 5 in the Addendum to the proposed rule.
We did not receive any public comments on this issue. We completed our evaluation of the MS–DRGs listed above against the criteria for postacture care transfer payments. Table 5 of this final rule contains a complete list of MS–DRGs that are subject to the postacute care transfer policy for FY 2009.
CMS is transforming the Medicare program from a passive payer to an active purchaser of higher quality, more efficient health care. Such changes will contribute to the sustainability of the Medicare program, encourage the delivery of high quality care while avoiding unnecessary costs, and help ensure high value for beneficiaries. To support this transformation, CMS has worked with stakeholders to develop and implement quality measures, make provider and plan performance public, link payment incentives to reporting on measures, and ultimately is working to link payment to actual performance on these measures. Commonly referred to as value-based purchasing, this policy aligns payment incentives with the quality of care as well as the resources used to deliver care to encourage the delivery of high-value health care.
The success of this transformation is supported by and dependent upon an increasing number of widely-agreed upon quality measures. The Medicare program has defined measures of quality in almost every setting and measures some aspect of care for almost all Medicare beneficiaries. These measures include clinical processes, patient perception of their care experience, and, increasingly, outcomes.
The Medicare program has established mechanisms for collecting information on these measures, such as QualityNet, an Internet-based process that hospitals use to report all-payer information. Initial voluntary efforts were supplemented beginning in FY 2005 by a provision in the Medicare Prescription Drug Improvement and Modernization Act (MMA), which provided the full annual payment update only to “subsection (d) hospitals” (that is, hospitals paid under the IPPS) that successfully reported on a set of widely-agreed upon quality measures. Since FY 2007, as required by subsequent legislation (the Deficit Reduction Act (DRA)) the number of quality measures and the amount of the financial incentive have increased.
As a result, the great majority of hospitals now report on quality measures for heart failure, acute myocardial infarction, pneumonia, and surgical care improvement and received the full annual update for FY 2008. The number of measures has continued to grow and the types of measures have grown as well, with the addition of outcomes measures, such as heart attack and heart failure mortality measures, and the HCAHPS measures of patient satisfaction. In section IV.B.2. of the preamble to the FY 2009 IPPS proposed rule, we sought public comments on proposed additional quality measures (73 FR 23646). Reporting on these measures provides hospitals a greater awareness of the quality of care they provide and provides actionable information for consumers to make more informed decisions about their health care providers and treatments.
Moving beyond pay for reporting to paying for performance, CMS has designed a Hospital Value-Based Purchasing (VBP) Plan that would link hospital payments to their actual performance on quality measures. In accordance with the DRA, the Plan was submitted to Congress in November
The ongoing CMS Premier Hospital Quality Incentive Demonstration project is another effort linking payments to quality performance. Launched in 2003, the Premier Hospital Quality Incentive Demonstration project promotes measurable improvements in the quality of care, examining whether economic incentives to hospitals are effective at improving the quality of care. Early evidence from the project indicates that linking payments to quality performance is effective. This demonstration project is ongoing with a scheduled end date of September 2009.
As required by section 5001(c) the DRA, CMS also has implemented a program intended to encourage the prevention of certain avoidable or preventable hospital-acquired conditions (HACs), including infections that may occur during a hospital stay. Beginning October 1, 2007, CMS required hospitals to begin reporting information on Medicare claims specifying whether certain diagnoses were present on admission (POA). Beginning October 1, 2008, CMS will no longer pay hospitals for a DRG using the higher-paying CC or MCC associated with one or more of these conditions (if no other condition meeting the higher paying CC or MCC criteria is present) unless the condition was POA (that is, not acquired during the hospital stay). Linking a payment incentive to hospitals' prevention of avoidable or preventable HACs will encourage high quality care and the prevention of these HACs. Combating these HACs can reduce morbidity and mortality as well as reduce unnecessary costs. In the FY 2008 IPPS final rule with comment period (72 FR 47217), CMS identified eight HACs. In section II.F. of the preamble to the FY 2009 IPPS proposed rule, CMS sought comment on additional proposed conditions (73 FR 23547).
CMS is committed to enhancing these value-based purchasing programs, in close collaboration with stakeholders, through the development and use of new measures for quality reporting, expanded public reporting, greater and more widespread incentives in the payment system for reporting on quality measures, and ultimately performance on those measures. These initiatives hold the potential to transform the delivery of health care by rewarding quality of care and delivering higher value to Medicare beneficiaries.
A critical element of value-based purchasing is well-accepted measures. Hospitals can then measure their performance relative to other hospitals. Further, this information can be posted on the Internet for consumers to use to make more informed choices about their care. In this section IV.B. of this preamble, we describe past and current efforts to make this information available and proposals to expand these efforts and make even more useful hospital quality information available to the public.
In December 2002, the Secretary announced a partnership with several collaborators intended to promote hospital quality improvement and public reporting of hospital quality information. These collaborators included the American Hospital Association (AHA), the Federation of American Hospitals (FAH), the Association of American Medical Colleges (AAMC), the Joint Commission on Accreditation of Healthcare Organizations (now called The Joint Commission), the National Quality Forum (NQF), the American Medical Association (AMA), the Consumer-Purchaser Disclosure Project, the American Association of Retired Persons (AARP), the American Federation of Labor-Congress of Industrial Organizations (AFL–CIO), the Agency for Healthcare Research and Quality (AHRQ), as well as CMS and others. In July 2003, CMS began the National Voluntary Hospital Reporting Initiative. This initiative is now known as the Hospital Quality Alliance: Improving Care through Information (HQA).
We established the following “starter set” of 10 quality measures for voluntary reporting as of November 1, 2003:
• Was aspirin given to the patient upon arrival to the hospital?
• Was aspirin prescribed when the patient was discharged?
• Was a beta blocker given to the patient upon arrival to the hospital?
• Was a beta blocker prescribed when the patient was discharged?
• Was an Angiotensin Converting Enzyme (ACE) Inhibitor given for the patient with heart failure?
• Did the patient get an assessment of his or her heart function?
• Was an ACE Inhibitor given to the patient?
• Was an antibiotic given to the patient in a timely way?
• Had the patient received a pneumococcal vaccination?
• Was the patient's oxygen level assessed?
This starter set of 10 quality measures was endorsed by the NQF. The NQF is a voluntary consensus standard-setting organization established to standardize health care quality measurement and reporting through its consensus development process. In addition, this starter set is a subset of measures currently collected for The Joint Commission as part of its hospital inpatient certification program.
We chose these 10 quality measures in order to collect data that would: (1) Provide useful and valid information about hospital quality to the public; (2) provide hospitals with a sense of predictability about public reporting expectations; (3) begin to standardize data and data collection mechanisms; and (4) foster hospital quality improvement.
Hospitals submit quality data through the secure portion of the QualityNet Web site (formerly known as QualityNet Exchange) (
Section 1886(b)(3)(B)(vii) of the Act, as added by section 501(b) of Public Law 108–173, revised the mechanism used to update the standardized amount of payment for inpatient hospital operating costs. Specifically, the statute provided for a reduction of 0.4 percentage points to the update percentage increase (also known as the market basket update) for each of FYs 2005 through 2007 for any subsection (d) hospital that does not submit data on a set of 10 quality indicators established
We initially implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005 IPPS final rule (69 FR 49078). In addition, we established the RHQDAPU program and added 42 CFR 412.64(d)(2) to our regulations. We adopted additional requirements under the RHQDAPU program in the FY 2006 IPPS final rule (70 FR 47420).
Section 5001(a) of the Deficit Reduction Act of 2005, Public Law 109–171 (DRA), further amended section 1886(b)(3)(B) of the Act to revise the mechanism used to update the standardized amount for payment for hospital inpatient operating costs. Specifically, sections 1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment update for FY 2007 and each subsequent fiscal year be reduced by 2.0 percentage points for any subsection (d) hospital that does not submit certain quality data in a form and manner, and at a time, specified by the Secretary. Section 1886(b)(3)(B)(viii)(III) of the Act requires that the Secretary expand the “starter set” of 10 quality measures that were established by the Secretary as of November 1, 2003, as the Secretary determines to be appropriate for the measurement of the quality of care furnished by a hospital in inpatient settings. In expanding this set of measures, section 1886(b)(3)(B)(viii)(IV) of the Act requires that, effective for payments beginning with FY 2007, the Secretary begin to adopt the baseline set of performance measures as set forth in a December 2005 report issued by the Institute of Medicine (IOM) of the National Academy of Sciences under section 238(b) of the MMA.
The IOM measures include: 21 HQA quality measures (including the “starter set” of 10 quality measures); the HCAHPS patient experience of care survey; and 3 structural measures. The structural measures are: (1) Implementation of computerized provider order entry for prescriptions; (2) staffing of intensive care units with intensivists; and (3) evidence-based hospital referrals. These structural measures constitute the Leapfrog Group's original “three leaps,” and are part of the NQF's 30 Safe Practices for Better Healthcare.
Sections 1886(b)(3)(B)(viii)(V) and (VI) of the Act require that, effective for payments beginning with FY 2008, the Secretary add other quality measures that reflect consensus among affected parties, and to the extent feasible and practicable, have been set forth by one or more national consensus building entities, and provide the Secretary with the discretion to replace any quality measures or indicators in appropriate cases, such as where all hospitals are effectively in compliance with a measure, or the measures or indicators have been subsequently shown to not represent the best clinical practice. Thus, the Secretary is granted broad discretion to replace measures that are no longer appropriate for the RHQDAPU program.
Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the Secretary establish procedures for making quality data available to the public after ensuring that a hospital would have the opportunity to review its data before these data are made public. In addition, this section requires that the Secretary report quality measures of process, structure, outcome, patients' perspective of care, efficiency, and costs of care that relate to services furnished in inpatient settings on the CMS Web site.
Section 1886(b)(3)(B)(viii)(I) of the Act also provides that any reduction in a hospital's payment update will apply only with respect to the fiscal year involved, and will not be taken into account for computing the applicable percentage increase for a subsequent fiscal year.
In the FY 2007 IPPS final rule (71 FR 48045), we amended our regulations at 42 CFR 412.64(d)(2) to reflect the 2.0 percentage point reduction in the payment update for FY 2007 and subsequent fiscal years for subsection (d) hospitals that do not comply with requirements for reporting quality data, as provided for under section 1886(b)(3)(B)(viii) of the Act. In the FY 2007 IPPS final rule, we also added 11 additional quality measures to the 10-measure starter set to establish an expanded set of 21 quality measures (71 FR 48033 through 48037).
Commenters on the FY 2007 IPPS proposed rule requested that we notify the public as far in advance as possible of any proposed expansions of the measure set and program procedures in order to encourage broad collaboration and to give hospitals time to prepare for any anticipated change. Taking these concerns into account, in the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted six additional quality measures for the FY 2008 IPPS update, for a total of 27 measures. The measure set that we adopted for the FY 2008 payment determination was as follows:
For FY 2008, hospitals were required to submit data on 25 of the 27 measures. No data submission was required for the two mortality outcome measures (30-Day Risk Standardized Mortality Rates for Heart Failure and AMI), because they were calculated using existing administrative Medicare claims data. The measures used for the payment determination included, for the first time, the HCAHPS patient experience of care survey as well as two outcome measures. These measures expanded the types of measures available for public reporting as required under section 1886(b)(3)(B)(viii)(VII) of the Act. In addition, the outcome measures, which are claims-based measures, did not increase the data submission requirements for hospitals, thereby reducing the burden associated with collection of data for quality reporting.
In the FY 2008 IPPS proposed rule (72 FR 24805), we proposed to add 1 outcome measure and 4 process measures to the existing 27-measure set to establish a new set of 32 quality measures to be used under the RHQDAPU program for the FY 2009 IPPS annual payment determination. We proposed to add the following five measures for the FY 2009 IPPS annual payment determination:
We stated that we planned to formally adopt these measures a year in advance in order to provide time for hospitals to prepare for changes related to the RHQDAPU program. We also stated that we anticipated that the proposed measures would be endorsed by the NQF. Finally, we stated that any proposed measure that was not endorsed by the NQF by the time that we published the FY 2008 IPPS final rule with comment period would not be finalized in that final rule.
At the time we published the FY 2008 IPPS final rule with comment period, only the PN 30-day mortality measure had been endorsed by the NQF. Therefore, we finalized only that measure as part of the FY 2009 IPPS measure set and stated that we would further address adding additional measures in the CY 2008 OPPS/ASC final rule and, if necessary, in the FY 2009 IPPS proposed and final rules. We also responded to comments we had received on the five proposed measures (72 FR 47348 through 47351).
In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66875), we noted that the NQF had endorsed the following additional process measures that we had proposed to include in the FY 2009 RHQDAPU program measure set:
As we stated in the FY 2008 IPPS proposed rule (72 FR 24805), these measures reflect our continuing commitment to quality improvement in both clinical care and quality. These quality measures reflect consensus among affected parties as demonstrated by endorsement by a national consensus building entity. The addition of these two measures for the FY 2009 measure set bring the total number of measures in that measure set to 30 (72 FR 66876).
The measure set to be used for FY 2009 annual payment determination is as follows:
We also stated in the FY 2008 IPPS final rule with comment period and the CY 2008 OPPS/ASC final rule with comment period that the RHQDAPU program participation requirements for the FY 2009 program would apply to additional measures we adopt for the FY 2009 program (72 FR 47361; 72 FR 66877).
Therefore, hospitals are required to start submitting data for SCIP Infection 4 and SCIP Infection 6 starting with first quarter calendar year 2008 discharges and subsequent quarters until further notice. Hospitals must submit their aggregate population and sample size counts for Medicare and non-Medicare patients. These requirements are consistent with the requirements for the other AMI, HF, PN, and SCIP process measures included in the FY 2009 measure set. The complete list of procedures for participating in the RHQDAPU program for FY 2009 are provided in the FY 2008 IPPS final rule with comment period (72 FR 47359 through 47361).
Because SCIP Cardiovascular 2 and SCIP Infection 7 had not been endorsed by a national consensus building entity by the publishing deadline for the CY 2008 OPPS/ASC final rule with comment period, we did not adopt these measures as part of the FY 2009 IPPS measure set.
In the FY 2008 IPPS proposed rule, we also solicited public comments on 18 measures included within 8 categories of measure sets that could be selected for future inclusion in the RHQDAPU program (72 FR 24805). These measures and measure sets highlight our interest in improving patient safety and outcomes of care, with a particular focus on the quality of surgical care and patient outcomes. In order to engender a broad review of potential performance measures, the list included measures that have not yet received endorsement by a national consensus review process for public reporting. The list also included measures developed by organizations other than CMS as well as measures that can be calculated using administrative data (such as claims).
We solicited public comment not only on the measures and measure sets that were listed, but also on whether there were any critical gaps or “missing” measures or measure sets. We specifically requested input concerning the following issues:
• Which of the measures or measure sets should be included in the FY 2009 RHQDAPU program or in subsequent years?
• What challenges for data collection and reporting are posed by the identified measures and measure sets?
• What improvements could be made to data collection or reporting that might offset or otherwise address those challenges?
In the FY 2008 IPPS final rule with comment period (72 FR 47351), after consideration of the public comments received, we decided not to adopt any of these measures or measure sets for FY 2009. We indicated that we will continue to consider some of these measures and measure sets for subsequent years.
In the FY 2009 IPPS proposed rule, for the FY 2010 payment determination, we proposed to require continued hospital submission of data on 26 of the 30 existing AMI, Heart Failure, Pneumonia, HCAHPS, and SCIP measures adopted for FY 2009, and to remove the chart-abstracted Pneumonia Oxygenation Assessment measure from the FY 2010 measure set (73 FR 23646). As noted above, the three outcome measures do not require hospitals to submit data.
Under section 1886(b)(3)(B)(viii)(III) of the Act, the Secretary shall expand the RHQDAPU program measures beyond the measures specified as of November 1, 2003. Under section 1886(b)(3)(B)(viii)(V) of the Act, these measures, to the extent feasible and practicable, shall include measures set forth by one or more national consensus building entities.
In the FY 2009 IPPS proposed rule (73 FR 23647), we proposed to adopt the following 72 measures for the FY 2010 payment determination:
CMS proposed to remove the Pneumonia Oxygenation Assessment measure from the RHQDAPU program measure set. We proposed to discontinue requiring hospitals to submit data on the Pneumonia Oxygenation Assessment measure, effective with discharges beginning January 1, 2009. Section 1886(b)(3)(B)(viii)(VI) of the Act provides the Secretary with the discretion to replace any quality measures or indicators in appropriate cases, such as where all hospitals are effectively in compliance with a measure. We interpret this to authorize the Secretary to remove or retire measures from the RHQDAPU program.
In the case of the Pneumonia Oxygenation Assessment measure, the vast majority of hospitals are performing near 100 percent. In addition, oxygenation assessment is routinely performed by hospitals for admitted patients without regard to the specific diagnosis. Thus, the measure is topped out so completely across virtually all hospitals as to provide no significant opportunity for improvement. We believe that the burden to hospitals to abstract and report these data outweighs the benefit in publicly reporting hospital level data with very little variation among hospitals. We do not expect that the retirement of the Pneumonia Oxygenation Assessment measure will result in the deterioration of care. However, if we determine otherwise, we may seek to reintroduce the measure.
The proposed removal of the Pneumonia Oxygenation Assessment measure represents the first instance of retiring a measure. We intend to review other existing chart-abstracted measures recognizing the significant burden to hospitals that chart abstraction requires. In this way, we seek to maximize the value of the RHQDAPU program to promote quality improvement by hospitals and to report information that the public will find beneficial in choosing inpatient hospital services. In the FY 2009 IPPS proposed rule, we invited comment on the retirement of the Pneumonia Oxygenation Assessment measure (73 FR 23647). In addition, we invited comment on other measures that may be suitable for retirement from the RHQDAPU program measure set. Finally, we invited comment on the following general
• Should CMS retire a RHQDAPU program measure when hospital performance on the measure has reached a high threshold (that is, performance on the measure has topped out) even if the measure still reflects best practice?
• Are there reasons to consider retiring a measure other than high overall performance?
• When a measure is retired on the basis of substantially complete compliance by hospitals, should data collection on the measure again be required after 1 or 2 years to assure that high compliance level remains, or should some other way of monitoring continued hospital compliance be used?
After consideration of the comments received, CMS will retire the Pneumonia Oxygenation measure. Hospitals will no longer be required to submit data on this measure beginning with January 1, 2009 discharges.
The specifications for two of the existing measures have been updated by the NQF, effective May 2007, with respect to the applicable timing interval. For the measures previously identified as:
• AMI—Primary Percutaneous Coronary Intervention (PCI) received within 120 minutes of hospital arrival, the NQF has revised its endorsement of the specifications to reflect that the timing interval has been changed to PCI within 90 minutes of arrival.
• Pneumonia—Initial antibiotic received within 4 hours of hospital arrival, the NQF has revised its endorsement of the specifications to reflect that the initial antibiotic must be received within 6 hours of arrival.
In the FY 2009 IPPS proposed rule, because the NQF is now endorsing different timing intervals with respect to these measures, we proposed to also update these measures for the purposes of the FY 2010 RHQDAPU program (73 FR 23647). The updated measures are as follows:
• AMI—Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI); and
• Pneumonia—Timing of receipt of initial antibiotic following hospital arrival.
We note that the technical specifications for these measures will not change, and hospitals will continue to submit the same data that they currently submit. However, beginning with discharges on or after January 1, 2009, CMS will calculate the measures using the updated timing intervals.
The NQF updated these two measures to reflect the most current consensus standards effective May 2007. Because this was after we issued the FY 2008 IPPS proposed rule, we could not adopt the updated measures in the FY 2008 IPPS final rule with comment period or CY 2008 OPPS/ASC final rule with comment period. Instead, we allowed hospitals to suppress the public reporting of the quality data for the two measures for hospital discharges starting with April 1, 2007 discharges. This was the case so that hospitals would not be held to out-of-date consensus standards for public reporting pending the next regulatory cycle.
We proposed using a subregulatory process to act upon updates made to existing RHQDAPU program measures by a consensus building entity such as the NQF. We stated that we believe this is necessary to be able to utilize the most up-to-date consensus standards in the RHQDAPU program, and to recognize that neither scientific advances nor consensus building entity standard updates are linked to the timing of regulatory actions. We proposed to implement updates to existing RHQDAPU program measures and provide notification through the QualityNet Web site, and additionally in the Specifications Manual where data collection and measure specifications changes are necessary (73 FR 23647). We invited comment on this proposal.
In the FY 2009 IPPS proposed rule we noted that, for the purposes of proposing the FY 2010 RHQDAPU program measure set, we believe that NQF endorsement of a measure represents a standard for consensus among affected parties as specified in section 1886(b)(3)(B)(viii)(V) of the Act (73 FR 23647–48). The NQF is an independent health care quality endorsement organization with a diverse representation of consumer, purchaser, provider, academic, clinical, and other health care stakeholder organizations.
In November 2007, the NQF endorsed SCIP Cardiovascular 2. CMS believes that this measure targets an important process of care, beta blocker administration for noncardiac surgery patients. Therefore, in the FY 2009 IPPS proposed rule, we proposed to add SCIP Cardiovascular 2 to the RHQDAPU program measures for the FY 2010 payment determination (73 FR 23648). The specifications and data collection tools are currently available through the QualityNet Web site and in the Specifications Manual for hospitals to utilize and submit data for this measure. In this final rule, we are adopting this proposal. Hospitals will be required to submit data on the SCIP Cardiovascular 2 measure for discharges occurring on or after January 1, 2009. The initial data submission deadline for this measure will be August 15, 2009.
We received no comments specific to this measure. We did receive general comments on the burden associated with chart-abstracted measures and the burden associated with adopting large numbers of measures at once. Those comments are discussed below.
In the FY 2009 IPPS proposed rule, we proposed to add four nursing sensitive measures to the RHQDAPU program measure set for the FY 2010 payment determination (73 FR 23648). The four proposed measures were:
We stated that these measures broaden the ability of the RHQDAPU program measure set to assess care generally associated with nursing staff. In addition, we stated that these measures are directed toward outcomes that are underrepresented among the RHQDAPU program measures. These measures apply to the vast majority of inpatient stays and provide a great deal of critical information about hospital quality to consumers and stakeholders. We stated that the specifications and data collection tools are scheduled to be available in the specifications manual
In the FY 2009 IPPS proposed rule, we proposed to adopt three readmission measures for the FY 2010 payment determination that will be calculated using Medicare claims data (73 FR 23648). The proposed measures were:
These readmission measures assess both quality of care and efficiency of care. They also promote coordination of care among hospitals and other providers. They compliment the existing 30-Day Risk Standardized Mortality Measures for Pneumonia, Heart Attack, and Heart Failure. These measures require no additional data collection from hospitals. The measures are risk adjusted to account for differences between hospitals in the characteristics of their patient populations.
Since the time we issued the proposed rule, the HF readmission measure has received NQF endorsement. Therefore, we are adopting the HF readmission measure as a RHQDAPU program requirement for the FY 2010 payment determination in this final rule. The AMI and PN readmission measures are still pending endorsement by the NQF. We intend to finalize the AMI and PN readmission measures for the FY 2010 payment determination in the CY 2009 OPPS/ASC final rule with comment period, contingent upon endorsement from a national consensus-based entity such as the NQF. As we stated in the FY 2009 IPPS proposed rule, this is consistent with our measure expansion during the past 2 years, when we finalized some RHQDAPU program measures in the annual OPPS/ASC final rule with comment periods. CMS will calculate the rates of the HF readmission measure using Medicare claims only. The claims data will be for dates July 1, 2007 through June 30, 2008 (3rd quarter 2007 through 2nd quarter 2008 discharges). This is the same time frame as for the other Medicare claims data based measures.
In the FY 2009 IPPS proposed rule, we also proposed to add six Venous Thromboembolism (VTE) measures for the FY 2010 payment determination (73 FR 23648). These measures comprehensively address a major cause of morbidity and mortality among hospitalized patients.
Since the time we issued the proposed rule, these VTE measures have received NQF endorsement. However, these measures would require submission of chart-abstracted data for which current submission mechanisms will not be available for use for the FY 2010 payment determination. Therefore, we are not adopting these proposed measures for the FY 2010 payment determination. We intend to propose these measures during the FY 2010 IPPS rulemaking cycle for the FY 2011 payment determination. In addition, we intend to explore whether data needed to calculate these measures could be submitted using electronic health records (EHRs).
In the FY 2009 IPPS proposed rule, we also proposed to add five stroke measures which will apply only to certain identified groups under specific ICD–9–CM codes as specified in the Specifications Manual (73 FR 23648). These measures comprehensively address an important condition not currently covered by the RHQDAPU program that is associated with significant morbidity and mortality.
These stroke measures are pending NQF endorsement. Due to the lack of endorsement from a national consensus building entity, we have decided not to adopt these measures for the FY 2010 payment determination. CMS intends to propose these measures during the FY 2010 IPPS rulemaking cycle for the FY 2011 payment determination.
In the FY 2009 IPPS proposed rule (73 FR 23649), we proposed to add the following nine AHRQ Patient Safety Indicators (PSIs) and Inpatient Quality Indicators (IQIs) that have been endorsed by the NQF:
These are claims-based outcome measures. They are important additional measures that can be calculated for hospital inpatients without the burden of additional chart abstraction. Hospitals currently collect and submit these data to CMS and other insurers for
As explained below, in this final rule we are adopting these measures, and will calculate these measures using Medicare claims only for the FY 2010 payment determination.
While the distribution of the rates may be different when calculated using Medicare claims only, we believe that these calculations will be sufficient to account for performance in our population of interest because Medicare claims make up a substantial portion of the overall inpatient claims to which these measures apply. However, we remain interested in collecting all-payer claims and may propose to collect such data in the future.
Because PSI–9 has not yet been endorsed by a consensus building entity such as the NQF, we did not propose to adopt it for the RHQDAPU program.
In the FY 2009 IPPS proposed rule, we proposed to add 15 cardiac surgery measures for the FY 2010 payment determination (73 FR 23649). Cardiac surgical procedures carry a significant risk of morbidity and mortality. We believe that the nationwide public reporting of these cardiac surgery measures would provide highly meaningful information for the public. Currently, over 85 percent of hospitals with a cardiac surgery program submit data on the proposed cardiac surgery measures listed below to the Society of Thoracic Surgeons (STS) Cardiac Surgery Clinical Data Registry. We proposed to accept these data from the STS registry beginning on July 1, 2009, on a quarterly basis for discharges on or after January 1, 2009. Hospitals that participate in the RHQDAPU program, but do not submit data on the proposed cardiac surgery measures to the STS registry for discharges on or after January 1, 2009, would need to submit such data to CMS. Although we would accept cardiac surgery data from other clinical data registries, we are unaware of any other registries that collect all of the data necessary to support calculation of the cardiac surgery measures. Hospitals and CMS would need to establish appropriate legal arrangements, to the extent such arrangements are necessary, to ensure that the transfer of these data from the STS registry to CMS complies with all applicable laws. By accepting these registry-based data, only hospitals with cardiac surgery programs that do not already collect such data to submit to the STS registry will have additional data submission burden. All of the proposed measures are currently NQF-endorsed. We proposed that hospitals begin submitting data by July 1, 2009, on a quarterly basis on the following 15 cardiac surgery measures to the STS data registry or CMS for 1st quarter calendar year 2009 discharges:
As discussed below, for the FY 2010 payment determination, we are adopting
A few commenters believed it was inappropriate for CMS to institute a data reporting requirement under the RHQDAPU program that would require hospitals to pay money to participate in a specific registry (the Society of Thoracic Surgeons (STS) Cardiac Surgery Clinical Data Registry). Other commenters were concerned that “participation in a systematic database for cardiac surgery” could be viewed as serving the financial interests of a third-party organization.
Some commenters stated that while they were not opposed to using the STS registry to submit the proposed cardiac surgery measures, hospitals currently not submitting data to this registry may have trouble meeting the upcoming submission deadline, and suggested that CMS postpone the date of discharge for reporting data on the 15 cardiac surgery measures from January 1, 2009, to July 1, 2009.
We are collecting this information directly from hospitals rather than STS because hospitals may be participating in registries other than STS. We are not finalizing the other 14 process and outcome measures that we proposed to collect from STS due to hospitals' concern about the perceived requirement to participate specifically in the STS registry, and because we have not yet established the infrastructure to collect these measures directly from hospitals. We will consider the best alternative for data collection for the other STS measures and whether the data should be received from the STS registry as proposed in the proposed rule or submitted directly to CMS. We intend to propose the other 14 cardiac surgery measures during the FY 2010 IPPS rulemaking cycle for the FY 2011 payment determination.
In this final rule, one of the 30 current measures is being retired and 13 new measures are being added into the RHQDAPU program for the FY 2010 payment determination. The 13 new measures are being added into the RHQDAPU program in this final rule are:
The following table lists the 42 RHQDAPU program quality measures that will be used for the FY 2010 payment determination
In this final rule, we are increasing the RHQDAPU program measures from 30 measures for FY 2009 to a total of 42 measures for the FY 2010 payment determination. The following table lists the increase in the RHQDAPU program measure set since the program's inception:
In the FY 2009 IPPS proposed rule we noted that, to the extent that the proposed measures had not already been endorsed by a consensus building entity such as the NQF, we anticipated that they would be endorsed prior to the time that we issued this final rule (73 FR 23651). We stated that we intended to finalize the FY 2010 RHQDAPU program measure set for the FY 2010 payment determination in this final rule, contingent upon the endorsement status of the proposed measures. However, we stated that, if a measure had not received NQF endorsement by the time we issued this final rule, we intended to adopt that measure for the RHQDAPU program measure set in the CY 2009 OPPS/ASC final rule with comment period if the measure received endorsement prior to the time we issued the CY 2009 OPPS/ASC final rule with comment period. We requested public comment on these measures. Set out below are the measures which have not yet received NQF endorsement, and that we intend to adopt for the FY 2010 RHQDAPU program measure set in the CY 2009 OPPS/ASC final rule with comment period if the measures receive endorsement from a national consensus-based entity such as NQF:
In the FY 2009 IPPS proposed rule, we included the following table which describes possible quality measures and measure sets from which additional quality measures could be selected for inclusion in the RHQDAPU program for the FY 2011 payment determination and subsequent years (73 FR 23651). The table includes measures and measure sets that highlight CMS' interest in improving patient safety and outcomes of care, with a particular focus on the quality of surgical care and patient outcomes. In order to engender a broad review of potential performance measures, the list includes measures that have not yet been considered for approval by the HQA or endorsed by a consensus review process such as the NQF. The table also includes measures developed by organizations other than CMS as well as measures that are to be derived from administrative data (such as claims) that may need to be modified for specific use by the Medicare program if implemented under the RHQDAPU program.
We solicited public comment on the following measure sets for consideration in the FY 2011 payment determination and subsequent years:
The RHQDAPU program has significantly expanded from an initial set of 10 measures to 30 measures for the FY 2009 payment determination. Initially, the conditions covered by the RHQDAPU program measures were limited to Acute Myocardial Infarction, Heart Failure, and Pneumonia, three high-cost and high-volume conditions. In expanding the process measures, Surgical Infection Prevention was the first additional focus, now supplemented by the two SCIP Venous Thromboembolism measures, SCIP VTE–1, and SCIP VTE–2, for surgical patients. Of the 30 current measures, 27 require data collection from chart abstraction and surveying patients as well as submission of detailed data elements.
In looking forward to further expansion of the RHQDAPU program, we believe it is important to take several goals into consideration. These include: (a) Expanding the types of measures beyond process of care measures to include an increased number of outcome measures, efficiency measures, and experience-of-care measures; (b) expanding the scope of hospital services to which the measures apply; (c) considering the burden on hospitals in collecting chart-abstracted data; (d) harmonizing the measures used in the RHQDAPU program with other CMS quality programs to align incentives and promote coordinated efforts to improve quality; (e) seeking to use measures based on alternative sources of data that do not require chart abstraction or that utilize data already being broadly reported by hospitals, such as clinical data registries or all-payer claims data bases; and (f) weighing the meaningfulness and utility of the measures compared to the burden on hospitals in submitting data under the RHQDAPU program.
In the FY 2009 IPPS proposed rule, we requested comments on how to reduce the burden on the hospitals participating in the RHQDAPU program (73 FR 23653). We also requested comment about which measures would be most useful while minimizing burden. We realize that our decisions in this final rule to expand the RHQDAPU program measure set from submission of 30 measures in FY 2009 to 42 measures for the FY 2010 payment determination is potentially burdensome. However, to minimize the hospitals' burden, 11 of the 13 additional measures adopted in this final rule, as well as the 2 additional measures we intend to adopt in the CY 2009 OPPS/ASC final rule with comment period (if these measures receive NQF endorsement) for the FY 2010 payment determination use Medicare claims data. We also note that we are retiring a measure (Pneumonia Oxygenation Assessment) that requires chart abstraction.
Section 1886(b)(3)(B)(viii)(III) of the Act requires the Secretary to add other quality measures that the Secretary determines to be appropriate for the measurement of the quality of care furnished by hospitals in inpatient settings. We intend to expand outcome measures such as mortality measures and measures of complications. For the FY 2010 RHQDAPU program, the proposed measure set includes:
• Patient Experience of Care. HCAHPS collects data regarding a patient's experience of care in the hospital and provides a very meaningful perspective from the patient standpoint.
• Efficiency. Efficiency is a Quality Domain, as defined by the IOM that relates Quality and Cost. The three proposed readmission measures address hospital efficiency.
• Outcomes. The three 30-day mortality measures, the cardiac surgery measure, the AHRQ PSI/IQI measures, and the outcome-related nursing sensitive measure represent significant expansion of the RHQDAPU program outcome measures because these measures allow us to report more comprehensive information on outcomes and the results of treatment to consumers. Additional outcome measures are provided in the list under consideration for inclusion in the RHQDAPU program for FY 2011 and beyond.
Many of the most common and high-cost Medicare DRGs were posted on the
In the FY 2009 IPPS proposed rule, we proposed to add 15 additional chart-abstracted measures. In this final rule, we have retired one measure (Pneumonia Oxygenation Assessment) that required chart abstraction and added only 1 additional chart-abstracted measure (SCIP Cardiovascular 2) for the FY 2010 payment determination. While the cardiac surgery registry participation indicator requires submission of information by hospitals, it does not require chart abstraction, and does not significantly increase the burden on hospitals to submit data. We also intend to work to simplify the data abstraction specifications that add to the burden of data collection and to explore mechanisms for data submission using electronic health records.
We intend to harmonize measures across settings and other CMS programs as evidenced by the implementation of the readmission measures, not only for the RHQDAPU program, but also for the Quality Improvement Organizations' (QIOs') 9th Scope of Work (SOW) Patient Pathways/Care Transitions Theme, which also uses the 30-Day Readmission Measures and will provide assistance to engage hospitals in improving care. The 9th SOW also focuses on disparities in health care, which is another important area of interest for CMS. We plan to analyze current RHQDAPU program measures to identify particular measures needed to evaluate the existence of health care disparities, to require data elements that would support better identification of health care disparities, and to find more efficient ways to ascertain this information from claims data. In addition, some of the CY 2008 Physician Quality Reporting Initiative (PQRI) measures align with the current RHQDAPU program, for example, AMI and SCIP measures reported data starting with the FY 2007 RHQDAPU program measure set. In other words, there are financial incentives that cover the same clinical processes of care across different providers and settings. Other examples are the RHQDAPU program measure Aspirin for Heart Attack which corresponds to PQRI measure number 28, and the RHQDAPU program measure Surgical Infection Antibiotic Timing which corresponds to PQRI measure number 20. Outpatient quality measures under the Hospital Outpatient Data Quality Data Reporting Program (HOP QDRP) are also aligned with the RHQDAPU program measures. For example, the HOP QDRP addresses Acute Myocardial Infarction treatment for transferred patients and surgical infection prevention for outpatient surgery.
We are actively pursuing alternative data sources, including data sources that are electronically maintained. Alternative data submission methodologies that we proposed in the FY 2009 IPPS proposed rule include:
• Use of registry-collected clinical data for which there is broad existing hospital participation as previously described with the STS registry.
• Use of data collected by State data organizations, State hospital associations, Federal entities such as AHRQ, and/or other data warehouses.
In addition, we are considering adopting the following methods of data collection in the future and requested comments on these methods:
• Use of the CMS Continuity Assessment Record & Evaluation (CARE) tool, a standardized data collection instrument, which would allow data to be transmitted in “real time.” This recently developed, Internet-based, quality data collection tool was developed as a part of the Post Acute Care Reform Demonstration Program mandated by section 5008 of the DRA. The CARE tool consists of a core set of assessment items, common to all patients and all care settings (meeting criteria of being predictive of cost, utilization, outcomes, among others), organized under five major domains: Medical, Functional, Social, Environmental, and Cognitive—Continuity of Care. The Internet-based CARE tool will communicate critical information across settings accurately, quickly, and efficiently with reduced time burden to providers and is intended to enhance beneficiaries' safe transitions between settings to prevent avoidable, costly events such as unnecessary rehospitalizations or medication errors. We believe that the CARE tool may provide a vehicle for collection of data elements to be used for calculating RHQDAPU program quality measures. CMS is considering utilizing the CARE tool in this manner. The Care tool is available at:
In the FY 2009 IPPS proposed rule, we indicated that we were particularly interested in receiving public comment on this tool (73 FR 23654). Our goal is to have a standardized, efficient, effective, interoperable, common assessment tool to capture key patient characteristics that will help CMS capture information related to resource utilization; expected costs as well as clinical outcomes; and post-discharge disposition. The CARE tool will also be useful for guiding payment and quality policies. Specifically, we indicated that we were interested in receiving public comments on how CARE might advance the use of health information technology in automating the process for collecting and submitting quality data.
• Submission of data derived from electronic versions of laboratory test reports that are issued by the laboratory in accordance with CLIA to the ordering provider and maintained by the hospital as part of the patient's medical record during and after the patient's course of treatment at the hospital. We are considering using these data to support risk adjustment for claims-based outcome measures (for example, mortality measures) and to develop other outcomes measures. This would support use of electronically maintained data and our goal of reducing manual data collection burden on hospitals.
• Submission of data currently being collected by clinical data registries in addition to the STS registry. This would support and leverage existing clinical data registries and existing voluntary clinical data collection efforts, such as:
In the FY 2009 IPPS proposed rule, we proposed to retire one measure from the RHQDAPU program for the FY 2010 payment determination because we have determined that the burden on hospitals in abstracting the data outweighs the meaningful benefit that we can ascertain from the measure (73 FR 23655). In this final rule, we are adopting the proposal to retire one measure. As we explained in the FY 2009 IPPS proposed rule, we sought comments on the applicability to the RHQDAPU program of criteria currently described in the Hospital VBP Issues Paper for inclusion and retirement of measures. The Hospital VBP Issues Paper is located on the CMS Web site at the following location:
In the FY 2007 IPPS final rule (71 FR 48031 through 48045), we set out RHQDAPU program procedures for data submission, program withdrawal, data validation, attestation, public display of hospitals' quality data, and reconsiderations. Section 1886(b)(3)(B)(viii)(I) of the Act requires that subsection (d) hospitals submit data on measures selected under that clause with respect to the applicable fiscal year. In addition, section 1886(b)(3)(B)(viii)(II) of the Act requires that each subsection (d) hospital submit data on measures selected under that clause to the Secretary in a form and manner, and at a time, specified by the Secretary. The technical specifications for each RHQDAPU program measure are listed in the Specifications Manual. We update this Manual semiannually, or more frequently in unusual cases, and include detailed instructions and calculation algorithms for hospitals to collect and submit the data for the required measures.
The maintenance of the specifications for the measures selected by the Secretary occurs through publication of the Specifications Manual. Thus, measure selection by the Secretary occurs through the rulemaking process; whereas the maintenance of the technical specifications for the selected measures occurs through a subregulatory process so as to best maintain the specifications consistent with current science and consensus. The data submission, Specifications Manual, and submission deadlines are posted on the QualityNet Web site at
In the FY 2008 IPPS final rule with comment period, we stated that the requirements for FY 2008 would continue to apply for FY 2009 (72 FR 47361). The “Reporting Hospital Quality Data for Annual Payment Update Reference Checklist” section of the QualityNet Web site contains all of the forms to be completed by hospitals participating in the RHQDAPU program.
Under these requirements hospitals must—
• Register with QualityNet, before participating hospitals initially begin reporting data, regardless of the method used for submitting data.
• Submit complete data regarding the quality measures in accordance with the joint CMS/Joint Commission sampling requirements located on the QualityNet Web site for each quality measure that requires hospitals to collect and report data. These requirements specify that hospitals must submit a random sample or complete population of cases for each of the topics covered by the quality measures. Hospitals must meet the sampling requirements for these quality measures for discharges in each quarter.
• Submit to CMS on a quarterly basis aggregate population and sample size counts for Medicare and non-Medicare discharges for the four topic areas (AMI, HF, PN, and SCIP).
• Continuously collect and submit HCAHPS data in accordance with the HCAHPS
For the AMI 30-day, HF 30-day, and PN 30-day mortality measures, CMS uses Part A and Part B claims for Medicare fee-for-service patients to calculate the mortality measures. For FY 2009, hospital inpatient claims (Part A) from July 1, 2006 to June 30, 2007, will be used to identify the relevant patients and the index hospitalizations. Inpatient claims for the index hospitalizations and Part A and Part B claims for all inpatient, outpatient, and physician services received one year prior to the index hospitalizations are used to determine patient comorbidity, which is used in the risk adjustment calculation. (For more information, we refer readers to the Web site:
In the FY 2009 IPPS proposed rule (73 FR 23656), we proposed to continue
• Notice of Participation. New subsection (d) hospitals and existing hospitals that wish to participate in the RHQDAPU program for the first time must complete a revised “Reporting Hospital Quality Data for Annual Payment Update Notice of Participation” that includes the name and address of each hospital campus that shares the same CCN.
• Data Submission. In order to reduce the burden on hospitals that treat a low number of patients who are covered by the submission requirements, we proposed the following:
In the FY 2009 IPPS proposed rule, we proposed the following quarterly deadlines for hospitals to submit the FY 2010 AMI, HF, SCIP, PN, Stroke, VTE, and nursing sensitive measure data:
• The data submission deadline for hospitals to submit the patient level measure data for 1st calendar quarter of 2009 discharges would be August 15, 2009. Data must be submitted for each of these measures 4.5 months after the end of the preceding quarter. The specific deadlines will be listed on the QualityNet Web site.
• Even though data on applicable measures will not be due until 4.5 months after the end of the preceding quarter, hospitals must submit their aggregate population and sample size counts no later than 4 months after the end of the preceding quarter (the exact dates will be posted on the QualityNet Web site). This deadline falls approximately 15 days before the data submission deadline for the clinical process measures, and we proposed it so that we can inform hospitals about their data submission status for the quarter before the 4.5 month clinical process measure deadline. We have found from past experience that hospitals need sufficient time to submit additional data when their counts differ from Medicare claims counts generated by CMS. We will provide hospitals with these Medicare claims counts and submitted patient level data counts on the QualityNet Web site approximately 2 weeks before the quarterly submission deadline. We plan to use the aggregate population and sample size data to assess submission completeness and
As discussed above in our responses to previous commenters, we decided not to adopt all of our proposed measures. Therefore, these requirements will only apply with respect to the SCIP, HF, AMI, and PN chart-abstracted measures that we are adopting in this final rule.
We will consider allowing future resubmissions of data after the submission deadline has elapsed for public reporting purposes only. This resubmission would not adversely impact our CDAC validation processing, but would allow hospitals to correct errors that would impact their publicly reported RHQDAPU program measures.
After careful consideration of the public comments received, we are adopting as final the aggregate population and sample size submission requirements we proposed. We are establishing submission deadlines as set out below. We believe that these requirements greatly improve our ability to ensure the accuracy and completeness of hospital reported quality data for the RHQDAPU program.
• Data must be submitted for these measures on the QualityNet Web site.
• The window for submission for the participation in a cardiac surgery registry measure will be between July 1, 2009 (when the ability to receive the data submission by CMS will be available) and August 15, 2009. Data must be submitted for this measure on the QualityNet Web site.
• The data submission deadline for hospitals to submit patient level data for the 26 SCIP, AMI, HF, PN measures for 1st calendar quarter of 2009 discharges will be August 15, 2009.
• The data submission deadline for hospitals to submit aggregate population and sample size count data for SCIP, AMI, HF, PN for 1st calendar quarter of 2009 discharges will be August 1, 2009.
The following RHQDAPU program measures will be calculated using Medicare claims with no additional data submitted by hospitals:
Consistent with the practice that we adopted for the FY 2009 payment determination for measures calculated using existing Medicare claims data only, we will calculate these measures for FY 2010 by using existing claims data for hospitalizations from July 1, 2007, through June 30, 2008 (3rd quarter 2007 through 2nd quarter 2008 discharges).
For FY 2009, hospitals must continuously collect and submit HCAHPS data to the QIO Clinical Warehouse by the data submission deadlines posted on the Web site at:
Every hospital choosing to contract with a survey vendor should provide the sample frame of hospital-eligible discharges to its survey vendor with sufficient time to allow the survey vendor to begin contacting each sampled patient within 6 weeks of discharge from the hospital (we refer readers to the
In the FY 2008 IPPS final rule with comment period (72 FR 47362), we stated that hospitals and survey vendors must participate in a quality oversight process conducted by the HCAHPS project team. Starting in July 2007, we began asking hospitals/survey vendors to correct any problems that were found and provide follow-up documentation of corrections for review within a defined time period. If the HCAHPS project team finds that the hospital has not made these corrections, CMS may determine that the hospital is not submitting HCAHPS data that meet the requirements for the RHQDAPU program. As part of these activities, HCAHPS project staff reviews and discusses with survey vendors and hospitals self-administering the survey their specific Quality Assurance Plans, survey management procedures, sampling and data collection protocols, and data preparation and submission procedures.
In the FY 2009 IPPS proposed rule, for FY 2010, we proposed continuous collection of HCAHPS in accordance with the
With respect to HCAHPS oversight, we proposed that the HCAHPS Project Team would continue to conduct site visits and/or conference calls with hospitals/survey vendors to ensure the hospitals' compliance with the HCAHPS requirements. During the onsite visit or conference call, the HCAHPS Project Team will review the hospital's/survey vendor's survey systems and will assess protocols based upon the most recent
If reasonable attempts (which normally include a review of survey vendor's Quality Assurance Plan, an on-site visit, correspondence and conference calls, and review of the vendor's plan to correct any issues identified) to bring the survey vendor into compliance are not successful, then we will within seven calendar days of determining that the problem could impact whether the hospital meets the RHQDAPU requirements, notify all affected client hospitals so that they can engage an alternative survey vendor if they so choose.
If we determine that a hospital's non-compliance with HCAHPS requirements is the fault of the hospital rather than its survey vendor, we will notify the hospital within seven calendar days and consult with it on how to achieve and maintain compliance. If the hospital fails to achieve compliance, it may be at risk of not meeting RHQDAPU program requirements.
We conducted a large-scale, randomized Mode Experiment in order to develop adjustments for the effects of survey mode on responses to HCAHPS. The HCAHPS Mode Experiment was based on a nationwide random sample of short-term acute care hospitals. Hospitals from each of our ten geographic regions participated in the Mode Experiment. A hospital's probability of being selected for the sample was proportional to its volume of discharges, which guaranteed that each patient would have an equal probability of being sampled for the experiment. The participating hospitals contributed patient discharges from a four-month period: February, March, April, and May 2006. Within each hospital, an equal number of patients were randomly assigned to each of the four modes of survey administration. A randomized mode experiment of 27,229 discharges from 45 hospitals was used to develop adjustments for the effects of survey mode (Mail Only, Telephone Only, Mixed mode, or Active Interactive Voice Response) on responses to the HCAHPS survey.
In general, patients randomized to the Telephone Only and Active Interactive Voice Response modes provided more positive evaluations than patients randomized to Mail Only and Mixed (Mail with Telephone follow-up) modes. Established research on surveys demonstrates that patients responding to a survey conducted over the telephone, as opposed to a mail survey, tend to provide more favorable responses. This is commonly known as “social desirability bias.” If the modes in which the HCAHPS survey was conducted (there are four available options) were not taken into account through the mode adjustment, then hospitals choosing to use the telephone methodology would receive artificially high HCAHPS results, which would undermine the comparability of HCAHPS results across hospitals. The mode and patient-mix adjustments are applied to ensure that fair comparisons of HCAHPS results can be made across hospitals, irrespective of the survey methodology that hospitals employ or the mix of patients that hospitals serve. Detailed information on mode and patient-mix adjustments may be found in “Mode and Patient-mix Adjustment of the CAHPS® Hospital Survey (HCAHPS),” located at
Because different hospitals serve different mixes of patients, we adjust for the influence of these patient-level characteristics on HCAHPS results. Doing so allows fair comparisons of HCAHPS results to be made across hospitals. The particular characteristics included in patient-mix adjustment were identified by AHRQ in previous Consumer Assessment of Healthcare Providers and Systems (CAHPS) surveys, then tested in the HCAHPS Three-State Pilot Study, and re-examined in the HCAHPS Mode Experiment, described above. One characteristic included in the patient-mix adjustment is patient's level of education. This is considered to be the best and most stable single indicator of SES for adults of all ages. More details of this and other patient-mix adjustments may be found in “
With respect to the effect of psychiatric comorbidities on HCAHPS scores, the patient-level data record of the administrative section of the HCAHPS survey requires that the hospital report only the principal service line (medical, surgical or maternity care) in which the patient was admitted. Requiring hospitals to collect information on co-morbidities would constitute an additional burden on them. In addition, because the HCAHPS survey is not deemed suitable for patients admitted primarily for psychiatric care, such patients are ineligible for the survey; psychiatric hospitals are excluded as well. More details about patient eligibility for HCAHPS may be found in
If, in the future, we reassess the content of the HCAHPS survey, notice will be taken of requests to add or alter survey items. A self-rated mental health status item, perhaps something similar to the current self-rated health status item, might be considered at that time. However, we do not plan to alter the HCAHPS survey for several years in order to allow hospitals and survey vendors to become accustomed to its content and methodology.
After careful consideration of the public comments received, we are finalizing the proposed HCAHPS measure requirements in their entirety.
In the FY 2008 IPPS final rule with comment period (72 FR 47361), we stated that, until further notice, we would continue to require that hospitals meet the chart validation requirements that we implemented in the FY 2006 IPPS final rule (70 FR 47421 and 47422). These requirements, as well as additional information on validation requirements, continue and are being placed on the QualityNet Web site.
We also stated in the FY 2008 IPPS final rule with comment period that, until further notice, hospitals must pass our validation requirement that requires a minimum of 80-percent reliability, based upon our chart-audit validation process (72 FR 47361).
In the FY 2008 IPPS final rule with comment period (72 FR 47362), we indicated that, for the FY 2009 update, all FY 2008 validation requirements would apply, except for the following modifications. We would modify the validation requirement to pool the quarterly validation estimates for 4th quarter CY 2006 through 3rd quarter 2007 discharges. We would also expand the list of validated measures in the FY 2009 update to add SCIP Infection-2, SCIP VTE–1, and SCIP VTE–2 (starting with 4th quarter CY 2006 discharges). We would also drop the current two-step process to determine if the hospital is submitting validated data. For the FY 2009 update, we stated that we will pool validation estimates covering the four quarters (4th quarter CY 2006 discharges through 3rd quarter 2007 discharges) in a similar manner to the current 3rd quarter pooled confidence interval.
In summary, the following chart validation requirements apply for the FY 2009 RHQDAPU program:
• The 21-measure expanded set will be validated using 4th quarter CY 2006 (4Q06) through 3rd quarter CY 2007 (3Q07) discharges.
• SCIP VTE–1, VTE–2, and SCIP Infection 2 will be validated using 2nd quarter CY 2007 and 3rd quarter CY 2007 discharges.
• SCIP Infection 4 and SCIP Infection 6 must be submitted starting with 1st quarter CY 2008 discharges but will not be validated.
• HCAHPS data must continuously be submitted and will be reviewed as discussed above.
• AMI, HF, and PN 30-day mortality measures will be calculated as discussed below.
In the FY 2008 IPPS final rule with comment period (72 FR 47364), we stated that, for the FY 2008 update and in subsequent years, we would revise and post up-to-date confidence interval information on the QualityNet Web site explaining the application of the confidence interval to the overall validation results. The data are being validated at several levels. There are consistency and internal edit checks to ensure the integrity of the submitted data; there are external edit checks to verify expectations about the volume of the data received.
In the FY 2009 IPPS proposed rule (73 FR 23658), for FY 2010, we proposed the following chart validation requirements:
• The following 21 measures from the FY 2009 RHQDAPU program measure set would be validated using data from 4th quarter 2007 through 3rd quarter 2008 discharges.
• SCIP Infection 4 and Infection 6 would be validated using data from 2nd and 3rd quarter CY 2008 discharges.
In addition, we proposed to include the following three measures in the FY 2010 RHQDAPU program validation process that are included the FY 2009 RHQDAPU program measure set but have been updated or deleted for the FY 2010 measure set:
• Pneumonia antibiotic prophylaxis timing within 4 hours would be validated using data from 4th quarter 2007 through 3rd quarter 2008 discharges.
• Percutaneous Coronary Intervention (PCI) Timing within 120 minutes would be validated using data from 4th quarter 2007 through 3rd quarter 2008 discharges.
• Pneumonia Oxygenation Assessment would be validated using data from 4th quarter through 3rd quarter 2008 discharges.
These measures would be submitted by hospitals during 2008 and early 2009, and are available to be validated by CMS in time for the FY 2010 RHQDAPU program payment eligibility determination.
As explained above, we will also revise and post up-to-date confidence interval information on the QualityNet Web site explaining the application of the confidence interval to the overall validation results.
After careful consideration of the public comments received, we are adopting as final the FY 2010 RHQDAPU program chart validation requirements we proposed.
Under the current and proposed RHQDAPU program chart validation process, we validate measures by reabstracting on a quarterly basis a random sample of five patient records for each hospital. This quarterly sample results in an annual combined sample of 20 patient records across 4 calendar quarters, but because the samples are random, they do not necessarily include patient records covering each of the clinical topics.
We anticipate that the proposed expansion of the RHQDAPU program measure set to include additional clinical topics will decrease the percentage of RHQDAPU program clinical topics, as well as the total number of measures, covered in many hospitals' annual chart validation.
However, in the FY 2009 IPPS proposed rule, we noted that we are considering whether registries and other external parties that may be collecting data on proposed RHQDAPU program measures could validate the accuracy of those measures beginning in FY 2011 (73 FR 23658). In addition, we noted that the proposed readmission measures are calculated using Medicare claims information and do not require chart validation.
In the FY 2009 IPPS proposed rule, we stated that we were interested in receiving public comments from a broad set of stakeholders on the impact of adding measures to the validation process, as well as modifications to the current validation process that could improve the reliability and validity of the methodology (73 FR 23658). We specifically requested input concerning the following:
• Which of the measures or measure sets should be included in the FY 2010 RHQDAPU program chart validation process or in the chart validation process for subsequent years?
• What validation challenges are posed by the RHQDAPU program measures and measure sets? What improvements could be made to validation or reporting that might offset or otherwise address those challenges?
• Should CMS switch from its current quarterly validation sample of five charts per hospital to randomly selecting a sample of hospitals, and selecting more charts on an annual basis to improve reliability of hospital level validation estimates?
• Should CMS select the validation sample by clinical topic to ensure that all publicly reported measures are covered by the validation sample?
For the future, we are considering alternative validation approaches that minimize the burden on hospitals while ensuring that accurate data continue to be submitted.
However, we believe that the current approach is adequate to assess overall accuracy for submitted data because our experience in validating RHQDAPU program data has demonstrated that the vast majority of hospitals have submitted accurate data.
The use of skip logic by hospitals is optional and not required under the RHQDAPU program. Hospitals should be aware the potential impact of skip logic on data quality, abstraction burden, and CMS chart audit validation scores. Hospitals utilizing skip logic should closely monitor the accuracy rate of abstracted data elements, particularly data elements placed higher in the algorithm flow.
We will consider the issues raised by these commenters if we decide to make changes to the RHQDAPU program chart validation methodology for future years. Any changes we make to this process will be through rulemaking.
In the FY 2008 IPPS final rule with comment period (72 FR 47364), we stated that we would require for FY 2008 and subsequent years that hospitals attest each quarter to the completeness and accuracy of their data, including the volume of data, submitted to the QIO Clinical Warehouse in order to improve aspects of the validation checks. We stated that we would provide additional information to explain this attestation requirement, as well as provide the relevant form to be completed on the QualityNet Web site, at the same time as the publication of the FY 2008 IPPS final rule with comment period.
In the FY 2009 IPPS proposed rule, we proposed to defer the requirement in FY 2009 for hospitals to separately attest to the accuracy and completeness of their submitted data due to the burden placed on hospitals to report paper attestation forms on a quarterly basis (73 FR 23659). We continue to expect that hospitals will submit quality data that are accurate to the best of their knowledge and ability. We received many comments in support of the proposed deferral of this requirement for FY 2009.
After careful consideration of the public comments received, we are deferring the attestation requirement for FY 2009, and will consider this information as we consider proposed attestation requirements for future years.
In the FY 2009 IPPS proposed rule, for FY 2010 and subsequent years, we solicited public comment on the electronic implementation of the attestation requirement at the point of data submission to the QIO Clinical Warehouse (73 FR 23659). Hospitals would electronically pledge to CMS that their submitted data are accurate and complete to the best of their knowledge. Hospitals would be required to designate an authorized contact to CMS for attestation in their patient-level data submission.
Resubmissions would continue to be allowed before the quarterly submission deadline, and hospitals would be required to electronically update their pledges about data accuracy at the time of resubmission. We welcomed comments on this approach.
We will also consider the option to allow hospitals to electronically submit their attestation to CMS at the point of submission. We believe that requiring hospitals to electronically attest when submitting data accomplishes the intended program goal, to ensure accurate and complete data while minimizing hospital burden.
Section 1886(b)(3)(B)(viii)(VII) of the Act provides that the Secretary shall establish procedures for making data submitted under the RHQDAPU program available to the public. The RHQDAPU program quality measures are posted on the
In the FY 2009 IPPS proposed rule, we proposed to continue to display quality information for public viewing as required by section 1886(b)(3)(B)(viii)(VII) of the Act (73 FR 23659). Before we display this information, hospitals will be permitted to review their information as recorded in the QIO Clinical Warehouse.
Currently, hospital campuses that share the same CCN must combine data collection and submission across their multiple campuses (for both clinical measures and for HCAHPS). These measures are then publicly reported as if they apply to a single hospital. We estimate that approximately 5 to 10 percent of the hospitals reported on the
In the FY 2009 IPPS proposed rule, for FY 2009, we proposed to continue the current RHQDAPU program reconsideration and appeal procedures finalized in the FY 2008 IPPS final rule with comment period (73 FR 23659). The deadline for submitting a request for reconsideration in connection with the FY 2009 payment determination is November 1, 2008. We also proposed to use the same procedural rules finalized in the FY 2008 IPPS final rule with comment period (72 FR 47365). We posted these rules on the
Under the procedural rules, in order to receive reconsideration for FY 2009, the hospital must—
• Submit to CMS, via
• The request must be signed by the hospital's CEO.
Following receipt of a request for reconsideration, CMS will—
• Provide an e-mail acknowledgement, using the contact
• Provide a formal response to the hospital CEO, using the contact information provided in the reconsideration request, notifying the facility of the outcome of the reconsideration process. CMS expects the process to take 60 to 90 days from the due date of November 1, 2008.
If a hospital is dissatisfied with the result of a RHQDAPU program reconsideration decision, the hospital may file a claim under 42 CFR Part 405, Subpart R (a Provider Reimbursement Review Board (PRRB) appeal).
After careful consideration of the public comments received, we are adopting as final the RHQDAPU program reconsideration and appeals requirements we proposed. We believe that the FY 2009 RHQDAPU program reconsideration review will require 60 to 90 days for completion, based on last year's workload. This time frame is necessary to ensure thorough and complete review of all hospitals' submitted reconsideration requests. We will communicate all determinations within 60 to 90 days following the deadline for requesting reconsideration. We will strive to provide hospitals with a clear and prompt process for reconsideration.
In the FY 2009 IPPS proposed rule, we proposed to accept RHQDAPU program withdrawal forms for FY 2009 from hospitals through August 15, 2008 (73 FR 23660). We proposed this deadline to provide CMS with sufficient time to update the FY 2009 payment to hospitals starting on October 1, 2008. If a hospital withdraws from the program for FY 2009, it will receive a 2.0 percentage point reduction in its FY 2009 annual payment update.
We also proposed to accept RHQDAPU program withdrawal forms for FY 2010 from hospitals through August 15, 2009. If a hospital withdraws from the program for FY 2010, it will receive a 2.0 percentage point reduction in its FY 2010 annual payment update.
We received no comments on this proposed requirement, and we are adopting as final the RHQDAPU program withdrawal deadlines we proposed for FY 2009 and FY 2010.
In the FY 2008 IPPS final rule with comment period (72 FR 47366), we stated that a new hospital that receives a CCN (formerly called Medicare provider number) on or after October 1 of each year (beginning with October 1, 2007) will be required to report RHQDAPU program data beginning with the first day of the quarter following the date the hospital registers to participate in the RHQDAPU program. For example, a hospital that receives its CCN on October 2, 2008, and signs up to participate in the RHQDAPU program on November 1, 2008, will be expected to meet all of the data submission requirements for discharges on or after January 1, 2009.
In addition, we strongly recommended that each new hospital participate in an HCAHPS dry run, if feasible, prior to beginning to collect HCAHPS data on an ongoing basis to meet RHQDAPU program requirements. We refer readers to the Web site at
In the FY 2006 IPPS final rule, we encouraged hospitals to take steps toward the adoption of electronic health records (EHRs) (also referred to in this preamble and in previous rulemaking documents as electronic medical records) that will allow for reporting of clinical quality data from the EHRs directly to a CMS data repository (70 FR 47420). We intend to begin working toward creating measures' specifications, and a system or mechanism, or both, that will accept the data directly without requiring the transfer of the raw data into an XML file as is currently done. The Department continues to work cooperatively with other Federal agencies through our participation in the Healthcare Information Technology Standards Panel (HITSP)—a public/private partnership—to advance the harmonization of interoperability standards for electronic health information exchange. We encouraged hospitals that are developing systems to conform them to industry standards, and in particular to Secretary
Due to the low volume of comments we received on this issue in response to the FY 2006 proposed IPPS rule, in the FY 2007 IPPS proposed (71 FR 24095), we again invited public comment on these requirements and related options. In the FY 2007 IPPS final rule (71 FR 48045), we summarized and addressed the additional comments we received. In the FY 2008 IPPS proposed rule (72 FR 24809), we noted that we would welcome additional comments on this issue.
In the FY 2008 IPPS final rule with comment period (72 FR 47366), we responded to the additional comments we received and noted that CMS plans to continue participating in the American Health Information Community (AHIC) workgroups and other entities to explore processes through which an EHR could speed the collection and minimize the resources necessary for quality reporting. (The AHIC is a Federal advisory body, chartered in 2005 to make recommendations to the Secretary on how to accelerate the development and adoption of health information technology.) In addition, we noted that we will continue to participate in appropriate HHS studies and workgroups, as mentioned by a GAO report (GAO–07–320) about hospital quality data and the use of information technology. As appropriate, CMS will inform interested parties regarding progress in the implementation of HIT for the collection and submission of hospital quality data as specific steps, including timeframes and milestones, are identified. Current mechanisms include publication in the
In the FY 2009 IPPS proposed rule, we again solicited comments on the issues and challenges associated with EHRs (73 FR 23660). Specifically, we invited comment on our proposed changes to our data submission requirements to be more aligned with currently implemented HIT systems, including data collection from registries and laboratory data.
We recognize the potential burden on hospitals of increased data reporting requirements for process measures that require chart abstraction. In FY 2007 IPPS rulemaking, we listed a variety of additional possible measures for future years. The measures included and emphasized additional outcomes measures. Additional measures were included for which the data sources are claims. For these, no additional data abstraction or submission would be required for reporting hospitals beyond the claims data. In proposing measures for FY 2010, we sought to emphasize outcome measures and to minimize any additional data collection burden. In addition, as provided in section 1886(b)(3)(B)(viii)(VI) and discussed in section IV.B.2.a. of the FY 2009 IPPS proposed rule, we proposed to retire one measure where there is no meaningful difference among hospitals as a means of reducing data collection burden.
We will actively work to further simplify our specifications in the future, and develop new measures that are less burdensome and more easily utilize electronic medical records.
In addition to the specific comments on data submission requirements discussed in section IV.B.4.b. of this preamble, we received many general comments about the RHQDAPU program data infrastructure related to current submissions and its capability to handle the proposed expanded measure set.
Through section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Congress required the development of a plan to implement value-based purchasing (VBP) for IPPS hospital services beginning FY 2009. By statute, the plan must address: (a) The ongoing development, selection, and modification process for measures of quality and efficiency in hospital inpatient settings; (b) reporting, collection, and validation of quality data; (c) the structure, size, and source of value-based payment adjustments; and (d) public disclosure of hospital performance data. The Report was submitted to Congress on November 21, 2007.
The Medicare Hospital VBP Plan builds on the foundation of Medicare's current RHQDAPU program (discussed in section IV.B. of the preamble of this final rule), which, since FY 2005, has provided differential payments to hospitals that report their performance on a defined set of inpatient measures for public posting on the
The proposed Plan contains the following key components: (a) A performance assessment model that incorporates measures from different quality domains (that is, clinical process of care, patient experience of care, and others, when developed) to calculate a hospital's total performance score; (b) options for translating this score into an incentive payment that would make a portion of the hospital's base DRG payment contingent on its total performance score; (c) criteria for selecting performance measures for the financial incentive and candidate measures for FY 2009 and beyond; (d) a phased approach for transitioning from the RHQDAPU program to the VBP Plan; (e) proposed enhancements to the current data transmission and validation infrastructure to support VBP program requirements; (f) refinements to the
The Medicare Hospital VBP Plan Report to Congress is available on the CMS Web site at:
A Hospital VBP Workgroup has undertaken testing of the VBP Plan. This “dry run” or “simulation” of the Plan is using the most recent clinical process-of-care and HCAHPS measurement data available from the RHQDAPU program. New information generated by the VBP Plan testing will include: (a) Performance scores by domain; (b) total performance scores; and (c) financial impacts. Following a process similar to that used in developing the Plan, CMS will analyze this information by each individual IPPS hospital, by segment of the hospital industry (that is, geographic location, size, teaching status, among others), and in aggregate for all IPPS hospitals.
The results of VBP Plan testing will be used to further develop the Plan. Priorities for Plan completion include addressing the small numbers issue (described on pages 74 and 75 of the Hospital VBP Plan Report to Congress) and developing a scoring methodology for the outcomes domain (pages 57–58 of the Hospital VBP Plan Report to Congress), which will become an additional aspect of the performance model. After completion, the Plan will be retested.
In the FY 2009 IPPS proposed rule (73 FR 23661), we sought public comments on how to take full advantage of the new information generated through this testing and further Plan development. For example: Should the testing and retesting results be publicly posted? If the testing results were to be posted, would the best location be the
We received 65 public comments regarding this section of the proposed rule. These public comments are summarized below.
Commenters were generally opposed to publicly posting performance information at the individual hospital level. The commenters noted that the VBP Plan has not yet been authorized by Congress, that the methodology might be changed during authorization, and that the impacts of the current methodology on different types of hospitals are still being evaluated. The commenters were particularly concerned that Medicare beneficiaries and others might use premature testing results to inform healthcare decisions. Several commenters emphasized that, if results are to be posted at the individual hospital level, each hospital should be given access to its preliminary results prior to publication, be given sufficient time to evaluate the results, and have the option to appeal to CMS for modifications.
Most commenters recommended not posting testing results on Hospital Compare because of concerns that posting on Hospital Compare would be confusing for beneficiaries who use the Web site to make comparisons of hospital quality. Alternatively, several commenters suggested posting testing results on the CMS Web site at:
Many commenters supported publicly posting aggregate-level performance results without individual hospital identification, such as at the National and State levels and by different hospital characteristics such as urban vs. rural, teaching status, bed size, and geographic location. The commenters indicated that this information could help various stakeholder groups understand how the VBP Plan would work and its potential impacts on improving quality of care for Medicare beneficiaries.
Although most commenters opposed posting individual hospital data, nearly all of the commenters favored sharing testing results with each individual hospital. In addition, the commenters requested that CMS create opportunities for hospital leaders to ask questions and provide feedback regarding their hospitals' results. One commenter suggested that CMS use MyQualityNet (formerly QualityNet Exchange) to share testing results confidentially, enabling hospitals to verify the scores and also to see the financial implications of the VBP methodology.
Many commenters, particularly hospitals, expressed concern about how incentives would be distributed under the VBP Plan. Several commenters stressed that the VBP financial incentive should not be used to generate Medicare program savings, urging instead that any at-risk funds should be returned to hospitals as incentives. Several commenters expressed concern that some hospitals, especially safety net and under-performing hospitals, could be disadvantaged if top-performing hospitals were to earn a majority of the incentives. One commenter suggested that CMS withhold a portion of the incentive pool to create a funding source for quality improvement grants to under-performing hospitals.
A majority of commenters urged CMS to be sensitive to the limited resources of hospitals, especially safety net hospitals, and expressed concern that the VBP Plan could significantly increase the reporting burden for hospitals. Some commenters suggested that if VBP were to incorporate too many different quality domains, hospitals' attention could be diffused and patient care resources further stretched.
Following the lead of a national hospital association, approximately half of the commenters on this section in the proposed rule requested that CMS bring together a technical advisory panel to review the VBP Plan testing results. The commenters indicated that this advisory panel could help CMS assess the impact of VBP Plan design choices and could suggest refinements to the Plan. Other commenters suggested using focus groups to vet the results from testing the VBP incentive methodology to assess the usefulness and clarity of this information.
Several commenters proposed including nursing-based performance measures in VBP.
Under the IPPS, special payment protections are provided to a sole community hospital (SCH). Section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital 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 inpatient hospital services reasonably available to Medicare beneficiaries. The regulations that set forth the criteria that a hospital must meet to be classified as an SCH are located in 42 CFR 412.92 of the regulations. Our regulations at § 412.109 also provide that certain essential access community hospitals (EACHs) will be treated as an SCH for payment purposes.
Under the IPPS, separate special payment protections also are provided to a Medicare-dependent, small rural hospital (MDH). 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
Although SCHs and MDHs are paid under special payment methodologies, they are hospitals that are paid under section 1886(d) of the Act. Like all IPPS hospitals paid under section 1886(d) of the Act, SCHs and MDHs are paid for their discharges based on the DRG weights calculated under section 1886(d)(4) of the Act.
For SCHs, effective with hospital cost reporting periods beginning on or after October 1, 2000, and before January 1, 2009, section 1886(d)(5)(D)(i) of the Act (as amended by section 6003(e) of Pub. L. 101–239) and section 1886(b)(3)(I) of the Act (as added by section 405 of Pub. L. 106–113 and further amended by section 213 of Pub. L. 106–554) provide that SCHs are paid based on whichever of the following rates yields the greatest aggregate payment to the hospital for the cost reporting period:
• The Federal rate applicable to the hospital;
• The updated hospital-specific rate based on FY 1982 costs per discharge;
• The updated hospital-specific rate based on FY 1987 costs per discharge; or
• The updated hospital-specific rate based on FY 1996 costs per discharge.
For purposes of payment to SCHs for which the FY 1996 hospital-specific rate yields the greatest aggregate payment, payments for discharges during FYs 2001, 2002, and 2003 were based on a blend of the FY 1996 hospital-specific rate and the greater of the Federal rate or the updated FY 1982 or FY 1987 hospital-specific rate. For discharges during FY 2004 and subsequent fiscal years, payments based on the FY 1996 hospital-specific rate are based on 100 percent of the updated FY 1996 hospital-specific rate.
As discussed in detail in section IV.D.2. of this preamble, the recently enacted Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110–275), contains a provision under section 122 that changes the provisions for rebasing the payments for SCHs, effective for cost reporting periods beginning on or after January 1, 2009.
Through and including FY 2006, under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal rate or, if higher, the Federal rate plus 50 percent of the difference between the Federal rate and the updated hospital-specific rate based on FY 1982 or FY 1987 costs per discharge, whichever is higher. However, section 5003 of Public Law 109–171 (DRA) modified these rules for discharges occurring on or after October 1, 2006. Section 5003(c) changed the 50 percent adjustment to 75 percent. Section 5003(b) also requires using the FY 2002 costs per discharge (that is, the FY 2002 updated hospital-specific rate) if that results in a higher payment. MDHs do not have the option to use their FY 1996 hospital-specific rate.
For each cost reporting period, the fiscal intermediary/MAC determines which of the payment options will yield the highest aggregate payment. Interim payments are automatically made at the highest rate using the best data available at the time the fiscal intermediary/MAC makes the determination. However, it may not be possible for the fiscal intermediary/MAC to determine in advance precisely which of the rates will yield the highest aggregate payment by year's end. In many instances, it is not possible to forecast the outlier payments, or the amount of the DSH adjustment or the IME adjustment, all of which are applicable only to payments based on the Federal rate and not to payments based on the hospital-specific rate. The fiscal intermediary/MAC makes a final adjustment at the close of the cost reporting period after it determines precisely which of the payment rates would yield the highest aggregate payment to the hospital.
If a hospital disagrees with the fiscal intermediary's or MAC's determination regarding the final amount of program payment to which it is entitled, it has the right to appeal the fiscal intermediary's or MAC's decision in accordance with the procedures set forth in 42 CFR Part 405, Subpart R, which concern provider payment determinations and appeals.
Since the issuance of the FY 2009 IPPS proposed rule, a new law has been enacted that changed the rebasing provisions for payments to SCHs, effective with cost reporting periods beginning on or after January 1, 2009. Section 122 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110–275) provides that, for cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on a FY 2006 hospital-specific rate (that is, based on their updated costs per discharge from their 12-month cost reporting period beginning during Federal fiscal year 2006), if this results in the greatest payment to the SCH. Therefore, effective with cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on the rate that results in the greatest aggregate payment using either the Federal rate or their hospital-specific rate based on their 1982, 1987, 1996, or 2006 costs per discharge.
Because this statutory provision is self-implementing, in this final rule, we are incorporating the provision in our regulations. Specifically, we are adding a new § 412.77A to include the provisions of the law and revising § 412.92 to make a conforming technical change.
Section 1886(d)(5)(D)(ii) of the Act requires that the Secretary make a payment adjustment to an SCH that experiences a decrease of more than 5 percent in its total number of inpatient discharges from one cost reporting period to the next, if the circumstances leading to the decline in discharges were beyond the SCH's control. Section 1886(d)(5)(G)(iii) of the Act requires that the Secretary also make a payment adjustment to an MDH that experiences a decrease of more than 5 percent in its total number of inpatient discharges from one cost reporting period to the next, if the circumstances leading to the decline in discharges were beyond the MDH's control. These adjustments were designed to compensate an SCH or MDH for the fixed costs it incurs in the year in which the reduction in discharges occurred, which it may be unable to reduce. Such costs include the maintenance of necessary core staff and services. Our records indicate that less than 10 SCHs/MDHs request and receive this payment adjustment each year.
We believe that not all staff costs can be considered fixed costs. Using a specified standardized formula, the SCH or MDH must demonstrate that it appropriately adjusted the number of staff in inpatient areas of the hospital based on the decrease in the number of inpatient days. This formula examines nursing staff in particular. If an SCH or MDH has an excess number of nursing staff, the cost of maintaining those staff members is deducted from the total adjustment. One exception to this policy is that no SCH or MDH may reduce its number of staff to a level below what is required by State or local law. In other words, an SCH or MDH will not be penalized for maintaining a level of staff that is consistent with State or local requirements.
The process for determining the amount of the volume decrease
In order to determine whether or not the hospital's nurse staffing level is appropriate, the fiscal intermediary/MAC compares the hospital's actual number of nursing staff in each area with the staffing of like-size hospitals in the same census region. If a hospital employs more than the reported average number of nurses for hospitals of its size and census region, the fiscal intermediary/MAC reduces the amount of the adjustment by the cost of maintaining the additional staff. The amount of the reduction is calculated by multiplying the actual number of nursing staff above the reported average by the average nurse salary for that hospital as reported on the hospital's Medicare cost report. The complete process for determining the amount of the adjustment can be found at Section 2810.1 of the PRM–1.
Prior to FY 2007, our policy was for fiscal intermediaries/MACs to obtain average nurse staffing data from the AHA HAS/Monitrend Data Book. However, in light of concerns that the Data Book had been published in 1989 and is no longer updated, in the FY 2007 IPPS rules, we proposed and finalized our policy to update the data sources and methodology used to determine the core staffing factors (that is, the average nursing staff for similar bed size and census region) for purposes of calculating the volume decrease adjustment (71 FR 48056 through 48060). We specified that for adjustment requests for decreases in discharges beginning with FY 2007 (that is, a decrease in discharges in FY 2007 as compared to FY 2006), an SCH or MDH could opt to use one of two data sources: the AHA Annual Survey or the Occupational Mix Survey, but could not use the HAS/Monitrend Data Book. (For any open adjustment requests prior to FY 2007, we allowed SCHs and MDHs the option of using the results of any of three sources: (1) The 2006 Occupational Mix Survey for cost reporting periods beginning in FY 2006; (2) the AHA Annual Survey (where available); or (3) the AHA HAS/Monitrend Data Book.) We also specified a methodology for calculating those core staffing factors. For purposes of explaining the methodology, we applied it to the 2003 Occupational Mix Survey data. In our explanation, we recognized that some of the 2003 data seemed anomalous, and we solicited comments on a possible alternative methodology. However, there were no suggested alternative methodologies from the commenters. We also explained that, while we used the 2003 Occupational Mix Survey data “for purposes of describing how we would implement this methodology,” the final policy was to use FY 2006 Occupational Mix Survey data going forward. At the time we published the proposed and final rules, however, we had not yet processed the FY 2006 data, and could not present the core staffing figures that resulted from such data. In the FY 2007 IPPS final rule (71 FY 48057), we stated that because the occupational mix survey is conducted once every 3 years, we would update the data set every 3 years.
We have now processed the 2006 Occupational Mix Survey data using the methodology specified in the FY 2007 IPPS final rule and continue to see some results that cause us to believe that the methodology for calculating the core staffing factors should be slightly revised from the methodology discussed in the FY 2007 IPPS final rule (71 FR 48056 through 48060). The new methodology uses a revised formula to remove statistical outliers from the core staffing values.
In the FY 2007 IPPS final rule (71 FR 48055), we explained the methodology we would use for calculating core staffing values from the Occupational Mix Survey. We stated that we would calculate the nursing hours per patient day for each SCH or MDH by dividing the number of paid nursing hours (for registered nurses, licensed practical nurses and nursing aides) reported on the Occupational Mix Survey by the number of patients days reported on the Medicare cost report. The results would be grouped in the same bed-size groups and census regions as were used in the HAS/Monitrend Data Book.
We indicated that we would publish the mean number of nursing hours per patient day for each census region and bed-size group in the
In the FY 2007 IPPS final rule, to illustrate how we would calculate the average number of nursing hours per patient day by bed size and region, we first merged the FY 2003 Occupational Mix Survey data with the FY 2003 Medicare cost report file. We eliminated all observations for non-IPPS providers, providers who failed to complete the occupational mix survey, and the providers for which provider numbers, bed counts, and/or days counts were missing.
For each provider in the pool, we calculated the number of nursing hours by adding the number of registered nurses, licensed practical nurses, and nursing aide hours reported on the Occupational Mix Survey. We divided the result of this calculation by the total number of inpatient days reported on the cost report to determine the number of nursing hours per patient day. For purposes of calculating the census regional averages for the various bed-size groups, we finalized our rule to only include observations that fell within 3 standard deviations of the mean of all observations, thus removing potential outliers in the data.
When the FY 2006 Occupational Mix Survey data became available, our analysis of the results indicated that the methodology for computing core staffing factors should be further revised in order to further eliminate outlier data.
After consulting with the Office of the Actuary on appropriate statistical
For each provider in the pool, we proposed to calculate the number of nursing hours by adding the number of registered nurses, licensed practical nurses, and nursing aide hours reported on the Occupational Mix Survey. We proposed to divide the result of this calculation by the total number of patient days reported on line 12 on Worksheet S–3, Part I, Column 6 of the Medicare cost report. This includes patient days in the general acute care area and the intensive care unit area. The result is the number of nursing hours per patient day.
For purposes of calculating the census regional averages for the various bed-size groups, we proposed a different method to remove outliers in the data. First, we proposed to calculate the difference between the observations in the 75th percentile and the 25th percentile, which is the inter-quartile range. We would then remove observations that are greater than the 75th percentile plus 1.5 times the inter-quartile range and less than the 25th percentile minus 1.5 times the inter-quartile range. This methodology, proposed by Tukey in the mid-1970's, also has been used by the Office of the Actuary to trim data outliers. Under the standard deviation method described in the FY 2007 IPPS final rule, the mean and standard deviation can be influenced by extreme values (because the standard deviation is increased by the very observations that would otherwise be discarded from the analysis). Our proposed methodology is a more robust technique because it uses the quartile values instead of variance to describe the spread of the data, and quartiles are less influenced by extreme outlier values that may be present in the data.
As we stated in the FY 2009 IPPS proposed rule, we believe the revised method would prevent the mean from being influenced by extreme observations and assumes that the middle 50 percent of the data has no outlier observations. Therefore, we are finalizing our methodology, and the results of the average nursing hours per patient day by bed size and region using the FY 2006 Occupational Mix Survey Data and the March 2008 update to the FY 2006 hospital cost report data are shown in the table below. The application of this methodology results in a pool of approximately 2,969 providers. Each census region and bed group category required at least three providers in order for their average to be published. As stated in the FY 2007 IPPS final rule (71 FR 48059), the results of the FY 2006 Occupational Mix Survey may be used for the volume decrease adjustment calculations for decreases in discharges occurring in cost reporting periods beginning in FYs 2006, 2007, and 2008.
After consideration of the public comments received, we are finalizing our proposal to calculate the staff adjustment for the SCH and MDH low volume adjustment using the 2006 Occupational Mix Survey data based on the methodology described above.
In the FY 2007 IPPS final rule (71 FR 48058), we also allowed SCHs or MDHs that experienced a greater than 5 percent reduction in the number of discharges during a cost reporting period the option of using the AHA Annual Survey results, where available, to compare the number of hospital's core staff with other like-sized hospitals in its geographic area. Our methodology for calculating the nursing hours per patient day using the AHA Annual Survey data and the Medicare hospital cost report data was similar to the methodology using the Occupational Mix Survey data (eliminating outliers outside of three standard deviations from the mean). For this reason, as with the occupational mix data, both standard deviations and the mean could be influenced by extreme values. Therefore, in the FY 2009 IPPS proposed rule (73 FR 23664), we proposed to refine our methodology to calculate the core staffing factors using the AHA Annual Survey data as well. The AHA Annual Survey contains FTE counts for registered nurses, practical and vocational nurses, nursing assistive personnel, and other personnel in both inpatient and outpatient areas of the hospital. This is consistent with the Occupational Mix Survey data which includes data on both the inpatient and outpatient areas of the hospital.
In the FY 2007 IPPS final rule, we stated that we would calculate the nursing hours per patient day using the AHA Annual Survey data in a similar method to the Occupational Mix Survey. Consistent with the HAS/Monitrend Data book, we proposed to calculate the average number of nursing staff for a bed-size/census group if there are data available for three or more hospitals. First, we proposed to merge the AHA Annual Survey Data with the corresponding Medicare cost report data. We would then eliminate all observations for non-IPPS providers, providers with hospital-based SNFs, and the providers for which provider numbers, bed counts, and/or days counts were missing. We proposed to multiply the sum of nurse, licensed practical nurse, and nursing aide FTEs reported on the AHA Annual Survey by 2,080 hours to derive the number of nursing hours per year (based on a 40-hour work week). We would then divide this number by the total number of patient days reported on line 12 on Worksheet S–3, Part I, Column 6 of the Medicare cost report. In the FY 2007 IPPS final rule (71 FR 48060), we had stated that we would eliminate all providers with results beyond three standard deviations from the mean. However, to be consistent with our methodology with the Occupational Mix Survey data, in the FY 2009 IPPS proposed rule, we proposed to remove outliers from the AHA Annual Survey data by calculating the difference between the observations in the 75th percentile and the 25th percentile, which is the inter-quartile range. We then proposed to remove observations that are greater than the 75th percentile plus 1.5 times the inter-quartile range and less than the 25th percentile minus 1.5 times the inter-quartile range. After removing the outliers, we proposed to group the hospitals by bed size and census area to calculate the average number of nursing hours per patient day for each category. In this final rule, we also have updated our results of the nursing hours per patient day using the 2006 AHA Annual Survey data and the March 2008 Medicare cost report data, which is shown below. Using the 2006 AHA Annual Survey data, this would result in a pool of approximately 1,423 providers. We proposed to use the 2006 Survey for the volume decrease adjustment calculations for decreases in discharges occurring during cost reporting periods beginning in FY 2006. As we stated in the FY 2007 IPPS final rule, for other years, the corresponding AHA Annual Survey would be used for the year in which the decrease occurred.
The HAS/Monitrend data had separated staffing levels by intensive care unit and routine care. However, the data based on both the AHA Annual Survey and the Occupational Mix Survey provide only one number representing the average nursing hours per patient day aggregating the intensive care area and the routine care area. For an SCH or MDH seeking a volume decrease adjustment, the fiscal intermediary/MAC will determine the SCH or MDH's total hospital nursing staff per inpatient day for the year of the volume decrease and compare that figure to the number published for the hospital's census area and bed-size division in either the Occupational Mix Survey or AHA Annual Survey.
The Occupational Mix Survey data is updated every 3 years. The results of the FY 2006 Occupational Mix Survey can be used for volume decrease adjustment calculations for decreases in discharges occurring during the FY 2006, FY 2007, and FY 2008 cost reporting periods. The results of the FY 2009 Occupational Mix Survey will be used to update the data for volume decrease adjustment calculations for decreases in discharges occurring during the FY 2009, FY 2010, and FY 2011 cost reporting periods.
MDHs and SCHs will also have the option to use the AHA Annual Survey data. The AHA Annual Survey data is updated annually. The core staffing levels based on the FY 2006 AHA Annual Survey data are published in this final rule and will also be available on the CMS Web site. The fiscal intermediary/MAC will use the survey results from the year in which the decrease occurred. For example, if a hospital experiences a decrease between its 2006 and 2007 cost reporting periods, the fiscal intermediary/MAC will compare the hospital's 2007 staffing with the results of the FY 2007 AHA Annual Survey.
The commenters also noted that the AHA Survey changed in 2006, and the same nursing data are not necessarily available from AHA for years prior to 2006. Likewise, the Occupational Mix Survey data are based on 2006 data. The commenters requested that CMS authorize the use of the 2006 Occupational Mix Survey data and AHA Survey data for payment adjustments for volume decreases in years prior to 2006, at the hospital's option. They also requested clarification as to when the 2007 and 2008 AHA survey data would be made available.
Regarding the application of the staffing factors based on the 2006 AHA Annual Survey data, those staffing factors should only be applied to hospital cost reporting periods beginning in FY 2006. It is not appropriate to use that data for periods prior to 2006. For example, if a hospital believes it experienced, in its cost reporting period beginning in FY 2008, a decrease of more than 5 percent in its number of inpatient discharges, compared to its immediately preceding cost reporting period (its cost reporting period beginning in FY 2007), the hospital would request a volume decrease adjustment for its FY 2008 cost reporting period, and include its FY 2007 and FY 2008 cost report information.
The 2007 AHA Annual Survey data will be available to CMS by the first quarter of FY 2009 and the staffing factors based on that data will also be posted on the CMS Web site in the first quarter of FY 2009. If the hospital opts to use the staffing factors based on the Occupational Mix Survey for its volume decrease adjustment, it would apply the staffing factors based on the 2006 Occupational Mix Survey to its FY 2007 cost report data.
After consideration of the public comments received, we are finalizing our methodology to calculate the average nursing hours per patient day using AHA Annual Survey data and the Medicare Cost Report as described above.
Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at § 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as an RRC. For discharges occurring before October 1, 1994, RRCs received the benefit of payment based on the other urban standardized amount rather than the rural standardized amount. Although the other urban and rural standardized amounts are the same for discharges occurring on or after October 1, 1994, RRCs continue to receive special treatment under both the DSH payment adjustment and the criteria for geographic reclassification.
Section 402 of Public Law 108–173 raised the DSH adjustment for other rural hospitals with less than 500 beds and RRCs. Other rural hospitals with less than 500 beds are subject to a 12-percent cap on DSH payments. RRCs are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals (with the exception of rural hospitals with 500 or more beds). RRCs are not subject to the proximity criteria when applying for geographic reclassification, and they do not have to meet the requirement that a hospital's average hourly wage must exceed the average hourly wage of the labor market area where the hospital is located by a certain percentage (106/108 percent in FY 2008).
Section 4202(b) of Public Law 105–33 states, in part, “[a]ny hospital classified as an RRC by the Secretary * * * for fiscal year 1991 shall be classified as such an RRC for fiscal year 1998 and each subsequent year.” In the August 29, 1997 final rule with comment period (62 FR 45999), we reinstated RRC status for all hospitals that lost the status due to triennial review or MGCRB reclassification, but did not reinstate the status of hospitals that lost RRC status because they were now urban for all purposes because of the OMB designation of their geographic area as urban. However, subsequently, in the August 1, 2000 final rule (65 FR 47089), we indicated that we were revisiting that decision. Specifically, we stated that we would permit hospitals that previously qualified as an RRC and lost their status due to OMB redesignation of the county in which they are located from rural to urban to be reinstated as an RRC. Otherwise, a hospital seeking RRC status must satisfy the applicable criteria. We used the definitions of “urban” and “rural” specified in Subpart D of 42 CFR Part 412.
One of the criteria under which a hospital may qualify as a RRC is to have 275 or more beds available for use (§ 412.96(b)(1)(ii)). A rural hospital that does not meet the bed size requirement can qualify as an RRC if the hospital meets two mandatory prerequisites (a minimum CMI and a minimum number of discharges), and at least one of three optional criteria (relating to specialty composition of medical staff, source of inpatients, or referral volume) (§ 412.96(c)(1) through (c)(5) and the
• The hospital's CMI is at least equal to the lower of the median CMI for urban hospitals in its census region, excluding hospitals with approved teaching programs, or the median CMI for all urban hospitals nationally; and
• The hospital's number of discharges is at least 5,000 per year, or, if fewer, the median number of discharges for urban hospitals in the census region in which the hospital is located. (The number of discharges criterion for an osteopathic hospital is at least 3,000 discharges per year, as specified in section 1886(d)(5)(C)(i) of the Act.)
Section 412.96(c)(1) provides that CMS establish updated national and regional CMI values in each year's annual notice of prospective payment rates for purposes of determining RRC status. The methodology we used to determine the national and regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The national median CMI value for FY 2009 includes all urban hospitals nationwide, and the regional values for FY 2009 are the median CMI values of urban hospitals within each census region, excluding those hospitals with approved teaching programs (that is, those hospitals that train residents in an approved GME program as provided in § 413.75). These values are based on discharges occurring during FY 2007 (October 1, 2006 through September 30, 2007), and include bills posted to CMS' records through March 2008.
In the FY 2009 IPPS proposed rule (73 FR 23665), we proposed that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2008, they must have a CMI value for FY 2007 that is at least—
• 1.4285; or
• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.
Based on the latest available data (FY 2007 bills received through March 2008), in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2008, they must have a CMI value for FY 2007 that is at least—
• 1.4270; or
• The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in § 413.75) calculated by CMS for the census region in which the hospital is located.
The final median CMI values by region are set forth in the following table:
Hospitals seeking to qualify as RRCs or those wishing to know how their CMI value compares to the criteria should obtain hospital-specific CMI values (not transfer-adjusted) from their fiscal intermediaries/MACs. Data are available on the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy on discharges, these CMI values are computed based on all Medicare patient discharges subject to the IPPS DRG-based payment.
Section 412.96(c)(2)(i) provides that CMS set forth the national and regional numbers of discharges in each year's annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. In the FY 2009 IPPS proposed rule (73 FR 23666), we proposed to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2006 (that is, October 1, 2005 through September 30, 2006), which was the latest cost report data available at that time.
Therefore, in the FY 2009 IPPS proposed rule (73 FR 23666), we proposed that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 2008, must have as the number of discharges for its cost reporting period that began during FY 2006 a figure that is at least—
• 5,000 (3,000 for an osteopathic hospital); or
• The median number of discharges for urban hospitals in the census region in which the hospital is located. (We refer readers to the table set forth in the FY 2009 IPPS proposed rule at 73 FR 23666.)
Based on the latest discharge data available at this time, that is, for cost reporting periods that began during FY 2006, the final median number of discharges for urban hospitals by census region are set forth in the following table.
We note that the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges. Therefore, 5,000 discharges is the minimum criterion for all hospitals.
We reiterate that, if an osteopathic hospital is to qualify for RRC status for cost reporting periods beginning on or after October 1, 2008, the hospital would be required to have at least 3,000 discharges for its cost reporting period that began during FY 2006.
Section 1886(d)(5)(B) of the Act provides for an additional payment amount under the IPPS for hospitals that have residents in an approved graduate medical education (GME) program in order to reflect the higher indirect patient care costs of teaching hospitals relative to nonteaching hospitals. The regulations regarding the calculation of this additional payment, known as the indirect medical
The Balanced Budget Act of 1997 (Pub. L. 105–33) established a limit on the number of allopathic and osteopathic residents that a hospital may include in its full-time equivalent (FTE) resident count for direct GME and IME payment purposes. Under section 1886(h)(4)(F) of the Act, for cost reporting periods beginning on or after October 1, 1997, a hospital's unweighted FTE count of residents for purposes of direct GME may not exceed the hospital's unweighted FTE count for its most recent cost reporting period ending on or before December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count for IME purposes is effective for discharges occurring on or after October 1, 1997.
The IME adjustment to the MS–DRG payment is based in part on the applicable IME adjustment factor. The IME adjustment factor is calculated by using a hospital's ratio of residents to beds, which is represented as
Section 502(a) of Public Law 108–173 modified the formula multiplier (
• For discharges occurring on or after April 1, 2004, and before October 1, 2004, the formula multiplier is 1.47.
• For discharges occurring during FY 2005, the formula multiplier is 1.42.
• For discharges occurring during FY 2006, the formula multiplier is 1.37.
• For discharges occurring during FY 2007, the formula multiplier is 1.32.
• For discharges occurring during FY 2008 and fiscal years thereafter, the formula multiplier is 1.35.
Accordingly, for discharges occurring during FY 2009, the formula multiplier is 1.35. We estimate that application of this formula multiplier for FY 2009 IME adjustment will result in an increase in IME payment of 5.5 percent for every approximately 10-percent increase in the hospital's resident-to-bed ratio.
Section 1886(h) of the Act, as implemented in regulations at § 413.75 through § 413.83, establishes a methodology for determining payments to hospitals for the direct costs of approved graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a methodology for the determination of a hospital-specific, base-period per resident amount (PRA) that is calculated by dividing a hospital's allowable direct costs of GME for a base period by its number of residents in the base period. The base period is, for most hospitals, the hospital's cost reporting period beginning in FY 1984 (that is, the period between October 1, 1983, through September 30, 1984). Medicare direct GME payments are calculated by multiplying the PRA times the weighted number of full-time equivalent (FTE) residents working in all areas of the hospital complex (and nonhospital sites, when applicable), and the hospital's Medicare share of total inpatient days. The base year PRA is updated annually for inflation.
Section 1886(h)(4)(F) of the Act established caps on the number of allopathic and osteopathic residents that hospitals may count for purposes of calculating direct GME payments. For most hospitals, the caps were the number of allopathic and osteopathic FTE residents training in the hospital's most recent cost reporting period ending on or before December 31, 1996. Section 422 of Public Law 108–173 added section 1886(h)(7) of the Act, which provided for a reduction to the resident caps of teaching hospitals that were training a number of FTE residents below their cap in a reference period, and authorized a “redistribution” of those FTE resident slots to hospitals that could demonstrate a likelihood of using the additional resident slots within the first three cost reporting periods beginning on or after July 1, 2005.
The stated purposes of section 1135 of the Act are (1) “to enable the Secretary to ensure to the maximum extent feasible, in any emergency area and during an emergency period, * * * that sufficient health care items and services are available to meet the needs of individuals enrolled in the programs under titles XVIII, XIX, and XXI [that is, Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP)]; and (2) that health care providers * * * that furnish such items and services in good faith, but that are unable to comply with one or more requirements * * * may be reimbursed for such items and services and exempted from sanctions for such noncompliance, absent any determination of fraud or abuse.” Specifically, section 1135 of the Act authorizes the Secretary, to the extent necessary to accomplish the statutory purpose, to temporarily waive or modify the application of certain types of statutory and regulatory provisions (such as conditions of participation or other certification requirements, program participation or similar requirements, or preapproval requirements) with respect to health care items and services furnished by health care provider(s) in an emergency area during an emergency period.
The Secretary's authority under section 1135 of the Act arises in the event there is an “emergency area” and continues during an “emergency period” as those terms are defined in the statute. Under section 1135(g) of the Act, an emergency area is a geographic area in which there exists an emergency or disaster that is declared by the President according to the National Emergencies Act or the Robert T. Stafford Disaster Relief and Emergency Assistance Act, and a public health emergency declared by the Secretary according to section 319 of the Public Health Service Act. (Section 319 of the Public Health Service Act authorizes the Secretary to declare a public health emergency and take the appropriate action to respond to the emergency, consistent with existing authorities.) Throughout the remainder of this discussion, we will refer to such emergency areas and emergency periods as “section 1135” emergency areas and emergency periods.
Furthermore, under section 1135 of the Act, “a waiver or modification of requirements pursuant to this section may, at the Secretary's discretion, be
As noted previously, sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act establish limits on the number of allopathic and osteopathic residents that hospitals may count for purposes of calculating direct GME payments and the IME adjustment, respectively, establishing hospital-specific direct GME and IME FTE resident caps. Under the authority of section 1886(h)(4)(H)(ii) of the Act, the Secretary issued rules to allow institutions that are members of the same affiliated group to apply their direct GME and IME FTE resident caps on an aggregate basis through a Medicare GME affiliation agreement. The Medicare regulations at §§ 413.75 and 413.79 permit hospitals, through a Medicare GME affiliation agreement, to adjust IME and direct GME FTE resident caps to reflect the rotation of residents among affiliated hospitals.
Section 1886(d)(5)(B)(vi) of the Act specifies the application of an intern and resident-to-bed (IRB) ratio cap, stating that the IRB ratio “may not exceed the ratio of the number of interns and residents, subject to the limit under clause (v), with respect to the hospital for its most recent cost reporting period to the hospital's available beds * * * during that cost reporting period.” As specified under the regulations at § 412.105(a)(1)(i), an IRB ratio is calculated for a hospital based generally on the ratio of FTE residents (as limited by the regulation at § 412.105(f)) in the numerator to the number of available beds (which is described at § 412.105(1)(b)) in the denominator. Furthermore, section 1886(d)(5)(B)(viii) of the Act specifies that rules similar to the rules under section 1886(h)(4)(H) of the Act (special rules for new teaching programs and affiliations) shall apply for purposes of the IME FTE cap and the IRB ratio.
As explained above, the Secretary's authority under section 1135 of the Act is prompted by the occurrence of an emergency or disaster that leads to designation of a section 1135 emergency area, and continues throughout a section 1135 emergency period. For example, when Hurricane Katrina occurred on August 29, 2005, disrupting health care operations and medical residency training programs at teaching hospitals in New Orleans and the surrounding area, the conditions were met for the Secretary to establish an emergency area and emergency period under section 1135(g) of the Act, which he did for the Gulf Coast region on August 31, 2005. Shortly after Hurricane Katrina occurred, CMS was informed by hospitals in New Orleans that the training programs at many teaching hospitals in the city were closed as a result of the disaster and that the displaced residents were being transferred to training programs at hospitals in other parts of the country. At the time, the existing regulations did not adequately address the Medicare GME payment issues faced by hospitals located in a section 1135 emergency area that were affected by the disaster, and by hospitals that trained displaced residents from a section 1135 emergency area.
Specifically, the medical residency training programs at many teaching hospitals in New Orleans and surrounding areas were temporarily closed (either partially or completely) in the aftermath of Hurricane Katrina. Hurricane Rita, which followed Katrina by less than a month, further exacerbated the disaster conditions along the Gulf Coast. As a result, the displaced residents from the section 1135 emergency area were transferred to other hospitals (which included hospitals located in States outside of the emergency area) to continue their medical residency training. Hospitals in the section 1135 emergency area also informed CMS that, while many residents would be able to return to their original programs to complete residency training as these hospitals gradually rebuild their programs after the hurricanes, some residents may need to remain at other hospitals for an extended period of time.
In developing a policy to provide hospitals flexibility in responding to a disaster, we have stated that we must balance two priorities. First, we believe that in disaster situations, to the extent permitted under the statute, the policy should facilitate the continuity of GME, minimizing the disruption of residency training. Second, the policy should take into account that the training programs at certain hospitals located in a section 1135 emergency area may have been severely disrupted by a disaster and that these hospitals will usually want to rebuild their GME programs as soon as possible. Accordingly, we amended the Medicare regulations on April 12, 2006, in an interim final rule with comment period published in the
The April 12, 2006 interim final rule with comment period (70 FR 18654
In the April 12, 2006 interim final rule with comment period (70 FR 18654 through 18667), we specified that the emergency Medicare GME affiliation agreement must be written, signed, and dated by responsible representatives of each participating hospital and must: (1) List each participating hospital and its provider number, and specify whether the hospital is a home or host hospital; (2) specify the effective period of the emergency Medicare GME affiliation agreement (which must, in any event, terminate no later than at the conclusion of 2 academic years following the academic year in which the section 1135 emergency period began); (3) list each participating hospital's IME and direct GME FTE caps in effect for the current academic year before the emergency Medicare GME affiliation (that is, if the hospital was already a member of a regular Medicare GME affiliated group before entering into the emergency Medicare GME affiliation, the emergency Medicare GME affiliation must be premised on the FTE caps of the hospital as adjusted per the regular Medicare GME affiliation agreement, and not include any slots gained under section 422 of the MMA); and (4) specify the total adjustment to each hospital's FTE caps in each year that the emergency Medicare GME affiliation agreement is in effect, for both direct GME and IME, that reflects a positive adjustment to the host hospital's (or hospitals') direct and/or indirect FTE caps that is offset by a negative adjustment to the home hospital's (or hospitals') direct and/or indirect FTE caps of at least the same amount. The sum total of participating hospitals' FTE caps under the emergency Medicare GME affiliation agreement may not exceed the aggregate adjusted caps of the hospitals participating in the emergency Medicare GME affiliated group before entering into an emergency affiliation. A home hospital's IME and direct GME FTE cap reduction under an emergency Medicare GME affiliation agreement is limited to the home hospital's IME and direct GME FTE resident caps in effect for the academic year, in accordance with regulations at § 413.79(c) or § 413.79(f)(1) through (f)(5), that is, the hospital's base year FTE resident caps as adjusted by any and all existing regular Medicare GME affiliation agreements. Finally, as we stated in the April 12, 2006 interim final rule with comment period, amendments to the emergency Medicare GME affiliation agreement to adjust the distribution of the number of FTE residents in the original emergency Medicare GME affiliation among the hospitals that are part of the emergency Medicare GME affiliated group can be made through June 30 of the academic year for which it is effective (71 FR 18662).
In summary, the April 12, 2006 interim final rule with comment period made changes as follows:
• To allow host hospitals to count displaced residents for IME and direct GME payment purposes, host hospitals and home hospitals were permitted to enter into emergency Medicare GME affiliation agreements effective retroactive to the date of the first day of the section 1135 emergency period.
• Through emergency Medicare GME affiliation agreements, home hospitals were permitted to affiliate with host hospitals anywhere in the country. That is, a host hospital may be located in any State and may receive a temporary adjustment to its FTE caps to reflect displaced residents (subject to the aggregate home and host hospitals' FTE resident caps).
• Emergency Medicare GME affiliation agreements were required to be submitted to CMS with a copy to the CMS fiscal intermediary or MAC by the later of 180 days after the section 1135 emergency period begins or by July 1 of the academic year in which the emergency Medicare GME affiliation agreement is effective. However, for hospitals affected by Hurricanes Katrina and Rita, the deadline was subsequently extended to October 9, 2006. (We refer readers to the final rule published in the
• The effective period of the emergency Medicare GME affiliation agreement was permitted to begin on or after the first day of a section 1135 emergency period, and must terminate no later than at the conclusion of 2 academic years following the academic year during which the section 1135 emergency period began. (We note that in a subsequent interim final rule with comment period, published in the
• During the effective period of the emergency Medicare GME affiliation agreement, hospitals in the emergency Medicare GME affiliated group were not required to participate in a shared rotational arrangement (as they would be under a regular Medicare GME affiliation agreement).
• Host hospitals were allowed an exception from the otherwise applicable rolling average resident count for FTE residents added as a result of an emergency Medicare GME affiliation agreement, but only during the period from August 29, 2005 to June 30, 2006.
• Due to the infrastructure damage and continued disruption of operations experienced by medical facilities, and the consequent disruption in residency training caused by Hurricanes Katrina and Rita in 2005, there was an urgent need for emergency Medicare GME affiliation agreements to be effective retroactive to the date of the hurricanes. Section 1871(e)(1)(A) of the Act, as amended by section 903(a)(1) of the MMA, generally prohibits the Secretary from making retroactive substantive changes in policy unless retroactive application of the change is necessary to comply with statutory requirements, or failure to apply the change retroactively would be contrary to the public interest. Because existing regulations did not adequately address the issues faced by hospitals that are located in the section 1135 emergency area, or hospitals that
For a detailed discussion on each of the above emergency Medicare GME affiliation provisions, we refer readers to the April 12, 2006 interim final rule with comment period (71 FR 18654 through 18667).
After the establishment of the emergency Medicare GME affiliation provisions in the April 12, 2006 interim final rule with comment period, we monitored the application of the emergency Medicare GME affiliation agreement rules in order to assess whether those regulatory changes appropriately addressed the needs of hospitals located in the section 1135 emergency area in the aftermath of Hurricanes Katrina and Rita. We understand that GME programs in the affected area were finding it necessary to continue to adjust the location of resident training, both within the emergency area and in other States, as hospitals located within the section 1135 emergency area continued to reopen beds at different rates, and as feedback from accreditation surveys warranted educational adjustments. Furthermore, stakeholders in Louisiana informed CMS that they believed fluidity in GME programs would continue for several more years, and the training of residents in the area is not likely to reach stability until permanent replacement facilities are established and functioning in the emergency area. As a result, we believed the provisions first established in the April 12, 2006 interim final rule with comment period needed to be further modified to meet the two priorities stated earlier. That is, we believed that the policy should facilitate the continuity of GME by minimizing the disruption of residency training and also enable home hospitals to rebuild their GME programs as soon as possible.
Therefore, we issued a second interim final rule with comment period in the
In summary, the November 27, 2007 interim final rule with comment period made changes as follows:
In the November 27, 2007 interim final rule with comment period (72 FR 66893 through 66898), we further modified the regulations at § 413.75(b) and § 413.79(f) to allow hospitals to enter into emergency Medicare GME affiliation agreements with increased flexibility. First, for emergency Medicare GME affiliation agreements involving a host hospital located in a different State from the home hospital (hereinafter, an “out-of-State host hospital”), the permissible effective period for such agreements was extended from up to 3 years (that is, the year in which the section 1135 emergency period began plus 2 subsequent academic years) to up to 5 years (that is, the year in which the section 1135 emergency period began plus 4 subsequent academic years). However, emergency Medicare GME affiliation agreements involving out-of-State host hospitals during these two additional periods may only apply with respect to the actual residents that were displaced from training in a hospital located in the section 1135 emergency area. By “actual residents that were displaced from training in a hospital located in the section 1135 emergency area,” we indicated that we meant residents in an approved medical residency training program at a home hospital at the time of the disaster that were either actually training at the home hospital or were scheduled to rotate to the home hospital during the training program. For emergency Medicare GME affiliation agreements involving a host hospital located in the same State as the home hospital (hereinafter, an “in-State host hospital”), the permissible effective period for such agreements was extended from up to 3 years to up to 5 years for any resident (even those not displaced from training in a hospital located in the 1135 emergency area). We provided that emergency Medicare GME affiliation agreements involving in-State host hospitals during these additional 2 academic years need not be limited to only the actual residents that were displaced immediately following the disaster. In other words, such agreements may apply with respect to residents that were actually displaced as a result of the disaster, as well as to new residents that were not training in the program at the time the disaster occurred. With the 2-year extension described above, the effective period of an emergency Medicare GME affiliation agreement may begin with the first day of a section 1135 emergency period, and must terminate no later than at the end of the fourth academic year following the academic year during which the section 1135 emergency period began (for Hurricanes Katrina and Rita, this would be June 30, 2010). As home hospitals recover the ability to train residents after a disaster, the effective period for emergency Medicare GME affiliation agreements is intended to allow home hospitals to balance their desire to return residents to their original training sites, with their need to be given the opportunity to rebuild their programs incrementally. We believed extending the applicability of emergency affiliations for out-of-State host hospitals for 2 years (for a total of up to 5 years) only for the actual residents displaced from home hospitals allows such displaced residents to complete their training outside the affected area while providing an incentive for home hospitals to begin training new incoming residents locally (or closer to the home hospital), increasing the likelihood for the residents to stay and practice in the area after their training is completed. Affected hospitals in the New Orleans area have informed CMS that the majority of residents will tend to remain in the same State to practice where they had trained. We believe this makes intuitive sense and the policy established in the November 27, 2007 interim final rule with comment period provides additional impetus for residents to return to the State where
In the November 27, 2007 interim final rule with comment period, we noted that it had come to our attention that in the wake of Hurricanes Katrina and Rita, host hospitals, many of which received large numbers of displaced residents, were hard pressed to find training sites for these unanticipated residents (72 FR 66893 through 66898). Many host hospitals called upon community physician practices, clinics, and other nonhospital settings to supplement existing training locations and accommodate the displaced residents. Some of the host hospitals that took in displaced residents had never before had any residency training programs, and therefore were new to Medicare rules regarding graduate medical education. In the haste and confusion surrounding this unprecedented displacement of residents, many host hospitals arranged for displaced residents to begin training in nonhospital sites without first establishing a written agreement, as specified in § 413.78(e), between the hospital and nonhospital site. Similarly, home hospitals that may have sent some of their residents away to train at host hospitals, while continuing to train a reduced number of residents in the home hospital program, may have found that the usual nonhospital sites for the residents in that program had also been negatively affected by the disaster. Consequently, home hospitals may have hastily arranged for displaced residents to begin training in alternative nonhospital sites and, due to the reduced administrative capability in the aftermath of the disaster, home hospitals may not have been able to establish a written agreement, as specified in § 413.78(e), with the nonhospital site before residents started training in the nonhospital site. Also, during the unusual circumstances following the disaster, many hospitals did not actually incur all or substantially all of the costs of the training program in the nonhospital site in accordance with our regulations at § 413.78(e)(3)(i) or (f)(3)(i).
The November 27, 2007 interim final rule with comment period provided hospitals that are participating in emergency Medicare GME affiliation agreements with increased flexibility in submitting written agreements relating to training that occurs in nonhospital sites (72 FR 66893 through 66898). Home or host hospitals with valid emergency Medicare GME affiliation agreements training displaced residents in a nonhospital site may submit a copy of the written agreement, as specified under § 413.78(e)(iii) and (f)(iii) as applicable, to the CMS contractor servicing the hospital by 180 days after the first day the resident began training at the nonhospital site. We noted that, as with the existing rules for written agreements specified at § 413.78(f), amendments to the written agreement can be made through June 30 of the academic year for which it is effective.
Furthermore, under current rules, hospitals that are training residents at nonhospital sites have two options as specified by the regulations at § 413.78(e) and § 413.78(f). That is, hospitals must either have a written agreement in place before the training occurs or they must pay “all or substantially all” of the costs for the training program in the nonhospital setting attributable to training that occurs during a month by the end of the third month following the month in which the training in the nonhospital site occurred. In the November 27, 2007 interim final rule with comment period, we provided additional flexibility in the “concurrent payment” option for home or host hospitals that have emergency Medicare GME affiliation agreements and are training displaced residents in nonhospital sites by extending the time allowable for “concurrent payment” from 3 months to 6 months (72 FR 66893 through 66898). That is, we permitted a home or host hospital with a valid emergency Medicare GME affiliation agreement to incur “all or substantially all” of the costs for the training program in the nonhospital setting attributable to training that occurs during a month by the end of the sixth month following the month in which the training in the nonhospital site occurred.
In the case of the section 1135 emergency resulting from Hurricanes Katrina and Rita, we noted that the time limit we adopted to submit written agreements or to meet the “concurrent payment” requirement may have already passed. Therefore, we provided that, for residents training in nonhospital sites during the period of August 29, 2005, to November 1, 2007, home or host hospitals with valid emergency Medicare GME affiliation agreements could submit written agreements or incur “all or substantially all” of the costs of the training program (that is, the “concurrent payment” option) to cover those specific residents by April 29, 2008.
For a detailed discussion of the emergency Medicare GME affiliation provisions addressed in this section, we refer readers to the November 27, 2007 interim final rule with comment period (72 FR 66893 through 66898).
In the April 12, 2006 and November 27, 2007 interim final rules with comment period, we revised the regulations at § 413.79(f) to provide for more flexibility than would have been possible under regular Medicare GME affiliations to allow home hospitals to efficiently find training sites for displaced residents. Under the flexibility provided by the emergency Medicare GME affiliated group provisions as specified at § 413.79(f)(6), decisions regarding the temporary transfers of FTE resident cap slots, including how to distribute slots in situations where the home hospital was training a number of residents in excess of its cap before the disaster, as well as the tracking of those FTE resident slots, were left to the home and host hospitals to work out among themselves. However, the home and host hospitals were required to include much of this information in their emergency Medicare GME affiliation agreements submitted both to CMS and the CMS contractor, as specified under § 413.79(f)(6). Furthermore, because hospitals were permitted to amend their emergency Medicare GME affiliation agreements (on or before June 30 of the relevant academic year) to reflect the actual training situation among the hospitals participating in the emergency Medicare GME affiliated group, hospitals were provided with a great
We received a number of comments on the interim final rules issued on April 12, 2006 and November 27, 2007 (71 FR 18654 through 18667 and 72 FR 66893 through 66898, respectively). We noted in the November 27, 2007 interim final rule with comment period that we believed it would be beneficial to provide the public with the opportunity to submit formal comments to the latest changes implemented in the November 27, 2007 interim final rule, in the context of the ongoing training situation in the area affected by Hurricanes Katrina and Rita, and that we would respond to comments submitted and finalize our policies relating to both the April 12, 2006 and the November 27, 2007 interim final rules in a subsequent final rule. A summary of those public comments and our responses follow.
Although the commenter believed that other Medicare policies recognize the need for modifications over time and that the imposition of a permanent “freeze” on the number of resident slots that Medicare would recognize for purposes of direct and indirect GME payments was inconsistent with that general practice, language in the Conference Report for the BBA of 1997 indicated that Congress anticipated the need for proper flexibility to respond to changing needs, especially given the sizeable number of urban hospitals that were not teaching hospitals at the time the direct GME and IME FTE resident caps were implemented, and that might elect to initiate new training programs in the future (H. Conf. Rept. No. 105–217, pp. 821–822). Accordingly, the statute allows non-teaching hospitals to become teaching hospitals and to receive direct GME and IME FTE resident caps if these hospitals participate in training residents in new programs that are accredited for the first time on or after January 1, 1995. In addition, rural hospitals, even those with existing teaching programs, may receive increases to their IME and direct GME FTE resident caps for training residents in new programs that are accredited for the first time on or after January 1, 1999.
The BBA of 1997 also provided flexibility for hospitals that cross-train residents to share their respective FTE resident caps. The statute authorized the Secretary to adopt rules under which hospitals could apply the FTE resident caps in the aggregate, and the Secretary adopted such rules. By entering into “Medicare GME affiliation agreements,” hospitals may combine their individual FTE resident caps to create “aggregate caps” for direct GME and IME, respectively. In this situation, the number of FTE residents that a particular hospital is permitted to count for direct GME and IME payment purposes may vary from the individual hospital's original FTE resident caps. However, the aggregate total number of FTE residents counted by all the hospitals participating in a Medicare GME affiliation agreement cannot exceed the aggregate total of the hospitals' direct GME and IME FTE resident caps. Consistent with the statute, in emergency situations, the emergency Medicare GME affiliation agreement provisions allow home hospitals the flexibility to temporarily transfer a portion or all of their FTE resident caps to host hospitals that are training the home hospitals' displaced residents. In contrast to the regular Medicare GME affiliation rules, for emergency Medicare GME affiliations, there is no requirement that the hospitals are “cross-training” residents.
In recent years, members of the GME community have asserted that, in general and on a national basis, an oversupply of physicians is no longer a pressing issue, although concerns that there is a maldistribution of physicians across the country (for example, not enough physicians in rural areas) and a narrow focus on training residents in inpatient settings still continue. In 2005, Congress took action to provide some relief to hospitals that were in need of additional FTE resident cap slots. Section 422 of the MMA authorized the one-time redistribution of FTE resident cap slots from hospitals that were not fully utilizing those positions to hospitals that demonstrated the
We appreciate the commenter's concern that after an emergency event, there is a critical need for home hospitals to continue to receive GME funding in order to engage in the rebuilding of their programs. However, the statutory provisions regarding the 3-year rolling average still apply. In response to the commenter that suggested we allow home hospitals to count FTE residents that return to the home hospital's program (whether they are the transferred residents returning home from host hospitals or “new” residents starting to train in the hospital's existing programs), without subjecting those FTE residents to the 3-year rolling average, the statute does not provide for such an exception to the 3-year rolling average for residents training in an existing program. However, we note that following an emergency event, home hospitals may be eligible for non-Medicare emergency relief funds that are specifically appropriated and intended to provide relief to hospitals for losses incurred due to the emergency event.
In response to the commenters who requested that the exception to the 3-year rolling average be extended past June 30, 2006, we note that CMS provided for the narrow, time-limited exception from the 3-year rolling average rules because we recognized that host hospitals may have taken on displaced residents with the reasonable expectation, based on our guidance, that the displaced residents would be counted pursuant to the “closed program” regulations, under which the 3-year rolling average rules do not apply. We do not believe it would be appropriate, consistent with the statute, to extend the exception beyond the period immediately following the disaster during which there was a change in the rules regarding the treatment of displaced residents. We note that, in the case of the host hospital, application of the 3-year rolling average rule for periods after June 30, 2006, will result in 2 years of residual increases in the hospitals' FTE resident counts, permitting them to continue to receive increased GME payments relating to displaced residents even after the residents leave the host hospital.
Furthermore, because the regulations at § 413.78(f) specify two options: (1) That hospitals must either have a written agreement in place before the training occurs or (2) they must pay “all or substantially all” of the costs for the training program in the nonhospital setting attributable to training that occurs during a month by the end of the third month following the month in which the training in the nonhospital site occurred, we provided additional flexibility in the “concurrent payment” option for home or host hospitals that have emergency Medicare GME affiliation agreements and are training displaced residents in nonhospital sites by extending the time allowable for “concurrent payment” from 3 months to 6 months. That is, we permit a home or host hospital with a valid emergency Medicare GME affiliation agreement to incur “all or substantially all” of the costs for the training program in the nonhospital setting attributable to training that occurs during a month by the end of the sixth month following the month in which the training in the nonhospital site occurred.
Finally, in the case of Hurricanes Katrina and Rita, we noted that the time limit we adopted to submit written agreements or to meet the “concurrent payment” requirement may have already passed. Therefore, we extended the deadline so that for residents training in nonhospital sites during the period of August 29, 2005, to November 1, 2007, home or host hospitals with valid emergency Medicare GME affiliation agreements could submit written agreements or incur “all or substantially all” of the costs of the training program (that is, the “concurrent payment” option) to cover those specific residents by April 29, 2008.
We did not receive any comments in response to our modifications of the regulations at § 413.78(e) and (f) as specified in the November 27, 2007 interim final rule.
We did not receive any public comments in response to the modification of the effective period for emergency Medicare GME affiliation agreements as specified in the November 27, 2007 interim final rule with comment period.
In response to the comment that hospitals may not have the documentation available to calculate occupancy rates before and after the disaster, if hospitals do not have this information available, we will work the hospitals on an individual basis so that a determination can be made.
“As a new teaching hospital, such a hospital initially will have IME and direct GME FTE resident caps of zero (based on the number of residents training in the 1996 base year for FTE resident caps). However, the new teaching hospital, by participating in an emergency Medicare GME affiliation agreement, can receive a temporary cap increase in order to count the displaced FTE residents for purposes of IME and direct GME payments.
As a new teaching hospital, the hospital will not have an existing per resident amount for direct GME payment purposes. The per resident amounts for these hospitals will be established as specified at § 413.77(e) (just as any other new teaching hospital would have its per resident amount established). The new teaching hospital's per resident amount is established based on the lower of the hospital's direct GME costs per resident in its base year, or the updated weighted mean value of the per resident amounts of all hospitals located in the same geographic wage area as specified in the regulations at § 413.77. Therefore, it is very important for a new teaching host hospital to incur direct GME costs in its base year and to document all of the direct GME costs it incurs (for example, the residents' salaries, fringe benefits, any portion of the teaching physician salaries attributable to GME, and other direct GME costs) for the displaced residents it is training; otherwise the host hospital risks being assigned a very low permanent per resident amount in accordance with our regulations. If the host, new teaching hospital incurs no GME costs in the relevant base year, its per resident amount would be zero dollars. We advise hospitals to refer to the regulations at § 413.77(e) for the rules concerning the establishment of a new teaching hospital's per resident amount. In accordance with section 1886(h) of the Act and our regulations, once the base year per resident amount is established, it is fixed and not subject to adjustment to reflect costs incurred in years subsequent to the base year that might be associated with new programs or additional residents.”
The commenters are not entirely correct in stating that “nonteaching hospitals that participate in emergency GME affiliation agreements do not lose their ‘nonteaching’ status for purposes of obtaining their own, permanent resident cap at some point in the future if they choose to start new residency training programs.” Once a hospital begins training residents, even if it is training residents as part of a Medicare GME affiliation agreement, that hospital will become a teaching hospital and it will have a PRA established based on the costs it incurs in training those residents. Therefore, as we stated in the proposed rule, it is important that a new teaching hospital incur costs in training residents so the hospital is not assigned a very low or zero PRA. The commenters are correct that host hospitals that were not previously teaching hospitals, which become new teaching hospitals by virtue of training displaced residents, receive a temporary cap adjustment based upon the displaced FTE residents they are training. The cap adjustment is temporary because it is obtained by virtue of the fact that the host hospital is participating in a Medicare GME emergency affiliation agreement. A new teaching hospital could receive a permanent adjustment to the hospital's FTE resident caps only if it begins training residents in a newly approved program. The regulations pertaining to the establishment of a permanent cap adjustment can be found at § 413.79(e). A hospital's cap is adjusted for new programs based on the product of the highest number of residents in any program year during the third year of the first program's existence for all new residency training programs and the minimum number of years in which residents are expected to complete the program based on the accredited length for the type of program. A hospital's adjusted cap is applied beginning with the fourth year of its first new residency training program. We also note that direct GME payment is based on a rolling average which is calculated based on a hospital's FTE resident counts from the current year, and the prior two years. However, FTE residents training in new teaching hospitals and in new residency training programs at existing teaching hospitals are excluded from the rolling average for the minimum accredited length of the program (dental and podiatry residents are always exempt from the rolling average).
Regarding the commenter's concerns about the regulations governing residency training at nonhospital sites, we addressed these concerns, providing greater flexibility for hospitals to meet the written agreement or concurrent payment requirements, in the November 27, 2007 interim final rule with comment period (72 FR 66898). In response to the commenter who requested CMS to add a regulatory definition of “new host teaching hospital,” we do not believe that a regulatory definition is necessary because the regulations at § 413.75(b) already contain a definition of host hospital, which as defined “means a hospital training residents displaced from a home hospital.” Our policy has always been that once a hospital begins training residents, the hospital is considered a teaching hospital. We urge hospitals to contact their fiscal intermediary/MAC and CMS if they have questions as to how GME regulations are applied to hospitals that become teaching hospitals as a result of training displaced residents.
From the comments that we received regarding the application of the IRB ratio cap, we believe some of the commenters may have been confused about the difference between the IRB ratio calculations for the current and prior years and the application of the IRB ratio cap based on the comparison of the current and prior years' IRB ratios. In accordance with section 1886(d)(5)(B)(vi)(II) of the Act, for the current year's IRB ratio, the numerator is based on the 3-year rolling average FTE resident count. In contrast, in accordance with section 1886(d)(5)(B)(vi)(I) of the Act, to determine the numerator of the prior year's ratio for purposes of the IRB ratio cap, the prior year's actual FTE resident count (subject to the FTE resident limit) is used (that is, the rolling average is not used to determine the numerator of the prior year's ratio for purposes of establishing the IRB ratio cap). The IRB ratio cap prescribes that the IRB ratio used for to calculate IME payments in the current year is the lesser of either the current year IRB ratio or the prior year IRB ratio as calculated in the manner described above. Accordingly, in the example presented by the commenter in which the home hospital is training no residents in FYs 2006 and 2007, although the commenter stated that IME payments would not be possible in FY 2006, in fact the hospital could receive IME payment in FY 2006 (assuming the hospital was training residents in FY 2005). That is, the numerator of the FY 2006 IRB ratio would be based on a rolling average count of the zero FTEs in FY 2006, and the number of FTEs training in FYs 2005 and 2004. For purposes of applying the IRB ratio cap, the numerator of the FY 2005 IRB ratio would be based on the actual number of FTE residents training in FY 2005 (subject to the FTE resident limit). Therefore, the hospital would receive IME payment in FY 2006.
The commenter also expressed concern that when home hospitals reopen or rebuild their GME programs after several years of training no or relatively few residents would be adversely affected by the IRB ratio cap. To continue the example discussed previously, if in FY 2008, the home hospital trains residents again after 2 years (2006 and 2007) in which there were no residents training at the hospital (that is, zero FTEs in the numerator of the IRB ratio of the prior year), the application of the IRB ratio cap would prevent the home hospital from receiving IME payment in FY 2008. We note that because the IRB ratio for the current year is based on a rolling average FTE count, while the IRB ratio for the prior year is based on the actual FTE count (subject to the FTE resident limit) for that year, the adverse effect of the application of the IRB ratio cap is limited to 1 year, assuming the hospital continues to train residents in the following years. We appreciate the commenter's concern that as home hospitals resume their training of FTE residents, they may be severely disadvantaged because of the 1-year lag in IME payments produced by application of the IRB ratio cap. We agree that after an emergency event, home hospitals could face a significant barrier in reopening or resuming previous levels of training in their GME programs due to the application of the IRB ratio cap, at a time when the home hospitals can least afford to have Medicare payments reduced. We also acknowledge that a host hospital that trains displaced residents through an emergency Medicare GME affiliation agreement could also be adversely affected by the application of the IRB ratio cap. Since the statute allows for an exception in the application of the IRB ratio cap for the special circumstances for Medicare GME affiliated groups and new programs, we are providing for home and host hospitals with valid emergency Medicare GME affiliation agreements an exemption from the application of the IRB ratio cap. Specifically, we are revising § 412.105(f)(1)(vi) of the regulations to specify that effective October 1, 2008, IME payments for home and host hospitals with valid emergency Medicare GME affiliation agreements will be calculated using the current year's IRB ratio without application of the IRB ratio cap. For example, a home hospital that has a valid emergency Medicare GME affiliation agreement and trains 60 FTE residents in FY 2008 after training no residents in FYs 2007 and 2006. If the IRB ratio cap is applied, the IRB ratio cap for FY 2008 would be zero (because the hospital trained no residents in FY 2007 so the IRB ratio for the prior year is zero). However, because of this exception to the application of the IRB ratio cap, the home hospital's FY 2008 IRB ratio would be based on 20 FTEs in the numerator ((60+0+0)/3=20). Accordingly, the IME payment for the home hospital would be based on 20 FTEs in the numerator of the 2008 IRB ratio rather than zero. We note that this provision is meant to allow home and host hospitals additional flexibility in the application of the IRB ratio cap, as provided for under section 1886(d)(5)(B)(viii) of the Act. However, we note that the 3-year rolling average FTE resident count (used in the numerator of the current year's IRB ratio) would still apply. We also note that, in accordance with section 1886(d)(5)((B)(vi)(I) of the Act, no adjustment to the IRB ratio is made for an increase in dental or podiatry residents during the cost reporting period in which an increase occurs because dental and podiatry residents are not included for purposes of calculating the IRB ratio.
Finally, we note that it has been several years since the section 1135 emergency areas were declared due to Hurricanes Katrina and Rita. While
Except for the modifications as noted below, we are adopting as final the policies included in the April 12, 2006 and November 27, 2007 interim final rules with comment period without further changes. The modifications to the April 12, 2006 and November 27, 2007 interim final rules that we are adopting as final policies include the following:
We are further modifying the deadline for the submission of emergency Medicare GME affiliation agreements in § 413.79(f)(6)(ii) to apply to all future emergency events that result in a declaration of an 1135 emergency area. Effective for emergency Medicare GME affiliation agreements required to be submitted on or after October 1, 2008, home and host hospitals must submit emergency Medicare GME affiliation agreements by 180 days after the end of the academic year in which the emergency event occurs and for the next academic year following the emergency event. For the remaining 3 academic years in which home and host hospitals are permitted to execute emergency Medicare GME affiliation agreements, hospitals are required to submit emergency Medicare GME affiliation agreements on or before July 1 of the relevant academic year.
We note that we had previously modified the submission deadline in the July 6, 2006 final rule (71 FR 38264 through 38266). The July 6, 2006 final rule permitted an extension in the submission deadlines only for home and host hospitals affected by Hurricanes Katrina and Rita. For emergency Medicare GME affiliation agreements that would otherwise be due on or before July 1, 2006, the deadline was subsequently extended to October 9, 2006.
For home and host hospitals with valid emergency Medicare GME affiliation agreements, we are providing for an exemption from application of the IRB ratio cap. Specifically, IME payments for home and host hospitals with valid emergency Medicare GME affiliation agreements are calculated based on the current year's IRB ratio (subject to the 3-year rolling average FTE resident provision and the hospital's Medicare IME cap.
In the April 12, 2006 interim final rule with comment period (70 FR 18654 through 18667), we revised § 413.79(f) by adding a paragraph (6) to provide more flexibility in emergency Medicare GME affiliations for home hospitals located in section 1135 emergency areas to allow the home hospital to efficiently find training sites for displaced residents. We have discovered that, under § 413.79(f)(6)(iv), in our provision on the host hospital exception from the rolling average for the period from August 29, 2005, to June 30, 2006, we included an incorrect cross-reference to the rolling average requirements for direct GME as “§ 413.75(d)”. The correct cross-reference to the rolling average requirement for direct GME is § 413.79(d). As we proposed in the FY 2009 IPPS proposed rule (73 FR 23667), we are correcting the cross-reference under § 413.79(f)(6)(iv) to read “paragraph (d) of this section”.
Section 1853 of the Act requires CMS to make advance monthly payments to a Medicare Advantage (MA) organization for each beneficiary enrolled in an MA plan offered by the organization for coverage of Medicare Part A and Part B benefits. Section 1853(a)(1)(C) of the Act requires CMS to adjust the monthly payment amount for each enrollee to take into account the health status of the MA plan's enrollees. Under the CMS-Hierarchical Condition Category (HCC) risk adjustment payment methodology, CMS determines risk scores for MA enrollees for a year and adjusts the monthly payment amount using the appropriate enrollee risk score.
Under section 1853(a)(3)(B) of the Act, MA organizations are required to “submit data regarding inpatient hospital services * * * and data regarding other services and other information as the Secretary deems necessary” in order to implement a methodology for “risk adjusting” payments made to MA organizations. Risk adjustments to payments are made in order to take into account “variations in per capita costs based on [the] health status” of the Medicare beneficiaries enrolled in an MA plan offered by the organization. Submission of data on inpatient hospital services has been required with respect to services beginning on or after July 1, 1997. Submission of data on other services has been required since July 1, 1998.
While we initially required the submission of comprehensive data regarding services provided by MA organizations, including comprehensive inpatient hospital encounter data, we subsequently permitted MA organizations to submit an “abbreviated” set of data. Our regulations at 42 CFR 422.310(d)(1) currently explicitly provide MA organizations with the option of submitting an abbreviated data set. Under this provision, we currently collect limited risk adjustment data from MA organizations, primarily diagnosis data.
From calendar years 2000 through 2006, application of risk adjustment to MA payments was “phased in” with an increasing percentage of the monthly
Specifically, we proposed to revise § 422.310(a) to clarify that risk adjustment data are data used not only in the application of risk adjustment to MA payments, but also in the development of risk adjustment models. For example, once encounter data for MA enrollees are available, CMS would have beneficiary-specific information on the utilization of services by MA plan enrollees. These data could be used to calibrate the CMS–HCC risk adjustment models using MA patterns of diagnoses and expenditures.
We proposed to revise §§ 422.310(b), (c), (d)(3), and (g) to clarify that the term “services” includes items and services.
We proposed to revise § 422.310(d) to clarify that CMS has the authority to require MA organizations to submit encounter data for each item and service provided to an MA plan enrollee. The proposed revision also would clarify that CMS will determine the formats for submitting encounter data, which may be more abbreviated than those used for the fee-for-service claims data submission process.
We proposed to revise § 422.310(f) to clarify that one of the “other” purposes for which CMS may use risk adjustment data collected under this section would be to update risk adjustment models with data from MA enrollees. In addition, when providing that CMS may use risk adjustment data for purposes other than adjusting payments as described at §§ 422.304(a) and (c), we proposed to delete the phrase “except for medical records data” from paragraph (f). Any use of medical records data collected under paragraph (e) of § 422.310 is governed by the Privacy Act and the privacy provisions in the HIPAA. Furthermore, there may be occasions when we learn from analysis of medical record review data that some organizations have misunderstood our guidance on how to implement an operational instruction. We want to be able to provide improved guidance to MA organizations based on any insights that may emerge during analysis of the medical record review data.
In addition, we proposed a technical correction to § 422.310(f) to clarify that risk adjustment data are used not only to adjust payments to plans described at §§ 422.301(a)(1), (a)(2), and (a)(3) (which refer to coordinated care plans and private fee-for-service plans), but also to adjust payments for ESRD enrollees and payments to MSA plans and Religious Fraternal Benefit society plans, as described at § 422.301(c).
Under § 422.310(g), we would continue to provide that data that CMS receives after the final deadline for a payment year will not be accepted for purposes of the reconciliation. However, we proposed to revise paragraph (g)(2) of § 422.310 to change the deadline from “December 31” of the payment year to “January 31” of the year following the payment year. We also proposed to add language to provide that CMS may adjust deadlines as appropriate.
After consideration of the public comments received, we are finalizing the proposed changes in policies under § 422.310, with one modification. Under § 422.310(f), we are identifying the uses of the encounter data that we will collect. Specifically, we will use the encounter data for calculating risk factors, updating risk adjustment models, calculating Medicare DSH percentages, conducting quality review and improvement activities, and for Medicare coverage purposes.
Sections 1866(a)(1)(I), 1866(a)(1)(N), and 1867 of the Act impose specific obligations on certain Medicare-participating hospitals and CAHs. (Throughout this section of this final rule, when we reference the obligation of a “hospital” under these sections of the Act and in our regulations, we mean to include CAHs as well.) These obligations concern individuals who come to a hospital emergency department and request examination or treatment for a medical condition, and apply to all of these individuals, regardless of whether they are beneficiaries of any program under the Act.
The statutory provisions cited above are frequently referred to as the Emergency Medical Treatment and Labor Act (EMTALA), also known as the patient antidumping statute. EMTALA was passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Public Law 99–272. Congress incorporated these antidumping provisions within the Social Security Act to ensure that individuals with emergency medical conditions are not denied essential lifesaving services. Under section 1866(a)(1)(I)(i) of the Act,
Section 1867 of the Act sets forth requirements for medical screening examinations for individuals who come to the hospital and request examination or treatment for a medical condition. The section further provides that if a hospital finds that such an individual has an emergency medical condition, it is obligated to provide that individual with either necessary stabilizing treatment or an appropriate transfer to another medical facility where stabilization can occur.
The EMTALA statute also outlines the obligation of hospitals to receive appropriate transfers from other hospitals. Section 1867(g) of the Act states that a participating hospital that has specialized capabilities or facilities (such as burn units, shock-trauma units, neonatal intensive care units, or, with respect to rural areas, regional referral centers as identified by the Secretary in regulation) shall not refuse to accept an appropriate transfer of an individual who requires these specialized capabilities or facilities if the hospital has the capacity to treat the individual. The regulations implementing section 1867 of the Act are found at 42 CFR 489.24. The regulations at 42 CFR 489.20(l), (m), (q), and (r) also refer to certain EMTALA requirements outlined in section 1866 of the Act. The Interpretive Guidelines concerning EMTALA are found at Appendix V of the CMS State Operations Manual.
Section 945 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108–173, required the Secretary to establish a Technical Advisory Group (TAG) to advise the Secretary on issues related to the regulations and implementation of EMTALA. The MMA specified that the EMTALA TAG be composed of 19 members, including the Administrator of CMS, the Inspector General of HHS, hospital representatives and physicians representing specific specialties, patient representatives, and representatives of organizations involved in EMTALA enforcement.
The EMTALA TAG's functions, as identified in the charter for the EMTALA TAG, were as follows: (1) Review EMTALA regulations; (2) provide advice and recommendations to the Secretary concerning these regulations and their application to hospitals and physicians; (3) solicit comments and recommendations from hospitals, physicians, and the public regarding the implementation of such regulations; and (4) disseminate information concerning the application of these regulations to hospitals, physicians, and the public. The TAG met 7 times during its 30-month term, which ended on September 30, 2007. At its meetings, the TAG heard testimony from representatives of physician groups, hospital associations, and others regarding EMTALA issues and concerns. During each meeting, the three subcommittees established by the TAG (the On-Call Subcommittee, the Action Subcommittee, and the Framework Subcommittee) developed recommendations, which were then discussed and voted on by members of the TAG. In total, the TAG submitted 55 recommendations to the Secretary. If implemented, some of the recommendations would require regulatory changes. Of the 55 recommendations developed by the TAG, 5 have already been implemented by CMS. A complete list of TAG recommendations is available in the Emergency Medical Treatment and Labor Act Technical Advisory Group final report available at the Web site:
• That CMS revise, in the EMTALA regulations [42 CFR 489.24(b)], the following sentence contained in the definition of “labor”: “A woman experiencing contractions is in true labor unless a physician certifies that, after a reasonable time of observation, the woman is in false labor.”
We revised the definition of “labor” in the regulations at § 489.24(b) to permit a physician, certified nurse-midwife, or other qualified medical person, acting within his or her scope of practice in accordance with State law and hospital bylaws, to certify that a woman is experiencing false labor. This recommendation was adopted with modification in the FY 2007 IPPS final rule (71 FR 48143). We issued Survey and Certification Letter S&C–06–32 on September 29, 2006, to clarify the regulation change. (The Survey and Certification Letter can be found at the following Web site:
• That hospitals with specialized capabilities (as defined in the EMTALA regulations) that do not have a dedicated emergency department be bound by the same responsibilities under EMTALA to accept appropriate transfers as hospitals with specialized capabilities that do have a dedicated emergency department.
This recommendation was adopted in the FY 2007 IPPS final rule (71 FR 48143). We added language at § 489.24(f) that makes explicit the current policy that all Medicare-participating providers with specialized capabilities are required to accept an appropriate transfer if they have the capacity to treat an individual in need of specialized care. We issued Survey and Certification Letter S&C–06–32 on September 29, 2006, to further clarify the regulation change. (The Survey and Certification Letter can be found at the following Web site:
• That CMS clarify the intent of regulations regarding hospital obligations under EMTALA to receive individuals who arrive by ambulance. Specifically, the TAG recommended that CMS revise a letter of guidance that had been issued by the agency to clarify its position on the practice of delaying the transfer of an individual from an emergency medical service provider's stretcher to a bed in a hospital's emergency department.
This recommendation was adopted with modification by CMS in Survey and Certification Letter S&C–07–20, which was released on April 27, 2007. (The Survey and Certification Letter can be found at the following Web site:
• That CMS clarify that a hospital may not refuse to accept an individual appropriately transferred under EMTALA on the grounds that it (the receiving hospital) does not approve the method of transfer arranged by the attending physician at the sending hospital (for example, a receiving hospital may not require the sending hospital to use an ambulance transport designated by the receiving hospital). In addition, CMS should improve its communication of such clarifications with its regional offices.
This recommendation was adopted and implemented by CMS in Survey and Certification Letter S&C–07–20, which was released on April 27, 2007. (The Survey and Certification Letter can be found at the following Web site:
• That CMS strike the language in the Interpretive Guidelines (CMS State
This recommendation was adopted and implemented by CMS in Survey and Certification Letter S&C–07–23, which was released on June 22, 2007. (The Survey and Certification Letter can be found at the following Web site:
We are considering the remaining recommendations of the EMTALA TAG and may address them through future changes to or clarifications of the existing regulations or the Interpretive Guidelines, or both.
At the end of its term, the EMTALA TAG compiled a final report to the Secretary. This report includes, among other materials, minutes from each TAG meeting as well as a comprehensive list of all of the TAG's recommendations. The final report is available at the following Web site:
While many issues pertaining to EMTALA involve individuals presenting to a hospital's dedicated emergency department, questions have been raised regarding the applicability of the EMTALA requirements to inpatients. We have previously discussed the applicability of the EMTALA requirements to hospital inpatients in both the May 9, 2002 IPPS proposed rule (67 FR 31475) and the September 9, 2003 stand alone final rule on EMTALA (68 FR 53243). As we stated in both of the aforementioned rules, in 1999, the United States Supreme Court considered a case (
As noted in section IV.I.2. of this preamble, the EMTALA TAG has developed a set of recommendations to the Secretary. One of those recommendations calls for CMS to revise its regulations to address the situation of an individual who: (1) Presents to a hospital that has a dedicated emergency department and is determined to have an unstabilized emergency medical condition; (2) is admitted to the hospital as an inpatient; and (3) the hospital subsequently determines that stabilizing the individual's emergency medical condition requires specialized care only available at another hospital.
We stated in the proposed rule that we believed that the obligation of EMTALA did not end for all hospitals once an individual had been admitted as an inpatient to the hospital where the individual first presented with a medical condition that was determined to be an emergency medical condition. Rather, once the individual was admitted, admission only impacted the EMTALA obligation of the hospital where the individual first presented. (Throughout this section of the preamble of this final rule, we refer to the hospital where the individual first presented as the “admitting hospital.”) Section 1867(g) of the Act states: “Nondiscrimination—A participating hospital that has specialized capabilities or facilities (such as burn units, shock-trauma units, neonatal intensive care units, or (with respect to rural areas) regional referral centers as identified by the Secretary in regulation) shall not refuse to accept an appropriate transfer of an individual who requires such specialized capabilities or facilities if the hospital has the capacity to treat the individual.” In the proposed rule we suggested that section 1867(g) of the Act requires a receiving hospital with specialized capabilities to accept a request to transfer an individual with an unstable emergency medical condition as long as the hospital has the capacity to treat that individual, regardless of whether the individual had been an inpatient at the admitting hospital. Our suggestion was supported by the September 9, 2003 final rule (68 FR 53263), in which we amended the regulations at § 489.24(d)(2)(i) to state that: “If a hospital has screened an individual under paragraph (a) of this section and found the individual to have an emergency medical condition, and admits that individual in good faith in order to stabilize the emergency medical condition,
We also noted in the proposed rule that, as discussed in the preamble of the September 9, 2003 stand-alone final rule, notwithstanding any EMTALA protections, a hospital inpatient is protected under the Medicare CoPs and may also have additional protections under State law. A hospital that fails to provide necessary treatment to such individuals could face termination of its Medicare provider agreement for a violation of the CoPs. We stated in the proposed rule that we believe it is consistent with the intent of EMTALA to limit its protections to individuals who need them most; for example, individuals who present to a hospital but may not have been formally admitted as patients and thus are not covered by other protections applicable to patients of the hospital. We believe that, in the case of inpatients, there is no need or requirement to also supplement the hospital's obligation to its patients under the CoPs in order to further the objectives of EMTALA. However, the obligations of a hospital under the CoPs apply only to that hospital's patients; they do not apply to individuals who are not patients. Further, there is no CoP that requires a hospital to accept the transfer of a patient from another facility. Thus, a hospital with specialized capabilities has no obligations under the CoPs to any nonpatients. On the other hand, the EMTALA statute, in section 1867(g) of the Act, does create an obligation for such hospitals to accept appropriate transfers of nonpatient individuals if it
We recognized that the proposed clarification that the obligation to accept an appropriate transfer under EMTALA applied to a hospital with specialized capabilities when an inpatient (who presented to the admitting hospital under EMTALA) was in need of specialized care to stabilize his or her emergency medical condition may have raised concerns among the provider community that such a clarification in policy could hypothetically result in an increase in the number of transfers. However, we stated that the intention of this proposed clarification was not to encourage patient dumping to hospitals with specialized capabilities. Rather, even if the hospital with specialized capabilities had an EMTALA obligation to accept an individual who was an inpatient at the admitting hospital, the admitting hospital transferring the individual should take all steps necessary to ensure that it has provided needed treatment within its capabilities prior to transferring the individual. This meant that an individual with an unstabilized emergency medical condition should only be transferred when the capabilities of the admitting hospital were exceeded.
Accordingly, we proposed to revise § 489.24(f) by adding to the existing text a provision that specifies that paragraph (f) also applies to an individual who has been admitted under paragraph (d)(2)(i) of the section and who has not been stabilized.
While we did not include the following in our proposed clarification, we sought public comments on whether the EMTALA obligation imposed on hospitals with specialized capabilities to accept appropriate transfers should apply to a hospital with specialized capabilities in the case of an individual who had a period of stability during his or her stay at the admitting hospital and is in need of specialized care available at the hospital with specialized capabilities. CMS takes seriously its duty to protect patients with emergency medical conditions as required by EMTALA. Thus, we sought public comments as to whether, with respect to the EMTALA obligation on the hospital with specialized capabilities, it should or should not matter if an individual who currently has an unstabilized emergency medical condition (which is beyond the capability of the admitting hospital) (1) remained unstable after coming to the hospital emergency department or (2) subsequently had a period of stability after coming to the hospital emergency department.
In summary, to implement the recommendation by the EMTALA TAG and clarify our policy regarding the applicability of EMTALA to hospital inpatients, we proposed to amend § 489.24(f) to add a provision to state that when an individual covered by EMTALA was admitted as an inpatient and remains unstabilized with an emergency medical condition, a receiving hospital with specialized capabilities has an EMTALA obligation to accept that individual, assuming that the transfer of the individual is an appropriate transfer and the participating hospital with specialized capabilities has the capacity to treat the individual.
Many commenters questioned whether such a change in policy was necessary since it is unlikely that a hospital would knowingly admit an individual with an unstabilized emergency medical condition who they did not have the capability or capacity to stabilize. One commenter noted that all hospitals which have emergency departments should be capable of evaluating an individual who presents to the emergency department and if the hospital does not have the capability to appropriately care for the individual, the hospital should transfer, rather than admit the individual. Another commenter stated it was not the intent of EMTALA for a hospital to be able to transfer any individual whose condition worsens after admission. Commenters asserted that the proposed rule is unnecessary because current statutory and regulatory requirements provide extensive legal protections separate and apart from EMTALA. One commenter stated that, in addition to hospital CoPs, the Arkansas Rules and Regulations for Hospitals and Related Institutions as well as the Rules and Regulations for Critical Access Hospitals contain hundreds of pages of requirements concerning hospitals' care and treatment for all patients.
Commenters asserted that CMS is relying on a recommendation of the EMTALA TAG to make its policy change and the actions of the TAG do not justify a need for a change in policy. One commenter noted that the TAG vote in favor of the recommendation to apply EMTALA to hospital inpatients was 10 to 8 and that 5 of the votes in favor of the recommendation came from the U.S. Department of Health and Human Services. The commenter also noted that the vote was taken twice and that the recommendation was voted as a “low” priority by the TAG. Commenters stated that a discussion of the contentious nature of the TAG's recommendation was not included in the preamble to the proposed rule. Specifically, the commenters noted that CMS failed to state that the recommendation was only passed by a slim majority with most of the physician and hospital representatives opposing the recommendation. Commenters noted that after the TAG meeting, members of
Many commenters were concerned that the proposed rule would facilitate patient dumping at hospitals with specialized capabilities. Commenters were concerned the admitting hospital would not initially pay sufficient attention to the EMTALA requirements by not adequately assessing whether it actually has the capabilities necessary to treat an individual who presents under EMTALA. The commenter stated that there is no clear mechanism outlined in the proposed rule for reporting a hospital that fails to treat individuals adequately or fails to utilize all available resources before transferring an individual. One commenter suggested that CMS require admitting hospitals, which are part of a larger hospital system, to look to other system hospitals within the geographic area for specialized capabilities before transferring an individual to a hospital located outside of the system (assuming it is in the best interests for the patient to be transferred). The commenter stated such a policy would dissuade hospitals from making transfers for financial rather than patient care reasons. One commenter asked CMS to clarify whether it intends for the proposed rule to apply to any individual with an emergency medical condition, regardless of whether or not the individual actually goes to the emergency department. The commenter stated, “Some patients with an emergency medical condition may have been a direct admission to the hospital by a local physician but never cared for initially by the ER; the patient simply came through the ER as a direct admission. We request CMS clarify whether these patients also will be covered by EMTALA.” Another commenter stated that in addition to being overwhelmed by transfer requests, a receiving hospital will have to determine: (1) Whether the inpatient originally presented to the requesting hospital's emergency department; (2) whether the patient has ever been stable; and (3) whether the patient requires specialized services not offered at the requesting hospital.
Commenters expressed their concern that tertiary care hospitals, urban safety net, and teaching hospitals that are already providing care to the indigent and uninsured patients, may become further overburdened by the proposed rule. Commenters stated that a sending hospital, acting in bad faith, could choose to only transfer medically complex patients requiring extensive lengths of stay, patients who are uninsured, and patients who have been subject to a medical error. One commenter stated that physicians expect that transfer requests of unresolved emergency medical conditions will come on weekends and holidays as a convenience measure and not a necessity. Another commenter stated that it treats more than 80,000 patients annually at its facility, which is the region's only Level I trauma center. The commenter stated it will always accept critically ill patients who are unable to be stabilized at another facility. The commenter stated that, under the proposed rule, it would now be obligated to accept the patient even though it has no ability to weigh in on the appropriateness of the transfer, which may not be in the best interest of the patient.
Commenters also expressed their concern on how the proposed rule would affect the care and treatment of patients. Commenters were especially concerned about the consequences to patient health (both physical and psychological) and safety due to a potential increase in inappropriate/unnecessary transfers and over-triaging. One commenter asserted that the proposed policy will worsen the increase of inappropriate transfers and that already too few seriously ill patients are receiving appropriate initial evaluations at Level I and II trauma centers, while too many patients with non serious injuries, are presenting to or being transferred to those centers. One commenter noted that if the policy is finalized as proposed, the referring hospital may transfer patients who deteriorate following admission, thereby risking the life of the patient. The commenter further noted that patients without health insurance may be given an incentive to bypass their closest emergency department and go to larger medical centers offering indigent care. The commenter noted that the proposed rule would discourage “savvy” patients from seeking care at the nearest available emergency department and encourage them to go to the most sophisticated emergency department to avoid the possibility of being admitted to a hospital lacking the necessary capabilities and the possibility of eventually being transferred. The commenter noted “Unless and until CMS recognizes the magnitude of the problem of some hospitals avoiding their EMTALA obligations, no EMTALA policy can ever be adequate to the task of protecting the interests of patients.”
Commenters expressed their concern with the definition of “stable” and “unstable” and how the interpretation of these terms could be affected by the proposed rule. One commenter highlighted the applicability of the proposed rule to the state of Idaho, stating that Idaho contains many small hospitals that may only employ one general surgeon or orthopedic surgeon. The commenter noted that, when individuals require transfer, often what makes the receiving hospital “the hospital with specialized capabilities” is that it has an on-call specialist. One commenter stated that hospitals will have the incentive to stretch the definition of “specialized” to make the determination that some component of care for a particular patient is beyond its capability.
One commenter stated that CMS lacks the legal authority to apply EMTALA to an inpatient who presented to the admitting hospital under EMTALA. The commenter stated that the 2003 rule established a “bright line” for EMTALA, which also made a distinction between “individuals” and “patients,” (the primary distinction being that individuals, not patients, are protected by EMTALA.) The commenter recommended CMS withdraw the proposed rule as not authorized under the limited scope of the EMTALA statute. Additionally, the commenter stated that the preamble to the proposed rule does not provide sufficient reason as to why EMTALA should be expanded to apply to inpatients. The commenter stated that both the EMTALA interpretive guidelines and judicial decisions emphasize that EMTALA is anti-discrimination and designed to ensure that all patients with similar signs and symptoms are treated the same as recipients of emergency care services. The commenter argued that the proposed rule is the antithesis of the intent of the EMTALA statute and creates a dual standard of care for patients who require the same level of care by permitting inpatients who present to the hospital under EMTALA
Another commenter recommended that the rule address requirements for the admitting hospital to take all steps necessary to ensure that it is providing required treatment within its capabilities prior to engaging in a transfer. The commenter stated that the proposed rule treats hospitals unequally because it does not impose sanctions on the transferring hospital for making an inappropriate transfer of an individual with residual EMTALA rights. The commenter stated that “If receiving hospitals are subject to EMTALA sanctions for refusing an appropriate transfer of an inpatient with residual EMTALA rights, then sending hospitals and physicians should have the equivalent exposure to sanctions for making an improper transfer of an inpatient with residual EMTALA rights.”
We agree with the commenters' concerns that some hospitals might abuse the proposed policy by not providing patients with the necessary screening examination required under EMTALA to determine the nature and extent of their emergency medical condition. We believe that, in the case where an individual is admitted and later found to be in need of specialized care not available at the admitting hospital, hospitals with specialized capabilities generally do accept the transfer, even in the absence of a legal requirement to do so. Furthermore, as one commenter pointed out by referencing the Arkansas Rules and Regulations for Hospitals and Related Institutions as well as the Rules and Regulations for Critical Access Hospitals, some States have requirements in addition to the hospital CoPs that provide for further protections for patients.
We are very concerned about the possible disparate treatment of inpatients under the proposed policy. Specifically, under the proposed policy, an individual who presented to the hospital under EMTALA may have different transfer rights than an inpatient who was admitted for an elective procedure. This situation also creates operational challenges for hospital staff to differentiate which inpatient is afforded which transfer rights. Determining which individuals are covered by transfer rights under EMTALA may tie up a hospital's already strained resources. Furthermore, we believe that if we finalized the proposed rule, the admitting hospital may encounter challenges in determining whether or not an individual has ever been stable, as that term is defined in the EMTALA statute, because if the individual had any period of stability, EMTALA would not require acceptance of the transfer by the hospital with specialized capabilities. We recognize that the EMTALA definition of “stable” differs from clinical usage of this term.
We support in principle the commenter's suggestion that hospitals that are part of a larger hospital system should transfer an individual to a system hospital with the required specialized capabilities within the same geographic area, so long as doing so would not result in a significantly longer transport for the individual than would transfer to a nonsystem hospital. However, we cannot mandate that individuals only be transferred to certain hospitals within a specific geographic region. In response to the commenter who asked that we clarify (in the context of the proposed rule) whether EMTALA would apply to an individual with an emergency medical condition, regardless of whether or not the individual went to the emergency department, we would like to clarify when EMTALA applies. In addition to EMTALA applying when an individual presents to a hospital emergency department and requests examination or treatment for a medical condition, or has a request made on his or her behalf, EMTALA applies when an individual presents on hospital property (as defined at § 489.24(b)) and requests examination or treatment for an emergency medical condition, or has a request made on his or her behalf.
We recognize the concern of the commenters that the recommendation provided by the TAG to apply EMTALA to hospital inpatients was accepted by the TAG on the narrowest of margins and that the majority of hospital representatives serving on the TAG were opposed to the recommendation. The discussion of the TAG's recommendation is provided on the CMS Web site under the meeting reports link, or link to the EMTALA TAG final report at :
Due to the many concerns that the commenters raised which are noted above, we believe it is appropriate to finalize a policy to state that if an individual with an unstable emergency medical condition is admitted, the EMTALA obligation has ended for the admitting hospital and even if the individual's emergency medical
Commenters stated that the proposal would effectively treat the hospitalized inpatient as an individual who comes to the hospital with specialized capabilities seeking emergency care, when the hospital with specialized capabilities falls within the conditions described under section 1867(g) of the Act. The commenter took issue with CMS' 2003 final rule and stated that the proposed policy corrects the problem introduced by CMS' 2003 final rule, when the agency decided that inpatient admission would end EMTALA unless a subterfuge can be proven. One commenter asserted that the fact of whether or not an individual was admitted is irrelevant in determining whether the individual has an emergency medical condition or whether the admitting hospital has the capability to provide the necessary care. Instead, the commenter mentioned the aforementioned criteria are “* * * the only operative criteria to whether the transfer is justified under EMTALA.” The commenter stated that EMTALA was conceived because Congress recognized that patients needing transfers were being denied access to higher levels of care. The commenter urged CMS to go forward with the proposed changes and requested that clarifying language be included to establish that “* * * CMS recognizes no provisions in paragraph G anti-discrimination provisions that would allow a receiving hospital to deny any patient on the basis of their admission status or physical location at the sending facility.”
Another commenter stated that CMS' proposal is in the best interests of patient care and should be implemented. The commenter claimed that without clarification, a hospital with specialized capabilities could legitimately decline a transfer, asserting that hospitals' EMTALA obligations and rights end upon admission of an individual to a hospital. The commenter stated that “CMS should monitor closely the actual experience of inpatient emergency transfer to specialized care facilities for the first two years and then, if warranted, consider an appropriate DRG reimbursement adjustment for the initial admitting hospital's abbreviated admission that resulted in an emergent transfer to a specialized acute care facility.”
Finally, as stated previously, due to the concerns that commenters raised, we are not finalizing the proposed policy. Rather, we are finalizing a policy that a hospital with specialized capabilities is not required under EMTALA to accept the transfer of a hospital inpatient. Although we believe that the language of section 1867(g) of the Act can be interpreted as either applying or not applying to inpatients, after reviewing the comments raised by many commenters, we have serious concerns about the impact the proposed policy would have had on patient care and the possibility that it may overburden many hospitals that are currently having difficulties providing sufficient emergency care.
As stated previously, in this final rule, rather than adopting the proposed regulation language, we are clarifying the EMTALA regulations at § 489.24(f) with respect to hospital inpatients by stating that once an individual is admitted in good faith by the admitting hospital, the admitting hospital has satisfied its EMTALA obligation with respect to that individual even if the individual remains unstabilized and a hospital with specialized capabilities does not have an EMTALA obligation to accept an appropriate transfer of that individual. We encourage the public to make CMS aware if this interpretation of section 1867(g) of the Act should result in harmful refusals by hospitals with specialized capabilities to accept the transfer of inpatients whose emergency medical condition remains unstabilized, or any other unintended consequences.
During its term, the EMTALA TAG dedicated a significant portion of its discussion to a hospital's physician on-call obligations under EMTALA and made several recommendations to the Secretary regarding physician on-call requirements that are included in its final report (available at the Web site:
To implement the EMTALA TAG's recommendation, in the FY 2009 IPPS proposed rule, we proposed to delete the provision relating to maintaining a list of on-call physicians from § 489.24(j)(1). We noted that a provision for an on-call physician list is already included in the regulations as a hospital provider agreement requirement at § 489.20(r)(2). We proposed to incorporate the language of § 489.24(j)(1) as replacement language for the existing § 489.20(r)(2) and amend the regulatory language to make it more consistent with the statutory language found at section 1866(a)(1)(I)(iii) of the Act. We proposed that revised § 489.20(r)(2) would read: “An on-call list of physicians on its medical staff available to provide treatment necessary after the initial examination to stabilize individuals with emergency medical conditions who are receiving services required under § 489.24 in accordance with the resources available to the hospital.”
The EMTALA TAG made additional recommendations regarding how a hospital would satisfy its on-call list obligations, including calling for an annual plan by the hospital and medical staff for on-call coverage that would
In response to the commenters who suggested moving all of the language currently at § 489.24(j) to § 489.20(r), the proposed regulations regarding community call and the existing regulations that permit on-call physicians to serve simultaneous call and schedule elective surgery while on-call provide hospitals and physicians flexibility in meeting the requirement that when an emergency room physician requests the appearance of an on-call physician, that on-call physician is required to appear under EMTALA. We believe that the provisions included under § 489.24(j) should continue to be included under the EMTALA regulations and should not be moved to the provider agreement regulations at § 489.20(r).
We are adding the phrase “who are on the hospital's medical staff, or who have privileges at the hospital, or who are on staff or have privileges at another hospital participating in a formal community call plan in accordance with § 489.24(j)(2)(iii)” to the regulation text to make the regulation text consistent with our policy on community call plans. The finalized regulation text at § 489.20(r)(2) reads: “An on-call list of physicians who are on the hospital's medical staff, or who have privileges at the hospital, or who are on staff or have privileges at another hospital participating in a formal community call plan in accordance with § 489.24(j)(2)(iii) available to provide treatment necessary after the initial examination to stabilize individuals with emergency medical conditions who are receiving services required under § 489.24 in accordance with the resources available to the hospital.''
As noted in the previous section, section 1866(a)(1)(I)(iii) of the Act states, as a requirement for participation in the Medicare program, that a hospital must keep a list of physicians who are on call for duty after the initial examination to provide treatment necessary to stabilize an individual with an emergency medical condition. If a physician on the list is called by a hospital to provide stabilizing treatment and either fails or refuses to appear within a reasonable period of time, the hospital and that physician may be in violation of EMTALA as provided for under section 1867(d)(1)(C) of the Act. Thus, hospitals are required to maintain a list of on-call physicians, and physicians or hospitals, or both, may be held responsible under the EMTALA statute if a physician who is on call fails or refuses to appear within a reasonable period of time.
In the May 9, 2002 proposed rule (67 FR 31471), we stated that we were aware of hospitals' increasing concerns regarding their physician on-call requirements. Specifically, we noted that we were aware of reports of physicians, particularly specialty physicians, severing their relationships with hospitals because of on-call obligations, especially when those physicians belong to more than one hospital medical staff. We further noted that physician attrition from these medical staffs could result in hospitals having no specialty physician service coverage for their patients. In the September 9, 2003 final rule (68 FR 53264), we clarified the regulations at § 489.24(j) to permit on-call physicians to schedule elective surgery during the time that they are on call and to permit on-call physicians to have simultaneous on-call duties. We also specified that physicians, including specialists and subspecialists, are not required to be on call at all times, and that the hospital must have policies and procedures to be followed when a particular specialty is not available or the on-call physician cannot respond because of situations beyond his or her control. We expected these clarifications to help improve access to physician services for all hospital patients by permitting hospitals flexibility to determine how best to maximize their available physician resources. Furthermore, we expected that these clarifications would permit hospitals to continue to attract physicians to serve on their medical staffs, thereby continuing to provide services to all patients, including those
As part of its recommendations concerning physician on-call requirements, the EMTALA TAG recommended that hospitals be permitted to participate in “community call.” Specifically, the language of the recommendation states: “The TAG recommends that CMS clarify its position regarding shared or community call: That such community call arrangements are acceptable if the hospitals involved have formal agreements recognized in their policies and procedures, as well as backup plans. It should also be clarified that a community call arrangement does not remove a hospital's obligation to perform an MSE [medical screening examination].” The TAG also recommended in a subsequent recommendation that “A hospital may satisfy its on-call coverage obligation by participation in an approved community/regional call coverage program (CMS to determine appropriate approval process).”
We believe that community call (as described below) would afford additional flexibility to hospitals providing on-call services and improve access to specialty physician services for individuals in an emergency department. Therefore, in the FY 2009 IPPS proposed rule, we proposed to amend our regulations at § 489.24(j) to provide that hospitals may comply with the on-call list requirement specified at § 489.20(r)(2) (under our proposed revision), by participating in a formal community call plan so long as the plan meets the elements outlined below. We further proposed to revise the regulations to state that, notwithstanding participation in a community call plan, hospitals are still required to perform medical screening examinations on individuals who present seeking treatment and to provide for transfer when appropriate.
We proposed “community call” to be a formal on-call plan that permits a specific hospital in a region to be designated as the on-call facility for a specific time period, or for a specific service, or both. For example, if there are two hospitals that choose to participate in community call, Hospital A could be designated as the on-call facility for the first 15 days of each month and Hospital B could be designated as the on-call facility for the remaining days of each month. Alternatively, Hospital A could be designated as on-call for cases requiring specialized interventional cardiac care, while Hospital B could be designated as on-call for neurosurgical cases. Based on the proposal, we anticipated that hospitals and their communities would have the flexibility to develop a plan that reflects their local resources and needs. Such a community on-call plan would allow various physicians in a certain specialty in the aggregate to be on continuous call (24 hours a day, 7 days a week), without putting a continuous call obligation on any one physician. We note that, generally, if an individual arrives at a hospital other than the designated on-call facility, is determined to have an unstabilized emergency medical condition, and requires the services of an on-call specialist, the individual would be transferred to the designated on-call facility in accordance with the community call plan.
As noted above, we proposed that a community call plan must be a formal plan among the participating hospitals. While we do not believe it is necessary for the formal community call plan to be subject to preapproval by CMS, if an EMTALA complaint investigation is initiated, the plan will be subject to review by CMS. We proposed that, at a minimum, hospitals must include the following elements when devising a formal community call plan:
• The community call plan would include a clear delineation of on-call coverage responsibilities, that is, when each hospital participating in the plan is responsible for on-call coverage.
• The community call plan would define the specific geographic area to which the plan applies.
• The community call plan would be signed by an appropriate representative of each hospital participating in the plan.
• The community call plan would ensure that any local and regional EMS system protocol formally includes information on community on-call arrangements.
• Hospitals participating in the community call plan would engage in an analysis of the specialty on-call needs of the community for which the plan is effective.
• The community call plan would include a statement specifying that even if an individual arrives at the hospital that is not designated as the on-call hospital, that hospital still has an EMTALA obligation to provide a medical screening examination and stabilizing treatment within its capability, and hospitals participating in community call must abide by the EMTALA regulations governing appropriate transfers.
• There would be an annual reassessment of the community call plan by the participating hospitals.
We proposed that revised § 489.24(j) would read “
We welcomed public comments on the proposed elements of the formal community call plan noted above. We also solicited public comments on whether individuals believe it is important that, in situations where there is a governing State or local agency that would have authority over the development of a formal community call plan, the plan be approved by that agency. In summary, we proposed that, as part of the obligation to have an on-call list, hospitals may choose to participate in community call, provided that the formal community call plan includes, at a minimum, the elements noted in bullets above. In addition, we proposed that each hospital participating in the community call plan must have written policies and procedures in place to respond to situations in which the on-call physician is unable to respond due to situations beyond his or her control. We further proposed that a hospital would still be responsible for performing medical screening examinations on individuals who present to the hospital seeking treatment and conducting appropriate transfers, regardless of which hospital has on-call responsibilities on a particular day.
In addition, some commenters stated that the community call proposal would be particularly important to rural areas where physicians are in short supply. One commenter specifically addressed concerns about on-call coverage for the field of neurosurgery. The commenter stated that there are approximately 3,100 board certified neurosurgeons actively practicing in the country and about 5,000 hospitals with emergency departments. The commenter stated it is, therefore, impossible to have neurosurgical on-call coverage for every emergency department 24 hours a day, 7 days a week, 365 days a year. The commenter noted that, in an effort to provide as much on-call coverage as possible, more than half of the country's neurosurgeons take simultaneous call at more than 1 hospital, 28 percent of neurosurgeons cover 2 hospitals, 13 percent cover 3 hospitals, and 10 percent cover 4 or more hospitals. The commenter stated that the Institute of Medicine's (IOM's) series of reports on the future of emergency care addressed the shortage of on-call specialists. The commenter noted that an IOM committee studying the issue of on-call specialists identified regionalization of specialty services as an approach that warrants special consideration. The commenter included in its comment some language from the IOM committee and stated that while not exactly the same as regionalization, the idea of community call addresses a number of the same challenges that hospitals and on-call specialists face in their attempt to provide on-call coverage. The commenter stated that the IOM committee also noted that current EMTALA rules may be hampering the adoption of regional or community call; the commenter included language from the IOM committee which stated “uncertainty surrounding the interpretation and enforcement of EMTALA remains a damper to the development of coordinated, integrated emergency care systems.” The commenter noted that the IOM recommended “that the Department of Health and Human Services adopt regulatory changes to the Emergency Medical Treatment and Active Labor Act (EMTALA) * * * so that the original goals of the law are preserved but integrated systems may further develop.” The commenter stated that [they] are hopeful that because CMS has embraced the concept of community call and in essence removed the EMTALA barrier to organize such plans, patient access to timely emergency neurosurgical care will improve.
The commenters cautioned CMS against being too prescriptive in the requirements imposed on hospitals that choose to participate in a community call arrangement. In particular, the commenters recommended that CMS delete the requirement in the proposed § 489.24(j)(2)(iii)(E) requiring “evidence of engagement of the hospitals participating in the community call plan in an analysis of the specialty on-call needs of the community for which the plan is effective.” One commenter encouraged CMS to work with other Federal agencies to remove legal and financial barriers to facilitate the proposed rule. The commenter noted that recent efforts to develop a community call plan in one county in Florida have been promising, although complex. The commenter urged CMS to provide for as much flexibility as possible to “* * * support models for other communities to emulate.”
Several commenters stated that CMS should not require approval of community call plans by public agencies. Another commenter stated that while the development of a community call plan is a worthwhile goal, developing that plan may be challenging, especially in communities where there is competition between hospitals and hospital systems. The commenter supported the proposal that the community call remain voluntary. Another commenter believed that the use of community call plans will provide relief to hospitals that are struggling to meet their EMTALA obligations. The commenter suggested CMS consider requiring medical staff to take call as a condition of holding privileges at a hospital. The commenter stated that legally requiring hospitals to maintain a call schedule, but placing no legal obligation on medical staff to participate in on-call, has led to staff members refusing to participate, participating only if paid, or changing their status from “active” to “courtesy” or “consulting” (categories which the commenter noted, traditionally, do not require a physician to take call).
One commenter supported the proposal to formalize in regulation previous subregulatory guidance related to unavailability of certain specialists, scheduling elective surgery while taking call, and simultaneous on-call duties. In addition, the commenter “* * * enthusiastically supports any initiative that fosters communication and cooperation among the hospitals in a community.” The commenter stated that while the proposed regulations on community call fall under the EMTALA regulations, they are in line with The Joint Commission standards for emergency management that involve community partners in the development of emergency management plans as well as communication with community emergency response agencies and directives for timely communication with other hospitals during an emergency.
One commenter stated the preamble indicated that a community call plan, which would qualify under the proposed rule, should have in the aggregate physicians on continuous call (24 hours a day, 7 days a week) and that this requirement is too restrictive and should be made more flexible. The commenter stated that this requirement does not appear to be consistent with the current regulatory standard that allows hospitals to maintain an on-call list in accordance with the hospital's resources.
In response to the commenter who requested CMS provide models of community call plans for other communities to emulate, we stated in the proposed rule that we do not believe a community call plan needs preapproval from CMS. We continue to believe that a community call plan does not require authorization from CMS prior to taking effect. However, we encourage hospitals that believe they
In response to the commenter who suggested CMS require medical staff to take call as a condition of holding privileges at a hospital, we believe that would be an overly broad and inflexible approach to developing specific on-call arrangements for each hospital. Hospitals can, if they choose, make taking a call a requirement for physicians granted privileges at their hospital. In response to the commenter who supported “the proposal” to formalize the subregulatory guidance permitting simultaneous call and scheduling of elective surgery while on-call, we are clarifying that CMS previously finalized these regulations in the September 9, 2003 final rule (68 FR 53264). We did not propose any changes to those provisions in the FY 2009 IPPS proposed rule. We stated in the proposed rule that we believe a community call plan will allow various physicians in a certain specialty, in the aggregate, to be on continuous call (24 hours a day, 7 days a week) without putting a continuous call obligation on any one physician. While we are not at this time mandating that hospitals maintain 24/7 on-call coverage, hospitals should carefully consider whether they are providing sufficient on-call services in line with their available resources. In the event of an investigation related to the compliance of a hospital with regard to an on-call list, whether accomplished through a community call plan or not, the determination, as at present, will be based on the specific circumstances of that hospital and, if applicable, the community call plan. We also note that the TAG made additional recommendations on the topic of on-call requirements which remain under consideration by CMS, and which may be the subject of future rulemaking or revisions of interpretative guidelines.
With regard to the elements that we proposed that must be included in a formal community call plan, we agree with the commenters that it is not necessary for a community call plan to include the following proposed requirement in proposed § 489.24(j)(2)(iii)(E): “Evidence of engagement of the hospitals participating in the community call plan in an analysis of the specialty on-call needs of the community for which the plan is effective.” We believe this requirement is covered under proposed paragraph (G) of § 489.24(j)(2)(iii), which requires: “An annual reassessment of the community call plan by the participating hospitals.” Therefore, we are finalizing the community call regulation as proposed, with one modification. We are deleting the requirement under paragraph (E) of the proposed § 489.24(j)(2)(iii).
Another commenter requested clarification of the application of the HIPAA to the proposed policy. The commenter asked whether, because protected health information of patients who may need the services of on-call physicians would not be in existence at the time of the community call agreement, the community call agreement would be classified under health care operations, an organized health care organization, or a business relationship. The commenters also requested clarification of the proposed policy if one or several hospitals that were part of a proposed community call plan decided not to participate in the plan. The commenters requested that CMS respond to the following questions regarding hospital participation: (1) Does nonparticipation of all providers invalidate the plans? (2) Is there a threshold for participation that must be met? (3) Does the presence of a community call plan in an area with nonparticipating providers partially or fully meet the nonparticipating hospital's EMTALA obligation?
In response to the commenter who expressed concerns about the applicability of the HIPAA Privacy Rule to the proposed community call provisions, the Office for Civil Rights (OCR) in the U.S. Department of Health and Human Services provides technical guidance and enforces the HIPAA Privacy Rule. OCR has explained that hospitals and other covered health care providers with a direct treatment relationship with individuals are not required to provide their notices to patients at the time they are providing emergency treatment. In these situations, the HIPAA Privacy Rule requires only that providers give patients a notice when it is practical to do so after the emergency situation has ended. In addition, where notice is delayed by an emergency treatment situation, the Privacy Rule does not require that providers make a good faith effort to obtain the patient's written acknowledgment of receipt of the notice. Any questions concerning the application of the HIPAA Privacy Rule to patients with emergency medical conditions should be directed to OCR.
One commenter requested further research on the impact of the proposed rule and suggested pilot testing in representative communities to determine the impact. Another commenter stated that while it does appear that community call arrangements would encourage physicians to take call at specific hospitals, in most cases there are not enough tertiary care hospitals with specialized capabilities to manage all of the transfer requests. The commenter stated that from her experience, a community call plan does not stop abuse of EMTALA and stated “It should not surprise CMS, and it is an unspoken truth, that specialty physicians prefer insured patients.” The commenter noted a difference in the treatment of individuals who are uninsured versus those who are insured and stated that if an individual is uninsured a specialty physician may refuse to see that individual. The commenter asserted that, in such a case, the hospital would need to transfer the individual because no physician will see him or her and the hospital would not be paid for admitting the individual. The commenter stated that it is very difficult for a receiving hospital to charge the transferring hospital with an EMTALA violation because “* * * we must take them at their professional word that the hospital does not have a physician on call for the needs of the patient.” The commenter provided several examples that illustrate abuse of EMTALA requirements and recommended that, to avoid abuse of the community call plan, hospitals be “* * * required to report the results of the on-call annual plan and the patients that the on-call physician accepts on subsequent days, but was not on call or available for the day the patient came to the ER.” In addition, the commenter requested that CMS address that commenter's suggestion that local emergency rooms should make every effort to arrange the transportation of an individual to a nearby facility before turning to tertiary and quaternary care centers. One commenter stated that hospitals' annual on-call plans should be made available to the public and should include an assessment of whether the plan was adequate. The commenter also suggested the hospitals' backup plans be made available.
Another commenter stated that the proposed policies would have a negative impact on patients. The commenter stated that a community call arrangement, such as the one outlined in the proposed rule could “* * * erode an emergency department physician's ability to consult a specialist and may require a patient transfer to the hospital that the on-call specialist is covering.” The commenter stated that it is unfair and unsafe to transport an individual only for the convenience of the on-call specialist. The commenter also noted that moving the individual to the on-call specialist could delay treatment and increase the staffing burden on an already-taxed emergency care system because it is likely that advanced life support as well as a registered nurse would be required to accompany the individual. Instead of the proposal, the commenter urged CMS to adopt the recommendation provided by the IOM (included in
In response to the commenter who suggested that hospitals be “* * * required to report the results of the on-call annual plan and the patients that the on-call physician accepts on subsequent days, but was not on call or available for the day the patient came to the ER,” we stated in the regulations proposed at § 489.24(j)(2)(iii)(G) that there must be an “Annual assessment of the community call plan by the participating hospitals.” However, we believe that a requirement for hospitals to report the results of their community call plans on an annual basis to CMS may be too burdensome. Therefore, we are not instituting a mandatory reporting requirement at this time.
In response to the commenters who suggested further research and adoption of the IOM recommendation, we anticipate that we will continue to present proposals concerning various on-call issues in future rulemaking and will consider the commenters' suggestions at that time.
(1) Will the final regulation address whether the shared/community call
(2) What parameters will be allowed to define the specific geographic area? For example, does it have to be set up to include an entire county, or could it be as small as a city or sub-county region?
(3) Do all hospitals within the defined geographic area have to participate in the community call plan?
(4) Will CMS place any safeguards into the regulation to prevent hospitals from other counties or areas outside the defined geographic area from taking advantage of the new community call plan by transporting patients to the designated on-call facility absent a transfer agreement?
(5) Will any entity grant authority to community call plans?
(6) Will the community call plan regulation provide any guidance on the financial/payer arrangements for patients outside the Medicare and Medicaid system and the implication of patients being transferred to a hospital that may not accept their insurance?
(7) The development of community call plans should not impose a disproportionate and uncompensated obligation on tertiary hospitals that have a broader representation of medical specialties in limited supply on their medical staffs.
In response to the commenters request for clarification on defining the geographic boundaries of a community call plan, we did not specify in the proposed rule any geographic parameters that a community call plan must adhere to; that is, we did not specify whether a community call plan must cover a city, region, or State, or other area because we intended to promote flexibility for hospitals in the development of community call plans. Therefore, we would like to clarify that there are no geographic rules that hospitals must follow as participants of a community call plan. Similarly, not all hospitals within a defined geographic area need to participate in the community call plan. For example, if four hospitals are located in a specific county and only three of those hospitals choose to participate in the community call plan, the plan will not be invalidated due to lack of participation of the fourth hospital in the community call plan.
In response to the commenter's question as to whether CMS will place any safeguards into the regulation to prevent hospitals not participating in the plan from transporting individuals to the on-call facility without a transfer agreement, we specified in the proposed regulation text at § 489.24(j)(2)(iii) that: “Notwithstanding participation in a community call plan, hospitals are still required to perform medical screening examinations on individuals who present seeking treatment and
In the proposed rule, we did not propose, but solicited comment, on whether community call plans should be approved by State or local agencies. We did not receive any comments supporting preapproval of a community call plan by a local or State agency, or both. Therefore, at this time, we are not requiring local, State, or Federal agencies to approve a community call plan.
In response to the commenter's request for guidance as to whether the regulations would give guidance on financial/payer arrangements to provide for individuals not covered by Medicare or Medicaid and the implication of individuals being transferred to a hospital that may not accept their insurance, we note that the intent of EMTALA is to ensure that an individual presenting to a hospital with a dedicated emergency department receives an appropriate medical screening examination to determine whether the individual has an emergency medical condition and, if necessary, receives stabilizing treatment or providing for an appropriate transfer to another facility, regardless of the individual's method of payment or insurance status. Thus, we do not see the relevance of providing any guidance on financial/payer arrangements outside of the EMTALA context. Together with the OIG, we issued a Special Advisory Bulletin on the Patient Anti-Dumping Statute that addresses hospital obligations toward individuals under EMTALA, including individuals covered under managed care plans (64 FR 61353). We continue to stand by that guidance.
In summary, after consideration of the public comments we received, we are finalizing the community call provision at § 489.24(j)(2)(iii) as proposed, with one modification. We are deleting the requirement at proposed paragraph (j)(2)(iii)(E) “Evidence of engagement of the hospitals participating in the community call plan in an analysis of the specialty on-call needs of the community for which the plan is effective.”
In the FY 2008 IPPS final rule with comment period (72 FR 47413), we revised § 489.24(a)(2) (which refers to the nonapplicability of certain EMTALA provisions in an emergency area during an emergency period) to conform it to the changes made to section 1135 of the
In the FY 2009 IPPS proposed rule (73 FR 23673), we discussed the development and application of evidence-based best practices meant to reduce the incidence of avoidable hospital readmissions. We note that we are not adopting policy in this final rule. Rather, we are providing a summary of the public comments received on this topic.
A significant portion of Medicare spending—$15 billion each year—is related to hospital readmissions. According to a 2005 MedPAC report,
The FY 2009 IPPS proposed rule (73 FR 23673) did not propose any specific policy regarding readmissions but instead highlighted issues related to measurement, accountability, and value-based purchasing (VBP) incentives. Specifically, we presented three VBP options to reduce costs and improve quality related to readmissions: (1) Direct adjustments to hospital payments; (2) adjustments to hospital payments through a performance-based payment methodology; and (3) public reporting of readmission rates.
Of the approximately 1,150 comments received on the FY 2009 IPPS proposed rule, 65 (5.6 percent) addressed readmissions to hospitals. Hospital associations and hospitals submitted over 70 percent of the relevant public comments, with medical specialty societies comprising the next largest group of commenters. A summary of these public comments are included under the subject topics.
In the FY 2009 IPPS proposed rule, we noted certain prerequisites for initiatives intended to reduce hospital readmission rates, including the recognition that routine, valid, and reliable measurements are important to encourage trust and to engage stakeholders. Moreover, measurement data should be meaningful and actionable for hospitals.
Risk adjustment is one method for achieving more accurate measurement of preventable readmissions. The proposed rule stated that a zero percent readmission rate may not be an appropriate goal, as extremely low readmission rates could indicate restricted access to necessary medical services rather than quality health care delivery. However, risk adjustment could help define expected readmission rates for a given patient or patient population.
Informative readmission measurement also requires an appropriate timeframe between discharge and readmission on which to base measures of avoidable readmissions. For example, a 30-day window is used for readmission measures in the RHQDAPU program and the 9th Scope of Work for Medicare Quality Improvement Organizations (QIOs).
One commenter suggested that CMS use QIO data to conduct research and develop a knowledge base to help answer readmission measure specification questions of this type. However, the commenter did not specifically address the appropriateness of the 30-day window.
In the proposed rule, we also solicited comments concerning the appropriate scope of readmissions measures, querying whether to focus on all readmissions or to spotlight higher cost, more easily preventable, or most frequently occurring readmissions.
Most commenters urged CMS to exclude certain categories of readmissions when measuring and calculating rates. One commenter stated that CMS should not penalize hospitals for readmissions that occur if a patient returns from a postacute care setting or if a readmission is not clearly related to the initial admission. Other commenters described cases in which readmissions are not only foreseeable but planned occurrences. For example, if a patient has an acute episode just prior to elective surgery, the attending physician may discharge a patient for a few days to ensure that the patient is hydrated and infection free before surgery.
In the FY 2009 IPPS proposed rule (73 FR 23673), we discussed that hospitals are accountable for the quality of care delivered during hospitalization, which may also affect health care quality post-discharges. However, hospitals are not the only providers that affect the occurrence of readmissions. Other
To improve accountability, many commenters recommended expanding financial accountability to additional stakeholders. For example, one commenter advocated increasing accountability by holding physicians financially responsible for high rates of risk-adjusted readmissions. In addition, many commenters advocated for the development of accurate methods to attribute accountability.
Shared accountability makes accurate measurement difficult without alignment of quality measures across care settings. Commenters addressed how health care alignment and infrastructure impact readmission rates. Citing a MedPAC report, one commenter noted that hospitals rarely follow up with patients after hospital discharge and that other health care providers have not adequately invested in their responsibility to provide effective transitional care.
CMS is increasingly promoting quality and efficiency of care through the application of VBP tools. The VBP methodology is meant to promote adherence to evidence-based best practices by rewarding high-achievement. In the context of readmissions, we presented in the FY 2009 IPPS proposed rule three potential uses of incentives to encourage prevention of avoidable hospital readmissions.
All of the commenters supported efforts to reduce avoidable readmissions. However, their comments were mixed about the appropriateness of payment-focused interventions. Commenters representing hospital associations asked CMS to answer the following three questions before advancing any particular readmission policy:
• To what extent is it possible to identify avoidable readmissions?
• Are there effective strategies for reducing or eliminating these avoidable readmissions?
• What is the likelihood that each approach will promote and encourage the use of those effective strategies while avoiding undesirable consequences?
One commenter urged CMS to focus on auditing 30-day readmission outlier facilities rather than pursuing payment incentive policies to determine if clinical interventions and targeted readmission denials improve readmission rates.
Other commenters also emphasized that reducing readmission rates requires more than simple payment incentive strategies because of structural limitations inherent to the U.S. health care system, including the lack of coordinated chronic care services and the use of hospitals as primary care providers. One commenter questioned whether readmission data would be meaningful or actionable to either CMS or hospitals. This commenter asserted that readmission rates should not be tied to hospital reimbursement because such rates more accurately measure physician resource use.
As stated in the FY 2009 IPPS proposed rule (73 FR 23674), direct payment adjustment for readmissions could range from total denial to incremental adjustment. The magnitude of the payment adjustment could be based on patient-specific risk factors or on the shared accountability among the involved entities. A variation of this approach could be adjustment of all hospital payments for readmissions, nationwide or by some regional designation, based on aggregate information about avoidable readmissions for the relevant Medicare population (national or regional) under typical circumstances. Under this approach, hospitals would receive less Medicare payment for readmissions for conditions with lower than expected rates of readmission and less shared responsibility.
Many commenters favored various forms of direct payment adjustment to reduce avoidable hospital readmissions. Given the number of care settings and patient-specific factors that affect hospital readmission rates, many commenters favored direct payment adjustments based on degrees of accountability and foreseeable risk. Numerous commenters suggested that direct payment adjustments should account for patient-specific risk factors, including age, disease severity, and the presence of comorbidities. Commenters also noted that a lack of prescription drug coverage can reduce patient compliance, raising the risk of readmission.
Not all of the public comments that addressed direct payment adjustments were favorable. None of the commenters supported using an all-or-nothing approach like the current HAC payment provision. The commenters stated that this strategy unfairly punishes hospitals for readmissions that will occur despite strict adherence to best practices. Commenters noted that direct payment adjustments cannot adequately correct for all contributing factors to readmission rates. One commenter also argued against direct payment adjustments in cases where hospitals already receive reduced payments for transfer patients.
Performance-based adjustments could be based on a payment methodology such as the Medicare Hospital VBP Plan discussed in section IV.C. of the proposed rule and this final rule. The payment adjustment could reflect a comparison between an individual hospital's actual and expected readmission rates.
Many commenters supported some form of performance-based payment adjustment for readmissions. A number of commenters stated that readmission quality and cost reduction measures should be part of the broader picture of value-based purchasing. In contrast, one commenter suggested that CMS continue to work through QIOs on education-based reduction strategies before adopting performance-based payment adjustments for readmissions.
The third VBP incentive that we presented for public comment in the FY 2009 IPPS proposed rule (73 FR 23675) was public reporting of hospital-specific, risk-adjusted readmission rates. The Administration's Value-Driven Health Care Initiative, which stems from the President's Executive Order Promoting Quality and Efficient Health Care in Federal Government Health Care Programs, instructed federal agencies to increase transparency of healthcare quality and costs. Using the Hospital Compare Web site explained in section IV.B. of the proposed rule and this final rule, patients can compare the quality of care provided by hospitals. The information supports improve consumer decision making through better access to healthcare information.
Many commenters supported public reporting of readmission data. All of the commenters who were in favor of public reporting supported using only the Hospital Compare Web site for postings. However, many commenters only supported public reporting of measures endorsed by the NQF and adopted by the HQA. Some commenters suggested that readmission data remain confidential for a period to allow health care providers to adjust to collecting and reporting readmission measures,
Some commenters identified potential unintended consequences for readmission-related VBP incentives. A few commenters stated that payments tied to readmission rates might lead hospitals to direct previous patients to other institutions for follow-up care, frustrating continuity of care.
Other commenters addressed the potential for increased health care costs. One commenter expressed concern that linking readmission rates to payment would create an incentive for hospitals to lengthen costly inpatient stays to avoid related readmissions later and expose patients to increased hospital-related risks without improving quality of care. However, another commenter noted that Medicare IPPS gives hospitals a balancing incentive to not prolong length of stay.
We appreciate all of the public comments that we received in response to our solicitation. We will take them into consideration in any future rulemaking efforts that we determine may be necessary.
In accordance with the requirements of section 410A(a) of Public Law 108–173, the Secretary has established a 5-year demonstration program (beginning with selected hospitals' first cost reporting period beginning on or after October 1, 2004) to test the feasibility and advisability of establishing “rural community hospitals” for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that—
• Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act;
• Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its most recent cost report;
• Provides 24-hour emergency care services; and
• Is not designated or eligible for designation as a CAH.
Section 410A(a)(4) of Public Law 108–173 states that no more than 15 such hospitals may participate in the demonstration program.
As we indicated in the FY 2005 IPPS final rule (69 FR 49078), in accordance with sections 410A(a)(2) and (a)(4) of Public Law 108–173 and using 2002 data from the U.S. Census Bureau, we identified 10 States with the lowest population density from which to select hospitals: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Utah, and Wyoming (Source:
In a notice published in the
Under the demonstration program, participating hospitals are paid the reasonable costs of providing covered inpatient hospital services (other than services furnished by a psychiatric or rehabilitation unit of a hospital that is a distinct part), applicable for discharges occurring in the first cost reporting period beginning on or after the October 1, 2004 implementation date of the demonstration program (or the July 1, 2008 date for the newly selected hospitals). Payments to the participating hospitals will be the lesser amount of the reasonable cost or a target amount in subsequent cost reporting periods. The target amount in the second cost reporting period is defined as the reasonable costs of providing covered inpatient hospital services in the first cost reporting period, increased by the inpatient prospective payment update factor (as defined in section 1886(b)(3)(B) of the Act) for that particular cost reporting period. The target amount in subsequent cost reporting periods is defined as the preceding cost reporting period's target amount, increased by the inpatient prospective payment update factor (as defined in section 1886(b)(3)(B) of the Act) for that particular cost reporting period.
Covered inpatient hospital services are inpatient hospital services (defined in section 1861(b) of the Act), and include extended care services furnished under an agreement under section 1883 of the Act.
Section 410A of Public Law 108–173 requires that, “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” Generally, when CMS implements a demonstration program on a budget neutral basis, the demonstration program is budget neutral in its own terms; in other words, the aggregate payments to the participating providers do not exceed the amount that would be paid to those same providers in the absence of the demonstration program. This form of budget neutrality is viable when, by changing payments or aligning incentives to improve overall efficiency, or both, a demonstration program may reduce the use of some services or eliminate the need for others, resulting in reduced expenditures for the demonstration program's participants. These reduced expenditures offset increased payments elsewhere under the demonstration program, thus ensuring that the demonstration program as a whole is budget neutral or yields savings. However, the small scale of this demonstration program, in conjunction with the payment methodology, makes it extremely unlikely that this demonstration program could be viable under the usual form of budget neutrality. Specifically, cost-based payments to participating small rural hospitals are likely to increase Medicare outlays without producing any offsetting reduction in Medicare expenditures elsewhere. Therefore, a rural community hospital's participation in this demonstration program is unlikely to yield benefits to the participant if budget neutrality were to be implemented by reducing other payments for these providers.
In order to achieve budget neutrality for this demonstration program for FY 2009, as we proposed in the FY 2009 IPPS proposed rule, we are adjusting the national inpatient PPS rates by an amount sufficient to account for the added costs of this demonstration program. We are applying budget neutrality across the payment system as a whole rather than merely across the participants in this demonstration program. As we discussed in the FY 2005, FY 2006, FY 2007 and FY 2008 IPPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; and 72 FR 47392), we believe that the language of the
Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient acute hospital services “in accordance with a prospective payment system established by the Secretary.” Under the statute, the Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital-related costs. We initially implemented the IPPS for capital-related costs in the Federal fiscal year (FY) 1992 IPPS final rule (56 FR 43358), in which we established a 10-year transition period to change the payment methodology for Medicare hospital inpatient capital-related costs from a reasonable cost-based methodology to a prospective methodology (based fully on the Federal rate).
FY 2001 was the last year of the 10-year transition period established to phase in the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all acute care hospitals (other than hospitals receiving certain exception payments and certain new hospitals). The basic methodology for determining capital prospective payments using the Federal rate is set forth in § 412.312 of the regulations. For the purpose of calculating payments for each discharge, the standard Federal rate is adjusted as follows:
(Standard Federal Rate) × (DRG Weight) × (Geographic Adjustment Factor (GAF)) × (COLA for hospitals located in Alaska and Hawaii) × (1 + Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable).
Hospitals also may receive outlier payments for those cases that qualify under the threshold established for each fiscal year as specified in § 412.312(c) of the regulations.
The regulations at § 412.348(f) provide that a hospital may request an additional payment if the hospital incurs unanticipated capital expenditures in excess of $5 million due to extraordinary circumstances beyond the hospital's control. This policy was originally established for hospitals during the 10-year transition period, but as we discussed in the FY 2003 IPPS final rule (67 FR 50102), we revised the regulations at § 412.312 to specify that payments for extraordinary circumstances are also made for cost reporting periods after the transition period (that is, cost reporting periods beginning on or after October 1, 2001). Additional information on the exception payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).
During the transition period, under §§ 412.348(b) through (e), eligible hospitals could receive regular exception payments. These exception payments guaranteed a hospital a minimum payment percentage of its Medicare allowable capital-related costs depending on the class of the hospital (§ 412.348(c)), but were available only during the 10-year transition period. After the end of the transition period, eligible hospitals can no longer receive this exception payment. However, even after the transition period, eligible hospitals receive additional payments under the special exceptions provisions at § 412.348(g), which guarantees all eligible hospitals a minimum payment of 70 percent of its Medicare allowable capital-related costs provided that special exceptions payments do not exceed 10 percent of total capital IPPS payments. Special exceptions payments may be made only for the 10 years from the cost reporting year in which the hospital completes its qualifying project, and the hospital must have completed the project no later than the hospital's cost reporting period beginning before October 1, 2001. Thus, an eligible hospital may receive special exceptions payments for up to 10 years beyond the end of the capital IPPS transition period. Hospitals eligible for special exceptions payments are required to submit documentation to the intermediary indicating the completion date of their project. (For more detailed information regarding the special exceptions policy under § 412.348(g), we refer readers to the FY 2002 IPPS final rule (66 FR 39911 through 39914) and the FY 2003 IPPS final rule (67 FR 50102).)
Under the IPPS for capital-related costs, § 412.300(b) of the regulations defines a new hospital as a hospital that has operated (under current or previous ownership) for less than 2 years. For more detailed information, we refer readers to the FY 1992 IPPS final rule (56 FR 43418). During the 10-year transition period, a new hospital was exempt from the capital IPPS for its first 2 years of operation and was paid 85 percent of its reasonable costs during that period. Originally, this provision was effective only through the transition period and, therefore, ended with cost reporting periods beginning in FY 2002. Because, as discussed in the FY 2003 IPPS final rule (67 FR 50101), we believe that special protection to new hospitals is also appropriate even after the transition period, we revised the regulations at § 412.304(c)(2) to provide that, for cost reporting periods beginning on or after October 1, 2002, a new hospital (defined under § 412.300(b)) is paid 85 percent of its Medicare allowable capital-related costs through its first 2 years of operation, unless the new hospital elects to receive fully prospective payment based on 100 percent of the Federal rate. (We refer readers to the FY 2002 IPPS final rule (66 FR 39910) for a detailed discussion of the statutory basis for the system, the development and evolution of the system, the methodology used to determine capital-related payments to hospitals both during and after the transition period, and the policy for providing exception payments.)
Section 412.374 of the regulations provides for the use of a blended payment amount for prospective payments for capital-related costs to hospitals located in Puerto Rico. Accordingly, under the capital IPPS, we compute a separate payment rate specific to Puerto Rico hospitals using the same methodology used to compute the national Federal rate for capital-related costs. In general, hospitals located in Puerto Rico are paid a blend of the applicable capital IPPS Puerto Rico rate and the applicable capital IPPS Federal rate.
Prior to FY 1998, hospitals in Puerto Rico were paid a blended capital IPPS rate that consisted of 75 percent of the capital IPPS Puerto Rico specific rate
As noted above, under the Secretary's broad authority under the statute in establishing and implementing the IPPS for hospital inpatient capital-related costs, we have established a standard Federal payment rate for capital-related costs, as well as the mechanism for updating that rate each year. For FY 1992, we computed the standard Federal payment rate for capital-related costs under the IPPS by updating the FY 1989 Medicare inpatient capital cost per case by an actuarial estimate of the increase in Medicare inpatient capital costs per case. Each year after FY 1992, we update the capital standard Federal rate, as provided at § 412.308(c)(1), to account for capital input price increases and other factors. Section 412.308(c)(2) provides that the capital Federal rate is adjusted annually by a factor equal to the estimated proportion of outlier payments under the capital Federal rate to total capital payments under the capital Federal rate. In addition, § 412.308(c)(3) requires that the capital Federal rate be reduced by an adjustment factor equal to the estimated proportion of payments for (regular and special) exceptions under § 412.348. Section 412.308(c)(4)(ii) requires that the capital standard Federal rate be adjusted so that the effects of the annual DRG reclassification and the recalibration of DRG weights, and changes in the geographic adjustment factor are budget neutral.
In the FY 2008 IPPS final rule with comment period (72 FR 47398 through 47401), based on our analysis of data on inpatient hospital Medicare capital margins that we obtained through our monitoring and comprehensive review of the adequacy of the standard Federal payment rate for capital-related costs and the updates provided under the existing regulations, we made changes in the payment structure under the capital IPPS beginning with FY 2008. We summarize these changes below. We refer readers to section V.B. of the preamble of the FY 2008 final rule with comment period (72 FR 47393 through 47401) for a detailed discussion of the data used as a basis for these changes. These data showed that hospital inpatient Medicare capital margins were very high across all hospitals during the period from FY 1996 through FY 2004.
In the FY 2008 IPPS final rule with comment period, as background, we noted that, in general, under a PPS, standard payment rates should reflect the costs that an average, efficient provider would bear to provide the services required for quality patient care. Payment rate updates should also account for the changes necessary to continue providing such services. Updates should reflect, for example, the increased costs that are necessary to provide for the introduction of new technology that improves patient care. Updates should also take into account the productivity gains that, over time, allow providers to realize the same, or even improved, quality outcomes with reduced inputs and lower costs. Hospital margins, the difference between the costs of actually providing services and the payments received under a particular system, thus provide some evidence concerning whether payment rates have been established and updated at an appropriate level over time for efficient providers to provide necessary services. All other factors being equal, sustained substantial positive margins demonstrate that payment rates and updates have exceeded what is required to provide those services. Under a PPS, it is expected that highly efficient providers might regularly realize positive margins, while less efficient providers might regularly realize negative margins. However, a PPS that is correctly calibrated should not necessarily experience sustained periods in which providers generally realize substantial positive Medicare margins. Under the capital IPPS in particular, it seems especially appropriate that there should not be sustained significant positive margins across the system as a whole. Prior to the implementation of the capital IPPS, Congress mandated that the Medicare program pay only 85 percent of hospitals' inpatient Medicare capital costs. During the first 5 years of the capital IPPS, Congress also mandated a budget neutrality adjustment, under which the standard Federal capital rate was set each year so that payments under the system as a whole equaled 90 percent of estimated hospitals' inpatient Medicare capital costs for the year. Finally, Congress has twice adjusted the standard Federal capital rate (a 7.4 percent reduction beginning in FY 1994, followed by a 17.78 percent reduction beginning in FY 1998). On the second occasion in particular, the specific congressional mandate was “to apply the budget neutrality factor used to determine the Federal capital payment rate in effect on September 30, 1995 * * * to the unadjusted standard Federal capital payment rate” for FY 1998 and beyond. (The designated budget neutrality factor constituted a 17.78 percent reduction.) This statutory language indicates that Congress considered the payment levels in effect during FYs 1992 through 1995, established under the budget neutrality provision to pay 90 percent of hospitals' inpatient Medicare capital costs in the aggregate, appropriate for the capital IPPS. The statutory history of the capital IPPS thus suggests that the system in the aggregate should not provide for continuous, large positive margins.
As we also discussed in the FY 2008 IPPS final rule with comment period, we believed that there could be a number of reasons for the relatively high margins that most IPPS hospitals have realized under the capital IPPS. One possibility is that the updates to the capital IPPS rates have been higher than the actual increases in Medicare inpatient capital costs that hospitals have experienced in recent years. Another possible reason for the relatively high margins of most capital IPPS hospitals may be that the payment adjustments provided under the system are too high, or perhaps even unnecessary. Specifically, the adjustments for teaching hospitals, disproportionate share hospitals, and large urban hospitals appear to be contributing to excessive payment levels for these classes of hospitals. Since the inception of the capital IPPS in FY 1992, the system has provided adjustments for teaching hospitals (the IME adjustment factor, under § 412.322 of the regulations), disproportionate share hospitals (the DSH adjustment factor, under § 412.320), and large urban hospitals (the large urban location adjustment factor, under § 412.316(b)). The classes of hospitals eligible for these adjustments have been realizing much higher margins than other
Therefore, in the FY 2008 IPPS final rule with comment period, we made two changes to the structure of payments under the capital IPPS, as discussed under items 1 and 2 below.
In the FY 2008 IPPS final rule with comment period, we determined that the data we had gathered on inpatient hospital Medicare capital margins provided sufficient evidence to warrant elimination of the large urban add-on payment adjustment starting in FY 2008 under the capital IPPS. Therefore, for FYs 2008 and beyond, we discontinued the 3.0 percent additional payment that had been provided to hospitals located in large urban areas (72 FR 24822). This decision was supported by comments from MedPAC.
In the FY 2008 IPPS proposed rule, we noted that margin analysis indicated that several classes of hospitals had experienced continuous, significant positive margins. The analysis indicated that the existing payment adjustments for teaching hospitals and disproportionate share hospitals were contributing to excessive payment levels for these classes of hospitals. Therefore, we stated that it may be appropriate to reduce these adjustments significantly, or even to eliminate them altogether, within the capital IPPS. These payment adjustments, unlike parallel adjustments under the operating IPPS, were not mandated by the Act. Rather, they were included within the original design of the capital IPPS under the Secretary's broad authority in section 1886(g)(1) of the Act to include appropriate adjustments and exceptions within a capital IPPS.
In the FY 2008 final rule with comment period, we also noted a MedPAC recommendation that we seriously reexamine the appropriateness of the existing capital IME adjustment, that the margin analysis indicated such adjustment may be too high, and that MedPAC's previous analysis also suggested the adjustment may be too high. In light of MedPAC's recommendation, we extended the margin analysis discussed in the FY 2008 IPPS proposed rule in order to distinguish the experience of teaching hospitals from the experience of urban and rural hospitals generally. Specifically, we isolated the margins of urban, large urban, and rural teaching hospitals, as opposed to urban, large urban, and rural nonteaching hospitals. In conducting this analysis, we employed updated cost report information, which allowed us to incorporate the margins for an additional year, FY 2005, into the analysis. The data on the experience of urban, large urban, and rural teaching hospitals as opposed to nonteaching hospitals provided significant new information. As the analysis demonstrated, teaching hospitals in each class (urban, large urban, and rural) performed significantly better than comparable nonteaching hospitals. For the period covering FYs 1998 through 2005, urban teaching hospitals realized aggregate positive margins of 11.9 percent, compared to a positive margin of 0.9 percent for urban nonteaching hospitals. Similarly, large urban teaching hospitals realized an aggregate positive margin of 12.8 percent during that period, while large urban nonteaching hospitals had an aggregate positive margin of only 2.9 percent. Finally, rural teaching hospitals experienced an aggregate positive margin of 4.5 percent, as compared to a negative 1.3 percent margin for nonteaching rural hospitals. We noted that the positive margins for teaching hospitals did not exhibit a decline to the same degree as the margins for all hospitals. For example, the positive margins for all IPPS hospitals declined from 8.7 percent in FY 2002 to 5.3 percent in FY 2004 and 3.7 percent in FY 2005. For urban hospitals, aggregate margins decreased from 10.3 percent in FY 2002 to 6.4 percent in FY 2004 and 4.8 percent in FY 2005. Rural hospitals experienced a decrease from 1.5 percent in FY 2001 to a negative margin of −4.2 percent in FY 2005. In comparison, the aggregate margin for teaching hospitals was 12.1 percent in FY 2001 and 10.6 percent in FY 2005. For urban teaching hospitals, margins were 12.5 percent in FY 2001, 14.0 percent in FY 2002, 13.6 percent in FY 2003, 11.9 percent in FY 2004, and 10.9 percent in FY 2005. Rural teaching hospital margins were more variable, but did not exhibit a pattern of significant decline. In FY 2001, rural teaching hospitals had a positive margin of 3.2 percent; in FY 2002, 8.2 percent; in FY 2003, 4.7 percent; in FY 2004, 5.7 percent; and in FY 2005, 4.0 percent. We are reprinting below the table found in the FY 2008 IPPS final rule with comment period showing our analysis (72 FR 47400).
As we indicated in the FY 2008 IPPS final rule with comment period (72 FR 47401), the statutory history of the capital IPPS suggests that the system in the aggregate should not provide for continuous, large positive margins. As we also indicated, a possible reason for the relatively high margins of many capital IPPS hospitals may be that the payment adjustments provided under the system are too high, or perhaps even unnecessary. We agreed with MedPAC's recommendation and reexamined the appropriateness of the teaching adjustment. We concluded that the record of relatively high and persistent positive margins for teaching hospitals under the capital IPPS indicated that the teaching adjustment is unnecessary, and that it was therefore appropriate to exercise our discretion under the capital IPPS to eliminate this adjustment. At the same time, we believed that we should mitigate abrupt changes in payment policy and that we should provide time for hospitals to adjust to changes in the payments that they can expect under the program.
Therefore, in the FY 2008 IPPS final rule with comment period, we adopted a policy to phase out the capital teaching adjustment over a 3-year period beginning in FY 2008. Specifically, we maintained the adjustment for FY 2008, in order to give teaching hospitals an opportunity to plan and make adjustments to the change. During the second year of the transition, FY 2009, the formula for determining the amount of the teaching adjustment was revised so that adjustment amounts will be half of the amounts provided under the current formula. For FY 2010 and after, hospitals will no longer receive an adjustment for teaching activity under the capital IPPS.
As indicated above, in the FY 2008 IPPS final rule with comment period, we formally adopted as final policy a phase out of the capital IPPS teaching adjustment over a 3-year period, maintaining the current adjustment for FY 2008, making a 50-percent reduction in FY 2009, and eliminating the adjustment for FY 2010 and subsequent years. However, because we concluded that this change to the structure of payments under the capital IPPS was significant, we provided the public with an opportunity for further comment on these provisions through a 90-day comment period after publication of the FY 2008 IPPS final rule with comment period (72 FR 47401). In addition, as we indicated in that final rule with comment period, to provide a more than adequate opportunity for hospitals, associations, and other interested parties to raise issues and concerns related to our policy, we would provide additional opportunity for public comment during the FY 2009 proposed rulemaking cycle for the IPPS (73 FR 23679).
We received numerous timely pieces of correspondence that commented on the policy of phasing out the capital IPPS teaching adjustment as described in the FY 2008 IPPS final rule with comment period. We also received a number of public comments on this policy during the comment period for the FY 2009 IPPS proposed rule. A summary of the public comments received on both documents and our responses follow.
Finally, MedPAC's March 2007 report found little evidence to support the contention that the operating and capital IME adjustments help hospitals that have large shares of uncompensated care. Specifically, the report found that “it appears that the hospitals most involved in teaching * * * are not, by and large, the ones that devote the most resources to treating patients who are unable to pay their bills” (Report to the Congress: Medicare Payment Policy, March 2007, page 79). In any event, IME payments (operating and capital) were never intended to subsidize services for the uninsured and other uncompensated care.
We also do not agree that it is necessary either to base our determination at this time about the appropriateness of continuing the capital IPPS IME adjustment on updated regression analysis, or to employ a total cost regression analysis in doing so. We adopted approaches on several issues in the initial development of the capital IPPS that were based on the premise that the capital and operating IPPS might eventually be merged into one system. The two systems have now operated separately for 15 years without any apparent prospect of integration in the near future. Therefore, we believe that it is appropriate under the current design of the capital and operating IPPSs to base proposals for payment policies under the capital IPPS on analysis that is confined to the data regarding the capital IPPS alone, and that total IPPS margins should not be the controlling factor in the analysis that we are now conducting. For this same reason, we do not agree with commenters who urged us to employ updated versions of the total cost regressions that were originally used to establish the payment adjustments under the capital IPPS. In the long run, we believe that it makes sense to base capital payment adjustments on total cost variations only if similar adjustments under the operating IPPS are also based on total cost regression analysis. We do not agree that, in the context of the current payment system, the capital IPPS should be treated as a component of a larger system embracing both the capital and operating IPPSs.
Another reason that we do not believe it to be necessary to replicate the original total cost regression analysis is that MedPAC has, in fact, recently conducted such an analysis. Regression analyses conducted by MedPAC over the last decade have shown that capital and operating IME adjustments have been set substantially above what can be empirically justified, leading to large disparities in financial performance under Medicare between teaching and nonteaching hospitals. In its March 2007 and 2008 reports to the Congress, MedPAC recommended that the operating IME adjustment be reduced from 5.5 percent to 4.5 percent per 10 percent increment in teaching intensity. In developing our proposal to eliminate the capital IPPS IME adjustment over a 3-year transition period, we did not take into account total Medicare IPPS margins, Medicare operating IPPS margins, or the relationship between the statutory operating IPPS IME adjustment and the empirically justifiable level of operating IPPS IME adjustment. As we have previously stated, we believe that it is appropriate under the current design of the capital and operating IPPS to base proposals for payment policies under the capital IPPS on analysis that is confined to the data regarding the capital IPPS alone. However, we also believe that it is difficult, in the light of the MedPAC analysis, to argue on the basis of a total cost regression analysis for the continuation of a capital IPPS IME adjustment. As we have previously observed, MedPAC noted in its comment on the proposed rule that its “analysis over the past decade has consistently shown that capital and operating IME adjustments have been set substantially above what can be empirically justified, leading to large disparities in financial performance under Medicare between teaching and nonteaching hospitals. MedPAC also observed in its comment on our proposal to eliminate the capital IPPS IME adjustment, “the reduction in IME payments from eliminating the capital IME adjustment would be smaller than the effect of the Commission's recommendation” to reduce the operating IPPS IME adjustment.
Historically, hospitals and hospital units excluded from the prospective payment system received payment for inpatient hospital services they furnished on the basis of reasonable costs, subject to a rate-of-increase ceiling. An annual per discharge limit (the target amount as defined in § 413.40(a)) was set for each hospital or hospital unit based on the hospital's own cost experience in its base year. The target amount was multiplied by the Medicare discharges and applied as an aggregate upper limit (the ceiling as defined in § 413.40(a)) on total inpatient operating costs for a hospital's cost reporting period. Prior to October 1, 1997, these payment provisions applied consistently to all categories of excluded providers, which included rehabilitation hospitals and units (now referred to as IRFs), psychiatric hospitals and units (now referred to as IPFs), LTCHs, children's hospitals, and cancer hospitals.
Payment for children's hospitals and cancer hospitals that are excluded from the IPPS continues to be subject to the rate-of-increase ceiling based on the hospital's own historical cost experience. (We note that, in accordance with § 403.752(a) of the regulations, RNHCIs are also subject to the rate-of-increase limits established under § 413.40 of the regulations.)
In the FY 2009 IPPS proposed rule, we proposed that the percentage increase in the rate-of-increase limits for cancer and children's hospitals and RNHCIs would be the percentage increase in the FY 2009 IPPS operating market basket, which was estimated to be 3.0 percent. Consistent with our historical approach, we proposed that if more recent data was available for the final rule, we would use the most recent data to calculate the IPPS operating market basket for FY 2009. For cancer and children's hospitals and RNHCIs, the FY 2009 rate-of-increase percentage that is applied to FY 2008 target amounts in order to calculate FY 2009 target amounts is 3.6 percent, based on Global Insight, Inc.'s 2008 second quarter forecast of the IPPS operating market basket increase, in accordance with the applicable regulations in 42 CFR 413.40.
IRFs, IPFs, and LTCHs were paid previously under the reasonable cost methodology. However, the statute was amended to provide for the implementation of prospective payment systems for IRFs, IPFs, and LTCHs. In general, the prospective payment systems for IRFs, IPFs, and LTCHs provided transition periods of varying lengths during which time a portion of the prospective payment was based on cost-based reimbursement rules under Part 413 (certain providers do not receive a transition period or may elect to bypass the transition period as applicable under 42 CFR Part 412, Subparts N, O, and P). We note that the various transition periods provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have ended.
For cost reporting periods beginning on or after October 1, 2002, all IRFs are paid 100 percent of the adjusted Federal rate under the IRF PPS. Therefore, for cost reporting periods beginning on or after October 1, 2002, no portion of an IRF PPS payment is subject to 42 CFR Part 413. Similarly, for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the adjusted Federal prospective payment rate under the LTCH PPS. Therefore, for cost reporting periods beginning on or after October 1, 2006, no portion of the LTCH PPS payment is subject to 42 CFR Part 413. Likewise, for cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem amount under the IPF PPS. Therefore, for cost reporting periods beginning on or after January 1, 2008, no portion of an IPF PPS payment is subject to 42 CFR Part 413.
Section 1886(j) of the Act, as added by section 4421(a) of Public Law 105–33, provided for a phase-in of a case-mix adjusted PPS for inpatient hospital services furnished by IRFs for cost reporting periods beginning on or after October 1, 2000, and before October 1, 2002, with payments based entirely on the adjusted Federal prospective payment for cost reporting periods beginning on or after October 1, 2002. Section 1886(j) of the Act was amended by section 125 of Public Law 106–113 to require the Secretary to use a discharge as the payment unit for services furnished under the PPS for inpatient rehabilitation hospitals and inpatient rehabilitation units of hospitals (referred to as IRFs), and to establish classes of patient discharges by functional-related groups. Section 305 of Public Law 106–554 further amended section 1886(j) of the Act to allow IRFs, subject to the blended methodology, to elect to be paid the full Federal prospective payment rather than the transitional period payments specified in the Act.
On August 7, 2001, we issued a final rule in the
On August 30, 2002, we issued a final rule in the
In accordance with section 124 of Public Law 106–113 and section 405(g)(2) of Public Law 108–173, we established a PPS for inpatient hospital services furnished in IPFs. On November 15, 2004, we issued in the
We established a 3-year transition period during which IPFs whose cost reporting periods began on or after January 1, 2005, and before January 1, 2008, would be paid a PPS payment, a portion of which was based on reasonable cost principles and a portion of which was the Federal per diem payment amount. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount.
In general, we use a LTCH's overall CCR, which is computed based on either the most recently settled cost report or the most recent tentatively settled cost report, whichever is from the latest cost reporting period, in accordance with § 412.525(a)(4)(iv)(B) and § 412.529(c)(4)(iv)(B) for high cost outliers and short-stay outliers, respectively. (We note that, in some instances, we use an alternative CCR, such as the statewide average CCR in accordance with the regulations at § 412.525(a)(4)(iv)(C) and § 412.529(c)(4)(iv)(C), or a CCR that is specified by CMS or that is requested by the hospital under the provisions of the regulations at § 412.525(a)(4)(iv)(A) and § 412.529(c)(4)(iv)(A).) Under the LTCH PPS, a single prospective payment per discharge is made for both inpatient operating and capital-related costs. Therefore, we compute a single “overall” or “total” LTCH-specific CCR based on the sum of LTCH operating and capital costs (as described in Chapter 3, section 150.24, of the Medicare Claims Processing Manual (CMS Pub. 100–4)) as compared to total charges. Specifically, a LTCH's CCR is calculated by dividing a LTCH's total Medicare costs (that is, the sum of its operating and capital inpatient routine and ancillary costs) by its total Medicare charges (that is, the sum of its operating and capital inpatient routine and ancillary charges).
Generally, a LTCH is assigned the applicable statewide average CCR if, among other things, a LTCH's CCR is found to be in excess of the applicable maximum CCR threshold (that is, the LTCH CCR ceiling). This is because CCRs above this threshold are most likely due to faulty data reporting or entry, and, therefore, these CCRs should not be used to identify and make payments for outlier cases. Such data are clearly errors and should not be relied upon. Thus, under our established policy, generally, if a LTCH's calculated CCR is above the applicable ceiling, the applicable LTCH PPS statewide average CCR is assigned to the LTCH instead of the CCR computed from its most recent (settled or tentatively settled) cost report data.
In the FY 2008 IPPS final rule with comment period, in accordance with § 412.525(a)(4)(iv)(C)(
Our general methodology established for determining the statewide average CCRs used under the LTCH PPS is similar to our established methodology for determining the LTCH total CCR ceiling (described above) because it is based on “total” IPPS CCR data. Under the LTCH PPS high-cost outlier policy at § 412.525(a)(4)(iv)(C) and the short-stay outlier policy at § 412.529(c)(4)(iv)(C), the fiscal intermediary (or MAC) may use a statewide average CCR, which is established annually by CMS, if it is unable to determine an accurate CCR for a LTCH in one of the following circumstances: (1) A new LTCH that has not yet submitted its first Medicare cost report (for this purpose, a new LTCH is defined as an entity that has not accepted assignment of an existing hospital's provider agreement in accordance with § 489.18); (2) a LTCH whose CCR is in excess of the LTCH CCR ceiling (as discussed above); and (3) any other LTCH for whom data with which to calculate a CCR are not available (for example, missing or faulty data). (Other sources of data that the fiscal intermediary (or MAC) may consider in determining a LTCH's CCR include data from a different cost reporting period for the LTCH, data from the cost reporting period preceding the period in which the hospital began to be paid as a LTCH (that is, the period of at least 6 months that it was paid as a short-term acute care hospital), or data from other comparable LTCHs, such as LTCHs in the same chain or in the same region.)
In the FY 2009 IPPS proposed rule (73 FR 23681), in accordance with § 412.525(a)(4)(iv)(C)(
In this final rule, in accordance with § 412.525(a)(4)(iv)(C)(2) for high-cost outliers and § 412.529(c)(4)(iv)(C)(2) for short-stay outliers, we are finalizing our proposal to use our established methodology to determine the LTCH total CCR ceiling (described above), based on the most recent complete IPPS total CCR data. Specifically, using data from the March 2008 update of the PSF, we are establishing a total CCR ceiling of 1.242 under the LTCH PPS, effective for discharges occurring on or after October 1, 2008, and before October 1, 2009.
In addition, in this FY 2009 IPPS final rule, in accordance with § 412.525(a)(4)(iv)(C) for high-cost outliers and § 412.529(c)(4)(iv)(C) for short-stay outliers, using our established methodology for determining the LTCH statewide average CCRs (described above), based on the most recent complete IPPS total CCR data from the March 2008 update of the PSF, we are establishing the LTCH PPS statewide average total CCRs for urban and rural hospitals that are effective for discharges occurring on or after October 1, 2008, and before October 1, 2009, presented in Table 8C of the Addendum to this final rule.
We note that, for this final rule, as we proposed and as we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 48121), and as is the case under the IPPS, all areas in the District of Columbia, New Jersey, Puerto Rico, and Rhode Island are classified as urban, and, therefore, there are no rural statewide average total CCRs listed for those jurisdictions in Table 8C of the Addendum to this final rule. In addition, as we proposed and as we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in that same final rule, and as is the case under the IPPS, although Massachusetts has areas that are designated as rural, there were no short-term acute care IPPS hospitals or LTCHs located in those areas as of March 2008. Therefore, for this final rule, there is no rural statewide average total CCR listed for rural Massachusetts in Table 8C of the Addendum to this final rule. As we also proposed and as we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48120 through 48121), in determining the urban and rural statewide average total CCRs for Maryland LTCHs paid under the LTCH PPS, we use, as a proxy, the national average total CCR for urban IPPS hospitals and the national average total CCR for rural IPPS hospitals, respectively. We use this proxy because we believe that the CCR data on the PSF for Maryland hospitals may not be accurate (as discussed in greater detail in that same final rule (71 FR 48120)).
On September 1, 1994, we published hospital-within-hospital (HwH) regulations to address inappropriate Medicare payments to LTCHs that were effectively units of other hospitals (59 FR 45330). There was concern that the LTCH HwH model was being used by some acute care hospitals paid under the IPPS as a way of inappropriately receiving higher payments for a subset of their cases. Moreover, IPPS-exclusion of long-term care “units” was and remains inconsistent with the statute.
Therefore, we codified the HwH regulations at 42 CFR 412.23 (currently at § 412.22(e)) for a LTCH HwH that is co-located with another hospital. A co-located hospital is a hospital that occupies space in a building also used by another hospital or in one or more separate buildings located on the same campus as buildings used by another hospital. The regulations at § 412.23(e) required that, to be excluded from the IPPS, long-term care HwHs must have a separate governing body, chief medical officer, medical staff, and chief executive officer from that of the hospital with which it is co-located. In addition, the HwH must meet either of the following two criteria: the HwH must perform certain specified basic hospital functions on its own and not receive them from the host hospital or a third entity that controls both hospitals; or the HwH must receive at least 75 percent of its inpatients from sources other than the co-located hospital. A third option was added to the regulations on September 1, 1995 (60 FR 45778) that allowed HwHs to demonstrate their separateness by showing that the cost of the services that the hospital obtains under contracts or other agreements with the co-located hospital or a third entity that controls both hospitals is no more than 15 percent of the hospital's total inpatient operating cost. In 1997, we extended application of the HwH rules at § 412.22 to all classes of IPPS excluded hospitals. Therefore, effective for cost reporting periods beginning on or after October 1, 1997, psychiatric, rehabilitation, cancer, and children's hospitals that are co-located with another hospital are also required to meet the “separateness” criteria at § 412.22(e). Various other changes to the HwH regulations have been made over the years.
In addition, a “grandfathering” provision was added to the regulations at § 412.22(f), as provided for under section 4417 of the Balanced Budget Act (BBA) of 1997 (Pub. L. 105–33). This provision of the regulations allowed a LTCH that was excluded from the IPPS on or before September 30, 1995, and was a HwH, to retain its IPPS-excluded status even if the HwH criteria at § 412.22(e) could not be met, as long as the hospital continued to operate under the same terms and conditions as were in effect on September 30, 1995. Consistent with the grandfathering provision under the BBA, which applied to LTCHs, we extended the application of the grandfathering rule to the other classes of IPPS-excluded hospitals that are HwHs but did not meet the criteria at § 412.22(e). (We subsequently expanded this provision to allow for a grandfathered hospital to make specified changes during particular timeframes.)
As we explained in the FY 2009 IPPS proposed rule (73 FR 23682), despite extending the grandfathering provision to all classes of IPPS-excluded hospitals and allowing other changes within that provision, it appears that there may be a gap in our regulations. There remain certain HwHs that may be unnecessarily restricted from expanding their bed size under current rules. These HwHs were IPPS-excluded State-owned hospitals that were co-located with a State-owned hospital and were both under the same State governance at the time the criteria at § 412.22(e) were implemented. These HwHs remain State-owned hospitals operating within a State-owned hospital and because of State law requirements, both hospitals remain under State governance. The HwH has retained the IPPS-excluded status by virtue of the grandfathering provision at § 412.22(f) that precludes changes in the terms and conditions under which they operate except under specific circumstances.
Where a State law defines the structure and authority of the State's agencies and institutions, and the State hospital is co-located with another hospital that is under State governance, each hospital may have control over the day-to-day operations of its respective facility and have separate management, patient intake, and billing systems and medical staff, as well as a governing board. However, State law may require that the legal accountability for the budgets and activities of entities operating within a State-run institution rests with the State. Therefore, the co-located State hospitals may also be governed by a common governing body.
Currently, there are State HwHs in these types of arrangements that have been able to retain their IPPS-excluded status solely because of the grandfathering provision in § 412.22(f). These HwHs were IPPS-excluded even before the HwH criteria were implemented and remain IPPS-excluded HwHs only as long as they continue to meet the requirements specified under § 412.22(f)(1), (f)(2), and (f)(3), which means that these HwHs cannot increase their bed size without losing their IPPS-excluded status under the grandfathering provisions (§ 412.22(f)). Moreover, if a grandfathered State-run HwH increased its bed size, it would be unable to qualify as an IPPS-excluded HwH under § 412.22(e) because it cannot meet the HwH criteria at § 412.22(e)(1)(i) as a result of State law requirements regarding its organizational structure and governance. These HwHs are precluded from the flexibility to expand their bed size, which is available to other HwHs whose organizational structure is not bound by State law.
As stated above, the organizational arrangements for these HwHs were in place even before the HwH regulations were adopted. To the extent the arrangements are required by State law, we believe they do not reflect attempts by entities to establish a nominal hospital and, in turn, seek inappropriate exclusions. As explained in the FY 2009 proposed rule, we also believe it is unnecessary to prevent State hospitals that were created before the HwH requirements, and that because of State statutory requirements cannot meet the subsequently issued separate governing body requirements, from being excluded from the IPPS if they exercised the same flexibility available to other IPPS-excluded HwHs to increase their bed capacity. Accordingly, as stated in the FY 2009 IPPS proposed rule, we proposed adding a provision to the regulations that would apply only to State hospitals that were already in existence when the HwH regulations were established. This provision would not apply to other State hospitals that would like to open as a HwH subsequent to the establishment of the HwH regulations in FY 1994, under an organizational structure the same as or similar to the one described in this section because these hospitals know, in advance of becoming a HwH, the requirements that must be met in order to be an IPPS-excluded HwH, unlike those hospitals that existed before the HwH regulations were established. Instead of opening the IPPS-excluded hospital co-located with another State hospital, it can open at another site in a manner that is consistent with the HwH regulations.
Accordingly, as proposed, we are adding a new paragraph (e)(1)(vi) to § 412.22 to provide that if a hospital cannot meet the criteria in § 412.22(e)(1)(i) solely because it is a State hospital occupying space with another State hospital, the HwH can nevertheless qualify for an exclusion from the IPPS if that hospital meets the other applicable criteria in § 412.22(e) and–
• Both State hospitals share the same building or same campus and have been continuously owned and operated by the State since October 1, 1995;
• Is required by State law to be subject to the governing authority of the State hospital with which it shares space or the governing authority of a third entity that controls both hospitals; and
• Was excluded from the inpatient prospective payment system before October 1, 1995, and continues to be excluded from the IPPS through September 30, 2008.
We believe the criteria capture the segment of State-operated HwHs that were in existence prior to the HwH regulations and that are unable to meet the current HwH rules because of State law regarding governance. These HwHs were therefore in existence prior to the HwH regulations. We emphasize that we proposed allowing an exception to the criteria in § 412.22(e)(1)(i) only if the hospital that meets the criteria above cannot meet the separate governing body requirement because of State law. We are not providing similar treatment for hospitals that are not subject to State statutory requirements regarding governance but instead chose to organize in a manner that would not allow them to be an IPPS-excluded hospital that meets the HwH criteria at § 412.22(e)(1)(i) but were co-located prior to October 1, 1995, because these hospitals can revise the way they are organized to ensure that they meet the governance regulations at § 412.22(e).
While not unequivocally disputing the commenter's assertion that States have the ability to change governance arrangements in order to comply with the HwH separateness criteria, we do know that the processes required to do so could involve a lengthy legislative process at the State level and be far more onerous than making an exception to one of the HwH criteria for a handful of HwHs through the rulemaking process. We believe that the time required for a State to make the changes that would allow State-owned facilities to meet the HwH criteria could be measured in terms of years rather than months. Furthermore, there are clearly situations, such as a State-run HwH co-located with a State-run university hospital, where it is to the benefit of all affected parties, including Medicare beneficiaries, to continue the relationship as it exists. This kind of co-located status provides a venue for training medical students and residents, as well as attracting physician scientists and promoting research efforts. Unlike the scenarios that prompted CMS to develop the HwH regulations, we see no deleterious effects occurring to the Medicare program from the adoption of our proposal. Therefore, after consideration of the public comments received and for the reasons explained previously throughout this section, we are adopting as final our proposal without change.
Section 4419(b) of Public Law 105–33 requires the Secretary to publish annually in the
The process of requesting, adjudicating, and awarding an adjustment payment is likely to occur over a 2-year period or longer. First, generally, an excluded hospital or excluded unit of a hospital must file its cost report for a fiscal year in accordance with § 413.24(f)(2). The fiscal intermediary reviews the cost report and issues a Notice of Program Reimbursement (NPR). Once the hospital receives the NPR, if its operating costs are in excess of the ceiling, the hospital may file a request for an adjustment payment. After the fiscal intermediary receives the hospital's request in accordance with applicable regulations, the fiscal intermediary or CMS, depending on the type of adjustment requested, reviews the request and determines if an adjustment payment is warranted. This determination is sometimes not made until more than 6 months after the date the request is filed because there are times when the applications are incomplete and additional information must be requested in order to have a completed application. However, in an attempt to provide interested parties with data on the most recent adjustments for which we do have data, we are publishing data on adjustment payments that were processed by the fiscal intermediary or CMS during FY 2007.
The table below includes the most recent data available from the fiscal
Section 1866 of the Act states that any provider of services (except a fund designated for purposes of sections 1814(g) and 1835(e) of the Act) shall be qualified to participate in the Medicare program and shall be eligible for Medicare payments if it files with the Secretary a Medicare provider agreement and abides by the requirements applicable to Medicare provider agreements. These requirements are incorporated into our regulations in 42 CFR part 489, subparts A and B.
In the FY 2008 IPPS final rule with comment period, we revised our regulations governing Medicare provider agreements, specifically § 489.20(u), to require a hospital to disclose to all patients whether it is physician-owned and, if so, the names of its physician owners (72 FR 47385 through 47387). In addition, we added a definition of physician-owned hospital at § 489.3. (Because the definition of physician-owned hospital at § 489.3 includes a critical access hospital, for ease of reference and readability, the term “hospital,” when used in the context of a physician-owned hospital, is intended to include a CAH.) The disclosure requirement in current § 489.20(u), as amended by the FY 2008 IPPS final rule with comment period, is applicable only to those hospitals with physician ownership; we neglected to include those hospitals in which no physician held an ownership or investment interest, but in which an immediate family member of a referring physician held an ownership or investment interest. However, it was always our intent to have consistency between the disclosure requirements and the physician self-referral statute and regulations. The physician self-referral statute and regulations, which recognize the potential for program and patient abuse where a financial relationship exists, are applicable to both a physician and the immediate family member of the physician. Therefore, in the FY 2009 IPPS proposed rule, we proposed to revise the language in § 489.3 to define a “physician-owned hospital” as a participating hospital in which a physician, or an immediate family member of a physician (as defined at § 411.351), has an ownership or investment interest in the hospital (73 FR 23683). In this final rule, we are finalizing our proposal. We believe that it is necessary to revise our definition of physician-owned hospital because a physician's potential conflict of interest occurs not only in those instances where he or she has a financial relationship in the form of an ownership or investment interest, but also where his or her immediate family member has a similar interest, and patients should be informed of this as part of making an informed decision concerning treatment.
Following publication of the FY 2008 IPPS final rule with comment period, we became aware that some physician-owned hospitals have no physician owners who refer patients to the hospital (for example, in the case of a hospital whose physician-owners have retired from the practice of medicine). In the FY 2009 IPPS proposed rule, we proposed to include in § 489.20(v) new language to provide for an exception to the disclosure requirements for a physician-owned hospital (as defined at § 489.3) that does not have any physician owners who refer patients to the hospital (and that has no referring physicians (as defined at § 411.351) who have an immediate family member with an ownership or investment interest in the hospital), provided that the hospital attests, in writing, to that effect and maintains such attestation in its files for review by State and Federal surveyors or other government officials (73 FR 23683). In this final rule, we are finalizing our proposal. We believe that requiring a hospital with no referring physician owners to disclose to all patients that it is physician-owned and to provide the patients with a list of the (nonreferring) physician owners would be an unnecessary burden on the hospital and of no value in assisting a patient in making an informed decision as to where to seek treatment. Similarly, we do not believe that it is useful to require a hospital to make such disclosures when no referring physician has an immediate family member who has an ownership or investment interest in the hospital.
In the FY 2009 IPPS proposed rule, we proposed to revise § 489.20(u) to specify that a physician-owned hospital must furnish to patients the list of owners and investors who are physicians (or immediate family members of physicians) at the time the list is requested by or on behalf of the patient (73 FR 23683). (Currently, § 489.20(u) provides that a physician-owned hospital must provide a list of its owners and investors to patients but does not specify when the list must be provided.) In this final rule, we are finalizing our proposal. We believe that it is critical that the patient receives the list of names of the relevant owners or investors at the time the request is made by or on behalf of the patient so that the patient may make a determination as to whether his or her admitting or referring physician has a potential conflict of interest. Also, furnishing the list at the time the request is made by the patient or on behalf of the patient is crucial to affording the patient an opportunity to make an informed decision before treatment is furnished at the physician-owned hospital.
In addition, we proposed to add new § 489.20(u)(2) to require a physician-owned hospital to require all physicians who are members of the hospital's medical staff to agree, as a condition of continued medical staff membership or admitting privileges, to disclose in writing to all patients whom they refer to the hospital any ownership or investment interest in the hospital held by themselves or by an immediate family member (73 FR 23684). We proposed to require that physicians agree to make such disclosures at the time they refer patients to the hospital. In this final rule, we are finalizing our proposal. We believe that early notification of physician ownership or investment in the hospital is beneficial to the patient's decision-making concerning his or her treatment. Requiring a physician to notify patients of his or her ownership or investment interest at the time of the referral will afford patients the opportunity to discuss the physician's ownership or investment interest in the hospital and make a more informed decision.
In the FY 2009 IPPS proposed rule, we also proposed to revise § 489.53 to permit CMS to terminate the Medicare provider agreement if a physician-owned hospital fails to comply with the provisions of proposed § 489.20(u), discussed above, or if a hospital or CAH fails to comply with the requirements set forth in § 489.20(v) (which we proposed to redesignate as § 489.20(w) (73 FR 23684 through 23685). (In the FY 2008 IPPS final rule with comment period, we added a new provision at § 489.20(v) to require that hospitals and CAHs: (1) Furnish all patients written notice at the beginning of their inpatient hospital stay or outpatient service if a doctor of medicine or a doctor of osteopathy is not present in the hospital 24 hours per day, 7 days per week; and (2) describe how the hospital or CAH will meet the medical needs of any patient who develops an emergency medical condition at a time when no physician is present in the hospital or CAH (72 FR 47387).) In this final rule, we are finalizing these proposals. We believe that these revisions are necessary to enforce the disclosure requirements set forth in § 489.20(v) and redesignated § 489.20(w).
We received approximately 20 public comments, most of which were supportive of our proposals. After consideration of the public comments received, we are adopting, with some modification, our proposals as final. The new provisions are codified in revised §§ 489.3, 489.20(u), (v), and (w), and 489.53. We stated in our proposal with respect to redesignated § 489.20(w), that we were proposing to revise § 489.53 to permit CMS to terminate the Medicare provider agreement of any hospital or CAH that fails to comply with the requirements set forth in proposed redesignated § 489.20(w) (73 FR 23684). This proposal was consistent with the current rule's application to all hospitals and CAHs that do not have a physician on-site 24 hours per day, 7 days per week. However, our proposed revisions to the regulatory text inadvertently were worded so as to imply that this enforcement action could be taken only in the case of a violation by a physician-owned hospital. In this final rule, we are amending the proposed regulatory text of § 489.53(c) by adding language so that the provision of paragraph (c) applies to all hospitals and CAHs (and not just physician-owned hospitals and CAHs) covered by redesignated § 489.20(w). In response to our solicitation of comments regarding whether hospitals and CAHs should educate patients about the availability of information regarding physician ownership under the proposed disclosure requirements, we are not adopting any such requirement at this time.
Section 1877 of the Social Security Act (the Act), also known as the physician self-referral law: (1) Prohibits a physician from making referrals for certain “designated health services” (DHS) payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership or compensation), unless an exception applies; and (2) prohibits the entity from filing claims with Medicare (or billing another individual, entity, or third party payer) for those DHS rendered as a result of a prohibited referral. The statute establishes a number of specific exceptions and grants the Secretary the authority to create regulatory exceptions for financial relationships that pose no risk of program or patient abuse. The current version of section 1877 of the Act, which applies to referrals for 11 DHS, has been in effect and subject to enforcement since January 1, 1995. The following is a chronology of relevant physician self-referral rules published in the
In this final rule, we make various revisions to the physician self-referral regulations. Some of the revisions were proposed in the CY 2008 PFS proposed rule (72 FR 38122, 38179) and some of the revisions were proposed in the FY 2009 IPPS proposed rule (73 FR 23528, 23683). (We note that one of the proposals from the CY 2008 PFS proposed rule, our proposal to consider a DHS entity to stand in the shoes of an entity that it wholly owns or controls, was re-proposed in the FY 2009 IPPS proposed rule to require a DHS entity to stand in the shoes of an organization in which it holds a 100 percent ownership interest. We are not finalizing either proposal regarding the DHS entity “stand in the shoes” provisions, as discussed below in section VIII.B. of this preamble.) We are finalizing the proposals from the CY 2008 PFS proposed rule in this FY 2009 IPPS final rule. Many of the proposals from the two proposed rules are related, and finalizing them in one rulemaking will assist the public in understanding the final revisions to the regulations and analyzing their integrated application to financial relationships between DHS entities and referring physicians. For example, in the CY 2008 PFS proposed rule, we proposed an alternative method for compliance with certain provisions of certain exceptions. In the FY 2009 IPPS proposed rule, we proposed to specify an outside limit on the period of disallowance for certain noncompliant financial relationships. Together, as finalized, these regulations provide guidance to parties to a financial arrangement who have failed to obtain a required signature on a written agreement. (See sections VIII.C. and VIII.D. of this preamble.)
In response to our proposals in the CY 2008 PFS proposed rule, several commenters asserted that we should further contemplate the issues with which we noted concern and propose revised regulatory provisions in the CY 2009 PFS proposed rule if we continue to believe that such revisions are necessary. We responded in the CY 2008 PFS final rule that we were not inclined to follow the commenters' suggestion regarding reproposal of the physician self-referral provisions in the CY 2009 PFS proposed rule. We expressed confidence that we have sufficient information, both from the commenters and our independent research, to finalize revisions to the physician self-referral regulations without the need for new proposals and additional public comment. However, given the number of physician self-referral proposals, the significance of the provisions both individually and in concert with each other, and the volume of public comments, in the interest of prudence, we did not finalize any of the proposals in the CY 2008 PFS final rule with comment period (except for the proposal for anti-markup provisions for diagnostic tests). We stated our intent to publish a final rule that addresses the following proposals: (1) Burden of proof; (2) obstetrical malpractice insurance subsidies; (3) unit-of-service (per-click) payments in lease arrangements; (4) the period of disallowance for noncompliant financial relationships; (5) ownership or investment interests in retirement plans; (6) “set in advance” and percentage-based compensation arrangements; (7) DHS entity “stand in the shoes” provisions; (8) alternative criteria for satisfying certain exceptions; and (9) services furnished “under arrangements.” We stated further that a measured, thoughtful approach to the final physician self-referral rules is critical, and that the future rulemaking would address the public comments and present a coordinated, comprehensive approach to accomplishing the goals described in the proposed rule, namely, minimizing the threat of program and patient abuse while providing sufficient flexibility to enable those who are parties to financial relationships to satisfy the requirements of, and remain in compliance with, the physician self-referral law and the exceptions thereto. Finalizing together the proposals from the CY 2008 PFS and the FY 2009 IPPS proposed rules is consistent with our outlined approach.
The following chart identifies the revisions to the physician self-referral regulations included in this final rule and indicates the rule in which the revisions were proposed.
In reviewing and analyzing public comments, and revising the physician self-referral rules, we carefully consider the history and structure of section 1877 of the Act. We address in this final rule many of the industry's primary concerns, and believe that the regulatory revisions finalized here are consistent with the statute's goals and directives, and protect beneficiaries of Federal health care programs. We have endeavored to simplify the rules where possible and provide additional guidance in response to comments, as well as to reduce the burden on the regulated community by modifying exceptions created using the Secretary's authority under section 1877(b)(4) of the Act. Detailed descriptions of the proposals and regulatory revisions included in this final rule are found in sections VIII.B. through VIII.J. of this preamble and are not repeated in this general overview. However, we note the following issues of significance that are included in this final rule:
• The provisions regarding ownership or investment interests in retirement plans, burden of proof, and period of disallowance are finalized and effective October 1, 2008.
• Revisions to the physician “stand in the shoes” provisions require owners (other than titular owners) and permit non-owner physicians (and titular owners) to stand in the shoes of their physician organizations and address the application of the rules to the AMC exception. These regulations are effective October 1, 2008.
• We are not finalizing the DHS entity “stand in the shoes” provisions at this time.
• The proposal for an alternative method for compliance is finalized with a modified, narrow scope of application for missing signature requirements only, effective October 1, 2008.
• Percentage-based compensation formulae prohibitions are finalized with a narrower scope, specifically addressing the exceptions applicable to office space and equipment lease arrangements, with a delayed effective date of October 1, 2009.
• We are finalizing the proposal prohibiting certain unit-of-service (“per-click”) payments in lease agreements with a delayed effective date of October 1, 2009.
• Revisions to the definition of “entity” are finalized with a delayed effective date of October 1, 2009 (this proposal was referred to as “services provided ‘under arrangements’ ”).
• Revisions to the exception for obstetrical malpractice insurance subsidies permit parties to either comply with the anti-kickback statute safe harbor, or comply with revised requirements of § 411.357(r). The effective date of the revised exception is October 1, 2008.
In the CY 2008 PFS proposed rule, we solicited comments regarding the necessity or appropriateness of revisions to the exception in § 411.355(b) for in-office ancillary services. We received hundreds of comments in response. We made no proposals regarding revisions to this exception in either the CY 2008 PFS or FY 2009 IPPS proposed rules; therefore, we are not finalizing revisions to the exception in this final rule. In the CY 2008 PFS proposed rule, we solicited public comments regarding the period of disallowance for noncompliant financial relationships and noted in the CY 2008 PFS final rule with comment period our intent to finalize it in a future rulemaking. We included a proposal on this issue in the FY 2009 IPPS proposed rule. We also included two solicitations of comments in the FY 2009 IPPS proposed rule—one requesting comments regarding the need for and possible structures for an exception to the physician self-referral prohibition for gainsharing arrangements, and one requesting comments regarding the applicability of the physician self-referral rules to physician-owned medical device and other companies and any revisions to the rules that might be necessary to address program integrity concerns. Because these were only solicitations of comments, we are not finalizing revisions to the physician self-referral regulations related to these solicitations, nor do we discuss here the comments that we received in response to the solicitations. We note that, following the close of the comment period for the FY 2009 IPPS proposed rule, in the CY 2009 PFS proposed rule, we proposed to establish an exception to the physician self-referral law for incentive payment and shared savings programs. We refer the reader to 73 FR 38548 for more information regarding the proposed exception.
In the FY 2009 IPPS proposed rule, we proposed to revisit the “stand in the shoes” provisions issued in Phase III due to the potential widespread impact of the provisions, as well as the considerable industry interest in their application (73 FR 23685). As we stated there, we believe that a more refined approach to the “stand in the shoes” provisions would simplify the analysis of many financial arrangements and reduce program abuse by bringing more financial relationships within the scope of the physician self-referral law (such as certain potentially abusive arrangements between DHS entities and physician organizations that may not have met the definition of an “indirect compensation arrangement”). In addition, we proposed to take a global approach to the “stand in the shoes” provisions, and considered whether to establish rules that deem a DHS entity to stand in the shoes of an organization in which it has an ownership interest or over which it exerts control.
The Phase III “stand in the shoes” rules included provisions under which referring physicians are treated as standing in the shoes of their physician organizations for purposes of applying the rules that describe direct and indirect compensation arrangements in
The industry responded to the “stand in the shoes” provisions of Phase III with concern as to how the provisions would apply to certain stakeholders. Academic medical centers (“AMCs”), integrated tax-exempt health care delivery systems, and their representatives, expressed concern about compensation arrangements involving “mission support payments” and “similar payments” (“support payments”). The stakeholders asserted their view that certain payments did not previously trigger application of the physician self-referral law but, after Phase III, needed to satisfy the requirements of an exception. According to these stakeholders, support payments previously were analyzed under the rules regarding indirect compensation arrangements and, in their view, would have been permitted. After Phase III, in their view, it is unlikely that support payments could satisfy the requirements of an available exception, given the nature of support payments; that is, support payments usually are not tied to specific items or services provided by the faculty practice plan (FPP) (or group practice within an integrated health care delivery system), but rather are intended to support the overall mission of the AMC or maintain operations in an integrated health care delivery system. For this reason, they asserted that support payments likely would not satisfy the requirement, present in many exceptions, that the compensation be fair market value for items or services provided. Similarly, some stakeholders raised concerns about support payments made from FPPs to AMC components. We noted that, although AMCs are free to use the exception for services provided by an AMC in § 411.355(e) (which would protect support payments made among AMC components if all of the conditions of the exception are met), industry stakeholders explained that many AMCs do not use the exception, preferring instead to rely on other available exceptions and the rules regarding indirect compensation arrangements (especially prior to Phase III).
Following publication of the Phase III final rule, in order to have time to consider these concerns and develop a comprehensive response, we issued a final rule entitled “Medicare Program; Delay of the Date of Applicability for Certain Provisions of Physicians' Referrals to Health Care Entities With Which They Have Financial Relationships (Phase III)” (72 FR 64164) (“November 15, 2007 final rule”) that delayed the effective date of the provisions in § 411.354(c)(1)(ii), § 411.354(c)(2)(iv), and § 411.354(c)(3) for 12 months after the effective date of Phase III (that is, until December 4, 2008). That final rule was applicable only to certain compensation arrangements between physician organizations and entities. These arrangements included: (1) With respect to an AMC as described in § 411.355(e)(2), compensation arrangements between a faculty practice plan and another component of the same AMC; and (2) with respect to an integrated section 501(c)(3) health care system, compensation arrangements between an affiliated DHS entity and an affiliated physician practice in the same integrated section 501(c)(3) health care system. Shortly after the publication of the November 15, 2007 final rule, other industry stakeholders asserted that, in addition to section 501(c)(3) health care systems, most integrated health care delivery systems, including ones involving for-profit entities, make support payments. These stakeholders urged that any approach to addressing the impact of the Phase III “stand in the shoes” provisions on support payments and other monetary transfers within integrated health care delivery systems should have universal applicability that is not dependent on whether the system meets the definition of an AMC or has a particular status under the rules of the Internal Revenue Service.
In the FY 2009 IPPS proposed rule, we proposed two alternative ways to address the “stand in the shoes” issues described above. The first proposal offered a multi-faceted approach for revising the existing physician “stand in the shoes” rules in § 411.354(c), and provided two options for certain proposed elements. The second proposal involved leaving the Phase III “stand in the shoes” provisions as promulgated and creating a new exception using our authority under section 1877(b)(4) of the Act for nonabusive arrangements that warrant protection not available under existing exceptions. In this final rule, we are finalizing one of our physician “stand in the shoes” proposals with modification, but are not finalizing our proposals regarding the DHS entity “stand in the shoes” provisions or the conventions for applying the physician “stand in the shoes” provisions in concert with the DHS entity “stand in the shoes” provisions.
Our first proposal included two options for revising the physicians “stand in the shoes” provisions. The first option under this proposal would have revised § 411.354(c)(2)(iv) to provide that a physician would be deemed not to stand in the shoes of his or physician organization if the compensation arrangement between the physician organization and the physician satisfies the requirements of the exception in § 411.357(c) (for
The second option under the proposal to revise the physician “stand in the shoes” provisions would have deemed physician owners of a physician organization to stand in the shoes of the physician organization. We solicited public comments on whether considering all physician owners of (or physician investors in) a physician organization to stand in the shoes of the physician organization, as they currently do under the Phase III “stand in the shoes” provisions, might be over-inclusive. We were concerned that a physician owner of a captive or “friendly” PC who has no right to the distribution of profits and similarly situated physician owners would have to stand in the shoes of their physician organizations even when their ownership interest is merely nominal (or titular) in nature and their compensation arrangement with the physician organization satisfies the requirements of one of the exceptions in § 411.357(c), (d), or (l). We also solicited comments on an approach under which only owners of a physician organization would stand in the shoes of that physician organization (in which case, a physician would not stand in the shoes of a physician organization unless he or she holds an ownership or investment interest; under this approach, whether a physician “stands in the shoes” would not depend on whether the physician's compensation arrangement with the physician organization satisfies the requirements of § 411.357(c), (d), or (l)).
Under the first proposal, we also proposed to revise § 411.354(c)(3)(ii) to clarify that the provisions of §§ 411.354(c)(1)(ii) and (c)(2)(iv) do not apply when the requirements of § 411.355(e) are satisfied; that is, a physician would not stand in the shoes of his or her physician organization (for example, a faculty practice plan) when his or her referral for DHS is protected under the exception in § 411.355(e) for services provided by an AMC. We also proposed a specific revision to the regulation in § 411.354(c)(2)(iv) (when a physician is deemed to “stand in the shoes”) and sought public comment as to whether this policy related to AMCs is better achieved by revising § 411.354(c)(3) to delete the reference to applying the exceptions in § 411.355, and thereby providing that the “stand in the shoes” provisions do not apply where the prohibition on referrals is not applicable because all of the requirements of any of the exceptions in § 411.355 are satisfied. Finally, we proposed to revise § 411.354(c)(3)(ii) to provide that the provisions of § 411.354(c)(1)(ii) and (c)(2)(iv) do not apply when compensation is provided by a component of an AMC to a physician organization affiliated with that AMC through a written contract to provide services required to satisfy the AMC's obligations under the Medicare GME rules where the contract is limited to services necessary to fulfill the GME obligations as set forth in 42 CFR Part 413, Subpart F. We stated in the proposed rule that we may provide additional guidance on the application of the three elements of the definition of “indirect compensation arrangement” in the FY 2009 IPPS final rule. We solicited comments regarding ways in which we could ensure that the full range of potentially abusive arrangements between DHS entities and physician organizations are appropriately addressed in situations where physicians do not stand in the shoes of their physician organizations.
The alternative proposal in the FY 2009 IPPS proposed rule that addressed the Phase III physician “stand in the shoes” provisions was to make no revisions to existing §§ 411.354(c)(1)(ii), (c)(2)(iv), and (c)(3) and, to the extent necessary to protect nonabusive arrangements, promulgate a separate exception using our authority under section 1877(b)(4) of the Act to create exceptions for arrangements that do not pose a risk of program or patient abuse. We solicited comments about this proposal, including whether such an exception should be limited to “mission support” payments, whether other specific types of payments or compensation arrangements should be eligible for such an exception, the types of parties that should be permitted to use the exception (for example, AMC components, physician practices), and the conditions that should apply to such an exception to ensure that a protected compensation arrangement poses no risk of program or patient abuse. We recognized that the term “integrated health care delivery system” is loosely used in the industry to describe a wide variety of systems, with varying degrees of actual integration, and that it may prove infeasible to craft a sufficiently bounded definition. Due to our concern that, in many circumstances, payment arrangements between components of “integrated health care delivery systems,” as well as payments from “integrated health care delivery systems” to physicians affiliated with those systems are susceptible to fraud and abuse, we sought public comment about defining a fully integrated health care delivery system, what types of compensation arrangements should be protected (for example, support payments), and what conditions should be included in an exception that would ensure no risk of program or patient abuse.
In the CY 2008 PFS proposed rule (72 FR 38122), we proposed a corollary provision to the Phase III physician “stand in the shoes” provisions that addressed the DHS entity side of physician-DHS entity financial relationships. Specifically, we proposed to amend § 411.354(c) to provide that, where a DHS entity owns or controls an entity to which a physician refers Medicare patients for DHS, the DHS entity would stand in the shoes of the entity that it owns or controls and would be deemed to have the same compensation arrangements with the same parties and on the same terms as does the entity that it owns or controls. We solicited public comments as to whether and how we would employ a “stand in the shoes” approach for these types of relationships, as well as for other types of financial relationships. We did not finalize the DHS entity “stand in the shoes” provisions in the CY 2008 PFS final rule published in the
In the FY 2009 IPPS proposed rule, we proposed a revision to § 411.354(a) to provide that an entity that furnishes DHS would be deemed to stand in the shoes of an organization in which it has a 100 percent ownership interest and would be deemed to have the same compensation arrangements with the same parties and on the same terms as does the organization that it owns. We sought public comments specifically as to whether we should consider a DHS entity to stand in the shoes of another organization in which the DHS entity holds less than a 100 percent ownership interest and, if so, what amount of ownership should trigger application of the DHS entity “stand in the shoes” provisions. We also sought comments as to whether we should deem a DHS entity to stand in the shoes of an organization that it controls (for
We also proposed provisions outlining the conventions to use when applying both the physician “stand in the shoes” provisions and the DHS entity “stand in the shoes” provisions to a chain of financial relationships between a physician and a DHS entity. The proposed conventions were intended to ensure that at least one compensation arrangement remains between the DHS entity and the referring physician for purposes of analyzing the chain of relationships under the physician self-referral rules. No regulation text was proposed at the time regarding application of the physician and DHS entity “stand in the shoes” provisions.
Although we received a few comment letters suggesting that we not finalize any of our proposals related to the physician “stand in the shoes” provisions, the majority of commenters supported our proposal to revise the existing provisions in § 411.354(c), which were finalized in Phase III (72 FR 51012). Some commenters supported finalizing both our proposed revisions to § 411.354(c) and a new exception to the physician self-referral prohibition for mission support payments. A few commenters urged us to abandon the Phase III “stand in the shoes” provisions and instead revise the definition of “indirect compensation arrangement” and the exception for indirect compensation arrangements in § 411.357(p) to address the concerns noted in Phase III and the FY 2009 IPPS proposed rule (72 FR 51028; 73 FR 23686 through 23687). In this final rule, we are finalizing revisions to the physician “stand in the shoes” provisions to deem a physician who has an ownership or investment interest in a physician organization to stand in the shoes of that physician organization. Physicians with only a titular ownership interest (that is, physicians without the ability or right to receive the financial benefits of ownership or investment, including, but not limited to, the distribution of profits, dividends, proceeds of sale, or similar returns on investment) are not required to stand in the shoes of their physician organizations. In addition, we are permitting non-owner physicians (and titular owners) to stand in the shoes of their physician organizations and we are also clarifying that the physician “stand in the shoes” provisions in § 411.354(c) do not apply to an arrangement that satisfies the requirements of the exception in § 411.355(e) for AMCs. We are not finalizing our proposal regarding compensation arrangements between physician organizations and AMC components for the provision of services required to satisfy the AMC's obligations under the Medicare GME rules in 42 CFR Part 413, Subpart F. We address below the specific comments that we received in response to our proposals in the FY 2009 IPPS proposed rule.
One commenter argued that the final physician “stand in the shoes” provisions should permit DHS entities to assess the availability of an exception by considering the compensation payable by the DHS entity, rather than make the availability of an exception dependent on internal compensation decisions made by a physician group of which the DHS entity may have some knowledge, but over which the DHS entity has no control. This commenter suggested that we permit a DHS entity to assume that the physician organization has physician owners, essentially permitting a DHS entity to “opt into” the application of the physician “stand in the shoes” rules, even if the rules would not actually apply to the compensation arrangement between the DHS entity and the physician organization. A different commenter suggested that we make the direct exceptions applicable where a physician organization has a financial relationship with a DHS entity, similar to the manner in which direct exceptions are applicable where a physician's immediate family member has a financial relationship with a DHS entity.
Although not raised by this commenter, we recognize that many arrangements that, prior to Phase III, would have met the definition of “indirect compensation arrangement” and been required to satisfy the requirements of the exception in § 411.357(p) have been restructured (or initially structured) to comply with an exception for direct compensation arrangements in § 411.355 or § 411.357 as required under the Phase III “stand in the shoes” provisions that went into effect on December 4, 2007. Arrangements that were not direct compensation arrangements and that would not have been indirect compensation arrangements under the provisions in § 411.354(c) prior to Phase III have similarly been restructured to comply with an exception for direct compensation arrangements as required under Phase III. The revisions to § 411.354(c)(3)(iii) make it clear that such arrangements do not need to be restructured to comply with the revised physician “stand in the shoes” rules finalized in this rulemaking. In addition, the new “stand in the shoes” provisions in § 411.354(c)(1)(iii) and (c)(2)(iv)(B) that permit non-owners to stand in the shoes of their physician organizations should also address situations in which non-owner physicians have been standing in the shoes of their physician organizations pursuant to the Phase III “stand in the shoes” provisions. They may continue to do so.
Because rental charges, including the methodology used to calculate rental charges, must be ‘set in advance,’ as defined at § 411.354(d)(1), parties may not change the rental charges at any time during the term of an agreement. Parties wishing to change the rental charges must terminate the agreement and enter into a new agreement with different rental charges and/or other terms; however, the new agreement may be entered into only after the first year of the original lease term (regardless of the length of the original term). In addition, the new lease must be for a term of at least 1 year and must comply with all other criteria in the relevant rental exception.
(We noted also that personal service agreements may be amended in the same manner as agreements for the rental of office space or equipment (72 FR 51047).) We agree with the commenter that requiring compliance with an exception for direct compensation arrangements (as would be the case where a compensation arrangement exists between a DHS entity and a physician who stands in the shoes of his or her physician organization) imposes upon parties requirements not present in the exception for indirect compensation arrangements, including the 1-year term and “set in advance” requirements. We are sympathetic to the concerns of the commenter with respect to arrangements between DHS entities and physician groups that may require modification during the term of the arrangement. Moreover, in light of the revisions we are finalizing with respect to the use of percentage-based and per-click compensation formulae for determining rental charges for office space and equipment leases (see sections VIII.E. and VIII.F. of this preamble), we believe that an interpretation that permits amendments to an agreement between a DHS entity and a physician (or physician organization) during the term of the agreement is consistent with our mandate to safeguard against program or patient abuse and is consistent with our rules regarding compensation that is “set in advance,” provided that: (1) All of the requirements of an applicable exception are satisfied; (2) the amended rental charges or other compensation (or the formula for the amended rental charges or other compensation) is determined before the amendment is implemented and the formula is sufficiently detailed so that it can be verified objectively; (3) the formula for the amended rental charges does not take into account the volume or value of referrals or other business generated by the referring physician; and (4) the amended rental charges or compensation (or the formula for the new rental charges or compensation) remain in place for at least 1 year from the date of the amendment. We are taking the opportunity here to clarify that the rule regarding the amendment of arrangements between DHS entities and physicians (or physician organizations) applies to all of the exceptions for compensation arrangements in 42 CFR, Subpart J that include a 1-year term requirement for satisfying the exception.
We recognize industry stakeholder concerns that compensation to a physician organization that is paid in accordance with Medicare rules that require a hospital to pay “all or substantially all” of the costs of training a resident and which may be determined following completion of a hospital's cost report (and, thus, may require a reconciliation payment between the parties) may not satisfy the “set in advance” requirement included in many of the exceptions to the physician self-referral prohibition. However, a properly structured formula for the compensation to the community physician organization could meet an applicable “set in advance” requirement if it is determined at the commencement of the compensation arrangement, does not take into account the volume or value of referrals or other business generated between the parties, and satisfies the other requirements in § 411.354(d)(1).
Nearly all of the commenters who addressed the proposal to deem a DHS entity to stand in the shoes of an organization in which it has a 100 percent ownership interest opposed the proposal. The few commenters who provided “conditional” comments (in the event that we finalize the proposal) urged us to confine the DHS entity “stand in the shoes” provisions to 100 percent ownership interests only. For the reasons described below in our responses to comments, we are not finalizing the DHS entity “stand in the shoes” proposal. One purpose for our proposal to require a DHS entity to stand in the shoes of an organization in which it has a 100 percent ownership interest was to safeguard further against abusive business structures that attempt to evade restrictions on payments for referrals by using shell organizations interposed between the DHS entity and referring physicians. We caution that such arrangements are highly suspect under the fraud and abuse laws and will be subject to close scrutiny. Depending on the circumstances, such arrangements could violate the physician self-referral law, constitute unlawful circumvention schemes, or violate the anti-kickback statute. Moreover, structuring an arrangement purposefully to evade restrictions on payments for referrals may be evidence of unlawful intent.
As discussed above, we are not finalizing the DHS entity “stand in the shoes” provisions. Therefore, it is not necessary to finalize the proposed conventions for applying the physician “stand in the shoes” provisions and the DHS entity “stand in the shoes” provisions when both potentially would have applied. We received no comments regarding revisions to the conventions proposed in the FY 2009 IPPS proposed rule (73 FR 23689).
We are finalizing the revisions to the definitions of “physician” and “physician organization” as proposed in the FY 2009 IPPS proposed rule (73 FR 23690) in order to clarify that (1) a physician and the PC of which he or she is the sole owner are always treated the same for purposes of applying the physician “stand in the shoes” rules; and (2) a physician who stands in the shoes of his or her wholly-owned PC also stands in the shoes of his or her physician organization in accordance with revised §§ 411.354(c)(1)(ii) and (c)(2)(iv). We received no comments regarding the proposed revisions to the definitions of “physician” and “physician organization.”
In the CY 2008 PFS proposed rule (72 FR 38183), we noted that several commenters responding to the Phase II interim final rule with comment period (69 FR 16054) questioned the period of time for which a physician could not refer DHS to an entity and for which the entity could not bill Medicare because the financial relationship between the referring physician and the entity failed to satisfy all of the requirements of an exception to the general prohibition on physician self-referral. (We refer to this period of time as the “period of disallowance.”) We solicited comments addressing how we might, to a practical extent, set forth the period of disallowance for financial relationships that implicate, but fail to satisfy the requirements of one or more of the various exceptions. We noted that our interpretation of the physician self-referral statute is that the period of disallowance begins on the date that a financial relationship fails to comply with the statute and regulations and ends on the date the relationship came into compliance or ended. We requested comments about whether we should allow the period of disallowance to terminate where the value or consideration has been returned (72 FR 38183).
In the FY 2009 IPPS proposed rule (73 FR 23690, 23704) we discussed the comments that we received in response to the solicitation of comments in the CY 2008 PFS proposed rule, and we proposed to amend § 411.353(c) to provide that the period of disallowance begins at the time the financial relationship fails to satisfy the requirements of an applicable exception and ends no later than:
(1) Where the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all of the requirements of an applicable exception;
(2) Where the noncompliance is due to the payment of excess compensation, the date on which the excess compensation is returned to the party that paid it and the financial relationship satisfies all of the requirements of an applicable exception;
(3) Where the noncompliance is due to the payment of compensation that is of an amount insufficient to satisfy the requirements of an applicable exception, the date on which the additional required compensation is paid to the party to which it is owed such that the financial relationship would satisfy all of the requirements of the exception as of its date of inception. We continue to believe that it is possible that a financial relationship may end prior to the arrangement being brought into compliance.
Our proposals were intended to place an outside limit on the period of disallowance in certain circumstances. That is, where the reason(s) for noncompliance does not relate to compensation, the latest the period of disallowance would end would be the date the arrangement was brought into compliance. Where the reason for noncompliance is the fact that excess compensation was provided or too little compensation was paid, the latest the period of disallowance would end would be the date that the party receiving the excess compensation returned it to the party that provided it or the party owing the shortfall in compensation paid it to the party to which it was owed (assuming the arrangement otherwise satisfies the requirements of an applicable exception).
After considering the public comments we received, we are finalizing the period of disallowance proposals, without modification in substance. We have revised the proposed regulatory text because we were concerned that the language “the date on which the additional required compensation is paid to the party to which it is owed such that the financial relationship would satisfy all of the requirements of the exception as of its date of inception” may not have been entirely clear. The purpose of the quoted language was to emphasize that where a party has underpaid compensation (such as where a party has paid rent in an amount below fair market value for each of the months 1–6 under a lease agreement), it is not sufficient for the parties to address the noncompliant compensation on a going forward basis (such as adjusting the compensation for month 7 of the rental agreement used in the example), or for some partial period (such as making up the shortfall for months 4–6 in the lease agreement), but rather all additional compensation must be paid (that is, in the example given, compensation required to bring the rental payments for months 1–6 up to fair market value must be paid). Similarly, under our proposal, and as finalized in this rule, it is not sufficient for the party receiving excess compensation under a financial relationship to repay some of the excess compensation, but rather the party receiving it must repay all of it to the party that paid it. Accordingly, we are revising the proposed text for language for § 411.353(c) to provide that the period of disallowance ends no later than the date on which all excess compensation is returned to the party that paid it, or the date on which all additional required compensation is paid to the party to which it is owed. We emphasize that, consistent with our proposals, this final rule only prescribes the outside period of disallowance for certain situations, that is, a date by which parties can be assured that referrals for DHS are not prohibited (provided that compensation on a going-forward basis fully complies with an exception). Revised § 411.353(c) does not prevent parties from arguing that the period of disallowance ended earlier than the prescribed outside period, on the theory that the financial relationship ended at an earlier time. This final rule does not purport to define when a financial relationship begins or ends. In every case, a financial relationship begins and ends according to the conduct of the parties and the specific facts of the case. We further emphasize that the beginning and end dates of a financial relationship do not necessarily coincide with the beginning and end dates of a written agreement.
We address specifically the comments received in response to the FY 2009 IPPS proposed rule below.
Finally, we do not agree that the proposals, as adopted, have the effect of inhibiting self-reporting and self-correction of compliance violations rather than establishing the certainty to encourage them. The proposals would not, and the final rule does not, require self-reporting to take advantage of the certainty afforded by revised § 411.353(c). Moreover, as explained above, the proposals as adopted do establish a point at which the parties may be certain that the period of disallowance has ended. Where an entity discovers that it is missing a signature on an agreement, for example, or that too much or too little compensation has been paid, it should take steps to bring its relationship(s) into compliance. By doing so, the entity and the referring physician at issue will have the assurance that the period of disallowance ended no later than a certain date; again, revised § 411.353(c) sets only an outer limit on the period of disallowance and does not prevent parties from attempting to demonstrate that the period of disallowance ended on some earlier date.
The commenter also suggested that, when a compensation-related violation is detected and the amount of the overpayment is
To the extent that the commenter is suggesting that if the parties to a noncompliant arrangement are able to demonstrate to us that the compliance was inadvertent and that there was “no financial harm” to the Medicare program, the parties should be subject to some financial penalty rather than a period of disallowance, we also disagree. The statute provides at section 1887(a) of the Act that, where a physician and an entity have a financial relationship that does not comply with the requirements of any exception, the physician may not refer DHS to the entity during the period of the noncompliant financial relationship and that the entity may not bill Medicare for DHS referred to it by the physician during that period. Section 1877(g)(1) of the Act provides that no claim made pursuant to a prohibited referral may be paid by Medicare. No finding of financial harm to the Medicare program is necessary, or even authorized, by the statute, in order to trigger the prohibition in section 1877(g)(1) of the Act on making payment. Moreover, the statute does not authorize us to impose financial penalties for inadvertent violations in lieu of (or in addition to) the prohibition on making payment in section 1877(g)(1) of the Act.
We fail to see why one rule should apply for a first violation and a different rule should apply for a repeat violation. Revised § 411.353 sets forth what we believe is the natural reading of the statute, that is, the period of disallowance begins when a financial relationship becomes noncompliant and ends when the noncompliance is rectified. Our rule provides that the period of disallowance ends no later than a certain time, in order to provide assurance to parties that referrals after that time and claims submitted pursuant to those referrals will not be tainted by the previous noncompliance. We reiterate that parties are free, in any given case, to assert that the financial relationship (and, hence, the period of disallowance) ended at a time prior to the correction of a noncompliant condition, and such assertions will be evaluated on a case-by-case basis. As noted above, certain penalties or remedies beyond claims denials are reserved only for knowing violations of the physician self-referral statute, and if the same parties repeat the same types of noncompliance it may raise questions as to whether the noncompliance was deliberate.
In the CY 2008 PFS proposed rule, we stated that, although we do not have discretion to waive violations of the physician self-referral statute, we were considering whether to amend some of the exceptions that appear in §§ 411.355 through 411.357 to provide an alternate method for satisfying certain requirements of the exceptions (72 FR 38185). We cautioned that our proposal was intended to address only inadvertent violations in which a financial relationship fails to satisfy a procedural or “form” requirement of an exception in the statute or regulations. In addition, we stated that we did not intend to apply the alternative method for compliance to other requirements, such as compensation that must be fair market value, not related to the volume or value of referrals, or be set in advance. We cited the example of a situation in which parties are missing a signature but satisfy every other requirement of the exception for personal service arrangements in § 411.357(d). Section 1877(b)(4) of the Act provides that the Secretary may promulgate additional exceptions regarding financial relationships that pose no risk of program or patient abuse. We proposed to rely on our authority under this provision of the Act to implement this policy. We proposed eight criteria that, if satisfied, would allow a financial relationship that did not satisfy all of the existing “prescribed” criteria of an exception nevertheless to meet the exception. They were: (1) The facts and circumstances of the financial relationship are self-disclosed by the parties to us; (2) we determine that the financial relationship satisfied all but the prescribed procedural or “form” requirements of the exception at the time of the referral for the DHS at issue and at the time of the claim(s) for such DHS; (3) the failure to meet all of the prescribed criteria of the exception was inadvertent; (4) the referral for the DHS and the claim(s) for the DHS were not made with knowledge that one or more of the prescribed criteria of the exception were not met (consistent with other exceptions, we would apply the same knowledge standard as that applicable under the False Claims Act); (5) the parties have brought (or will bring as soon as possible) the financial relationship into complete compliance with the prescribed criteria of the exception or have terminated (or will terminate as soon as possible) the financial relationship between or among them; (6) the financial relationship did not pose a risk of program or patient abuse; (7) no more than a set amount of time had passed since the time of the original noncompliance with the prescribed criteria; and (8) the financial relationship at issue is not the subject of an ongoing Federal investigation or other proceeding (including, but not limited to, an enforcement matter). We proposed no regulatory text.
Commenters were generally supportive of the policies underlying the proposal, but most contended that the proposal was too restrictive. In particular, the commenters stated that we should not require parties to self-disclose that a procedural or “form” requirement was not met in order to be eligible for the alternative method for compliance.
We are adopting the proposal, with modification. Specifically, we are not adopting most of the proposed eight criteria, including the requirements that parties self-disclose a noncompliant financial relationship and that we determine that the financial relationship satisfied all but the prescribed procedural or “form” requirements of an exception. Under new paragraph (g) of § 411.353, payment may be made to an entity that submits a claim or bill for DHS if the financial relationship between the entity and the referring physician fully complied with an applicable exception under § 411.357, except with respect to a signature requirement, and the following conditions are met: (1) If the failure to comply with the signature requirement was inadvertent, the entity rectifies the failure to comply with the signature requirement within 90 days after the commencement of the financial relationship (without regard to whether any referrals have occurred or compensation has been paid during such 90-day period); or (2) if the failure to comply with the signature requirement was not inadvertent, the entity rectifies the failure to comply with the signature requirement within 30 days after the commencement of the financial relationship (without regard to whether any referrals have occurred or compensation has been paid during such 30-day period). In order to take advantage of the alternative method for compliance in § 411.353(g), the financial relationship at issue must, at the commencement of the financial relationship, satisfy all of the requirements (except the signature requirement) of an applicable exception. For example, if the applicable exception includes a requirement that the financial relationship not violate the Federal anti-kickback statute (section 1128B(b) of the Act), the alternative method for compliance with the exception would not be available to the parties unless this requirement was satisfied. New paragraph (g) of § 411.353 may be used by an entity only once every 3 years with respect to the same referring physician.
We decline, at this time, to extend the relief offered by the proposal to failures to meet other prescribed procedural or “form” criteria. Commenters have not identified other procedural or “form” criteria to which the final rule should apply. We are reluctant to expand the relief addressed in the proposed rule, particularly in light of the fact that we are not requiring entities to self-disclose the failure to meet the prescribed criteria, and are not requiring that we make a determination that alternative criteria are met.
We address below the specific comments that we received in response to our proposal in the CY 2008 PFS proposed rule.
In this final rule, we have eliminated the proposed requirement of self-disclosure, as well as the proposed requirement that we make an advance determination that the alternative criteria were satisfied, but we emphasize that we have done so only for the purpose of encouraging entities to take advantage of the alternative method for compliance. Because the final rule is narrow in scope, applying to missing signatures only, we believe that we can eliminate these proposed requirements and still meet the statutory mandate under section 1877(b)(4) of the Act that any additional exception that we create by regulation under that authority, or any revisions to existing regulations created under such authority not pose a risk of program or patient abuse.
In the CY 2008 PFS proposed rule, we proposed clarifications to our regulations regarding compensation that is “set in advance” (72 FR 38184). As discussed in the CY 2008 PFS proposed rule, our proposal would have affected numerous compensation arrangements, as the requirement that compensation be “set in advance” (or “fixed in advance”) appears throughout our regulations—in both regulations implementing the statutory exceptions and in exceptions issued using our authority under section 1877(b)(4) of the Act. Specifically, we proposed to clarify that compensation determined using a percentage-based formula: (1) May be used only for paying for personally performed physician services; and (2) must be based on the revenues directly resulting from the physician services rather than based on some other factor such as a percentage of the savings by a hospital department (which is not directly or indirectly related to the physician services provided).
Under our regulations in § 411.354(d), compensation is considered “set in advance” if the aggregate compensation, a time-based or per-unit amount, or a specific formula for calculating the compensation, is set forth in an agreement between the parties before the furnishing of the items or services for which the compensation is to be paid. In Phase I, the regulation in § 411.354(d)(1) read: “[p]ercentage compensation arrangements do not constitute compensation that is ‘set in advance’ in which the percentage compensation is based on fluctuating or indeterminate measures or in which the arrangement results in the seller receiving different payment amounts for the same service from the same purchaser” (66 FR 959). Following publication of Phase I, we received anecdotal accounts about contracts for physician services pursuant to which payment is calculated based on a percentage of the revenue billed or collected as a result of the physician's own professional services. We delayed the effective date of the final sentence of § 411.354(d)(1) through five
In Phase II, we also addressed the concerns of commenters to Phase I that pointed out that, under section 1877 of the Act, group practices are not subject to the “set in advance” restriction when paying profit shares or productivity bonuses to group practice physicians, nor are employers so restricted in their payments to employed physicians under the exception for
We noted in the CY 2008 PFS proposed rule that, despite our stated intent that percentage-based compensation formulae be used only for compensating physicians for the physician services they personally perform, it had come to our attention that arrangements involving percentage-based compensation formulae are being used for the rental of office space or for the provision of items and services, such as the rental of equipment (72 FR 38184). With respect to arrangements for the rental of office space or equipment, the rental charges for the office space or equipment are determined as a percentage of the revenues raised in the office space or by the equipment. With respect to billing agent or management agreements, the compensation is often set as a percentage of collections or revenues of the party for whom the services are provided.
Although we proposed to revise § 411.354(d) to specify that compensation determined using a percentage-based formula may be used for paying for personally performed physician services only, at this time, we are finalizing a targeted approach for addressing our primary concerns regarding percentage-based compensation formulae that are used to determine compensation outside the context of personally performed physician services. Specifically, relying on our authority in sections 1877(e)(1)(A)(vi), 1877(e)(1)(B)(vi), and 1877(b)(4) of the Act, we are revising § 411.357(a), § 411.357(b), § 411.357(l) and § 411.357(p) to prohibit the use of percentage-based compensation formulae in the determination of rental charges for the lease of office space or equipment. We continue to believe that
For a more detailed description of our concerns, we refer the reader to sections VIII.F and VIII.G of this preamble. We intend to continue to monitor compensation formulae in arrangements between DHS entities and referring physicians and, if appropriate, may further restrict percentage-based formulae in a future rulemaking. We refer the reader to section VIII.B of this preamble for a discussion of our interpretation of compensation that is “set in advance” as it applies to the modification of rental charges in office space or equipment leases. We address below the specific comments that we received in response to our proposal in the CY 2008 PFS proposed rule.
We note also that our proposal in the CY 2008 PFS proposed rule and this commenter's letter pre-dated the publication of the Phase III “stand in the shoes” provisions in § 411.354(c) (72 FR 51012). To the extent that a physician organization, rather than an individual referring physician or joint venture, leases office space or equipment to or from a DHS entity, the physician may stand in the shoes of the physician organization, and the arrangement between the DHS entity and the referring physician is analyzed as if it were a lease arrangement between the DHS entity and the referring physician.
Several commenters, in similar or identical letters, stated that prohibiting percentage-based compensation (unless for personally performed physician services) fails to recognize the important role that financial incentives play in achieving the goals that the Institute of Medicine (IOM) has set for all of health care, including payments based on achieving quality measures, patient satisfaction, or efficiencies. Some of the commenters also asserted that the proposal, if finalized, would work against achieving clinical integration and coordination. According to several commenters, the proposed changes are out of sync with the relationships that are developing and need to evolve to meet the public policy goals for health care delivery. The commenters noted that, the financial model for integrated care delivery, through recognizing the challenges set by the IOM and responding to the use of financial incentives by the government and other payers, has come to rely on sharing revenue in appropriate ways as a mechanism to incent appropriate behavior. The commenters argued that these efforts will be frustrated if percentage-based compensation formulae can be used only for personally performed physician services. Many of these commenters recommended that we should permit certain types of percentage-based compensation arrangements such as: (1) Sharing of cost savings from efficiencies; (2) incentives to meet quality indicators, even when cost savings do not accrue to the hospital; (3) incentives to clinically integrate services and coordinate care across settings; (4) sharing of pay-for-performance bonuses from payers; (5) service contracts to build new service capacities; and (6) management contracts.
Sharing of financial risk among parties does not eliminate necessarily the risk of program or patient abuse. As we described above, we believe that the use of percentage-based compensation formulae to determine rental charges for office space and equipment may provide significant incentive for parties to increase referrals in order to increase the rental payments that are based on revenues generated by those referrals. With respect to the comments regarding the ability of a hospital to ensure that it does not make a rental payment that is greater than the reimbursement it receives for the particular service for the particular patient, we note that rental charges must be set at fair market value. Reimbursement from an insurer does not correlate necessarily to fair market value, and rental charges based on a percentage of the amount reimbursed for a particular service may not result in fair market value rental charges for the equipment leased.
As explained in section VIII.F. of this preamble, we are concerned that entities may enter into per-use equipment lease arrangements, even though they may have sufficient volume to justify purchasing the equipment, because they are afraid of losing the referral stream from the physician lessor. Similarly, we are concerned that entity lessees may enter into percentage-based office space or equipment leases instead of flat-rate compensation lease arrangements because they are afraid of losing the referral stream from the physician lessor. We note that, although these commenters (which are either physicians or representatives of physicians) emphasized the benefits of percentage-based compensation arrangements for hospitals, no hospital or hospital association commented in support of this view.
In the CY 2008 PFS proposed rule, we stated that arrangements involving a physician lessor to an entity lessee under which the physician lessor receives unit-of-service (also known as per-click or per-use) payments are inherently susceptible to abuse because the physician lessor has an incentive to profit from referring a higher volume of patients to the lessee. Therefore, we proposed that such arrangements would not qualify for the exceptions at § 411.357(a) and (b) for space and equipment leases. We also solicited comments on the question of whether we should prevent per-click payments in situations in which the physician is the lessee and a DHS entity is the lessor. We received a few comments on the latter issue, all of which were in favor of answering the question in the affirmative.
We received many comments in favor of the proposals that such per click arrangements do not qualify for the exceptions at § 411.357(a) and (b) for space and equipment leases. Some of these commenters asserted that per-click leases with physicians for lithotripters are abusive, and that hospitals are effectively coerced into leases with physicians for fear that if they contract with non-physicians, their referral stream will dry up. We also received many comments opposed to our proposals, the great majority of which came from urologists, and from associations and law firms that represent urologists. Many of these commenters stated that lithotripsy is not a DHS, and that in any event there is no risk of overutilization because lithotripters and other equipment leased by urologists are for therapeutic, and not diagnostic, procedures. These commenters also emphasized that hospitals are either unwilling or unable to purchase lithotripters, lasers and other equipment, and that if it were not for physicians, including joint ventures among urology groups, patients would not have the benefit of advanced technology at all, or at best would have to travel longer distances to obtain it. These commenters also stated that instead of encouraging abuse, the per-click payment methodology was the fairest way to compensate the physician lessors. Many of these commenters also stated that the Congress intended that per-click leases be allowed.
Many of the commenters in favor of, or in opposition to, the proposal also commented on the proposal to amend the definition of “entity” at § 411.351 to clarify that a person or entity is considered to be “furnishing” DHS if the person or entity is performing services that are billed as DHS, notwithstanding that another person or entity actually billed the services as DHS (see section VIII.G. of this final rule for a discussion of that proposal) and, in many cases, the comments made specifically with respect to one proposal were applicable to the other. In some cases, it was not clear on which proposal the commenters were commenting. Because we believe that the issues are intertwined, in finalizing the “per-click” proposal, we considered the comments to both the “per-click” and “under arrangements” proposals, and considered also some of the comments submitted in response to the CY 2008 PFS proposed rule solicitation of comments on possible changes to the in-office ancillary services exception (72 FR 38181). We read carefully and considered each comment. Space limitations prevent us from summarizing each comment; however, we discuss below all of the significant points raised by commenters in favor of, or in opposition to, our proposal. A discussion of specific comments is presented below.
At this time we are adopting our proposal to prohibit per-click payments to physician lessors for services rendered to patients who were referred by the physician lessor. We continue to have concerns that such arrangements are susceptible to abuse, and we also rely on our authority under sections 1877(e)(1)(A)(vi) and 1877(e)(l)(B)(vi) of the Act to disallow them. Because physicians themselves may bill for DHS, we have the same concerns with respect to per-click lease arrangements in which a DHS entity is the lessor and receives a per-click payment from a physician lessee for space or equipment used by the physician in the provision of services to patients who were referred by the entity lessor to the physician lessee. The final rule revises the lease exceptions at §§ 411.357(a)(5) and 411.357(b)(4), as well as the fair market value exception at 411.357(l), and the exception for indirect compensation arrangements at § 411.357(p), and provides that per unit-of-service rental charges are not allowed to the extent that such charges reflect services
We are delaying the effective date of the amendments to §§ 411.357(a)(5) and 411.357(b)(4) until October 1, 2009, in order to afford parties adequate time to restructure arrangements.
We are also taking this opportunity to remind parties to per-use leasing arrangements that the existing exceptions include the requirements that the leasing agreement be at fair market value (§ 411.357(a)(4) and § 411.357(b)(4)) and that it be commercially reasonable even if no referrals were made between the parties (§ 411.357(a)(6) and § 411.357(b)(5)). For example, we do not consider an agreement to be at fair market value if the lessee is paying a physician substantially more for a lithotripter or other equipment and a technologist than it would have to pay a non-physician-owned company for the same or similar equipment and service. As a further example, we would also have a serious question as to whether an agreement is commercially reasonable if the lessee is performing a sufficiently high volume of procedures, such that it would be economically feasible to purchase the equipment rather than continuing to lease it from a physician or physician entity that refers patients to the lessee for DHS. Such agreements raise the questions of whether the lessee is paying the lessor more than what it would have to pay another lessor, or is leasing equipment rather than purchasing it, because the lessee wishes to reward the lessor for referrals and/or because it is concerned that, absent such a leasing arrangement, referrals from the lessor would cease. In some cases, depending on the circumstances, such arrangements may also implicate the anti-kickback statute.
One commenter, a radiation oncologist, said that some leasing arrangements are abusive and provide incentives to physicians to narrow their choice of treatment options to those for which they will realize a profit. Similar concerns were expressed by two companies that lease lasers, and individuals who apparently are employed by one of the companies. One of the commenters stated that: Financial motivation is driving treatment choices (that is, whereas options exist for the treatment of diseases, physician ownership of equipment plays a key role in influencing what the patient ultimately will be prescribed); physicians sometimes steer patients to facilities that are willing to lease equipment from the physicians; overutilization is created by practices that, due to physician ownership, use treatments that yield lower efficacy outcomes and causes the need for re-treatment; and, physicians pressure hospitals to use their leasing company despite not being the low cost provider. Another of the commenters also expressed concern that the utilization of antiquated or lesser technology in order to contain cost and keep profitability as high as possible, may result in the patient not receiving the best possible procedure, and leasing arrangements involving physician lessors may lead to increased insurance claims. An individual employed by one of the laser companies said that he has seen gross abuses of the current physician self-referral law, following the proliferation of urologist-owned LLCs, which include investments in treatments beyond lithotripsy, such as laser treatments, brachytherapy, and cryotherapy. The abuses claimed by the commenter include: Physicians threatening hospitals into using the physician's company; hospitals violating contracts because they believe that the consequences of a broken contract will be less severe than not letting the physician have his or her way; and physicians steering patients to equipment they own, rather than use a third party for which the hospital has contracted, even if it means having the patient travel to a non-convenient hospital. The commenter alleges that hospital administrators are aware of steerage, but fear that reporting the physicians will result only in more lost business.
A supplier of medical equipment said that it provides its equipment on a per-click basis, and also provides a clinical support technician to operate the equipment. It said that it has seen an increase in the number of equipment providers that are owned by physicians, and that physician-owned leasing groups are anti-competitive and undermine a hospital's independence. The commenter alleged that if a hospital demands that its business will be awarded to the lowest bidder of equivalent services, physician-owned leasing groups will threaten to move the cases that its physician owners control to another hospital. The commenter stated that in one instance a hospital that had been dealing with a physician-owned leasing company switched its business to the commenter with the result that many of the referrals went to other hospitals that dealt with the physician-owned company. The commenter also alleged that a physician group that has no equipment, but which controls the referral of cases, can say to a hospital's current equipment provider that it must be the physician group's subcontractor under a new contract between the physician group and the hospital. The commenter asserted that it had been approached by a physician that was assembling a group of urologists to join a physician-owned entity that would provide equipment and technicians for urological procedures. According to the commenter, its company would have acted as the subcontractor for the physician-owned entity; that is, it
An individual who owns a business that leases lasers for urological procedures stated that his company has obtained new technology lasers that offer improved clinical results and other benefits to patients, but that his company sometimes has difficulties in persuading physicians to allow the newer technology lasers to be brought into a hospital because the physicians have no ownership in the equipment. A medical sales representative stated that he has witnessed unethical business conduct due to physician ownership in surgical laser devices. According to the commenter, surgical lasers make up a large portion of per-click leasing arrangements.
An association that represents employers urged us to prohibit per-click payments to physician lessors for services rendered to patients referred by the physician lessors. The commenter considered such payments to be based on the volume of referrals or other business generated by the parties, and said that such payments provide incentives to overutilize services, increase costs and reduce competition. A few commenters, including an organization that represents rehabilitation therapists, stated that clinical efficacy, not financial gain, should be the motivating factor in patient care, and that the proposed rule would reinstate balanced competition, promote competitive pricing, factoring in of quality of care, and would help to reduce healthcare costs.
MedPAC stated that it believes that the financial incentives of leasing arrangements involving physician lessors could lead to overutilization of imaging services. MedPAC recommended that we prohibit these arrangements by expanding the definition of physician ownership to include interest in an entity that derives a substantial proportion of its revenue from DHS providers. (See page 167 of MedPAC's March 2005 Report to the Congress, available at
We decline to adopt the approach recommended by MedPAC, by which we would expand the definition of physician ownership to include an interest in an entity that derives a substantial proportion of its revenue from DHS providers. We believe that attempting to define what would constitute a “substantial” proportion of an entity's revenue, for purposes of whether to consider it a DHS entity, may be difficult, both in terms of implementation and enforcement. Moreover, MedPAC's recommended approach may be both underinclusive and overinclusive in some instances. That is, under the MedPAC approach, a physician-owned entity would be considered to be a DHS entity only if a substantial proportion of its revenue is derived from DHS entities. Such an approach could be underinclusive in situations in which, as a minor part of its business, a physician-owned entity leases equipment to a hospital but also, as the much greater portion of its business, owns and manages real estate. Also, MedPAC's approach could, in effect, allow overutilization and restrictions on competition provided that such effects were but a relatively small part of an entity's enterprise. On the other hand, we believe MedPAC's approach would be overinclusive with respect to a physician-owned entity that only leases equipment to a DHS entity (thereby meeting the “derives a substantial proportion of its revenue” test) but which does not lease the equipment on a per-click basis. (Additional discussion of MedPAC's approach is contained below, in section VII.G. of this preamble.)
In order for a space or equipment lease to satisfy the exceptions under §§ 1877(e)(1)(A)(iv) or (e)(1)(B)(iv), the rental charges over the term of the lease must not be “determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties.” The Conference Report to the 1993 amendments to the physician self-referral statute explains the intent underlying these provisions as follows: “[t]he conferees intend that charges for space and equipment leases may be based on daily, monthly, or other time-
We rely on our authority under §§ 1877(e)(1)(A)(vi) and (e)(1)(B)(vi) to impose upon space and equipment leases additional requirements for per click leases needed to protect against program or patient abuse. In reaching our decision to prohibit certain per click payments for space and equipment leases under §§ 1877(e)(1)(A)(vi) and (e)(1)(B)(vi), we begin with the clear, overarching purpose of the statute. As we noted in the 1998 proposed rule (63 FR 1661), a number of studies prior to enactment of section 1877 consistently found that physicians who had financial relationships with entities to which they referred ordered more services than physicians without such financial relationships. Congress recognized that a physician's financial incentive to refer can affect utilization, patient choice, and competition. 135 Cong. Rec. H240 (Feb. 9, 1989) (statement of Rep. Stark). Congress chose a preventive approach to the self-referral problem: it essentially prohibited many abusive financial relationships between physicians and DHS entities and imposed strict liability on the DHS entity for claims submitted in violation of the statute (knowing violations of the statute by DHS entities and referring physicians are subject to additional sanctions).
The statute—with its significant financial sanctions—is far-reaching in its effect on the health care industry, touching virtually all major industry sectors. As stated in the Phase I preamble (66 FR 860), while the statute must be implemented to achieve its intent, we should be cautious in interpreting its reach so broadly as to prohibit potentially beneficial financial arrangements, and thus we would focus our regulations on financial relationships that may result in overutilization. We also indicated that we would “continue to monitor financial arrangements in the health care industry and will revisit particular regulatory decisions if we determine that there is abuse or overutilization (66 FR 860).
The statute responds to the context of the times in which it was enacted (by addressing known risks of overutilization and, in particular, by creating exceptions for common business arrangements), and also incorporates sufficient flexibility to adapt to changing circumstances and developments in the health care industry. For example, in section 1877(b)(4), Congress authorized the Secretary to protect additional beneficial arrangements by promulgating new regulatory exceptions. In addition, Congress included the means to address evolving fraud risks by inserting into many of the exceptions—and notably, for our purposes, in the lease exceptions—specific authority for the Secretary to add conditions as needed to protect against abuse. See §§ 1877(b)(2), (e)(1)(A)(vi), (e)(1)(B)(vi), (e)(2)(D), (e)(3)(A)(vii), (e)(5)(C), (e)(6)(B), and (e)(7)(A)(vii). This design reflects a recognition that a fraud and abuse law with sweeping coverage over most of the health care industry could not achieve its purpose over the long term if it were frozen in time. In short, the statute evidences Congress' foresight in anticipating that the nature of fraud and abuse—and of beneficial industry arrangements—might change over time.
The evidence on the issue of overutilization and anti-competitive behavior persuades us that the lease exceptions need to be modified at this time to address a burgeoning risk of abuse and increased costs to the Medicare program. In our earlier rulemaking, we had been hopeful that risk of overutilization would be adequately controlled by the other conditions in the lease exceptions and by our interpretation permitting only those per-service (and similar) payments that are immutable and fair market value. With the passage of time, we are persuaded otherwise. Addressing this growing risk now is fully consistent with the statutory design and purpose.
One commenter said that per-click arrangements create efficiencies because they permit expensive equipment to be utilized by multiple parties. Without these types of arrangements, certain services may be unavailable to patients, particularly in rural areas where practices are too small to independently purchase such equipment. Another commenter said that he co-owns a lithotripter that travels around the state, including to rural hospitals where procedure volume may be too low to allow for a fixed monthly rental. Another commenter said that per-click fees work well with both low and high volume facilities and allow for smaller, rural hospitals to offer services locally to patients with little or no risk and with adequate compensation. The commenter contended that a weekly, monthly or yearly rental fee would not work given the great disparity of case loads and effectiveness of treatment.
One commenter said that our proposal would force hospitals to bear the risk of leasing equipment, and would effectively eliminate the provision of certain part-time or mobile health care services, including mobile lithotripsy services, thereby eliminating access to health care in smaller communities where there is not sufficient volume to support the full-time provision of such modalities. One commenter stated that the proposal will have a negative impact on the healthcare system. The commenter's group practice asserted that it was able to purchase a lithotripter at a cost in excess of $400,000 and there is not enough need at the various hospitals for a full time machine. Further, per-click arrangements are vital to the provision of lithotripsy services
One commenter said that the prohibition on per-click payments would limit the efficacy of care. Another commenter said that because lithotripsy equipment is portable, it makes very little sense to have an expensive piece of equipment sitting in a hospital seven days a week when it is used only two or three days a week. Another commenter stated that although some per-click arrangements may be susceptible to abuse, many agreements provide enormous community benefit and have safeguards built in to prevent abuse.
Another commenter stated that it expects that physician-owned ventures and lobbies will seek to delay the implementation of the proposal by claiming disruption to clinical services, but that, based on its experience, there are numerous independent businesses ready to service and purchase the equipment and take over contracts without creating an interruption of services. A radiation oncologist stated that the argument in support of joint ventures with regard to ancillary services such as diagnostic testing, radiation therapy and pathology services generally centers on improved access to care. However, the commenter contended, there are no access issues with respect to radiation therapy services, as very few patients are not within a reasonable distance of a radiation oncology center. The commenter further explained that the decision with regard to the most appropriate therapy for patients with localized prostate cancer must remain independent of financial incentives.
With respect to the commenters' assertion that physicians are willing to take risks in bringing new technology to communities and hospitals are risk-averse, to the extent that this is true, it begs the question of whether physicians are less concerned about risk because they can control the referral stream and whether hospitals are more concerned about risk because they fear that referrals will go to their competitors if they either purchase the equipment or refuse to enter into per-click leasing arrangements with physician lessors. We believe that the proposal as finalized will create a more level playing field between hospitals and physicians and also among hospital competitors. We note that although many of the physician commenters touted the benefits of per-click arrangements for hospitals, only one hospital commented and echoed this view. To the contrary, a large hospital association supported our proposal, as did two hospitals.
We also received many comments from urologists and others who stated that therapeutic procedures do not lend themselves to overutilization. Several of these commenters distinguished lithotripsy and other urological procedures from radiological procedures on the basis that the former are therapeutic procedures and thus do not pose the risk of overutilization that diagnostic radiological procedures do. For example, one commenter said that lithotripsy services present virtually no risk of overutilization. According to the commenter, this is so for two reasons. First, lithotripsy is a therapeutic, not a diagnostic, procedure. The commenter quoted us as having stated “the procedure itself apparently documents the medical necessity to prescribe it. As we understand ESWL, the kidney stone is located, identified, and the progress of the therapy is recorded as part of the visualization process” (63 FR 1682). Second, the commenter asserted that lithotripsy cannot be overutilized because of the strict standards of care for the use of a lithotripter. The commenter stated that, after a stone has been diagnosed, there are clearly defined guidelines for physicians to follow in the treatment of ureteral and kidney stones, based on the size and location of a stone and the clinical status of the patient. In addition, the commenter stated that there are formal protocols for the appropriate management of stone disease, all accredited lithotripsy facilities have thorough utilization review and quality assurance programs in place to ensure physician treatments are appropriate, and many facilities incorporate physician and staff review of each case prior to treatment to confirm its appropriateness and likely clinical efficacy. An association of urologists said that procedures such as green light laser procedures and cryotherapy also
We also do not believe that it is necessary for us to have actual evidence of abuse involving lithotripsy or other therapeutic procedures in order to regulate per-click leasing arrangements; rather, we believe that the potential for abuse inherent in such arrangements, regardless of the nature of the service, allows us to issue a prophylactic rule. Several studies have established a link between physician self-referral and increased utilization. As an example of overutilized therapeutic treatments, we note that a large hospital system settled a case against several of their physicians who were accused of performing unnecessary cardiac surgeries. Federal officials alleged that the physicians entered a scheme to cause patients to undergo unneeded, invasive, cardiac procedures such as artery bypass and heart valve replacement surgeries. The hospital system agreed to pay $54 million to settle the Federal case.
We are similarly unpersuaded by the second commenter. We disagree with the contention that fair market value necessarily is best reflected in the number of procedures performed where a lessee has exclusive possession of equipment or space that may be used very sparingly, the per-click payments by the lessee may be less than fair market value taking into consideration the cost of the equipment or space involved and the amount of rent that would be charged under a block time or other arrangement. Conversely, where a lessee has exclusive use of equipment or space that is used very frequently, the per-click payments made by the lessee may be above fair market value, taking into consideration the cost of the equipment or space involved and the amount of rent that would be charged under a block time or other arrangement.
We note that we are not prohibiting per-click arrangements involving non-physician-owned lessors to the extent that such lessors are not referring patients for DHS, nor are we prohibiting per-click payments to physician lessors for services rendered to patients who were not referred to the lessee by the physician lessors, because such arrangements do not carry with them risk under the physician self-referral statute. Of course, such arrangements must still satisfy all the requirements of the lease exceptions, including the requirements that they be at fair market value and be commercially reasonable.
One commenter, a radiology practice, said that, in its experience, the situation in which a DHS entity leases space and/or equipment to a referring physician to perform and bill for the technical component services the physician orders for his or her patients, is also prevalent and can lead to overutilization if the rental is based on a per-click payment to the DHS entity, because the physician pockets the difference between the lease fee and the reimbursement from Medicare. Therefore, the commenter urged us to prohibit per-click lease payments by physician lessees. A radiology benefits management company said we should develop a prohibition on per-click or time-based payments by physicians. An association that represents employers said unit-of-service lease arrangements should be prohibited when the referring physician is either the lessor or the lessee.
In the CY 2008 PFS proposed rule, we proposed to revise the definition of “entity” at § 411.351 so that a person or entity is considered to be furnishing DHS if it is the person or entity that has performed the DHS or presented a claim or caused a claim to be presented for Medicare benefits for the DHS (72 FR 38186–38187). In this final rule, we are finalizing that proposal with modification. We also proposed in the CY 2008 PFS proposed rule that an “entity” would not include a physician organization that bills for the professional component (PC) of a diagnostic test where the anti-markup provisions of § 414.50 are applicable to the PC and the physician organization bills in accordance with the anti-markup provisions. We finalized that proposal in the CY 2008 PFS final rule with comment period (72 FR 66400).
The physician self-referral rules prohibit a physician from making referrals for DHS to an entity with which the physician (or an immediate family member) has a financial relationship, and prohibits the entity from billing Medicare for the DHS, unless an exception applies. Under the Phase I revision to the definition of “entity” at § 411.351, an “entity” includes only the person or entity that bills Medicare for the DHS, and not the person or entity that performs the DHS where the person or entity performing the DHS is not the person or entity billing for it.
In the CY 2008 PFS proposed rule, we noted our continuing concern about the risk of overutilization with respect to services provided “under arrangements” to hospitals and other providers because the risk of overutilization that we identified in the 1998 proposed rule has continued, particularly with respect to hospital outpatient services for which Medicare pays on a per-service basis (72 FR 38186). We proposed to revise our definition of entity at § 411.351 to include both the person or entity that performs the DHS, as well as the person or entity that submits claims or causes claims to be submitted to Medicare for the DHS.
We received many comments both in favor of, and in opposition to, the proposal. We read carefully and considered each comment. Space limitations prevent us from summarizing each comment; however we discuss below all of the significant points raised by commenters in favor of, or in opposition to, our proposal. Commenters in favor of the proposal stated that they believed that existing contractual arrangements between physician-owned service providers and hospitals are inconsistent with the purpose of the physician self-referral law and are susceptible to abuse. Notably, two large national hospital associations expressed support for the proposal, whereas only a few hospitals were opposed to it. Many of the commenters in support of the proposal pointed to the potential for overutilization and anti-competitive behavior with respect to all types of procedures, including therapeutic services such as radiation oncology services used in the treatment of prostate cancer. The commenters opposed to the proposal largely were physician organizations and physicians, many of whom are urologists and cardiologists. These commenters argued that hospitals are unable or unwilling to invest in technology to provide services directly, and that their joint ventures provide care in an efficient manner, meet a community need, and offer good quality. They asserted that patient access would be negatively impacted if we adopted our proposal. Urologists engaged in joint ventures with hospitals for the treatment of prostate conditions, including prostate cancer, stressed their view that, unlike the case with imaging, there is no risk of overutilization with therapeutic services.
Many of the commenters in favor of or in opposition to the proposal also commented on the proposal to disallow “per-click” lease payments in certain circumstances (see section VIII.F. of this final rule for a discussion of that proposal) and, in many cases, the comments made specifically with respect to one proposal were applicable to the other. In some cases, it was not clear on which proposal the commenters were commenting. Because we believe that the issues are intertwined, in finalizing the “under arrangements” proposal, we considered the comments to both the “under arrangements” and “per-click” proposals.
In this final rule, we are adopting our proposal with modification and amending the definition of “entity” at § 411.351 to clarify that a person or entity is considered to be “furnishing” DHS if it is the person or entity that has performed the DHS, (notwithstanding that another person or entity actually billed the services as DHS) or presented a claim for Medicare benefits for the DHS. Note that where one entity performs a service that is billed by another entity, both entities are DHS entities with respect to that service. We are delaying the effective date of the amendment to the definition of “entity” at § 411.351 until October 1, 2009 in order to afford parties an adequate time to restructure arrangements. A discussion of specific comments is presented below.
A nonprofit organization that represents large employers stated that it strongly supports the proposal, asserting that services performed in a non-hospital setting on registered hospital outpatients, under a contract between the hospital and the separate provider, present conflicts of interest and provide incentives for overutilization when the referring physicians have an ownership interest in the separate provider.
One commenter, a urologist, stated that although some joint ventures certainly improve access to care and new technology, joint ventures have been abused and that intensity modulated radiation therapy (IMRT) for prostate cancer treatment is an example of how “under arrangements” contracts are being abused. According to the commenter, because the profit margin is $15,000 per patient, numerous joint ventures have been established purely to capture this passive income. Another commenter, a radiation oncologist, wrote that he was compelled to comment on our proposal because of his recent experiences in dealing with referring physicians and because of the “call for action” that has been forwarded by a urological association to its members, urging them to comment on how proposed changes will impact negatively their practices. The commenter stated that the proposed changes will not have a negative or serious effect on the way urology is practiced. The commenter's view of the argument in support of joint ventures with regard to ancillary services such as diagnostic testing, radiation therapy and pathology services is that it generally centers on improved access to care. The commenter attempted to discredit this argument by asserting, with respect to radiation therapy services, there are no access issues, as very few patients are not within a reasonable distance of a radiation oncology center. The commenter noted further that urology practices' interest in external beam services is a relatively new phenomenon, although the use of external beam radiation therapy in the treatment of patients with prostate cancer is not. The commenter also stated that IMRT, a sophisticated form of external beam radiation, has become the new standard of care with respect to external beam therapy for patients with localized prostate cancer. According to the commenter, as a new technology, IMRT has a favorable reimbursement profile. In addition, the commenter stated that because the reimbursement is the only variable that has changed, the recent interest in radiation oncology facility ownership by urologists is largely, if not solely, due to the potential financial benefit in referring patients for IMRT at the urologist's own facility. The commenter emphasized that the decision regarding the most appropriate therapy for patients with localized prostate cancer must remain independent of financial incentives.
One commenter, an association of radiation oncologists, endorsed the position of the Agency for Health Care Research and Quality (AHRQ), that no single therapy can be considered the preferred treatment for localized prostate cancer due to limitations in the evidence, as well as the likely tradeoffs an individual patient must make between estimated treatment effectiveness, necessity and adverse effects. The commenter asserted that prostatectomy, IMRT, and brachytherapy are equivalent treatments for local prostate cancer; that the right treatment for any particular prostate cancer patient depends on the patient's interests, age, concerns, disease status, and physiology; and that sometimes the best treatment might be no treatment at all. The commenter expressed its concern that, whereas some may argue that therapeutic services cannot be overused, because of inappropriate financial incentives, prostate cancer patient choice is being eroded and overutilization may be occurring. The commenter recounted reports from its members of instances where patients who might otherwise appropriately be monitored for disease progression (that is, watchful waiting) are being treated in urology practices with IMRT (which is permissible under the in-office ancillary services exception). Thus, the commenter believed, patients who might choose to monitor disease progression are undergoing significant procedures and treatment because the diagnosing physician is influenced by financial incentives.
One commenter, a radiation oncologist, stated that since a large group practice in his county, consisting of about 38 urologists and 2 radiation oncologists purchased a freestanding radiation oncology practice, with two linear accelerators, IMRT has been used in lieu of other types of treatment (or in lieu of no treatment, which is sometimes appropriate). In particular, the commenter contended that brachytherapy, an equally efficacious but significantly less expensive alternative to IMRT, is performed at a fraction of its past volume in his county. He also reported that community-based surgery is occurring significantly less than in the past. According to the commenter, because every cancer surgeon in his county and many in another county have been approached to join the group practice, hospitals have been forced to propose various “under arrangements” contracts or joint ventures to stem the tide of business lost to the group practice. The commenter concluded that, in his county, patients with prostate cancer who are treated by physicians in the group practice are being steered primarily in one direction to a single treatment, IMRT, at a single facility. In his opinion, the quality of prostate cancer treatment in his county
A commenter representing a medical equipment company asserted that hospitals use physician-owned vendors instead of other vendors simply because of the physicians' ownership even though other companies competing for the business had better service, equipment and pricing. The commenter contended that competition is stifled where a physician's investment is taken into account when deciding a service issue. The commenter also claimed knowledge of a situation in which patients are not able to get the best technology and service available because a physician will use only equipment from the company in which he or she is invested.
One commenter offered its strong support for our proposal, as it would correct abuses that occur due to the increasingly prevalent use of providing services “under arrangements.” The commenter asserted that, historically, services were furnished “under arrangements” as a means to provide access to patients for necessary services without having multiple parties acquire and operate the same specialized services and technology. In addition, the commenter stated that the increasing frequency of “under arrangements” contracts, coupled with greater Medicare payment for hospital services (as opposed to payment for the same service under the Medicare physician fee schedule), provides what may be an irresistible financial incentive for physicians to refer patients to the entity contracted to provide the services “under arrangements” to the hospital or other provider. The commenter, a large health benefits company, also stated that, because hospitals use the same billing system for both Medicare and private commercial payers, hospitals are frequently reimbursed where services were performed by entities under contract with the hospital to provide services, such as ASCs. Because the commenter's contractual reimbursement rate is higher for hospitals than for ASCs, in an “under arrangements” situation, the commenter sometimes inadvertently provides excessive reimbursement for the actual cost of care rendered, thereby inflating the cost of medical care.
A commenter asserted that the number of physician-owned entities providing services “under arrangements,” including cardiac catheterization laboratories, have proliferated in recent years, presumably because of the physician self-referral rules. The commenter supported our proposal and opined that there appears to be no legitimate reason for these arranged services other than to allow referring physicians an opportunity to share revenue from referrals they make for separately payable services.
One commenter, a national hospital association, offered support for our proposal, recognizing the legitimate concerns that may exist when a physician-owned joint venture provides the same services to a hospital “under arrangements” that the hospital previously provided directly, without expanding the type of services provided, upgrading the facility or the equipment, or otherwise contributing to the improvement of healthcare quality or accessibility in the community. According to the commenter, the “under arrangements” concept, which originally was solely a payment concept, has been used in recent years as a way to work around the physician self-referral rules, as growing numbers of physicians and hospitals have exploited what amounts to a loophole in the regulations. The commenter asserted that we are “clamping down” appropriately on these abusive arrangements, which, when unraveled, are quite often merely a sophisticated way of circumventing the basic purpose of the physician self-referral law. Another national hospital association and two state hospital associations noted their support of our effort to ensure that services provided “under arrangements” meet a community need, that individual patients receive care in the setting most medically appropriate to their needs, and that only those arrangements that foster needed improvements in the delivery system, sustain community access to essential services, promote clinical integration or enhance efficiencies should be permitted. However, these commenters were concerned that our proposal unintentionally may eliminate hospital-physician joint ventures designed to achieve those goals.
MedPAC commented on the CY 2008 PFS proposal, asserting that the “under arrangements” model was used originally by hospitals to provide certain services to their patients that were not available at the hospital because they were required infrequently. It shared our concern regarding the growth of services provided “under arrangements” to hospitals by physician-owned entities, and stated that our proposal, if adopted, would be an effective way to address this issue.
Section 1877(a)(1)(A) of the Act does not define “entity” as any particular type of organization but rather defines it in a functional sense, that is, an organization that furnishes DHS. Our current definition of “entity” at § 411.351 similarly provides that an “entity” is any type of organization, regardless of form of ownership (for example, partnership, LLC or corporation) that “furnishes” DHS. We believe that furnishing DHS includes performing services that are billed as DHS to the Medicare program, irrespective of whether the entity performing the services submits the claim or whether some other entity (such as a hospital providing the services “under arrangements”) submits the claim. In this regard, we note that section 1877(a)(1)(B) of the Act provides that an entity that furnishes DHS may not present, or cause to be presented, a Medicare claim. This language demonstrates that the Congress intended that furnishing DHS encompasses not only the entity that bills for the DHS, but also the entity that performs it, if those are not the same entities; otherwise there would be no need to include the language “cause to be presented.”
Our conclusion is also consistent with the purpose of the statute. A basic premise of the physician self-referral statute is that, subject to some specific exceptions in section 1877(d) of the Act, a physician may not refer a patient to an entity in which he or she (or an immediate family member) has an ownership or investment interest. The general prohibition on self-referral to an entity in which the physician has an ownership or investment interest is not predicated upon a showing by us of actual or potential abuse; rather, the Congress has made a policy decision to
We also note that, in enacting the exception in section 1877(d)(3) of the Act for ownership or investment in a hospital, the Congress admonished that the exception is unavailable where the ownership or investment interest is in “merely a subdivision of the hospital.” If a physician may not purchase an interest in the radiology department of a hospital, refer patients to the hospital for radiology procedures, and claim the benefit of the hospital exception in section 1877(d)(3) of the Act, he or she should not be allowed to enter into a joint venture with the hospital through which the hospital effectively moves its radiology department (or part of its radiology department) outside of the hospital and into a facility in which the physician has an ownership interest and to which the physician refers patients for DHS that are billed “under arrangements.” Finally, we believe that the fact that Congress enacted an ownership exception for in-office ancillary services (which does not include inpatient or outpatient hospital services, and which has specific requirements as to where the services can be performed) is further indication that Congress did not intend to protect generally a physician's ownership in an entity that performs services that are then billed to Medicare as DHS by a hospital “under arrangements.” See 66 FR at 894.
In the CY 2008 PFS proposed rule, we noted that MedPAC recommended in its March 2005 Report to Congress that a physician should be prohibited from referring patients for DHS to an entity if that entity derives a “substantial portion” of its revenue from a provider of DHS (hereinafter referred to as the “MedPAC approach”). There, we stated that we believed that our proposed approach—that an entity is considered to be a DHS entity if it performs the DHS or bills for it—was more straightforward than MedPAC's approach (which we believe is more difficult to apply and to enforce), but we solicited comment as to whether we should adopt MedPAC's approach, either in lieu of, or in addition to, our proposed approach (72 FR 38187).
Most commenters disagreed with the MedPAC approach. For example, one commenter was concerned that the MedPAC approach virtually would eliminate “under arrangements” service contracts between hospitals and physicians or physician groups, potentially disrupting access and prompting duplication of investment in facilities and equipment. One commenter, although opposed to our proposal, contended that we would have difficulty defining “substantial proportion of its revenue” under the MedPAC approach. Another commenter that disagreed with our proposal said that MedPAC's “substantial proportion of revenue” test is overbroad and would have unintended and far-reaching consequences. According to the commenter, the MedPAC approach is not limited to entities performing, furnishing or billing for DHS, but instead effectively prohibits physician ownership of entities providing any service to a provider of DHS, if the service results in revenue significant enough to trigger the test's application.
A commenter suggested that the most significant difference between our proposal and the MedPAC approach appears to be that our proposal would affect only companies that perform DHS in their own right, whereas the MedPAC approach would also affect companies that provide only “inputs” into the DHS, or indeed, services that have no relationship whatsoever to DHS. One commenter asserted that our proposal was ambiguous and could contribute to confusion in the industry and stated that the MedPAC approach was clear, but that its adoption would impact many other types of arrangements between physicians and hospitals, such as lease arrangements that comply with the physician self-referral rules and that do not present an incentive for overutilization. Finally, a commenter disagreed with both our proposal and the MedPAC approach, contending that the MedPAC approach is contrary to the basic tenets of a hospital's right to furnish services “under arrangements.”
We also believe that the preamble discussion in the 1995 final rule demonstrates that we recognized a distinction between the question of whether a physician or group practice has an ownership (as opposed to a compensation) relationship with a hospital and the question of whether a physician has an ownership interest in a service provider that contracts with a hospital for the billing of services “under arrangements.” There, we noted that a commenter believed that, if there is an under arrangement agreement between a hospital and a group practice for the group practice to provide laboratory services to hospital patients under section 1861(w)(1) of the Act, it is the hospital and not the group practice physicians that is making a referral for the purposes of the self-referral proscription found in section 1877 of the Act. We responded that we did not believe that the Congress intended to allow physicians to circumvent the referral prohibition by imputing their referrals to an operating entity such as a clinic, hospital, or other institution. We acknowledged that “the exception in section 1877(e)(7) of the Act could apply to allow referrals based on part of this scenario” but
[t]here is, however, a complicating factor in the commenter's scenario. That is, the group practice physicians are referring to their own group practice laboratory. It is likely that these physicians are receiving compensation from the group practice that owns the laboratory or that they own some portion of the group practice and the laboratory. The compensation or ownership interests involved here would require a separate exception in order to allow the group practice physicians to refer. The services could, for example, be excepted under the in-office ancillary services exception in section 1877(b)(2) of the Act, which allows a group practice to refer to its own laboratory if certain criteria are met (66 FR 41941).
Another commenter cautioned that further guidance may be necessary to better define who “performs” DHS in fact patterns in which billing entities acquire inputs from multiple sources to deliver DHS. A commenter that supported the proposal suggested that a better way to define “entity” would be to specify “entity” as any business arrangement, and provide one exception for physician investment in a large publicly traded corporation. Another commenter that supported the proposal said that the definition could be improved if, in addition to including the person or entity that furnished the service or billed for it, we also included “the person or entity that owns or leases the space or equipment to either of the above.” One commenter questioned whether the definition of entity would extend to entities that provide billing staff or equipment used in furnishing DHS, because neither of these activities constitutes providing DHS. A commenter stated that it is unclear whether an entity that performs a component of DHS “performs” the DHS. The commenter stated it does not believe that an entity that provides management services performs DHS within the meaning of the proposed definition. Another commenter stated that although it believes that providing only some of the components of DHS should not be considered performing DHS or causing a claim to be submitted, the proposed rule created a level of uncertainty. The commenter stated that, taken to its extreme, the proposed definition of “entity” could be viewed as making any equipment lessor or entity that performs services for a DHS entity, even a provider of linens or food services, into a DHS entity itself. The commenter further stated that the provision of equipment and customized devices for a medical procedure and/or the services of a technician to monitor the equipment should not be defined as “performing the DHS.” A large association representing group practices said that if we were to adopt the proposal, we should make clear that the new provision does not apply to companies that merely lease equipment.
After the comment period closed for the CY 2008 PFS proposed rule, we received a comment from a large medical device manufacturer that requested that we examine the current prevalence of physician-owned implant companies and the impact that these ventures have on program or patient abuse, as well as what it considered to be the negative impact on competition among physician investor ventures and non-physician ventures. The commenter suggested that we deem physician-owned implant companies to be DHS entities under certain circumstances. The commenter also suggested that a physician-owned implant company should not be considered to have caused a claim to be presented where the referring physician is named as an inventor on an issued patent for the implantable item and the physician does not receive any remuneration from the company based on the value or volume of referrals, or where the physician's investment interest meets the requirements of § 411.356(a) for large, publicly traded entities.
One commenter stated that many organized independent medical groups have fostered good working relationships with hospitals that benefit the community. A regional state-of-the-art cancer center that is a joint venture between physicians and a hospital allows Medicare beneficiaries to receive high quality, cost effective care in one setting. This type of arrangement is in contrast to one where each physician group in the community buys duplicative cancer technology, competes directly with the hospital, and little collaboration among providers exists.
A health system stated that in circumstances where particular services are needed, but not frequently performed, having one provider develop consistent practices and expertise may afford a higher quality of care for patients seeking the service and “under arrangements” contracts prevent multiple health care providers from purchasing the same types of equipment in any given community, and as a result, the cost of care is actually reduced because of efficient resource management. One commenter stated that many of the “under arrangements” contracts result in significant community benefit and patient benefit, and avoid duplication of services, thus producing cost savings to the program. Another commenter, representing a public hospital district, stated that there are compelling and legitimate reasons for public hospitals and local physicians to create collaborative arrangements to deliver care in the community. It asserted that participation in collaborative ventures with local physicians reduces the operating burden on public hospitals.
Another commenter said that hospitals that enter into “under arrangements” relationships are relieved of the burden of maintaining or expanding a particular service line, while still being able to provide much needed services to members of its community. This frees hospital capital to be spent on other needed services and space and other resources within the hospital to be used on other services. The commenter said that it has been its experience that hospitals have found themselves unable to keep up with the demand for outpatient surgery capacity and have found investing in ASCs to be a better use of their resources as compared to building and staffing larger outpatient surgery areas within the hospitals.
Two commenters stated that we should encourage “under arrangements” contracts between physicians and hospitals. They stated that, in many instances, it can make financial and clinical sense to enter into a venture with a partner that can provide capital, shared risk, and operational expertise to a hospital striving to improve its specialty services and programs. The commenters further stated that the fact that physicians can sometimes bring these resources to a hospital should not exclude them automatically as participants in these efforts, and in many ways physicians are ideal hospital partners and offer benefits to hospitals beyond mere referral of patients, such as careful cost control and quality improvement expertise. Another commenter stated that it appeared incongruous that we appear to support gainsharing but also appear ready to prohibit economic models that seeks to align physician incentives with those of hospitals.
Many commenters also expressed concern that if we finalize the proposal access to care will be disrupted, particularly in underserved or rural areas. A large association representing group practices commented that if we finalize our proposal, we should clarify that the “new restriction” will not impact the exception available for rural markets. The commenter further asserted that it would be an ironic result and an unfortunate policy if a physician's referral to a rural hospital were prohibited because of an “under arrangements” contract between the hospital and an entity in which the physician had an interest, when the same physician's referral to the same entity would be clearly protected. A rural hospital commented that, in its market, provider-based entities protect against unnecessary duplication of services, equipment, staff and facilities and offer several other advantages. Some urologists complained that the proposal would prohibit providing lithotripsy and other services to rural patients. For example, one urologist said that adoption of the proposal would prohibit the provision of many services, including, but not limited to, laser services, cryotherapy services and IMRT, as well as the newer services transurethral microwave therapy (TUMT) and transurethral needle ablation of the prostate, which, more often than not, are performed in the office. Other physicians, primarily urologists, and an organization whose members form joint ventures with urologists, commented that physician joint ventures have provided Medicare beneficiaries with access to effective treatments that they otherwise would not have had and/or have saved Medicare millions of dollars.
Comments submitted on behalf of a large multi-specialty physician group asserted that many “under arrangements” relationships have existed for many years and benefit both the hospital and the patient. The comments maintained that the hospital is able to secure services that it otherwise could not provide efficiently, through contracting with an outside supplier that often is an expert in these services. In addition, the comments stated that not all “under arrangements” relationships result in higher Medicare reimbursement levels, but where this is true, we should address any incentives due to differences in reimbursement between the PFS and OPPS by eliminating those differences in reimbursement rather than by revising the definition of entity. Finally, comments stated that independent physician groups cannot be further disadvantaged to the benefit of hospital system providers that enjoy special privileges of significantly higher reimbursement for similar services, wide latitude to create built-in referral relationships by employing physicians and, in many instances, the financial benefit of tax-exempt status.
We are finalizing the proposal because we believe that it would be inconsistent with the Congress's intent to not consider an entity that performs DHS as a DHS entity. We note that in enacting ownership exceptions, the Congress did not provide for an exception based on lack of access per se, but rather enacted an exception only for
With respect to ownership/investment interests that will not qualify for the rural provider exception because of the patient population they serve, we do not believe that patient access will be significantly disrupted, for several reasons. First, we are not prohibiting physician group practices or other physician organizations from contracting with hospitals for the provision of services “under arrangements.” Any physician that has a compensation arrangement with, but not an ownership/investment interest in, the physician group practice or other physician organization (such as an employee or contractor physician with the group practice or other physician organization) may refer patients for services that are provided by a hospital “under arrangements” provided that one of the compensation exceptions is met. Also, the definition of “referral” at § 411.351 excepts services that are personally performed by the referring physician. Thus, to the extent that an owner/investor in the physician service provider has referred the patient for a service but then personally performs the service, there is no “referral” within the meaning of § 411.351 and the physician self-referral law is not implicated. (Note that if there is a technical component to a service or a facility fee, that is billed by a provider “under arrangements,” the fact that the referring physician performs the professional component, and thus there is no “referral” for the professional component, does not alter the fact that there is a “referral” for the TC or the facility fee. Note also that the definition of “referral” states that DHS is not personally performed or provided by the referring physician if it is performed or provided by any other person, including, but not limited to, the referring physician's employees, independent contractors, or group practice members. See,
One urologist stated that urologic joint ventures have been able to offer state-of-the-art services to the community while lowering costs and improving care. An association that represents urologists stated that state-of-the-art equipment made available by physician-owned companies fills the critical gap between what advances the latest technology can offer and what hospitals can afford.
Several commenters stated that the proposed rule made no attempt to distinguish under arrangement services involving personally performed services as opposed to other services. Another commenter stated that if services such as cardiac catheterizations or outpatient surgery were performed in an ASC or physician's practice, they would not qualify as DHS and therefore would not be subject to the physician self-referral law. Commenters recommended that we should clarify that these services constitute personally performed services excepted from the definition of “referral” or exclude these types of service providers from the definition of “entity.”
In an example of overutilized therapeutic treatments, we note that a large hospital system settled a case against several of their physicians who were accused of performing unnecessary cardiac surgeries. Federal officials alleged that the physicians entered a scheme to cause patients to undergo unneeded, invasive, cardiac procedures such as artery bypass and heart valve replacement surgeries. The hospital system agreed to pay $54 million to settle the Federal case.
We are also mindful of the comments we received on this proposal, our proposal on “per-click” lease payments, and our solicitation of comments on the in-office ancillary services exception, that self-referral of therapeutic procedures is abusive at times, because patients are being steered to one type of procedure when another procedure may be more appropriate or less costly, and because in some cases it is appropriate that patients have no procedure at all.
Another commenter recommended an exception for high cost, low volume procedures such as lithotripsy, dialysis, radiation therapy, and cardiac
One commenter stated that although it would be desirable to carve out an exception to the proposed definition in the case of arms-length transactions in areas that are underserved, in practice, if a physician owns any part of an entity (other than a publicly traded entity) that provides products or services to a facility, he or she will benefit from referrals.
In Phase II, we rejected the wholesale importation of the anti-kickback statute safe harbors into the physician self-referral law exceptions, but, using our authority under section 1877(b)(4) of the Act, we determined that exceptions for referral services and obstetrical malpractice insurance subsidies could be established by incorporating the corresponding safe harbors in § 1001.952(f) and (o), respectively (69
Our conclusion in Phase II that the wholesale importation of safe harbors would be problematic was based, in part, on our recognition that the anti-kickback statute safe harbors and the physician self-referral law exceptions appropriately diverge in some instances for reasons attributable to the difference in the scope of the statutes, core prohibited conduct, or liability standards (69 FR 16115). We continue to believe that differences in the anti-kickback and physician self-referral regulatory schemes are appropriate and sometimes necessary. We further believe that, upon revisiting the exception in § 411.357(r) and reviewing the comments received in response to our proposal in the CY 2008 PFS proposed rule, the physician self-referral law exception need not incorporate by reference without modification the safe harbor in § 1001.952(o) in order to provide adequate protection against program and patient abuse.
In the CY 2008 PFS proposed rule, we expressed concern that the current exception for obstetrical malpractice insurance subsidies may be too narrow, and proposed revising the exception in § 411.357(r) to list specifically the conditions that we believe are appropriate to safeguard against program or patient abuse when remuneration is provided by a hospital to a physician in the form of an obstetrical malpractice insurance subsidy (72 FR 38182). As with the Phase III revisions to the exceptions for retention payments and physician recruitment noted above, concern regarding beneficiary access to services was a significant basis for our proposal. We requested comments regarding barriers to patient access to obstetrical care in communities in which obstetrical malpractice insurance premiums are relatively high. We also requested recommendations for revising the exception without creating a risk of program or patient abuse.
We received 14 comment letters in response to our proposal to revise the exception in § 411.357(r) for obstetrical malpractice insurance subsidies. All commenters agreed with the concerns that we expressed in the CY 2008 PFS proposed rule that the current exception for obstetrical malpractice insurance subsidies is unnecessarily restrictive. Many commenters stated that the existing exception is unlikely to have the effect of increasing access to obstetrical care. Commenters generally supported revisions to the exception, and offered various suggestions for requirements we might include in a revised exception.
After consideration of the public comments received, in this final rule we are revising § 411.357(r) to (1) retain the provisions of the current exception (renumbered as § 411.357(r)(1)); and (2) provide an alternative set of requirements under which hospitals, federally qualified health centers, and rural health clinics (but not other entities) may provide obstetrical malpractice insurance subsidies (new § 411.357(r)(2)). We believe that the provisions in new § 411.357(r)(2) will reduce perceived obstacles to maintaining or improving patient access to needed obstetrical services by providing flexibility for the provision to qualifying physicians of obstetrical malpractice insurance subsidies. New § 411.357(r)(2) allows hospitals, federally qualified health centers, and rural health clinics to provide an obstetrical malpractice insurance subsidy to a physician who regularly engages in obstetrical practice as a routine part of a medical practice that is: (1) Located in a primary care HPSA, rural area, or area with a demonstrated need, as determined by the Secretary in an advisory opinion; or (2) is comprised of patients at least 75 percent of whom reside in a medically underserved area (MUA) or are part of a medically underserved population (MUP). The expansion to additional practice locations and patient populations is found also in the requirements regarding the composition of the patient population treated by the physician under the coverage of the malpractice insurance and the determination of “costs of malpractice insurance premiums.” Where possible, we maintain parallel structure and conditions in the exceptions to the physician self-referral law. In Phase III, we similarly revised the exception for retention payments in underserved areas in § 411.357(t) to incorporate criteria that are based on the patient population served by the physician receiving the retention payment, rather than focusing the requirements of the exception solely on the location of the hospital making the retention payment (72 FR 51065 through 51068). Our concerns regarding beneficiary access to services was a significant basis for this revision, as well as for the revisions to the exception for physician recruitment in § 411.357(e) with respect to the allocation of certain costs where a physician is recruited into a practice in a rural area or HPSA to replace a retired, relocated, or deceased physician (72 FR 51047 through 51054).
We are not revising the exception to adopt only the provisions in new § 411.357(r)(2) and to discard the provisions of the current exception, because the current exception, through its incorporation of § 1001.952(o), applies to subsidies provided by a “hospital or other entity,” and we did not propose in the CY 2008 PFS proposed rule to limit the types of entities that may provide subsidies under the exception. On the other hand, we are unwilling to extend the provisions in new § 411.357(r)(2) to entities beyond hospitals, federally qualified health centers, and rural health clinics, because we are not persuaded that, if we did so, there would be no risk of program or patient abuse (as required under section 1877(b)(4) of the Act for new exceptions or modifications to existing exceptions). (We note that, although the provisions of new § 411.357(r)(2) apply to hospitals, federally qualified health centers, and rural health clinics, for ease of reference and readability, we refer throughout the discussion below to all three types of entities as “hospitals.”)
Finally, our revisions to the exception in § 411.357(r) for obstetrical malpractice insurance subsidies should not be construed as having any effect on the safe harbor under the anti-kickback statute for obstetrical malpractice insurance subsidies in § 1001.952(o), nor as a commentary on what we believe is or is not permitted under the anti-kickback statute. We discuss below the specific comments that we received in response to our proposal in the CY 2008 PFS proposed rule.
In this final rule, we provide greater flexibility for hospitals (and federally qualified health centers and rural health clinics, as discussed above) to facilitate continued patient access to obstetrical patient care services through the provision of needed obstetrical malpractice insurance subsidies. Under new § 411.357(r)(2), a physician who engages in obstetrical practice as a routine part of his or her medical practice will be eligible for receipt of an obstetrical malpractice insurance subsidy if his or her medical practice is: (1) Located in a primary care HPSA, a rural area, or an area with demonstrated need for the physician's obstetrical services, as determined by the Secretary in an advisory opinion; or (2) is comprised of patients, at least 75 percent of whom reside in a MUA or are members of a MUP. We are not adopting the commenter's suggestion that we adopt a definition for “obstetrician shortage area” and permit the provision of obstetrical malpractice insurance subsidies in such an area. We believe that it would be difficult to define “obstetrician shortage area” (and maintain updates to the definition), and that our policy as finalized here affords sufficient flexibility for physicians and for hospitals, federally qualified health centers, and rural health clinics.
We disagree with the commenter that advocated permitting obstetrical malpractice insurance subsidies to physicians where there is no other facility to which the physician could refer his or her obstetrical patients. We believe that the commenter is arguing that there is no risk of program or patient abuse if a hospital provides an obstetrical malpractice insurance subsidy payment to a physician who would have referred all of his or her obstetrical patients to the hospital regardless of the existence of the subsidy. We do not believe that the risk of program or patient abuse is reduced merely because the physician would have referred his or her obstetrical patients to the hospital regardless of the subsidy. The subsidy could serve as an inducement for referrals to the hospital of other DHS.
One commenter asserted that, because malpractice insurance is unaffordable in some geographic locations, some physicians practice medicine without any professional malpractice insurance coverage. According to the commenter, this disadvantages patients and other providers, because insurers' costs in defending malpractice claims against physicians with no insurance coverage are passed on disproportionately to hospitals (because hospitals are named as co-defendants). The commenter suggested that we expand the exception to include other physician specialties, and recommended that the subsidy be available only to a physician practicing in a particular specialty that is identified by an independent third party as having a demonstrated shortage of physicians practicing in that particular specialty in the geographic area served by the hospital providing the malpractice insurance subsidy. In addition, according to the commenter, the amount of the subsidy could be capped at the amount that the average premium for that specialty in the hospital's community exceeds the national average for that specialty. The commenter suggested further protection against program and patient abuse, for example, a requirement that hospitals not provide malpractice insurance subsidies in a targeted, preferential or discriminating manner, or in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.
One commenter suggested that we permit a hospital to provide a malpractice insurance subsidy to any member of the hospital's medical staff, regardless of the physician's specialty.
Section 1877(b)(4) of the Act allows us to create additional exceptions to the general prohibition on physician self-referral where doing so would not result in a risk of program or patient abuse. It does not require us, where we exercise such authority, to make the additional exceptions available to all types of entities and physicians, or make them applicable in all areas. The Congress and CMS have long recognized the special needs and character of rural, urban, and underserved areas. Malpractice insurance availability in HPSAs poses specific concerns not present in other areas and supports a targeted exception.
Our position with respect to limiting the exception to physician practices in certain identified locations has not changed, nor are we persuaded by the commenters' similar argument regarding our statutory authority to limit the applicability of the exception to obstetrical malpractice insurance only (rather than to permit subsidies of malpractice insurance for all specialties or for certain specified medical specialties).
We decline to expand the exception to cover the provision of malpractice insurance subsidies to physicians practicing in other medical specialties, as suggested by many of the commenters. The commenters did not provide us with information indicating that, without an expansion of the exception, beneficiary access to necessary medical services is hindered, nor are we independently aware of such data. Such information would be helpful to ensuring that an expansion of the exception to other (or all) medical specialties would not pose a risk of program or patient abuse. We note also that we addressed this issue in Phase III in response to a comment urging us to expand the exception to all specialties and hospitals (72 FR 51063). There, we stated:
The exception in § 411.357(r) is one of several exceptions that allow DHS entities to provide assistance with malpractice insurance. Other exceptions that permit DHS entities to provide such assistance are the fair market value compensation exception (as discussed above in response to the previous comment) in § 411.357(l), the exception for
We believe that the exceptions to the physician self-referral prohibition discussed in our Phase III response provide sufficient flexibility for hospitals that desire to provide assistance with the costs of malpractice insurance coverage.
In the CY 2008 proposed rule we proposed to revise § 411.354(b)(3)(i) to clarify that the exclusion from the definition of “ownership or investment interest” of an interest in a retirement plan pertains only to an interest in an entity arising from a retirement plan offered by that entity to the physician (or the physician's immediate family member) through the physician's (or immediate family member's) employment with that entity (72 FR 38224). That is, where a physician has an interest in a retirement plan offered by Entity A, through the physician's (or immediate family member's) employment with Entity A, we intended to except from the definition of “ownership or investment interest” any interest the physician would have in Entity A by virtue of his or her interest in the retirement plan; we did not intend to exclude from the definition of “ownership or investment interest” any interest the physician may have in Entity B through the retirement plan's purchase of an interest in Entity B.
As we explained in the CY 2008 PFS proposed rule, we made our proposal because we were concerned that some physicians may be using retirement plans to purchase or invest in other entities (that is, entities other than the one that is sponsoring the retirement plan) to which they refer patients for DHS (72 FR 38183). After consideration of the public comments, we are adopting our proposal. We address below the specific comments we received in response to out proposal in the CY 2008 PFS proposed rule.
In the CY 2008 PFS proposed rule, we proposed to add a new regulatory provision to clarify that, consistent with our existing procedures with respect to claims denials, in any appeal of a denial of payment for a designated health service that was made on the basis that the service was furnished pursuant to a prohibited referral, the burden is on the entity submitting the claim for payment to establish that the service was not furnished pursuant to a prohibited referral (72 FR 38224). That is, the burden of proof is not on us or our contractors to establish that the service was furnished pursuant to a prohibited referral.
We received several public comments objecting to our proposal as unfair or inconsistent with the current rules. After consideration of the public comments, we are adopting our proposal as final and clarifying that the burden of proof (otherwise known as the burden of persuasion) is on the claimant throughout the course of the appellate proceeding (and at each level of appeal), whereas the burden of production initially is on the claimant but may shift to us or our contractor during the course of the proceeding. The new provision is codified in revised § 411.353(c)(2) in this final rule. We address below the specific comments that we received in response to our proposals in the CY 2008 PFS proposed rule.
As explained by courts and legal commentators, the burden of proof remains on the same party throughout the appellate proceeding, whereas the burden of production on a particular issue or element may shift from one party to another (and even back to the first party) as evidence is put forth. We believe it is appropriate that the burden of production be on the claimant initially with respect to all requirements in our physician self-referral regulations. The claimant may produce evidence in such quantity or quality so as to shift the burden of production to the Medicare program requiring us to show that the requirement was not met. Thus, although a claimant would have the initial burden to show that it did not violate the anti-kickback statute, the claimant may produce evidence that is conclusive on the issue (such as showing that the arrangement satisfied a safe harbor to the anti-kickback statute) or is sufficient to shift the burden of production to the government to show that the financial relationship at issue did violate the anti-kickback statute. We decline to attempt to prescribe by regulation what type or quantity of evidence is sufficient to shift the burden of production to us on any given requirement of our physician self-referral regulations, as this would be impractical, if not impossible, to do given the infinite factual variations that may be present. We instead leave to the adjudicators that hear the appeals the question of whether the burden of production has shifted.
We believe that, in most instances, what constitutes fair market value for an item or service will be expressed as a range and, accordingly, claimants should not face significant difficulty in establishing fair market value, provided that they use a methodology that is reasonable under the facts and circumstances, determine a payment amount that is within the range that the methodology yields, and maintain documentation regarding the determination of fair market value that was created at the time of the financial relationship. We disagree that codifying burden of proof obligations should have the negative impact on business arrangements claimed by the commenters, these are the procedures that claimants must currently follow.
Although the commenters claim that appeals of claims denied for reasons other than alleged violations of the physician self-referral rules involve a single claim each and that the claimants need only produce the medical record to demonstrate medical necessity, many such appeals involve large numbers of aggregated claims and complex coverage issues. In addition, it is not true necessarily that any claims denial based on an alleged violation of the physician self-referral rules will involve thousands of claims or complex issues. In any event, it is not apparent to us why the number of claims, the amount of money involved, or the complexity of the issues should cut in favor of the government having the burden of proof, rather than the claimant. Finally, with respect to the commenters' point that the burden of proof should be on the government because an alleged violation of the physician self-referral rules may lead to a large fine and exclusion from Federal health care programs, the proposal, which is finalized in § 411.353(c)(2) in this final rule, relates only to appeals of claims denials, not to appeals of the imposition of civil monetary penalties, exclusion or other remedies.
Most, if not all, hospitals have financial relationships with referring physicians. These financial relationships may involve ownership or investment interests, compensation arrangements, or both. The financial relationships may be direct or they may be indirect (such as through a physician group practice or limited liability company). The physician self-referral statute was first enacted in 1989, and the reporting requirements in the regulations in § 411.361 were first implemented in our December 3, 1991 interim final rule with comment period, published in the
To assist in enforcement of the physician self-referral statute and implementing regulations, we created an information collection instrument, referred to as the Disclosure of Financial Relationships Report (“DFRR”). The DFRR is designed to collect information concerning the ownership and investment interests and compensation arrangements between hospitals and physicians. In the FY 2009 IPPS proposed rule, using our authority under section 1877(f) of the Act and § 411.361, we proposed to send the DFRR to 500 hospitals, (both general
In the FY 2009 IPPS proposed rule, we provided a discussion of the potential burden associated with completing the DFRR, including an analysis that provided estimates of the burden for small, medium, and large hospitals. In the proposed rule, based on a review of the DFRR by 33 hospitals, we estimated that the average number of hours to complete the DFRR was 31 hours. In addition, we sought comment on the accuracy of the time and burden estimates associated with this information collection instrument. Because the DFRR requires information that hospitals already should be keeping in the normal course of their business activities (even apart from the need to document compliance with the physician self-referral law), we anticipated that the majority of the time spent completing the DFRR would be spent by administrative staff. We believed that the tasks involved would include retrieving the information and printing it from electronic files or copying it from hard files, which largely should involve administrative personnel. In addition, the review and organization of the materials would also impose burden on the respondent. Nevertheless, in order to err on the side of more potential burden rather than less, we calculated costs using an hourly rate for accountants (73 FR 23697).
As discussed more thoroughly below, we have revised our estimate of the time it will take each hospital to complete the DFRR from 31 hours to 100 hours and concluded that many hospitals may choose to involve accounting staff and attorneys for legal review. Therefore, the costs per hospital, associated with completing the DFFR has increased from $1,550 to $4,080. We have calculated a revised total burden for 500 hospitals to be $2,040,000. A more detailed discussion of the aggregate burden may be found in the PRA section, section XI., of the preamble of this final rule. A revised PRA notice will be published separately in the
In the FY 2009 IPPS proposed rule, we proposed that the DFRR be completed, certified by the appropriate officer of the hospital, and received by us within 60 days of the date that appears on the cover letter or e-mail transmission of the DFRR. We solicited comments on the proposed 60-day timeframe for completing the DFRR (73 FR 23697). Although we received a few comments objecting to the proposed 60-day timeframe, we are adopting the proposed 60-day limit for completing the DFRR. In the FY 2009 IPPS proposed rule, we noted that § 411.361(f) provides that failure to submit timely the requested information concerning an entity's ownership, investment, and compensation arrangements may result in civil monetary penalties of up to $10,000 for each day beyond the deadline established for disclosure. Although we have the authority to impose civil monetary penalties, we indicated in the proposed rule that we seek not to invoke this authority and will work with entities to comply with the reporting requirements. Prior to imposing a civil monetary penalty in any amount, we would issue a letter to any hospital that does not return the completed DFRR, inquiring as to why the hospital did not return timely the completed DFRR. In addition, a hospital may, upon a demonstration of good cause, receive an extension of time to submit the requested information (73 FR 23697). Although we did not make a specific proposal concerning the imposition of civil money penalties, we are informing the public in this final rule that, before imposing any civil money penalties, we will follow the procedures described above.
In the FY 2009 IPPS proposed rule, we solicited comments on the DFRR information collection instrument as follows:
• Whether the DFRR should be recurring, and, if so, whether it should be implemented on an annual or some other periodic basis;
• Whether the DFRR collects too much or not enough information, and whether it collects the correct (or incorrect) type of information;
• The amount of time it will take hospitals to complete the DFRR, the costs associated with completing the DFRR, and the amount of time we should give hospitals to complete and return their responses to us;
• Whether we should direct the collection instrument to all hospitals, and, if so, whether we should stagger the collection so that only a certain number of hospitals are subject to it in any given year;
• Whether hospitals, once having completed the DFRR, should have to send us yearly updates and report only changed information.
After consideration of the public comments we received, we are not adopting a regular reporting or disclosure process at this time, and thus, the DFRR will be used, at this time, as a one-time collection effort. (Depending on the information we receive on the DFRR and other factors, we may propose future rulemaking to use the DFRR or some other instrument as a periodic or regular collection instrument.) We have concluded that we are collecting the correct type and appropriate amount of information, and thus, we are finalizing the DFRR, as proposed, with minor modifications. (We refer readers to the revised PRA notice that will be published separately in the
We respond to specific comments below.
We are required by section 1886(e)(4)(B) of the Act to respond to MedPAC's recommendations regarding hospital inpatient payments in our annual proposed and final IPPS rules. Having reviewed both MedPAC's March 2008 “Report to the Congress: Medicare Payment Policy” and its June 2007 “Report to Congress: Promoting Greater Efficiency in Medicare,” we have given those reports careful consideration in conjunction with the policies set forth in this document.
In its June 2007 Report to Congress, MedPAC made recommendations concerning the Medicare hospital wage index. Section 106(b)(1) of the MIEA–TRHCA (Pub. L. 109–432) required MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare hospital wage index classification system applied under the Medicare IPPS, including any alternatives that MedPAC recommended to the method to compute the wage index under section 1886(d)(3)(E) of the Act. In addition, section 106(b)(2) of the MIEA–TRHCA required the Secretary taking into account MedPAC's recommendations on the Medicare hospital wage index classification system, to include in this FY 2009 IPPS proposed rule one or more policies to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The MedPAC recommendations and our policies concerning the Medicare hospital wage index are discussed in section III.B. of the preamble of the FY 2009 IPPS proposed rule and this final rule.
For further information relating specifically to the MedPAC reports or to obtain a copy of the reports, visit MedPAC's Web site at:
In order to respond promptly to public requests for data related to the prospective payment system, we have established a process under which commenters can gain access to raw data on an expedited basis. Generally, the data are available in computer tape or cartridge format. However, some files are available on diskette as well as on the Internet at:
Commenters interested in discussing any data used in constructing the proposed rule or this final rule should contact Nisha Bhat at (410) 786–5320.
Under the Paperwork Reduction Act of 1995, we are required to provide 60-day notice in the
• The need for the information collection and its usefulness in carrying out the proper functions of our agency.
• The accuracy of our estimate of the information collection burden.
• The quality, utility, and clarity of the information to be collected.
• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.
In the FY 2009 IPPS proposed rule (73 FR 23700 through 23702), we solicited public comment on each of the issues listed under section XI.B.1. of this preamble for the following sections of this document that contain information collection requirements (ICRs). We discuss and respond to any public comments we received in each individual sections.
Section 411.361(a) of the regulations states that, except for entities that furnish 20 or fewer Part A and Part B services during a calendar year, or for Medicare covered services furnished outside the United States, all entities furnishing services for which payment may be made under Medicare must submit information to CMS or to the Office of the Inspector General (OIG) concerning their reportable financial relationships (any ownership or investment interest, or compensation arrangement) in the form, manner, and within the timeframe that CMS or OIG specifies. As described in section IX.C. of the preamble of this final rule and in accordance with its authority under § 411.361(e), we are requiring that hospitals provide information concerning their ownership, investment, and compensation arrangements with physicians by completing the DFRR instrument.
An information collection request concerning the DFRR was previously submitted to OMB for approval. We announced and sought public comment on the information collection request in both 60-day and 30-day
As further discussed in section IX.C. of the preamble of this final rule, we have decided to obtain additional input from the public concerning the time and cost burden associated with completing and submitting the DFRR instrument. In addition to the discussion of the revised burden estimates for the DFRR information collection request included in the preamble of this final rule and below in this collection of information section, we will publish, under a separate notice and comment period, a 30-day
We believe that hospital accounting personnel will be responsible for: (1) Ensuring that the appropriate data or supporting documentation is retrieved; (2) completing the DFRR instrument; and (3) submitting the DFRR to the Chief Executive Officer, Chief Financial Officer, or comparable officer of the hospital for his or her signature on the certification statement.
Initially, CMS would require (no greater than) 500 hospitals to complete and submit the DFRR instrument. Based on public comments we received, we have revised our estimated completion time for the DFRR that we presented in the proposed rule. The estimated amount of time needed to comply with this information collection request is 100 hours for each of the hospitals. Thus, the total number of burden hours required for 500 hospitals to complete the DFRR instrument is 50,000 hours.
As discussed in section IV.H. of the preamble of the proposed rule and this final rule, § 422.310(b) states that each MA organization must submit to CMS (in accordance with CMS instructions) the data necessary to characterize the context and purposes of each item and service provided to a Medicare enrollee by a provider, supplier, physician, or other practitioner. In addition, § 422.310(b) states that CMS may collect data necessary to characterize the functional limitations of enrollees of each MA organization. Section 422.310(c) lists the nature of the data elements to be submitted to CMS.
For the proposed rule, we estimated the burden associated with these requirements to be the time and effort necessary for the MA organization to submit the necessary data to CMS. These requirements are subject to the PRA and the associated burden is currently approved under OMB control number 0938–0878. However, we noted that under notice and comment periods separate from the proposed rule, we intended to revise the currently approved information collection request to include burden estimates as they pertain to § 422.310. The preliminary burden estimate for the proposed rule was as follows: Currently, there are 676 MA organizations. Assuming that 99 percent of encounter data claims are submitted electronically and 1 percent are submitted manually, we estimated that it would take 1,089 hours annually for submission of electronic claims and 73,335 hours annually for submission of manual claims. The estimated annual burden associated with these requirements was an annual average of 110 hours per MA organization.
As discussed in section IV.I. of the preamble of this final rule, § 489.20(r)(2) states that a hospital, as defined in § 489.24(b), must maintain an on-call list of physicians on its medical staff who are available to provide treatment necessary to stabilize patients who are receiving services required under § 489.24 in accordance with the resources available to the hospital. The burden associated with this requirement is the time and effort necessary to draft, maintain, and periodically update the list of on-call physicians. We estimate that it will take 3 hours for each Medicare-participating hospitals (including CAHs) to comply with this recordkeeping requirement. The estimated annual burden associated with this requirement is 300 hours.
However, after further review, we have determined that maintenance of a list of on-call physicians is a usual and customary business practice as hospitals routinely maintain the required information. Hospitals are required to maintain an on-call list of physicians to comply with the section 1866(a)(1)(I)(iii) of the Act. In accordance with 5 CFR 1320.3(b)(2), we are removing the aforementioned 300-hour annual burden associated with this requirement. As stated in 5 CFR 1320.3(b)(2), the burden associated with the time, effort, and financial resources necessary to comply with an ICR that would be incurred by persons in the normal course of their activities (that is, in compiling and maintaining business records) is exempt from the PRA.
As discussed in section VII. of the preamble of this final rule, § 489.20(u)(1) states that, in the case of a physician-owned hospital as defined in § 489.3, the hospital must furnish written notice to all patients at the beginning of their hospital stay or outpatient visit that the hospital is a physician-owned facility. In addition, patients must be advised that a list of the hospital's owners or investors who are physicians (or immediate family members of physicians) is available upon request. Upon receiving the request of the patient or an individual on behalf of the patient, a hospital must immediately disseminate the list to the requesting patient.
The burden associated with the requirements in this section is the time and effort necessary for a hospital to furnish written notice to all patients that the hospital is a physician-owned hospital. Because this requirement is subject to the PRA, the associated burden is currently approved under OMB control number 0938–1034, with an expiration date of February 28, 2011.
In addition, there is burden associated with furnishing a patient with the list of the hospital's owners or investors who are physicians (or immediate family members of physicians) at the time of the patient's request. However, CMS has no way to accurately quantify the burden because we cannot estimate the number of this type of requests that a hospital may receive. We solicited public comments on the annual number of requests a hospital may receive for lists of physician owners and investors in the FY 2009 IPPS proposed rule (73 FR 23528). However, we did not receive any public comments to assist us in our burden analysis. While we acknowledge that there is a burden associated with this ICR, we also acknowledge that we have no way to quantify this requirement's burden. For that reason, we are assigning 1 token burden hour to this requirement until such a time that we can conduct an accurate burden analysis for this information collection requirement.
Section 489.20(u)(2) requires disclosure of physician ownership as a condition of continued medical staff membership or admitting privileges. The burden associated with this requirement is the time and effort required for a hospital to develop, draft, and implement changes to its medical staff bylaws and other policies governing admitting privileges. Approximately 175 physician-owned hospitals will be required to comply with this requirement. We estimate that it will require a hospital's general counsel 4 hours to revise a hospital's medical staff bylaws and policies governing admitting privileges. Therefore, the total annual hospital burden is 700 hours.
In addition, § 489.20(u)(2) imposes a burden on physicians. As stated earlier, all physicians who are also members of the hospital's medical staff must agree, as a condition of continued medical staff membership or admitting privileges, to disclose, in writing, to all patients they refer to the hospital any ownership or investment interest in the hospital held by themselves or by an immediate family member. The disclosure must be made at the time the referral is made. The burden associated with this requirement is the time and effort necessary for a physician to draft a disclosure notice and to provide it to the patient at the time the referral is made to the physician-owned hospital. We estimate that it will take each physician, or designated office staff member, 1 hour to develop a disclosure notice and make copies that will be distributed to patients. In addition, we estimate that it will take 30 seconds to provide the disclosure notice to each patient and an additional 30 seconds to record proof of disclosure in each patient's medical record.
Although we can estimate the number of physician-owned hospitals, we are unable to quantify the numbers of physicians (or their immediate family members) that possess an ownership or investment interest in hospitals. There is limited data available concerning physician ownership in hospitals. The studies to date, including those by CMS and the GAO, pertain to physician ownership in specialty hospitals (cardiac, orthopedic, and surgical hospitals). These specialty hospital studies published data concerning the average percentage of shares of direct ownership by physicians (less than 2 percent), indirect ownership through group practices, and the aggregate percentage of physician ownership, but did not publish the number of physician owners in these types of hospitals. More importantly, § 489.20(u)(2) applies to physician ownership in any type of hospital. Our other research involved a review of enrollment data. However, the CMS Medicare enrollment application (CMS 855) requires that physicians report ownership interests that exceed 5 percent or greater, and, thus, most physician ownership is not captured. While we acknowledge there is a burden associated with this ICR, we also acknowledge that we have no way to quantify this requirement's burden. For that reason, we are assigning 1 token burden hour to this requirement until such a time that we can conduct an accurate burden analysis for this information collection requirement.
Section 489.20(v) states that the aforementioned requirements in § 489.20(u)(1) and (u)(2) do not apply to a physician-owned hospital that does not have at least one referring physician who has an ownership or investment interest in the hospital, or who has an immediate family member who has an ownership or investment interest in the hospital. To comply with this exception, an eligible hospital must sign an attestation to that effect and maintain the document in its records. Therefore, the number of hospitals that are subject to the disclosure requirement would be slightly reduced. However, there may be a minimal burden attributable to the requirement that the hospital maintain an attestation statement in its records.
The burden associated with this requirement is limited to those physician-owned hospitals that do not
In the FY 2009 IPPS proposed rule (73 FR 23528), we solicited public comments on the number of physician-owned hospitals that do not have at least one referring physician who has an ownership or investment interest in the hospital, or who has an immediate family member who has an ownership or investment interest in the hospital. However, we did not receive any public comments to assist us in our burden analysis. Therefore, we are submitting the burden estimate for this requirement as it appeared in the proposed rule.
Section 489.20(w) requires all hospitals, as defined in § 489.24(b), to furnish all patients notice, in accordance with § 482.13(b)(2), at the beginning of their hospital stay or outpatient visit if a doctor of medicine, or a doctor of osteopathy, is not present in the hospital 24 hours per day, 7 days per week. The notice must indicate how the hospital will meet the medical needs of any inpatient who develops an emergency medical condition, as defined in § 489.24(b), at a time when there are no physicians present in the hospital. The burden associated with this requirement is the time and effort necessary for each hospital to develop a standard notice to furnish to its patients. Because this requirement is subject to the PRA, the associated burden is approved under OMB control number 0938–1034, with a current expiration date of February 28, 2011.
As we indicated in the FY 2009 IPPS proposed rule, this final rule imposes ICRs as outlined in the regulation text and specified above. However, this rule also makes reference to several associated information collections that are not discussed in the regulation text. The following is a discussion of these collections, which have received OMB approval.
Section II.F.8 of the preamble of this final rule discusses the POA indicator reporting requirements. As stated earlier, POA indicator information is necessary to identify which conditions are acquired during hospitalization for the hospital-acquired condition (HAC) payment provision, and for broader public health uses of Medicare data. Through Change Request No. 5499 (released May 11, 2007), CMS issued instructions that require IPPS hospitals to submit POA indicator data for all diagnosis codes on Medicare claims.
The burden associated with this requirement is the time and effort necessary to place the appropriate POA indicator codes on Medicare claims. Because the requirement is subject to the PRA; the associated burden is approved under OMB control number 0938–0997, with an expiration date of August 31, 2009.
Section II.J. of the preamble of the FY 2009 IPPS proposed rule and this final rule discusses add-on payments for new services and technologies. Specifically, this section states that applicants for add-on payments for new medical services or technologies for FY 2010 must submit a formal request. A formal request includes 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. In addition, the request must contain a significant sample of the data to demonstrate that the medical service or technology meets the high-cost threshold.
We detailed the burden associated with this requirement in the September 7, 2001 IPPS final rule (66 FR 46902). As stated in that final rule, we believe the associated burden is exempt from the PRA as stipulated under 5 CFR 1320.3(h)(6). Collection of the information for this requirement is conducted on individual case-by-case basis.
As noted in section IV.B. of the preamble of the proposed rule and this final rule, the RHQDAPU program was originally established to implement section 501(b) of Public Law 108–173, thereby expanding our voluntary HQI. The RHQDAPU program originally consisted of a “starter set” of 10 quality measures. OMB approved the collection of data associated with the original
We added additional quality measures to the RHQDAPU program and submitted the information collection request to OMB for approval. This expansion of the RHQDAPU measures was part of our implementation of section 5001(a) of the DRA. Section 1886(b)(3)(B)(viii)(III) of the Act, added by section 5001(a) of the DRA, requires that the Secretary expand the “starter set” of 10 quality measures that were established by the Secretary as of November 1, 2003, to include measures “that the Secretary determines to be appropriate for the measurement of the quality of care furnished by hospitals in inpatient settings.” The burden associated with these reporting requirements is currently approved under OMB control number 0938–1022 with a current expiration date of June 30, 2011.
However, for FY 2009, we submitted to OMB for approval a revised information collection request using the same OMB control number (0938–1022). In the revised request, we added three new RHQDAPU quality measures that we adopted for the FY 2009 RHQDAPU program to the PRA process. These three measures are as follows:
• Pneumonia 30-day Mortality (Medicare patients);
• SCIP Infection 4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose; and
• SCIP Infection 6: Surgery Patients with Appropriate Hair Removal
The revised information collection request was announced in the
• SCIP Cardiovascular 2: Surgery Patients on a Beta Blocker Prior to Arrival Who Received a Beta Blocker During the Perioperative Period
• Heart Failure (HF) 30–Day Risk Standardized Readmission Measure
• Death among surgical patients with treatable serious complications (Medicare patients)
• Iatrogenic pneumothorax, adult (Medicare patients)
• Postoperative wound dehiscence (Medicare patients)
• Accidental puncture or laceration (Medicare patients)
• Abdominal aortic aneurysm (AAA) mortality rate (with or without volume) (Medicare patients)
• Hip fracture mortality rate (Medicare patients)
• Mortality for selected surgical procedures (composite) (Medicare patients)
• Complication/patient safety for selected indicators (composite) (Medicare patients)
• Mortality for selected medical conditions (composite) (Medicare patients)
• Failure to Rescue (Medicare claims only)
• Participation in a Systematic Database for Cardiac Surgery
Section IV.B.5. of the preamble of the proposed rule and this final rule also discusses the requirements for the continuous collection of HCAHPS quality data. The HCAHPS survey is designed to produce comparable data regarding the patient's perspective on care that allows objective and meaningful comparisons between hospitals on domains that are important to consumers. We also added the HCAHPS survey to the PRA process in the information collection request currently approved under OMB control number 0938–1022, with a current expiration date of June 30, 2011.
Section IV.B.9. of the preamble of the FY 2009 IPPS proposed rule and this final rule addresses the reconsideration and appeal procedures for a hospital that we believe did not meet the RHQDAPU program requirements. If a hospital disagrees with our determination, it may submit a written request to CMS requesting that we reconsider our decision. The hospital's letter must explain the reasons why it believes it did meet the RHQDAPU program requirements. While this is a reporting requirement, the burden associated with it is not subject to the PRA under 5 CFR 1320.4(a)(2). The burden associated with information collection requirements imposed subsequent to an administrative action is not subject to the PRA.
Section III. of the preamble of this final rule details the changes to the hospital wage index. Specifically, section III.D. addresses the occupational mix adjustment to the FY 2009 wage index. While the preamble does not contain any new ICRs, it is important to note that there is an OMB approved information collection request associated with the hospital wage index.
Section 304(c) of Public Law 106–554 amended section 1886(d)(3)(E) of the Act to require CMS to collect data at least once 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. We collect the data via the occupational mix survey.
The burden associated with this information collection requirement is the time and effort required to collect and submit the data in the Hospital Wage Index Occupational Mix Survey to CMS. Because this burden is subject to the PRA, it is approved under OMB control number 0938–0907, with an expiration date of February 28, 2011.
We ordinarily publish a notice of proposed rulemaking in the
We are waiving notice-and-comment procedures and the 30-day delay in effective date with respect to the application of the documentation and coding adjustment to the Puerto Rico-specific operating standardized amounts
We are waiving notice-and-comment procedures with respect to the provisions relating to the rebasing of payments to SCHs discussed in section IV.D.2. of the preamble of this final rule. As discussed in that section, section 122 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110–275) provides that, for cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on an FY 2006 hospital-specific rate (that is, based on their updated costs per discharge based on their 12-month cost reporting period beginning during Federal fiscal year 2006), if this results in the greatest payment to the SCH. Therefore, effective with cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on the rate that results in the greatest aggregate payment using either the Federal rate or their hospital-specific rate based on their 1982, 1987, 1996, or 2006 costs per discharge. This statutory provision is self-implementing. Therefore, we are waiving notice-and-comment procedures with respect to incorporating this change in our regulations. We believe it is unnecessary and contrary to the public interest to undertake notice-and-comment procedures prior to incorporating the policy in the regulations, consistent with the provisions of the statute.
As discussed in section II.G.12.g. of the preamble of this final rule, the existing regulation at § 412.104 specifies the rules for an additional payment to hospitals where 10 percent or more of their patients who are discharged receive dialysis treatment during an inpatient stay. However, there are specific DRGs cited in the regulation that are excluded from this additional payment. Because, beginning in FY 2008, we adopted MS–DRGs to replace the DRGs cited in the regulation, we are making a technical change to cite the appropriate replacement MS–DRGs. We believe that it is unnecessary and contrary to the public interest to undertake notice and comment procedures for this technical conforming change.
Our changes to 42 CFR 412.230, 412.232, and 412.234 will be effective on September 2, 2008, the deadline for hospitals to submit applications for reclassifications for the FY 2010 wage index. In addition, the procedures we have described in section III.I.7. of the preamble of this final rule will be effective upon publication. It is in the public interest of hospitals for the changes to the reclassification thresholds to be in place at the time their applications are due to the MGCRB for FY 2010. This provides confidence to hospitals that the applications they are filing are using correct thresholds. It also is unnecessary for the changes to §§ 412.230, 412.232, and 412.234 to have a delayed effective date, as the changes to these regulatory provisions will have no effect on FY 2009 reclassifications but rather will affect only FY 2010 reclassifications. Thus, in the most practical sense, hospitals have more than a year's worth of notice regarding the standards that will be applied for FY 2010. Finally, even if the thresholds were effective at a later date, the MGCRB would use the thresholds that are in effect at the time it makes its reclassification decisions.
The rules discussed in section III.I.7. of the preamble of this final rule are simply procedural and thus are not subject to any delay in effective date. Even if they were, however, it is in the public interest to make them effective upon publication, as they provide a necessary and expeditious timetable for both CMS and hospitals to respond to intervening MIPPA legislation. In addition, we view these rules as “relieving a restriction” under 5 U.S.C. 553(d)(1), as they allow affected hospitals another opportunity to withdraw or terminate reclassifications in response to the intervening MIPPA legislation. Finally, we note that section 1871(b)(2)(B) of the Act allows for waiver of notice and comment rulemaking when a statute creates a deadline for implementation that is less than 150 days after the date of enactment of the statute. The time between MIPPA enactment (July 15, 2008) and the date by which the extended reclassifications and special exceptions must take effect (October 1, 2008) is less than 150 days.
Kidney diseases, Medicare, Physician referral, Reporting and recordkeeping requirements.
Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, Reporting and recordkeeping requirements.
Health facilities, Kidney diseases, Medicare, Puerto Rico, Reporting and recordkeeping requirements.
Administrative practice and procedure, Grant programs—health, Health care, Health insurance, Health maintenance organizations (HMO), Loan programs—health, Medicare, Reporting and recordkeeping requirements.
Health facilities, Medicare, Reporting and recordkeeping requirements.
Secs. 1102, 1860D–1 through 1860D–42, 1871, and 1877 of the Social Security Act (42 U.S.C. 1302, 1395w–101 through 1395w–152, 1395hh, and 1395nn).
The revisions read as follows:
(1) A physician's sole practice or a practice of multiple physicians or any other person, sole proprietorship, public or private agency or trust, corporation, partnership, limited liability company, foundation, nonprofit corporation, or unincorporated association that furnishes DHS. An entity does not include the referring physician himself or herself, but does include his or her medical practice. A person or entity is considered to be furnishing DHS if it—
(i) Is the person or entity that has performed services that are billed as DHS; or
(ii) Is the person or entity that has presented a claim to Medicare for the DHS, including the person or entity to which the right to payment for the DHS has been reassigned in accordance with § 424.80(b)(1) (employer) or (b)(2) (payment under a contractual arrangement) of this chapter (other than a health care delivery system that is a health plan (as defined at § 1001.952(l) of this title), and other than any managed care organization (MCO), provider-sponsored organization (PSO), or independent practice association (IPA) with which a health plan contracts for services provided to plan enrollees).
The revision and addition read as follows:
(c)
(1) Except as provided in paragraph (e) of this section, no Medicare payment may be made for a designated health service that is furnished pursuant to a prohibited referral. The period during which referrals are prohibited is the period of disallowance. For purposes of this section, with respect to the following types of noncompliance, the period of disallowance begins at the time the financial relationship fails to satisfy the requirements of an applicable exception and ends no later than—
(i) Where the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all of the requirements of an applicable exception;
(ii) Where the noncompliance is due to the payment of excess compensation, the date on which all excess compensation is returned, by the party that received it, to the party that paid it and the financial relationship satisfies all of the requirements of an applicable exception; or
(iii) Where the noncompliance is due to the payment of compensation that is of an amount insufficient to satisfy the requirements of an applicable exception, the date on which all additional required compensation is paid, by the party that owes it, to the party to which it is owed and the financial relationship satisfies all of the requirements of an applicable exception.
(2) When payment for a designated health service is denied on the basis that the service was furnished pursuant to a prohibited referral, and such payment denial is appealed—
(i) The ultimate burden of proof (burden of persuasion) at each level of appeal is on the entity submitting the claim for payment to establish that the service was not furnished pursuant to a prohibited referral (and not on CMS or its contractors to establish that the service was furnished pursuant to a prohibited referral); and
(ii) The burden of production on each issue at each level of appeal is initially on the claimant, but may shift to CMS or its contractors during the course of the appellate proceeding, depending on the evidence presented by the claimant.
(g)
(i) The compensation arrangement between the entity and the referring physician fully complied with an applicable exception in § 411.355, § 411.356 or § 411.357, except with respect to the signature requirement in § 411.357(a)(1), § 411.357(b)(1), § 411.357(d)(1)(i), § 411.357(e)(1)(i), § 411.357(e)(4)(i), § 411.357(l)(1), § 411.357(p)(2), § 411.357(q) (incorporating the requirement contained in § 1001.952(f)(4)), § 411.357(r)(2)(ii), § 411.357(t)(1)(ii) or (t)(2)(iii) (both incorporating the requirement contained in § 411.357(e)(1)(i)), § 411.357(v)(7)(i), or § 411.357(w)(7)(i); and
(ii) The failure to comply with the signature requirement was—
(A) Inadvertent, and the parties obtain the required signature(s) within 90 consecutive calendar days immediately following the date on which the compensation arrangement becomes noncompliant (without regard to whether any referrals occur or compensation is paid during such 90-day period) and the compensation arrangement otherwise complies with all criteria of the applicable exception; or
(B) Not inadvertent, and the parties obtain the required signature(s) within 30 consecutive calendar days immediately following the date on which the compensation arrangement becomes noncompliant (without regard to whether any referrals occur or compensation is paid during such 30-day period) and the compensation arrangement otherwise complies with all criteria of the applicable exception.
(2) Paragraph (g)(1) of this section may be used by an entity only once every 3 years with respect to the same referring physician.
The revisions and additions read as follows:
(b) * * *
(3) * * *
(i) An interest in an entity that arises from a retirement plan offered by that entity to the physician (or a member of his or her immediate family) through the physician's (or immediate family member's) employment with that entity;
(c) * * *
(1) * * *
(ii) Except as provided in paragraph (c)(3)(ii)(C) of this section, a physician is deemed to stand in the shoes of his or her physician organization and have a direct compensation arrangement with an entity furnishing DHS if—
(A) The only intervening entity between the physician and the entity furnishing DHS is his or her physician organization; and
(B) The physician has an ownership or investment interest in the physician organization.
(iii) A physician (other than a physician described in paragraph (c)(1)(ii)(B) of this section) is permitted to “stand in the shoes” of his or her physician organization and have a direct compensation arrangement with an entity furnishing DHS if the only intervening entity between the physician and the entity furnishing DHS is his or her physician organization.
(2) * * *
(iv)(A) For purposes of paragraph (c)(2)(i) of this section, except as provided in paragraph (c)(3)(ii)(C) of this section, a physician is deemed to “stand in the shoes” of his or her physician organization if the physician has an ownership or investment interest in the physician organization.
(B) For purposes of paragraph (c)(2)(i) of this section, a physician (other than a physician described in paragraph (c)(2)(iv)(A) of this section) is permitted to “stand in the shoes” of his or her physician organization.
(3) * * *
(ii) The provisions of paragraphs (c)(1)(ii) and (c)(2)(iv)(A) of this section—
(A) Need not apply during the original term or current renewal term of an arrangement that satisfied the requirements of § 411.357(p) as of September 5, 2007 (see 42 CFR Parts 400–413, revised as of October 1, 2007);
(B) Do not apply to an arrangement that satisfies the requirements of § 411.355(e); and
(C) Do not apply to a physician whose ownership or investment interest is titular only. A titular ownership or investment interest is an ownership or investment interest that excludes the ability or right to receive the financial benefits of ownership or investment, including, but not limited to, the distribution of profits, dividends, proceeds of sale, or similar returns on investment.
(iii) An arrangement structured to comply with an exception in § 411.357 (other than § 411.357(p)), but which would otherwise qualify as an indirect compensation arrangement under this paragraph as of August 19, 2008, need not be restructured to satisfy the requirements of § 411.357(p) until the expiration of the original term or current renewal term of the arrangement.
The revisions read as follows:
For purposes of § 411.353, the following compensation arrangements do not constitute a financial relationship:
(a)
(1) The agreement is set out in writing, is signed by the parties, and specifies the premises it covers.
(2) The term of the agreement is at least 1 year. To meet this requirement, if the agreement is terminated during the term with or without cause, the parties may not enter into a new agreement during the first year of the original term of the agreement.
(3) The space rented or leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease or rental and is used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor), except that the lessee may make payments for the use of space consisting of common areas if the payments do not exceed the lessee's pro rata share of expenses for the space based upon the ratio of the space used exclusively by the lessee to the total amount of space (other than common areas) occupied by all persons using the common areas.
(4) The rental charges over the term of the agreement are set in advance and are consistent with fair market value.
(5) The rental charges over the term of the agreement are not determined—
(i) In a manner that takes into account the volume or value of any referrals or other business generated between the parties; or
(ii) Using a formula based on—
(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space; or
(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred between the parties.
(6) The agreement would be commercially reasonable even if no referrals were made between the lessee and the lessor.
(7) A holdover month-to-month rental for up to 6 months immediately following the expiration of an agreement of at least 1 year that met the conditions of paragraphs (a)(1) through (a)(6) of this section satisfies the requirements of paragraph (a) of this section, provided that the holdover rental is on the same terms and conditions as the immediately preceding agreement.
(b)
(1) A rental or lease agreement is set out in writing, is signed by the parties, and specifies the equipment it covers.
(2) The equipment rented or leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease or rental and is used exclusively by the lessee when being used by the lessee and is not shared with or used by the lessor or any person or entity related to the lessor.
(3) The agreement provides for a term of rental or lease of at least 1 year. To meet this requirement, if the agreement is terminated during the term with or without cause, the parties may not enter into a new agreement during the first year of the original term of the agreement.
(4) The rental charges over the term of the agreement are set in advance, are consistent with fair market value, and are not determined—
(i) In a manner that takes into account the volume or value of any referrals or other business generated between the parties; or
(ii) Using a formula based on—
(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed on or business generated by the use of the equipment; or
(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred between the parties.
(5) The agreement would be commercially reasonable even if no referrals were made between the parties.
(6) A holdover month-to-month rental for up to 6 months immediately following the expiration of an agreement of at least 1 year that met the conditions of paragraphs (b)(1) through (b)(5) of this section satisfies the requirements of paragraph (b) of this section, provided that the holdover rental is on the same terms and conditions as the immediately preceding agreement.
(l)
(1) The arrangement is in writing, signed by the parties, and covers only identifiable items or services, all of which are specified in the agreement.
(2) The writing specifies the timeframe for the arrangement, which can be for any period of time and contain a termination clause, provided that the parties enter into only one arrangement for the same items or services during the course of a year. An arrangement made for less than 1 year may be renewed any number of times if the terms of the arrangement and the compensation for the same items or services do not change.
(3) The writing specifies the compensation that will be provided under the arrangement. The compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician. Compensation for the rental of equipment may not be determined using a formula based on—
(i) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated through the use of the equipment; or
(ii) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred between the parties.
(4) The arrangement is commercially reasonable (taking into account the nature and scope of the transaction) and furthers the legitimate business purposes of the parties.
(5) The arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission.
(6) The services to be performed under the arrangement do not involve the counseling or promotion of a business arrangement or other activity that violates a Federal or State law.
(p)
(1)(i) The compensation received by the referring physician (or immediate family member) described in § 411.354(c)(2)(ii) is fair market value for services and items actually provided and not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician for the entity furnishing DHS. Compensation for the rental of office space or equipment may not be determined using a formula based on—
(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space or to the services performed or business generated through the use of the equipment; or
(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred between the parties.
(ii) The compensation arrangement described in § 411.354(c)(2)(ii) is set out in writing, signed by the parties, and specifies the services covered by the arrangement, except in the case of a
(iii) The compensation arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission.
(r)
(1) Remuneration that meets all of the conditions set forth in § 1001.952(o) of this title.
(2) A payment from a hospital, federally qualified health center, or rural health clinic that is used to pay for some or all of the costs of malpractice insurance premiums for a physician who engages in obstetrical practice as a routine part of his or her medical practice, if all of the following conditions are met:
(i)(A) The physician's medical practice is located in a rural area, a primary care HPSA, or an area with demonstrated need for the physician's obstetrical services as determined by the Secretary in an advisory opinion issued in accordance with section 1877(g)(6) of the Act; or
(B) At least 75 percent of the physician's obstetrical patients reside in a medically underserved area or are members of a medically underserved population.
(ii) The arrangement is set out in writing, is signed by the physician and the hospital, federally qualified health center, or rural health clinic providing the payment, and specifies the payments to be made by the hospital, federally qualified health center, or rural health clinic and the terms under which the payments are to be provided.
(iii) The arrangement is not conditioned on the physician's referral of patients to the hospital, federally qualified health center, or rural health clinic providing the payment.
(iv) The hospital, federally qualified health center, or rural health clinic does not determine (directly or indirectly) the amount of the payment based on the volume or value of any actual or anticipated referrals by the physician or any other business generated between the parties.
(v) The physician is allowed to establish staff privileges at any hospital(s), federally qualified health center(s), or rural health clinic(s) and to refer business to any other entities (except as referrals may be restricted under an employment arrangement or services contract that complies with § 411.354(d)(4)).
(vi) The payment is made to a person or organization (other than the physician) that is providing malpractice insurance (including a self-funded organization).
(vii) The physician treats obstetrical patients who receive medical benefits or assistance under any Federal health care program in a nondiscriminatory manner.
(viii) The insurance is a
(ix)(A) For each coverage period (not to exceed 1 year), at least 75 percent of the physician's obstetrical patients treated under the coverage of the obstetrical malpractice insurance during the prior period (not to exceed 1 year)—
(
(
(B) For the initial coverage period (not to exceed 1 year), the requirements of paragraph (r)(2)(ix)(A) of this section will be satisfied if the physician certifies that he or she has a reasonable expectation that at least 75 percent of the physician's obstetrical patients treated under the coverage of the malpractice insurance will—
(
(
(x) The arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission.
(3) For purposes of paragraph (r)(2) of this section,
(i) For physicians who engage in obstetrical practice on a full-time basis, any costs attributable to malpractice insurance; or
(ii) For physicians who engage in obstetrical practice on a part-time or sporadic basis, the costs attributable exclusively to the obstetrical portion of the physician's malpractice insurance, and related exclusively to obstetrical services provided—
(A) In a rural area, primary care HPSA, or an area with demonstrated need for the physician's obstetrical services, as determined by the Secretary in an advisory opinion issued in accordance with section 1877(g)(6) of the Act; or
(B) In any area, provided that at least 75 percent of the physician's obstetrical patients treated in the coverage period (not to exceed 1 year) resided in a rural area or medically underserved area or were part of a medically underserved population.
Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh), and sec. 124 of Public Law 106–113 (113 Stat. 1501A–332).
The addition reads as follows:
(e) * * *
(1) * * *
(vi) Effective October 1, 2008, if a State hospital that is occupying space in the same building or on the same campus as another State hospital cannot meet the criterion under paragraph (e)(1)(i) of this section solely because its governing body is under the control of the State hospital with which it shares a building or a campus, or is under the control of a third entity that also controls the State hospital with which it shares a building or a campus, the State hospital can nevertheless qualify for an exclusion if it meets the other applicable criteria in this section and—
(A) Both State hospitals occupy space in the same building or on the same campus and have been continuously owned and operated by the State since October 1, 1995;
(B) Is required by State law to be subject to the governing authority of the State hospital with which it shares space or the governing authority of a third entity that controls both hospitals; and
(C) Was excluded from the inpatient prospective payment system before October 1, 1995, and continues to be excluded from the inpatient prospective payment system through September 30, 2008.
The revisions and additions read as follows:
(b) * * *
(1) * * *
(ii) The term
(A) A Metropolitan Statistical Area or a Metropolitan division (in the case where a Metropolitan Statistical Area is divided into Metropolitan Divisions), as defined by the Executive Office of Management and Budget; or
(e) * * *
(1) * * *
(ii) Except as provided in paragraph (e)(4) of this section, the annual updates and adjustments to the wage index under paragraph (h) of this section are made in a manner that ensures that aggregate payments are not affected; and
(4) CMS makes an adjustment to the wage index to ensure that aggregate payments after implementation of the rural floor under section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105–33) and the imputed floor under paragraph (h)(4) of this section are equal to the aggregate prospective payments that would have been made in the absence of such provisions. Beginning October 1, 2008, such adjustment will transition from a nationwide to a statewide adjustment, with a statewide adjustment fully in place by October 1, 2010.
(a)
(2) This section applies only to cost reporting periods beginning on or after January 1, 2009.
(3) The formula for determining the hospital-specific costs for hospitals described under paragraph (a)(1) of this
(b)
(2)
(ii) If the hospital does not have a cost reporting period ending on or after September 30, 2006 and before September 30, 2007, and does have a cost reporting period beginning on or after October 1, 2005 and before October 1, 2006, that cost reporting period is the base period unless the cost reporting period is for less than 12 months. If that cost reporting period is for less than 12 months, the base period is the hospital's most recent 12-month or longer cost reporting period ending before the short cost reporting period. If a hospital has no cost reporting period beginning in fiscal year 2006, the hospital will not have a hospital-specific rate based on fiscal year 2006.
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
The revision and addition read as follows:
(b) * * *
(1) A new medical service or technology represents an advance that substantially improves, relating to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.
(c)
The addition reads as follows:
(d)
(v) For cost reporting periods beginning on or after January 1, 2009, the hospital-specific rate as determined under § 412.78.
(a)
(f) * * *
(1) * * *
(vi) Hospitals that are part of the same Medicare GME affiliated group or emergency Medicare GME affiliated group (as defined in § 413.75(b) of this subchapter) may elect to apply the limit specified in paragraph (f)(1)(iv) of this section on an aggregate basis, as specified in § 413.79(f) of this subchapter. Effective beginning on or after October 1, 2008, home and host hospitals with valid emergency Medicare GME affiliation agreements are exempt from the application of the ratio cap specified in paragraph (a)(1)(i) of this section.
The additions and revision read as follows:
(d) * * *
(1) * * *
(iv) * * *
(C) With respect to redesignations for fiscal years 2002 through 2009, the hospital's average hourly wage is equal to, in the case of a hospital located in a rural area, at least 82 percent, and in the case of a hospital located in an urban area, at least 84 percent of the average hourly wage of hospitals in the area to which it seeks redesignation.
(D) With respect to redesignations for fiscal year 2010, the hospital's average hourly wage is equal to, in the case of a hospital located in a rural area, at least 84 percent, and in the case of a hospital located in an urban area, at least 86 percent of the average hourly wage of hospitals in the area to which it seeks redesignation.
(E) With respect to redesignations for fiscal year 2011 and later fiscal years, the hospital's average hourly wage is equal to, in the case of a hospital located in a rural area, at least 86 percent, and in the case of a hospital located in an urban area, at least 88 percent of the average hourly wage of hospitals in the area to which it seeks redesignation.
The revisions and addition read as follows:
(c) * * *
(1)
(i)
(ii)
(2)
(3)
The revisions and addition read as follows:
(b) * * *
(1)
(i)
(ii)
(2)
(3)
Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and (n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of Public Law 106–133 (113 Stat. 1501A–332).
The revisions read as follows:
(f) * * *
(6) * * *
(i)
(ii)
(A) For emergency Medicare GME affiliation agreements that would otherwise be required to be submitted by June 30, 2006, or July 1, 2006, each participating host and home hospital must submit an emergency Medicare GME affiliation agreement to CMS and submit a copy to its CMS intermediary/MAC on or before October 9, 2006.
(B) Except for emergency Medicare GME affiliation agreements specified in paragraph (f)(6)(ii)(A) of this section, for emergency Medicare GME affiliation agreements that would otherwise be required to be submitted prior to October 1, 2008, the following due dates are applicable:
(
(
(C) For emergency Medicare GME affiliation agreements that would otherwise be required to be submitted after October 1, 2008, the following due dates are applicable:
(
(
(3)
Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).
(a)
(b)
(c)
(1) To the extent required by CMS, risk adjustment data must account for the following:
(i) Items and services covered under the original Medicare program.
(ii) Medicare covered items and services for which Medicare is not the primary payer.
(iii) Other additional or supplemental benefits that the MA organization may provide.
(2) The data must account separately for each provider, supplier, physician, or other practitioner that would be permitted to bill separately under the original Medicare program, even if they participate jointly in the same service.
(d)
(1) MA organizations must submit data that conform to CMS' requirements for data equivalent to Medicare fee-for-service data, when appropriate, and to all relevant national standards. CMS may specify abbreviated formats for data submission required of MA organizations.
(2) The data must be submitted electronically to the appropriate CMS contractor.
(3) MA organizations must obtain the risk adjustment data required by CMS from the provider, supplier, physician, or other practitioner that furnished the item or service.
(4) MA organizations may include in their contracts with providers, suppliers, physicians, and other practitioners, provisions that require submission of complete and accurate risk adjustment data as required by CMS. These provisions may include financial penalties for failure to submit complete data.
(e)
(f)
(g)
(1) The annual deadline for risk adjustment data submission is the first Friday in September for risk adjustment data reflecting items and services furnished during the 12-month period ending the prior June 30, and the first Friday in March for data reflecting services furnished during the 12-month period ending the prior December 31.
(2) CMS allows a reconciliation process to account for late data submissions. CMS continues to accept risk adjustment data submitted after the March deadline until January 31 of the year following the payment year. After the payment year is completed, CMS recalculates the risk factors for affected individuals to determine if adjustments to payments are necessary. Risk adjustment data that are received after the annual January 31 late data submission deadline will not be accepted for the purposes of reconciliation.
Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866, 1869, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i–3, 1395x, 1395aa(m), 1395cc, 1395ff, and 1395hh).
The revisions and addition read as follows:
(r) * * *
(2) An on-call list of physicians who are on the hospital's medical staff or who have privileges at the hospital, or who are on the staff or have privileges at another hospital participating in a formal community call plan, in accordance with § 489.24(j)(2)(iii), available to provide treatment necessary after the initial examination to stabilize individuals with emergency medical conditions who are receiving services required under § 489.24 in accordance with the resources available to the hospital; and
(u) Except as provided in paragraph (v) of this section, in the case of a
(1) To furnish written notice to each patient at the beginning of the patient's hospital stay or outpatient visit that the hospital is a physician-owned hospital, in order to assist the patient in making an informed decision regarding his or her care, in accordance with § 482.13(b)(2) of this subchapter. The notice should disclose, in a manner reasonably designed to be understood by all patients, the fact that the hospital meets the Federal definition of a physician-owned hospital specified in § 489.3 and that the list of the hospital's owners or investors who are physicians or immediate family members (as defined at § 411.351 of this chapter) of physicians is available upon request and must be provided to the patient at the time the request for the list is made by or on behalf of the patient. For purposes of this paragraph (u)(1), the hospital stay or outpatient visit begins with the provision of a package of information regarding scheduled preadmission testing and registration for a planned hospital admission for inpatient care or an outpatient service.
(2) To require each physician who is a member of the hospital's medical staff to agree, as a condition of continued medical staff membership or admitting privileges, to disclose, in writing, to all patients the physician refers to the hospital any ownership or investment interest in the hospital that is held by the physician or by an immediate family member (as defined at § 411.351 of this chapter) of the physician. Disclosure must be required at the time the referral is made.
(v) The requirements of paragraph (u) of this section do not apply to any physician-owned hospital that does not have at least one referring physician (as defined at § 411.351 of this chapter) who has an ownership or investment interest in the hospital or who has an immediate family member who has an ownership or investment interest in the hospital, provided that such hospital signs an attestation statement to that effect and maintains such attestation in its records.
The revisions read as follows:
(a) * * *
(2)
(f)
(1) The provisions of this paragraph (f) apply to any participating hospital with specialized capabilities, regardless of whether the hospital has a dedicated emergency department.
(2) The provisions of this paragraph (f) do not apply to an individual who has been admitted to a referring hospital under the provisions of paragraph (d)(2)(i) of this section.
(j)
(1) To respond to situations in which a particular specialty is not available or the on-call physician cannot respond because of circumstances beyond the physician's control; and
(2) To provide that emergency services are available to meet the needs of individuals with emergency medical conditions if a hospital elects to—
(i) Permit on-call physicians to schedule elective surgery during the time that they are on call;
(ii) Permit on-call physicians to have simultaneous on-call duties; and
(iii) Participate in a formal community call plan. Notwithstanding participation in a community call plan, hospitals are still required to perform medical screening examinations on individuals who present seeking treatment and to conduct appropriate transfers. The formal community plan must include the following elements:
(A) A clear delineation of on-call coverage responsibilities; that is, when each hospital participating in the plan is responsible for on-call coverage.
(B) A description of the specific geographic area to which the plan applies.
(C) A signature by an appropriate representative of each hospital participating in the plan.
(D) Assurances that any local and regional EMS system protocol formally includes information on community on-call arrangements.
(E) A statement specifying that even if an individual arrives at a hospital that is not designated as the on-call hospital, that hospital still has an obligation under § 489.24 to provide a medical screening examination and stabilizing treatment within its capability, and that hospitals participating in the community call plan must abide by the regulations under § 489.24 governing appropriate transfers.
(F) An annual assessment of the community call plan by the participating hospitals.
(c)
The following Addendum and appendixes will not appear in the Code of Federal Regulations.
In 2007, Congress passed the MMSEA, Public Law 108–173, and section 117 of that Act extended section 508 wage index reclassifications and certain special exceptions through FY 2008, with the special reclassifications and exceptions scheduled to expire September 30, 2008. However, before these reclassifications and exceptions could expire, on July 15, 2008, Congress enacted Public Law 110–275 (MIPPA). Section 124 of that Act further extended the 508 reclassifications and special exceptions through the end of FY 2009—or September 30, 2009. As a result of this intervening legislation, section 508 or special exception hospitals that would have otherwise been reclassified under section 1886 of the Act will no longer be considered as such, thus affecting the wage index calculations. We did not have sufficient time between the passage of the legislation and the deadline for publication of this final rule to recalculate wage indices based on the new reclassification data. Therefore, we are not able to provide all of the final FY 2009 wage index tables, payment rates, or impacts in this final rule. Because the wage data affect the calculation of the outlier threshold as well as the outlier offset and budget neutrality factors that are applied to the standardized amounts, we are only able to provide tentative figures at this time. These tentative amounts will be revised once section 124 of Public Law 110–275 is implemented and as a result the wage index will be finalized. Subsequent to this final rule, we will publish a
In this Addendum, we are setting forth a final description of the methods and data we used to determine the prospective payment rates for Medicare hospital inpatient operating costs and Medicare hospital inpatient capital-related costs. We are also setting forth the rate-of-increase percentages for updating the target amounts for certain hospitals and hospital units excluded from the IPPS. We note that, because certain hospitals excluded from the IPPS are paid on a reasonable cost basis subject to a rate-of-increase ceiling (and not by the IPPS), these hospitals are not affected by the tentative figures for standardized amounts, offsets, and budget neutrality factors. Therefore, in this final rule, we are finalizing the rate-of-increase percentages for updating the target amounts for certain hospitals and hospital units excluded from the IPPS that are effective for cost reporting periods beginning on or after October 1, 2008.
In general, except for SCHs, MDHs, and hospitals located in Puerto Rico, each hospital's payment per discharge under the IPPS is based on 100 percent of the Federal national rate, also known as the national adjusted standardized amount. This amount reflects the national average hospital cost per case from a base year, updated for inflation.
Currently, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge. For cost reporting periods beginning on or after January 1, 2009, section 122 of Public Law 110–275 amended section 1886(b)(3) of the Act and added the updated hospital-specific rate based on the FY 2006 costs per discharge to determine the rate that yields the greatest aggregate payment. We refer readers to section IV.D.2. of this final rule for a discussion of this provision.
Under section 1886(d)(5)(G) of the Act, MDHs historically have been paid based on the Federal national rate or, if higher, the Federal national rate plus 50 percent of the difference between the Federal national rate and the updated hospital-specific rate based on FY 1982 or FY 1987 costs per discharge, whichever was higher. (MDHs did not have the option to use their FY 1996 hospital-specific rate.) However, section 5003(a)(1) of Public Law 109–171 extended and modified the MDH special payment provision that was previously set to expire on October 1, 2006, to include discharges occurring on or after October 1, 2006, but before October 1, 2011. Under section 5003(b) of Public Law 109–171, if the change results in an increase to an MDH's target amount, we must rebase an MDH's hospital-specific rates based on its FY 2002 cost report. Section 5003(c) of Public Law 109–171 further required that MDHs be 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. Further, based on the provisions of section 5003(d) of Public Law 109–171, MDHs are no longer subject to the 12-percent cap on their DSH payment adjustment factor.
For hospitals located in Puerto Rico, the payment per discharge is based on the sum of 25 percent of an updated Puerto Rico-specific rate based on average costs per case of Puerto Rico hospitals for the base year and 75 percent of the Federal national rate. (We refer readers to section II.D.3. of this Addendum for a complete description.)
As discussed below in section II. of this Addendum, we are making changes in the determination of the prospective payment rates for Medicare inpatient operating costs for FY 2009. In section III. of this Addendum, we discuss our policy changes for determining the prospective payment rates for Medicare inpatient capital-related costs for FY 2009. Section IV. of this Addendum sets forth our changes for determining the rate-of-increase limits for certain hospitals excluded from the IPPS for FY 2009. The tables to which we refer in the preamble of this final rule are presented in section V. of this Addendum of this final rule. Some of these tables are based upon tentative data, and the final tables will be presented in a separate document that will be published on the CMS Web site, as well as in the
The basic methodology for determining prospective payment rates for hospital inpatient operating costs for FY 2005 and subsequent fiscal years is set forth at § 412.64. The basic methodology for determining the prospective payment rates for hospital inpatient operating costs for hospitals located in Puerto Rico for FY 2005 and subsequent fiscal years is set forth at §§ 412.211 and 412.212. Below we discuss the factors used for determining the prospective payment rates.
In summary, the tentative standardized amounts set forth in Tables 1A, 1B, and 1C, of section VI. of this Addendum reflect—
• Equalization of the standardized amounts for urban and other areas at the level computed for large urban hospitals during FY 2004 and onward, as provided for under section 1886(d)(3)(A)(iv) of the Act, updated by the applicable percentage increase required under sections 1886(b)(3)(B)(i)(XX) and 1886(b)(3)(B)(viii) of the Act.
• The labor-related share that is applied to the tentative standardized amounts and tentative Puerto Rico-specific standardized amounts to give the hospital the highest payment, as provided for under sections 1886(d)(3)(E), and 1886(d)(9)(C)(iv) of the Act.
• Final updates of 3.6 percent for all areas (that is, the estimated full market basket percentage increase of 3.6 percent), as required by section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 5001(a)(1) of Public Law 109–171, and reflecting the requirements of section 1886(b)(3)(B)(viii) of the Act, as added by section 5001(a)(3) of Public Law 109–171, to reduce the applicable percentage increase by 2.0 percentage points for a hospital that fails to submit data, in a form and manner specified by the Secretary, relating to the quality of inpatient care furnished by the hospital.
• A final update of 3.6 percent to the tentative Puerto Rico-specific standardized amount (that is, the full estimated rate-of-increase in the hospital market basket for IPPS hospitals), as provided for under § 412.211(c), which states that we update the Puerto Rico-specific standardized amount using the percentage increase specified in § 412.64(d)(1), or the percentage increase in the market basket index for prospective payment hospitals for all areas.
• An adjustment to the standardized amount to ensure budget neutrality for DRG
• An adjustment to ensure the wage index update and changes are budget neutral, as provided for under section 1886(d)(3)(E) of the Act.
• An adjustment to ensure the effects of geographic reclassification are budget neutral, as provided for in section 1886(d)(8)(D) of the Act, by removing the FY 2008 budget neutrality factor and applying a revised factor.
• An adjustment to remove the FY 2008 outlier offset and apply an offset for FY 2009 as provided for in section 1886(d)(3)(B) of the Act.
• An adjustment to ensure the effects of the rural community hospital demonstration required under section 410A of Public Law 108–173 are budget neutral, as required under section 410A(c)(2) of Public Law 108–173.
• An adjustment to eliminate the effect of coding or classification changes that do not reflect real changes in case-mix, as provided for in section 1886(d)(3)(A)(vi) of the Act and as discussed below and in section II.D. of the preamble to this final rule.
We note that, beginning in FY 2008, we applied the budget neutrality adjustment for the rural floor to the hospital wage indices rather than the standardized amount. For FY 2009, we are continuing to apply the rural floor budget neutrality adjustment to hospital wage indices rather than the standardized amount. In addition, instead of applying the budget neutrality adjustment for the imputed floor adopted under section 1886(d)(3)(E) of the Act to the standardized amounts, beginning with FY 2009, we are applying the imputed floor budget neutrality adjustment to the wage indices. Beginning in FY 2009, we are also applying the budget neutrality adjustments for the rural floor and imputed rural floor at the State level rather than the national level. For a complete discussion of the budget neutrality changes concerning the rural floor and the imputed floor, including the within-State budget neutrality adjustment, we refer readers to section III.B.2.b. of the preamble to this final rule.
In general, the national standardized amount is based on per discharge averages of adjusted hospital costs from a base period (section 1886(d)(2)(A) of the Act), updated and otherwise adjusted in accordance with the provisions of section 1886(d) of the Act. For Puerto Rico hospitals, the Puerto Rico-specific standardized amount is based on per discharge averages of adjusted target amounts from a base period (section 1886(d)(9)(B)(i) of the Act), updated and otherwise adjusted in accordance with the provisions of section 1886(d)(9) of the Act. The September 1, 1983 interim final rule (48 FR 39763) contained a detailed explanation of how base-year cost data (from cost reporting periods ending during FY 1981) were established for urban and rural hospitals in the initial development of standardized amounts for the IPPS. The September 1, 1987 final rule (52 FR 33043 and 33066) contains a detailed explanation of how the target amounts were determined and how they are used in computing the Puerto Rico rates.
Sections 1886(d)(2)(B) and (d)(2)(C) of the Act require us to update base-year per discharge costs for FY 1984 and then standardize the cost data in order to remove the effects of certain sources of cost variations among hospitals. These effects include case-mix, differences in area wage levels, cost-of-living adjustments for Alaska and Hawaii, indirect medical education costs, and costs to hospitals serving a disproportionate share of low-income patients.
In accordance with section 1886(d)(3)(E) of the Act, the Secretary estimates, from time-to-time, the proportion of hospitals' costs that are attributable to wages and wage-related costs. In general, the standardized amount is divided into labor-related and nonlabor-related amounts; only the proportion considered to be the labor-related amount is adjusted by the wage index. Section 1886(d)(3)(E) of the Act requires that 62 percent of the standardized amount be adjusted by the wage index, unless doing so would result in lower payments to a hospital than would otherwise be made. (Section 1886(d)(9)(C)(iv)(II) of the Act extends this provision to the labor-related share for hospitals located in Puerto Rico.)
For FY 2009, we are not changing the national and Puerto Rico-specific labor-related and nonlabor-related shares from the percentages established for FY 2008. Therefore, the labor-related share continues to be 69.7 percent for the national standardized amounts and 58.7 percent for the Puerto Rico-specific standardized amount. Consistent with section 1886(d)(3)(E) of the Act, we are applying the wage index to a labor-related share of 62 percent for all non-Puerto Rico hospitals whose wage indexes are less than or equal to 1.0000. For all non-Puerto Rico hospitals whose wage indices are greater than 1.0000, we are applying the wage index to a labor-related share of 69.7 percent of the national standardized amount. For hospitals located in Puerto Rico, we are applying a labor-related share of 58.7 percent if its Puerto Rico-specific wage index is less than or equal to 1.0000. For hospitals located in Puerto Rico whose Puerto Rico-specific wage index values are greater than 1.0000, we are applying a labor share of 62 percent.
The tentative standardized amounts for operating costs appear in Table 1A, 1B, and 1C of the Addendum to this final rule.
Section 1886(d)(3)(A)(iv)(II) of the Act requires that, beginning with FY 2004 and thereafter, an equal standardized amount be computed for all hospitals at the level computed for large urban hospitals during FY 2003, updated by the applicable percentage update. Section 1886(d)(9)(A)(ii)(II) of the Act equalizes the Puerto Rico-specific urban and rural area rates. Accordingly, we are calculating FY 2009 national and Puerto Rico standardized amounts irrespective of whether a hospital is located in an urban or rural location.
In accordance with section 1886(d)(3)(A)(iv)(II) of the Act, we are updating the equalized standardized amount for FY 2008 by the full estimated market basket percentage increase for hospitals in all areas, as specified in section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 5001(a)(1) of Public Law 109–171. The percentage change in the market basket reflects the average change in the price of goods and services comprising routine, ancillary, and special care unit inpatient hospital services. The most recent forecast of the hospital market basket increase for FY 2009 is 3.6 percent. Thus, for FY 2009, the update to the average standardized amount is 3.6 percent for hospitals in all areas. The market basket increase of 3.6 percent is based on the 2008 second quarter forecast of the hospital market basket increase (as discussed in Appendix B of this final rule).
Section 1886(b)(3)(B) of the Act specifies the mechanism to be used to update the standardized amount for payment for inpatient hospital operating costs. Section 1886(b)(3)(B)(viii) of the Act, as added by section 5001(a)(3) of Public Law 109–171, provides for a reduction of 2.0 percentage points from the update percentage increase (also known as the market basket update) for FY 2007 and each subsequent fiscal year for any “subsection (d) hospital” that does not submit quality data, as discussed in section IV.A. of the preamble of this final rule. The tentative standardized amounts in Tables 1A through 1C of section V. of the Addendum to this final rule reflect these differential amounts.
Section 412.211(c) states that we update the Puerto Rico-specific standardized amount using the percentage increase specified in § 412.64(d)(1) or the percentage increase in the market basket index for prospective payment hospitals for all areas. We are applying the full rate-of-increase in the hospital market basket for IPPS hospitals to the Puerto Rico-specific standardized amount. Therefore, the update to the Puerto Rico-specific standardized amount is 3.6 percent.
Although the update factors for FY 2009 are set by law, we are required by section 1886(e)(4) of the Act to recommend, taking into account MedPAC's recommendations, appropriate update factors for FY 2009 for both IPPS hospitals and hospitals and hospital units excluded from the IPPS. Our recommendation on the update factors (which is required by sections 1886(e)(4)(A) and (e)(5)(A) of the Act) is set forth in Appendix B of this final rule.
We note that the implementation of section 124 of Public Law 110–275 will have no affect on the market basket increase factor of 3.6 percent. Therefore, the update factors of 3.6 and 1.6 percent are final and not tentative. These update factors (3.6 and 1.6 percent) are one element that will be used to determine the FY 2009 standardized amounts. Other factors, such as the outlier offset and the rural floor budget neutrality factors, are yet to be determined pending the implementation of section 124 of Public Law 110–275. (We note that the rural floor budget
As in the past, we are adjusting the FY 2009 standardized amount to remove the effects of the FY 2008 geographic reclassifications and outlier payments before applying the FY 2009 updates. We then applied budget neutrality offsets for outliers and geographic reclassifications to the standardized amount based on FY 2009 payment policies.
We do not remove the prior year's budget neutrality adjustments for reclassification and recalibration of the DRG weights and for updated wage data because, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, estimated aggregate payments after updates in the DRG relative weights and wage index should equal estimated aggregate payments prior to the changes. If we removed the prior year's adjustment, we would not have satisfied these conditions.
Budget neutrality is determined by comparing aggregate IPPS payments before and after making changes that are required to be budget neutral (for example, changes to DRG classifications, recalibration of the DRG relative weights, updates to the wage index, and different geographic reclassifications). We included outlier payments in the simulations because they may be affected by changes in these parameters.
We are also adjusting the standardized amount this year by an estimated amount to ensure that aggregate IPPS payments do not exceed the amount of payments that would have been made in the absence of the rural community hospital demonstration program, as required under section 410A of Public Law 108–173. This demonstration is required to be budget neutral under section 410A(c)(2) of Public Law 108–173. For FY 2009, we are no longer applying budget neutrality for the imputed floor to the standardized amount, and to apply it instead to the wage index, as discussed in section of II.B.2. of the preamble to this final rule. For FY 2009, we are also applying an adjustment to eliminate the effect of coding or classification changes that do not reflect real changes in case-mix using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act, by the percentage specified in section 7 of Public Law 110–90.
Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in FY 1991, the annual DRG reclassification and recalibration of the relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. As discussed in section II. of the preamble of this final rule, we normalized the recalibrated DRG weights by an adjustment factor so that the average case weight after recalibration is equal to the average case weight prior to recalibration. However, equating the average case weight after recalibration to the average case weight before recalibration does not necessarily achieve budget neutrality with respect to aggregate payments to hospitals because payments to hospitals are affected by factors other than average case weight. Therefore, as we have done in past years, we made a budget neutrality adjustment to ensure that the requirement of section 1886(d)(4)(C)(iii) of the Act is met.
Section 1886(d)(3)(E) of the Act requires us to update the hospital wage index on an annual basis beginning October 1, 1993. 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. Consistent with current policy, for FY 2009, we are adjusting 100 percent of the wage index factor for occupational mix. We describe the occupational mix adjustment in section III.D. of the preamble to this final rule.
To comply with the requirement that DRG reclassification and recalibration of the relative weights and the updated wage index be budget neutral, we used FY 2007 discharge data to simulate payments and compared aggregate payments using the FY 2008 relative weights and wage indices to aggregate payments using the proposed FY 2009 relative weights and wage indices. The same methodology was used for the FY 2008 budget neutrality adjustment. Based on this comparison, we computed a budget neutrality adjustment factor equal to 0.999580 to be applied to the national standardized amount. As we have done in the past, we also adjusted the Puerto Rico-specific standardized amount for the effect of DRG reclassification and recalibration. We computed a budget neutrality adjustment factor of 0.998795 to be applied to the Puerto Rico-specific standardized amount. These budget neutrality adjustment factors are applied to the standardized amounts for FY 2008 without removing the prior year's budget neutrality adjustments. In addition, as discussed in section IV. of this Addendum, we applied the same DRG reclassification and recalibration budget neutrality factor of 0.998795 to the hospital-specific rates that will be effective for cost reporting periods beginning on or after October 1, 2008. We note that the preceding budget neutrality adjustment factors use pre-reclassified wage indices and are not affected by the implementation of section 124 of Public Law 110–275, therefore, these budget neutrality factors are final and not tentative.
Section 1886(d)(8)(B) of the Act provides that, effective with discharges occurring on or after October 1, 1988, certain rural hospitals are deemed urban. In addition, section 1886(d)(10) of the Act provides for the reclassification of hospitals based on determinations by the MGCRB. Under section 1886(d)(10) of the Act, a hospital may be reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amount 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. We note that the wage index adjustments provided under section 1886(d)(13) of the Act are not budget neutral. Section 1886(d)(13)(H) of the Act provides that any increase in a wage index under section 1886(d)(13) shall not be taken into account “in applying any budget neutrality adjustment with respect to such index” under section 1886(d)(8)(D) of the Act. To calculate the tentative budget neutrality factor for FY 2009, we used FY 2007 discharge data to simulate payments, and compared total IPPS payments prior to any reclassifications under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act to total IPPS payments after such reclassifications. Based on these simulations, we calculated a tentative adjustment factor of 0.991339 to ensure that the effects of these provisions are budget neutral, consistent with the statute.
The tentative adjustment factor is applied to the standardized amount after removing the effects of the FY 2008 budget neutrality adjustment factor. We note that the FY 2009 tentative adjustment reflects FY 2009 wage index reclassifications approved by the MGCRB or the Administrator. (Section 1886(d)(10)(D)(v) of the Act makes wage index reclassifications effective for 3 years. As we note earlier in this final rule, we have yet to implement section 124 of Public Law 110–275. Therefore, we will calculate the final budget neutrality adjustments for geographic reclassification subsequent to this final rule, but prior to October 1, 2008, and will make this information available with the wage indices and final IPPS rates.
As discussed in the preamble in section III.B.2.b. of the preamble of this final rule, we are adopting as final our proposal for State level budget neutrality for the rural and imputed floors in this rule, to be effective beginning with the FY 2009 wage index. However, in response to the public's concerns and taking into account the potentially significant payment cuts that could occur to hospitals in some States if we implement this change with no transition, we have decided to phase in, over a 3-year period, the transition from the national rural floor budget neutrality adjustment on the wage index to the State level rural floor budget neutrality adjustment on the wage index. In FY 2009, hospitals will receive a blended wage index that is comprised of 20 percent of the wage index adjusted by applying the State level rural and imputed floor budget neutrality adjustment and 80 percent of the wage index adjusted by applying the national budget neutrality adjustment. In FY 2010, the blended wage index will be determined by adding 50 percent of the wage index adjusted by applying the State level budget neutrality adjustment and 50 percent of the wage index adjusted by applying the national budget neutrality adjustment. In FY 2011, the adjustment will be completely transitioned to the State level methodology, such that the wage index will be determined by applying 100 percent of the State level budget
In order to compute a budget neutral wage index that is a blend of 20 percent of the wage index adjusted by the State level rural and imputed floor budget neutrality adjustment and 80 percent of the index adjusted by the national rural and imputed floor budget neutrality adjustment, similar to our calculation of the FY 2008 wage index (72 FR 47329), we used FY 2007 discharge data and FY 2009 wage indices to simulate IPPS payments. First, we compared the national simulated payments without the rural and imputed floors applied to national simulated payments with the rural and imputed floors applied to determine the national rural and imputed floor budget neutrality adjustment factor of 0.996355. This national adjustment was then applied to the wage indices to produce a national rural and imputed floor budget neutral wage index, which was used in determining the FY 2009 blended wage indices for the first year of the transition (as described below). We then used the same methodology to determine each State's rural or imputed floor budget neutrality adjustment by comparing each State's total simulated payments with and without the rural or imputed floor applied. These State level rural and imputed floor budget neutrality factors were then applied to the wage indices to produce a State level rural and imputed floor budget neutral wage index, which was used in determining the FY 2009 blended wage indices for the first year of the transition (as described below). (As noted above, the final adjustment factors used for each state will be published in a forthcoming notice in the
To determine the FY 2009 wage indices for the first year of the transition, we then blended the national and State level wage index values (computed above) by taking 80 percent of the national rural and imputed floor budget neutral wage index and 20 percent of the State level rural and imputed floor budget neutral wage index. Because of interactive effects between the payment factors applied under the IPPS and/or rounding issues, the blended wage index calculated above does not necessarily result in overall budget neutrality. That is, aggregate IPPS payments simulated using the blended budget neutral wage index may not be equal to aggregate IPPS payments simulated using the wage index prior to the application of the rural and imputed floors. Therefore, in order to ensure that national payments overall remain budget neutral after application of the rural and imputed floor, an additional adjustment factor of 0.999923 must be applied to the blended wage indexes calculated as described above. We note that, because we have yet to determine the final geographic wage index reclassifications as a result of Public Law 110–275, we will publish the final rural floor budget neutrality adjustment factors in a subsequent notice in the
As stated earlier, beginning in FY 2008, we adopted the new MS–DRG patient classification system for the IPPS to better recognize severity of illness in Medicare payment rates. In the FY 2008 IPPS final rule with comment period, we indicated that we believe the adoption of the MS–DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for improved documentation and coding. In that final rule, using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by adjusting the national standardized amounts to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010. On September 29, 2007, Public Law 110–90 was enacted. Section 7 of Public Law 110–90 included a provision that reduces the documentation and coding adjustment for the MS–DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. To comply with the provision of section 7 of Public Law 110–90, in a final rule that appeared in the
As discussed in more detail in section II.D. of the preamble of this final rule, in calculating the FY 2008 Puerto Rico standardized amount, we made an inadvertent error and applied the documentation and coding adjustment established using our authority in section 1886(d)(3)(A)(vi) of the Act (which only applies to the national standardized amounts) to the Puerto Rico-specific standardized amount. Therefore, we are correcting this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates. The revised FY 2008 Puerto Rico-specific operating standardized amounts are: $1,471.10 labor share and $901.64 nonlabor share for a hospital with a wage index greater than 1; and $1,392.80 labor share and $979.94 nonlabor share for a hospital with a wage index less than or equal to 1. The revised FY 2008 Puerto Rico capital payment rate is $202.89. These revised rates are effective October 1, 2007, for FY 2008. As discussed in section II.D. of the preamble of this final rule, we are not applying the documentation and coding adjustment to the Puerto Rico-specific standardized amount for FY 2009, but we may consider doing so for the FY 2010 Puerto Rico-specific standardized amount in the FY 2010 rulemaking. In calculating the FY 2009 Puerto Rico-specific standardized amount for this final rule, we have removed the −0.6 percent documentation and coding adjustment that was inadvertently applied to the FY 2008 Puerto Rico-specific standardized amount.
We note that the implementation of Section 124 of Public Law 110–275 will have no affect on the document and coding adjustment factor. Therefore, the document and coding adjustment factor is final and not tentative.
Section 1886(d)(5)(A) of the Act provides for payments in addition to the basic prospective payments for “outlier” cases involving extraordinarily high costs. To qualify for outlier payments, a case must have costs greater than the sum of the prospective payment rate for the DRG, any IME and DSH payments, any new technology add-on payments, and the “outlier threshold” or “fixed loss” amount (a dollar amount by which the costs of a case must exceed payments in order to qualify for an outlier payment). We refer to the sum of the prospective payment rate for the DRG, any IME and DSH payments, any new technology add-on payments, and the outlier threshold as the outlier “fixed-loss cost threshold.” To determine whether the costs of a case exceed the fixed-loss cost threshold, a hospital's CCR is applied to the total covered charges for the case to convert the charges to estimated costs. Payments for eligible cases are then made based on a marginal cost factor, which is a percentage of the estimated costs above the fixed-loss cost threshold. The marginal cost factor for FY 2009 is 80 percent, the same marginal cost factor we have used since FY 1995 (59 FR 45367).
In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier payments for any year are projected to be not less than 5 percent nor more than 6 percent of total operating DRG payments plus outlier payments. Section 1886(d)(3)(B) of the Act requires the Secretary to reduce the average standardized amount by a factor to account for the estimated proportion of total DRG payments made to outlier cases. Similarly, section 1886(d)(9)(B)(iv) of the Act requires the Secretary to reduce the average standardized amount applicable to hospitals located in Puerto Rico to account for the estimated proportion of total DRG payments made to outlier cases. More information on outlier payments may be found on the CMS
As stated above, some of the wage index tables, rates, and impacts will not be final in this final rule because we have not implemented section 124 of Public Law 110–275. Therefore, we are only able to provide tentative standardized amounts, relative weights, offsets, and budget neutrality factors in this final rule. The same circumstances apply to the outlier threshold. Without final wage index data, final standardized amounts, final offsets and final budget neutrality factors, we are only able to provide a tentative fixed loss outlier threshold in this final rule. Subsequent to this final rule, we will publish a final fixed-loss outlier threshold that will be effective for discharges on and after October 1, 2008, for FY 2009. However, in this final rule, we are adopting as final the methodology we will use to calculate the final outlier fixed-loss cost threshold.
For FY 2009, we proposed to continue to use the same methodology used for FY 2008 (72 FR 47417) to calculate the outlier threshold. Similar to the methodology used in the FY 2008 final rule with comment period, for FY 2009, we proposed to apply an adjustment factor to the CCRs to account for cost and charge inflation (as explained below). As we have done in the past, to calculate the proposed FY 2009 outlier threshold, we simulated payments by applying FY 2009 rates and policies using cases from the FY 2007 MedPAR files. Therefore, in order to determine the proposed FY 2009 outlier threshold, we inflate the charges on the MedPAR claims by 2 years, from FY 2007 to FY 2009.
We proposed to continue to use a refined methodology that takes into account the lower inflation in hospital charges that are occurring as a result of the outlier final rule (68 FR 34494), which changed our methodology for determining outlier payments by implementing the use of more current CCRs. Our refined methodology uses more recent data that reflect the rate-of-change in hospital charges under the new outlier policy.
Using the most recent data available, we calculated the 1-year average annualized rate-of-change in charges-per-case from the last quarter of FY 2006 in combination with the first quarter of FY 2007 (July 1, 2006 through December 31, 2006) to the last quarter of FY 2007 in combination with the first quarter of FY 2008 (July 1, 2007 through December 31, 2007). This rate of change was 5.84 percent (1.0585) or 12.03 percent (1.1204) over 2 years.
As we have done in the past, we established the proposed FY 2009 outlier threshold using hospital CCRs from the December 2007 update to the Provider-Specific File (PSF)—the most recent available data at the time of the proposed rule. This file includes CCRs that reflected implementation of the changes to the policy for determining the applicable CCRs that became effective August 8, 2003 (68 FR 34494).
As discussed in the FY 2007 final rule (71 FR 48150), we worked with the Office of Actuary to derive the methodology described below to develop the CCR adjustment factor. For FY 2009, we proposed to continue to use the same methodology to calculate the CCR adjustment by using the FY 2007 operating cost per discharge increase in combination with the actual FY 2007 operating market basket increase determined by Global Insight, Inc., as well as the charge inflation factor described above to estimate the adjustment to the CCRs. (We note that the FY 2007 actual (otherwise referred to as “final”) operating market basket increase reflects historical data whereas the published FY 2007 operating market basket update factor was based on Global Insight, Inc.'s 2006 second quarter forecast with historical data through the first quarter of 2007.) By using the operating market basket rate-of-increase and the increase in the average cost per discharge from hospital cost reports, we are using two different measures of cost inflation. For FY 2009, we determined the adjustment by taking the percentage increase in the operating costs per discharge from FY 2005 to FY 2006 (1.0538) from the cost report and dividing it by the final operating market basket increase from FY 2006 (1.0420). This operation removes the measure of pure price increase (the market basket) from the percentage increase in operating cost per discharge, leaving the nonprice factors in the cost increase (for example, quantity and changes in the mix of goods and services). We repeated this calculation for 2 prior years to determine the 3-year average of the rate of adjusted change in costs between the operating market basket rate-of-increase and the increase in cost per case from the cost report (FY 2003 to FY 2004 percentage increase of operating costs per discharge of 1.0629 divided by FY 2004 final operating market basket increase of 1.0400, FY 2004 to FY 2005 percentage increase of operating costs per discharge of 1.0565 divided by FY 2005 final operating market basket increase of 1.0430). For FY 2009, we averaged the differentials calculated for FY 2004, FY 2005, and FY 2006, which resulted in a mean ratio of 1.0154. We multiplied the 3-year average of 1.0154 by the FY 2007 final operating market basket percentage increase of 1.0340, which resulted in an operating cost inflation factor of 5.0 percent or 1.05. We then divided the operating cost inflation factor by the 1-year average change in charges (1.058474) and applied an adjustment factor of 0.9920 to the operating CCRs from the PSF.
As stated in the FY 2008 final rule with comment period, we continue to believe it is appropriate to apply only a 1-year adjustment factor to the CCRs. On average, it takes approximately 9 months for fiscal intermediaries (or, if applicable, the MAC) to tentatively settle a cost report from the fiscal year end of a hospital's cost reporting period. The average “age” of hospitals' CCRs from the time the fiscal intermediary or the MAC inserts the CCR in the PSF until the beginning of FY 2008 is approximately 1 year. Therefore, as stated above, we believe a 1-year adjustment factor to the CCRs is appropriate.
We used the same methodology for the capital CCRs and determined the adjustment by taking the percentage increase in the capital costs per discharge from FY 2005 to FY 2006 (1.0462) from the cost report and dividing it by the final capital market basket increase from FY 2006 (1.0090). We repeated this calculation for 2 prior years to determine the 3-year average of the rate of adjusted change in costs between the capital market basket rate-of-increase and the increase in cost per case from the cost report (FY 2003 to FY 2004 percentage increase of capital costs per discharge of 1.0315 divided by FY 2004 final capital market basket increase of 1.0050, FY 2004 to FY 2005 percentage increase of capital costs per discharge of 1.0311 divided by FY 2005 final capital market basket increase of 1.0060). For FY 2009, we averaged the differentials calculated for FY 2004, FY 2005, and FY 2006, which resulted in a mean ratio of 1.0294. We multiplied the 3-year average of 1.0294 by the FY 2007 final capital market basket percentage increase of 1.0120, which resulted in a capital cost inflation factor of 4.17 percent or 1.0417. We then divided the capital cost inflation factor by the 1-year average change in charges (1.058474) and applied an adjustment factor of 0.9842 to the capital CCRs from the PSF. We are using the same charge inflation factor for the capital CCRs that was used for the operating CCRs. The charge inflation factor is based on the overall billed charges. Therefore, we believe it is appropriate to apply the charge factor to both the operating and capital CCRs.
For purposes of estimating the proposed outlier threshold for FY 2009, we assume 3.0 percent case-mix growth in FY 2009 compared with our FY 2007 claims data (that is, a 1.2 percent increase in FY 2008 and an additional 1.8 percent increase in FY 2009). The 3 percent case-mix growth was projected by the Office of the Actuary as the amount case-mix is expected to increase in response to adoption of the MS–DRGs as a result of improvements in documentation and coding that do not reflect real changes in patient severity of illness. It is necessary to take the 3 percent expected case-mix growth into account when calculating the outlier threshold that results in outlier payments being 5.1 percent of total payments for FY 2009. If we did not take this 3 percent projected case-mix growth into account, our estimate of total payments would be too low, and as a result, our estimate of the outlier threshold would be too high. While we assume 3 percent case-mix growth for all hospitals in our outlier threshold calculations, the FY 2009 national standardized amounts used to calculate the outlier threshold reflect the statutorily mandated documentation and coding adjustment of −0.9 percent for FY 2009, on top of the −0.6 percent adjustment for FY 2008.
Using this methodology, we calculated a proposed outlier fixed-loss cost threshold for FY 2009 equal to the prospective payment rate for the DRG, plus any IME and DSH payments, and any add-on payments for new technology, plus $21,025.
With respect to the comment on our methodology used to adjust the CCRs, as we stated in the FY 2008 IPPS final rule with comment period (72 FR 47418), we continue to believe this calculation of an adjustment to the CCRs is more accurate and stable than the commenter's methodology because it takes into account the costs per discharge and the market basket percentage increase when determining a cost adjustment factor. There are times where the market basket and the cost per discharge will be constant, while other times these values will differ from each other, depending on the fiscal year. Therefore, as mentioned above, using the market basket in conjunction with the cost per discharge takes into account two sources that measure potential cost inflation and ensures a more accurate and stable cost adjustment factor. Additionally, we are continuing to use the March update of the PSF for the final rule because the June PSF update will not be ready for use until the end of July, which is beyond the timetable necessary for us to compute the outlier threshold and publish this final rule with comment period by August 1.
Because we are not making any changes to our methodology for this final rule, for FY 2009, we are using the same methodology we proposed to calculate the outlier threshold. We used the blended wage indices (as discussed above) when we simulated payments in our outlier modeling to determine the tentative outlier threshold for FY 2009. Using the most recent data available, we calculated the 1-year average annualized rate-of-change in charges per case from the first quarter of FY 2007 in combination with the second quarter of FY 2007 (October 1, 2006 through March 31, 2007) to the first quarter of FY 2008 in combination with the second quarter of FY 2008 (October 1, 2007 through March 31, 2008). This rate of change was 5.7549 percent (1.057549) or 11.841 percent (1.11841) over 2 years.
As we have done in the past, we established the tentative FY 2009 outlier threshold using hospital CCRs from the March 2008 update to the PSF—the most recent available data at the time of this final rule with comment period. This file includes CCRs that reflected implementation of the changes to the policy for determining the applicable CCRs that became effective August 8, 2003 (68 FR 34494).
For FY 2009, we calculated the CCR adjustment by using the operating cost per discharge increase in combination with the market basket increase determined by Global Insight, Inc., as well as the charge inflation factor described above to estimate the adjustment to the CCRs. We determined the operating CCR adjustment by taking the percentage increase in the operating costs per discharge from FY 2005 to FY 2006 (1.0550) from the cost report and dividing it by the final market basket increase from FY 2006 (1.042). This operation removes the measure of pure price increase (the market basket) from the percentage increase in operating cost per discharge, leaving the non-price factors in the cost increase (that is, quantity and changes in the mix of goods and services) to increase the projected market basket for estimating the future cost increase. We repeated this calculation for 2 prior years to determine the 3-year average of the rate of adjusted change in costs between the market basket rate-of-increase and the increase in cost per case from the cost report (FY 2003 to FY 2004 percentage increase of operating costs per discharge of 1.0622 divided by FY 2004 final market basket increase of 1.040, FY 2004 to FY 2005 percentage increase of operating costs per discharge of 1.0571 divided by FY 2005 final market basket increase of 1.043). For FY 2009, we averaged the differentials calculated for FY 2004, FY 2005, and FY 2006 which resulted in a mean ratio of 1.0158. We multiplied the 3-year average of 1.0158 by the FY 2007 final market basket percentage increase of 1.034, which resulted in an operating cost inflation factor of 5.03 percent or 1.0503. We then divided the operating cost inflation factor by the 1-year average change in charges (1.057549) and applied an adjustment factor of 0.9932 to the operating CCRs from the PSF.
We used the same methodology for the capital CCRs and determined the adjustment by taking the percentage increase in the capital costs per discharge from FY 2005 to FY 2006 (1.0446) from the cost report and dividing it by the final capital market basket increase from FY 2006 (1.0090). We repeated this calculation for 2 prior years to determine the 3-year average of the rate of adjusted change in costs between the capital market basket rate-of-increase and the increase in cost per case from the cost report (FY 2003 to FY 2004 percentage increase of capital costs per discharge of 1.0307 divided by FY 2004 final capital market basket increase of 1.0050, FY 2004 to FY 2005 percentage increase of capital costs per discharge of 1.0324 divided by FY 2005 final capital market basket increase of 1.0060). For FY 2009, we averaged the differentials calculated for FY 2004, FY 2005, and FY 2006, which resulted in a mean ratio of 1.0290. We multiplied the 3-year average of 1.0290 by the FY 2007 final capital market basket percentage increase of 1.0120, which resulted in a capital cost inflation factor of 4.14 percent or 1.0414. We then divided the capital cost inflation factor by the 1-year average change in charges (1.057549) and applied an adjustment factor of 0.9847 to the capital CCRs from the PSF. We are using the same charge inflation factor for the capital CCRs that was used for the operating CCRs. The charge inflation factor is based on the overall billed charges. Therefore, we believe it is appropriate to apply the charge factor to both the operating and capital CCRs.
Similar to the proposed rule, for purposes of estimating the tentative outlier threshold for FY 2009, we assume 3.0 percent case-mix growth in FY 2009 compared with our FY 2007 claims data (that is, a 1.2 percent increase in FY 2008 and an additional 1.8 percent increase in FY 2009). The 3 percent case-mix growth was projected by the Office of the Actuary as the amount case-mix is expected to increase in response to adoption of the MS–DRGs as a result of improvements in documentation and coding that do not reflect real changes in patient severity of illness. It is necessary to take the 3 percent expected case-mix growth into account when calculating the outlier threshold that results in outlier payments being 5.1 percent of total payments for FY 2009. If we did not take this 3 percent projected case-mix growth into account, our estimate of total payments would be too low, and as a result, our estimate of the outlier threshold would be too high. While we assume 3 percent case-mix growth for all hospitals in our tentative outlier threshold calculations, the FY 2009 national standardized amounts used to calculate the outlier threshold reflect the statutorily mandated documentation and coding adjustment of −0.9 percent for FY 2009, on top of the −0.6 percent adjustment for FY 2008.
Using this methodology, we calculated a tentative outlier fixed-loss cost threshold for FY 2009 equal to the prospective payment rate for the DRG, plus any IME and DSH payments, and any add-on payments for new technology, plus $20,185. With this threshold, we project that outlier payments will equal 5.1 percent of total IPPS payments. We note that, in this final rule, we are adopting this methodology to compute the final outlier fixed-loss cost threshold for FY
As we did in establishing the FY 2008 outlier threshold (72 FR 47419), in our projection of FY 2009 outlier payments, we are not making any adjustments for the possibility that hospitals' CCRs and outlier payments may be reconciled upon cost report settlement. We continue to believe that, due to the policy implemented in the outlier final rule (68 FR 34494, June 9, 2003), CCRs will no longer fluctuate significantly and, therefore, few hospitals will actually have these ratios reconciled upon cost report settlement. In addition, it is difficult to predict the specific hospitals that will have CCRs and outlier payments reconciled in any given year. We also noted that reconciliation occurs because hospitals' actual CCRs for the cost reporting period are different than the interim CCRs used to calculate outlier payments when a bill is processed. Our simulations assume that CCRs accurately measure hospital costs based on information available to us at the time we set the outlier threshold. For these reasons, we are not making any assumptions about the effects of reconciliation on the outlier threshold calculation.
We also note that there are some factors that contributed to a lower tentative fixed loss outlier threshold for FY 2009 compared to FY 2008. First, the case-weighted national average operating CCR declined by approximately an additional 1.3 percentage points from the March 2007 update (used to calculate the FY 2008 outlier threshold) to the March 2008 update of the PSF (used to calculate the FY 2009 outlier threshold). In addition, as discussed in sections II.C. and II.H. of the preamble of this final rule, we began a 2-year phase-in of the MS–DRGs in FY 2008, with the DRG relative weights based on a 50 percent blend of the CMS DRGs and MS–DRGs in FY 2008 and based on 100 percent of the MS–DRGs beginning in FY 2009. Better recognition of severity of illnesses with the MS–DRGs means that regular operating IPPS payments will compensate hospitals for the higher costs of some cases that previously received outlier payments. As cases are paid more accurately, in order to meet the 5.1 percent target, we need to decrease the fixed-loss outlier threshold so that more cases qualify for outlier payments. In addition, as noted previously, in our modeling of the tentative outlier threshold, we included a 3-percent adjustment for expected case-mix growth between FY 2007 and FY 2009. Finally, the market basket estimate increased from 3.0 percent in the proposed rule to 3.6 percent for this final rule. Adding an extra 0.6 percent to the standardized amount increases funds to typical cases and requires that we lower the outlier threshold to increase the amount of atypical cases in order to reach the 5.1 percent target. Together, we believe that the above factors cumulatively contributed to a lower tentative fixed-loss outlier threshold in FY 2009 compared to FY 2008.
As stated in the FY 1994 IPPS final rule (58 FR 46348), we establish an outlier threshold that is applicable to both hospital inpatient operating costs and hospital inpatient capital-related costs. When we modeled the combined operating and capital outlier payments, we found that using a common threshold resulted in a lower percentage of outlier payments for capital-related costs than for operating costs. We project that the thresholds for FY 2009 will result in outlier payments that will equal 5.1 percent of operating DRG payments and 5.35 percent of capital payments based on the Federal rate.
In accordance with section 1886(d)(3)(B) of the Act, we are reducing the FY 2009 standardized amount by the same percentage to account for the projected proportion of payments paid as outliers.
The tentative outlier adjustment factors that are applied to the standardized amount for the FY 2009 outlier threshold are as follows:
We are applying the tentative outlier adjustment factors to the tentative FY 2009 rates after removing the effects of the FY 2008 outlier adjustment factors on the standardized amount.
To determine whether a case qualifies for outlier payments, we apply hospital-specific CCRs to the total covered charges for the case. Estimated operating and capital costs for the case are calculated separately by applying separate operating and capital CCRs. These costs are then combined and compared with the outlier fixed-loss cost threshold.
The outlier final rule (68 FR 34494) eliminated the application of the statewide average CCRs for hospitals with CCRs that fell below 3 standard deviations from the national mean CCR. However, for those hospitals for which the fiscal intermediary or MAC computes operating CCRs greater than 1.196 or capital CCRs greater than 0.145, or hospitals for whom the fiscal intermediary or MAC is unable to calculate a CCR (as described at (412.84(i)(3) of our regulations), we still use statewide average CCRs to determine whether a hospital qualifies for outlier payments.
We finally note that we published a manual update (Change Request 3966) to our outlier policy on October 12, 2005, which updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing Manual. The manual update covered an array of topics, including CCRs, reconciliation, and the time value of money. We encourage hospitals that are assigned the statewide average operating
In the proposed rule (73 FR 23711), we discussed that for purposes of estimating the proposed outlier threshold for FY 2009, we assumed 3.0 percent case-mix growth in FY 2009 compared with our FY 2007 claims data (that is, a 1.2 percent increase in FY 2008 and an additional 1.8 percent increase in FY 2009), based on the Office of the Actuary's estimate of the amount that hospitals' case-mix is expected to increase in response to the adoption of the MS–DRGs due to improvements in documentation and coding that do not reflect real changes in patient severity of illness. As discussed above, it is necessary to take the 3 percent expected case-mix growth into account when establishing an outlier threshold for FY 2009 that would result in operating IPPS outlier payments being between 5 and 6 percent of total operating IPPS payments in accordance with section 1886(d)(5)(A)(iv) of the Act. If we did not take this 3 percent projected case-mix growth into account, our estimate of total operating IPPS payments would be too low, and, as a result, our estimate of the outlier threshold for FY 2009 would be too high.
Upon review of our calculations of the proposed FY 2009 outlier fixed-loss amount, we realized that, while we had discussed applying the 3.0 percent expected case-mix increase adjustment, in actuality, we unintentionally neglected to apply the assumed 3.0 percent case-mix growth for FY 2009. We appreciate the commenter bringing this inadvertent error in our outlier calculations to our attention, and we have revised our outlier calculations for this final rule accordingly. As discussed above, in this final rule, based on more recent data and the rates and policies finalized in this final rule, we are establishing a tentative fixed-loss amount for FY 2009 of $20,185. We are projecting that this outlier threshold for FY 2009 will result in outlier payments that will equal 5.1 percent of operating IPPS DRG payments and 5.35 percent of capital IPPS payments based on the Federal rate.
In the FY 2008 IPPS final rule (72 FR 47420), we stated that, based on available data, we estimated that actual FY 2007 outlier payments would be approximately 4.6 percent of actual total DRG payments. This estimate was computed based on simulations using the FY 2006 MedPAR file (discharge data for FY 2006 bills). That is, the estimate of actual outlier payments did not reflect actual FY 2007 bills, but instead reflected the application of FY 2007 rates and policies to available FY 2006 bills.
Our current estimate, using available FY 2007 bills, is that actual outlier payments for FY 2007 were approximately 4.64 percent of actual total DRG payments. Thus, the data indicate that, for FY 2007, the percentage of actual outlier payments relative to actual total payments is lower than we projected before FY 2007. Consistent with the policy and statutory interpretation we have maintained since the inception of the IPPS, we do not plan to make retroactive adjustments to outlier payments to ensure that total outlier payments for FY 2007 are equal to 5.1 percent of total DRG payments.
We currently estimate that actual outlier payments for FY 2008 will be approximately 4.7 percent of actual total DRG payments, 0.4 percentage points lower than the 5.1 percent we projected in setting the outlier policies for FY 2008. This estimate is based on simulations using the FY 2007 MedPAR file (discharge data for FY 2007 bills). We used these data to calculate an estimate of the actual outlier percentage for FY 2008 by applying FY 2008 rates and policies, including an outlier threshold of $22,185 to available FY 2007 bills. We note that the FY 2007 MedPAR file does not contain claims that account for upcoding. As a result, in our simulation of the estimate of the FY 2008 outlier percentage, it was necessary to increase the charges on the claims by 1.2 percent to account for one year of upcoding.
Section 410A of Public Law 108–173 requires the Secretary to establish a demonstration that will modify reimbursement for inpatient services for up to 15 small rural hospitals. Section 410A(c)(2) of Public Law 108–173 requires that “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” As discussed in section IV.H. of the preamble to this final rule with comment period, we have satisfied this requirement by adjusting national IPPS rates by a factor that is sufficient to account for the added costs of this demonstration. We estimate that the average additional annual payment that will be made to each participating hospital under the demonstration will be approximately $1,753,106. We based this estimate on the recent historical experience of the difference between inpatient cost and payment for hospitals that are participating in the demonstration program. For 13 participating hospitals, the total annual impact of the demonstration program for FY 2009 is $22,790,388. The required tentative adjustment to the Federal rate used in calculating Medicare inpatient prospective payments as a result of the demonstration is 0.999764.
In order to achieve budget neutrality, we adjust the tentative national IPPS rates by a tentative amount sufficient to account for the added costs of this demonstration. In other words, we apply budget neutrality across the payment system as a whole rather than merely across the participants of this demonstration, consistent with past practice. We believe that the language of the statutory budget neutrality requirement permits the agency to implement the budget neutrality provision in this manner. The statutory language requires that “aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration * * * was not implemented,” but does not identify the range across which aggregate payments must be held equal.
The tentative adjusted standardized amount is divided into labor-related and nonlabor-related portions. Tables 1A and 1B of this Addendum contain the tentative national standardized amounts that we are applying to all hospitals, except hospitals located in Puerto Rico, for FY 2009. The tentative Puerto Rico-specific amounts are shown in Table 1C of this Addendum. The tentative amounts shown in Tables 1A and
In addition, Tables 1A and 1B include tentative standardized amounts reflecting the full 3.6 percent update for FY 2009, and tentative standardized amounts reflecting the 2.0 percentage point reduction to the update (a 1.6 percent update) applicable for hospitals that fail to submit quality data consistent with section 1886(b)(3)(B)(viii) of the Act.
Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto Rico payment rate is based on the discharge-weighted average of the national large urban standardized amount (this amount is set forth in Table 1A). The tentative labor-related and nonlabor-related portions of the national average standardized amounts for Puerto Rico hospitals for FY 2009 are set forth in Table 1C of this Addendum. This table also includes the tentative Puerto Rico standardized amounts. The labor-related share applied to the tentative Puerto Rico specific standardized amount is 58.7 percent, or 62 percent, depending on which provides higher payments to the hospital. (Section 1886(d)(9)(C)(iv) of the Act, as amended by section 403(b) of Public Law 108–173, provides that the labor-related share for hospitals located in Puerto Rico be 62 percent, unless the application of that percentage would result in lower payments to the hospital.)
We note that, in this final rule, we are not supplying a table that illustrates the changes from the FY 2008 national average standardized amount. Because we are only setting the standardized amounts tentatively, we do not believe it is appropriate to include this table in this final rule. However, we will publish a table in the subsequent notice to this final rule that details the calculation of the final standardized amounts.
Tables 1A through 1C, as set forth in this Addendum, contain the tentative labor-related and nonlabor-related shares that we used to calculate the prospective payment rates for hospitals located in the 50 States, the District of Columbia, and Puerto Rico for FY 2009. This section addresses two types of adjustments to the tentative standardized amounts that were made in determining the prospective payment rates as described in this Addendum.
Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require that we make an adjustment to the labor-related portion of the national and Puerto Rico prospective payment rates, respectively, to account for area differences in hospital wage levels. This adjustment is made by multiplying the labor-related portion of the adjusted standardized amounts by the appropriate wage index for the area in which the hospital is located. In section III. of the preamble to this final rule, we discuss the data and methodology for the FY 2009 wage index. We note that because we have not implemented section 124 of Public Law 110–275, we will not be publishing Tables 4A, 4B, 4C, 4D–1, 4D–2, 4E, and 4F in this final rule. However, we will publish these tables in a subsequent
Section 1886(d)(5)(H) of the Act authorizes the Secretary to make an adjustment to take into account the unique circumstances of hospitals in Alaska and Hawaii. Higher labor-related costs for these two States are taken into account in the adjustment for area wages described above. For FY 2009, we adjusted the payments for hospitals in Alaska and Hawaii by multiplying the nonlabor-related portion of the standardized amount by the applicable adjustment factor contained in the table below.
As discussed in section II.H. of the preamble of this final rule, we have developed relative weights for each MS–DRG that reflect the resource utilization of cases in each MS–DRG relative to Medicare cases in other MS–DRGs. Table 5 of this Addendum contains the relative weights that we will apply to discharges occurring in FY 2009. These factors have been recalibrated as explained in section II. of the preamble of this final rule.
General Formula for Calculation of the Prospective Payment Rates for FY 2009.
In general, the operating prospective payment rate for all hospitals paid under the IPPS located outside of Puerto Rico, except SCHs and MDHs, for FY 2009 equals the Federal rate.
Currently, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: The Federal national rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge. For cost reporting periods beginning on or after January 1, 2009, section 124 of Public Law 110–275 amended section 1886(b)(3) of the Act and added the updated hospital-specific rate based on the FY 2006 costs per discharge to determine the rate that yields the greatest aggregate payment. This provision is discussed in detail in section IV.D.2. of the preamble of this final rule.
The prospective payment rate for SCHs for FY 2009 equals the higher of the applicable Federal rate, or the hospital-specific rate as described below. The prospective payment rate for MDHs for FY 2009 equals the higher of the Federal rate, or the Federal rate plus 75 percent of the difference between the Federal rate and the hospital-specific rate as described below. The prospective payment rate for hospitals located in Puerto Rico for FY 2009 equals 25 percent of the Puerto Rico rate plus 75 percent of the applicable national rate.
The Federal rate is determined as follows:
The Federal rate as determined in Step 5 is then further adjusted if the hospital qualifies for either the IME or DSH adjustment. In addition, for hospitals that qualify for a low-volume payment adjustment under section 1886(d)(12) of the Act and 42 CFR 412.101(b), the payment in Step 5 is increased by 25 percent.
Section 1886(b)(3)(C) of the Act provides that for cost reporting periods beginning prior to January 1, 2009, 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; or the updated hospital-specific rate based on FY 1996 costs per discharge. As discussed above, for cost reporting periods beginning on or after January 1, 2009, section 124 of Public Law 110–275 amended section 1886(b)(3) of the Act and added the updated hospital-specific rate based on the FY 2006 costs per discharge to determine the rate that yields the greatest aggregate payment. We refer readers to section IV.D.2. of the preamble of this final rule for further discussion of this provision.
As discussed previously, we are required to rebase MDHs hospital-specific rates to their FY 2002 cost reports if doing so results in higher payments. In addition, effective for discharges occurring on or after October 1, 2006, MDHs are to be paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent (changed from 50 percent) of the difference between the Federal national rate and the greater of the updated hospital-specific rates based on either FY 1982, FY 1987 or FY 2002 costs per discharge. Further, MDHs are no longer subject to the 12-percent cap on their DSH payment adjustment factor.
Hospital-specific rates have been determined for each of these hospitals based on the FY 1982 costs per discharge, the FY 1987 costs per discharge, or, for SCHs, the FY 1996 costs per discharge and for MDHs, the FY 2002 cost per discharge. For a more detailed discussion of the calculation of the hospital-specific rates, we refer the reader to the FY 1984 IPPS interim final rule (48 FR 39772); the April 20, 1990, final rule with comment (55 FR 15150); the FY 1991 IPPS final rule (55 FR 35994); and the FY 2001 IPPS final rule (65 FR 47082). In addition, for both SCHs and MDHs, the hospital-specific rate is adjusted by the budget neutrality adjustment factor as discussed in section III. of this Addendum. The resulting rate is used in determining the payment rate an SCH or MDH will receive for its discharges beginning on or after October 1, 2008.
We are increasing the hospital-specific rates by 3.6 percent (the hospital market basket percentage increase) for FY 2009 for those SCHs and MDHs that submit qualifying quality data and by 1.6 percent for SCHs and MDHs that fail to submit qualifying quality data. Section 1886(b)(3)(C)(iv) of the Act provides that the update factor applicable to the hospital-specific rates for SCHs is equal to the update factor provided under section 1886(b)(3)(B)(iv) of the Act, which, for SCHs in FY 2008, is the market basket rate-of-increase for hospitals that submit qualifying quality data and the market basket rate-of-increase minus 2 percent for hospitals that fail to submit qualifying quality data. Section 1886(b)(3)(D) of the Act provides that the update factor applicable to the hospital-specific rates for MDHs also equals the update factor provided for under section 1886(b)(3)(B)(iv) of the Act, which, for FY 2009, is the market basket rate-of-increase for hospitals that submit qualifying quality data and the market basket rate-of-increase minus 2 percent for hospitals that fail to submit qualifying quality data.
Section 1886(d)(9)(E)(iv) of the Act provides that, effective for discharges occurring on or after October 1, 2004, hospitals located in Puerto Rico are paid based on a blend of 75 percent of the national prospective payment rate and 25 percent of the Puerto Rico-specific rate.
The Puerto Rico prospective payment rate is determined as follows:
The national prospective payment rate is determined as follows:
The sum of the Puerto Rico rate and the national rate computed above equals the prospective payment for a given discharge for a hospital located in Puerto Rico. This rate is then further adjusted if the hospital qualifies for either the IME or DSH adjustment.
The PPS for acute care hospital inpatient capital-related costs was implemented for cost reporting periods beginning on or after October 1, 1991. Effective with that cost reporting period, hospitals were paid during a 10-year transition period (which extended through FY 2001) to change the payment methodology for Medicare acute care hospital inpatient capital-related costs from a reasonable cost-based methodology to a prospective methodology (based fully on the Federal rate).
The basic methodology for determining Federal capital prospective rates is set forth in the regulations at 42 CFR 412.308 through 412.352. Below we discuss the factors that we used to determine the capital Federal rate for FY 2009, which will be effective for discharges occurring on or after October 1, 2008. We note that, as discussed in detail in section III.I. of the preamble of this final rule, section 124 of newly enacted Public Law 110–275 extends, through FY 2009, wage index reclassifications under section 508 of Public Law 108–173 (the MMA) and the special exceptions contained in the final rule published in the
The 10-year transition period ended with hospital cost reporting periods beginning on or after October 1, 2001 (FY 2002). Therefore, for cost reporting periods beginning in FY 2002, all hospitals (except “new” hospitals under § 412.304(c)(2)) are paid based on the capital Federal rate. For FY 1992, we computed the standard Federal payment rate for capital-related costs under the IPPS by updating the FY 1989 Medicare inpatient capital cost per case by an actuarial estimate of the increase in Medicare inpatient capital costs per case. Each year after FY 1992, we update the capital standard Federal rate, as provided at § 412.308(c)(1), to account for capital input price increases and other factors. The regulations at § 412.308(c)(2) provide that the capital Federal rate be adjusted annually by a factor equal to the estimated proportion of outlier payments under the capital Federal rate to total capital payments under the capital Federal rate. In addition, § 412.308(c)(3) requires that the capital Federal rate be reduced by an adjustment factor equal to the estimated proportion of payments for (regular and special) exceptions under § 412.348. Section 412.308(c)(4)(ii) requires that the capital standard Federal rate be adjusted so that the effects of the annual DRG reclassification and the recalibration of DRG weights and changes in the geographic adjustment factor (GAF) are budget neutral.
For FYs 1992 through 1995, § 412.352 required that the capital Federal rate also be adjusted by a budget neutrality factor so that aggregate payments for inpatient hospital
To determine the appropriate budget neutrality adjustment factor and the regular exceptions payment adjustment during the 10-year transition period, we developed a dynamic model of Medicare inpatient capital-related costs; that is, a model that projected changes in Medicare inpatient capital-related costs over time. With the expiration of the budget neutrality provision, the capital cost model was only used to estimate the regular exceptions payment adjustment and other factors during the transition period. As we explained in the FY 2002 IPPS final rule (66 FR 39911), beginning in FY 2002, an adjustment for regular exception payments is no longer necessary because regular exception payments were only made for cost reporting periods beginning on or after October 1, 1991, and before October 1, 2001 (see § 412.348(b)). Because payments are no longer made under the regular exception policy effective with cost reporting periods beginning in FY 2002, we discontinued use of the capital cost model. The capital cost model and its application during the transition period are described in Appendix B of the FY 2002 IPPS final rule (66 FR 40099).
Section 412.374 provides for blended payments to hospitals located in Puerto Rico under the IPPS for acute care hospital inpatient capital-related costs. Accordingly, under the capital PPS, we compute a separate payment rate specific to hospitals located in Puerto Rico using the same methodology used to compute the national Federal rate for capital-related costs. In accordance with section 1886(d)(9)(A) of the Act, under the IPPS for acute care hospital operating costs, hospitals located in Puerto Rico are paid for operating costs under a special payment formula. Prior to FY 1998, hospitals located in Puerto Rico were paid a blended operating rate that consisted of 75 percent of the applicable standardized amount specific to Puerto Rico hospitals and 25 percent of the applicable national average standardized amount. Similarly, prior to FY 1998, hospitals located in Puerto Rico were paid a blended capital rate that consisted of 75 percent of the applicable capital Puerto Rico-specific rate and 25 percent of the applicable capital Federal rate. However, effective October 1, 1997, in accordance with section 4406 of Public Law 105–33, the methodology for operating payments made to hospitals located in Puerto Rico under the IPPS was revised to make payments based on a blend of 50 percent of the applicable standardized amount specific to Puerto Rico hospitals and 50 percent of the applicable national average standardized amount. In conjunction with this change to the operating blend percentage, effective with discharges occurring on or after October 1, 1997, we also revised the methodology for computing capital payments to hospitals located in Puerto Rico to be based on a blend of 50 percent of the Puerto Rico capital rate and 50 percent of the national capital Federal rate.
As we discussed in the FY 2005 IPPS final rule (69 FR 49185), section 504 of Public Law 108–173 increased the national portion of the operating IPPS payments for hospitals located in Puerto Rico from 50 percent to 62.5 percent and decreased the Puerto Rico portion of the operating IPPS payments from 50 percent to 37.5 percent for discharges occurring on or after April 1, 2004 through September 30, 2004 (see the March 26, 2004 One-Time Notification (Change Request 3158)). In addition, section 504 of Public Law 108–173 provided that the national portion of operating IPPS payments for hospitals located in Puerto Rico is equal to 75 percent and the Puerto Rico-specific portion of operating IPPS payments is equal to 25 percent for discharges occurring on or after October 1, 2004. Consistent with that change in operating IPPS payments to hospitals located in Puerto Rico, for FY 2005 (as we discussed in the FY 2005 IPPS final rule), we revised the methodology for computing capital payments to hospitals located in Puerto Rico to be based on a blend of 25 percent of the Puerto Rico-specific capital rate and 75 percent of the national capital Federal rate for discharges occurring on or after October 1, 2004.
In the FY 2008 IPPS final rule with comment period (72 FR 66886 through 66888), we established a capital Federal rate of $426.14 for FY 2008. In the FY 2009 IPPS proposed rule (73 FR 23720), we proposed to establish a capital Federal rate of $421.29 for FY 2009. In the discussion that follows, we explain the factors that we used to determine the FY 2009 capital Federal rate in this final rule. In particular, we explain why the FY 2009 capital Federal rate will decrease approximately 0.51 percent, compared to the FY 2008 capital Federal rate. However, taking into account an estimated increase in Medicare fee-for-service discharges in FY 2009 as compared to FY 2008, as well as the estimated increase in payments due to documentation and coding (discussed in section VIII. of Appendix A to this final rule), we estimate that aggregate capital payments will increase during this same period (approximately $40 million). Total payments to hospitals under the IPPS are relatively unaffected by changes in the capital prospective payments. Because capital payments constitute about 10 percent of hospital payments, a 1-percent change in the capital Federal rate yields only about a 0.1 percent change in actual payments to hospitals. As noted above, aggregate payments under the capital IPPS are projected to increase in FY 2009 compared to FY 2008.
Under § 412.308(c)(1), the capital standard Federal rate is updated on the basis of an analytical framework that takes into account changes in a capital input price index (CIPI) and several other policy adjustment factors. Specifically, we have adjusted the projected CIPI rate-of-increase as appropriate each year for case-mix index-related changes, for intensity, and for errors in previous CIPI forecasts. The update factor for FY 2009 under that framework is 0.9 percent based on the best data available at this time. The update factor under that framework is based on a projected 1.4 percent increase in the CIPI, a 0.0 percent adjustment for intensity, a 0.0 percent adjustment for case-mix, a −0.5 percent adjustment for the FY 2007 DRG reclassification and recalibration, and a forecast error correction of 0.0 percent. As discussed below in section III.C. of the Addendum to this final rule, we continue to believe that the CIPI is the most appropriate input price index for capital costs to measure capital price changes in a given year. We also explain the basis for the FY 2009 CIPI projection in that same section of this Addendum. In addition, as also noted below, the capital rates will be further adjusted to account for documentation and coding improvements under the MS–DRGs discussed in section II.D. of the preamble of this final rule. Below we describe the policy adjustments that we are applying in the update framework for FY 2009 presented in this final rule.
The case-mix index is the measure of the average DRG weight for cases paid under the IPPS. Because the DRG weight determines the prospective payment for each case, any percentage increase in the case-mix index corresponds to an equal percentage increase in hospital payments.
The case-mix index can change for any of several reasons:
• The average resource use of Medicare patients changes (“real” case-mix change);
• Changes in hospital coding of patient records result in higher weight DRG assignments (“coding effects”); and
• The annual DRG reclassification and recalibration changes may not be budget neutral (“reclassification effect”).
We define real case-mix change as actual changes in the mix (and resource requirements) of Medicare patients as opposed to changes in coding behavior that result in assignment of cases to higher
Absent the projected increase in case-mix resulting from documentation and coding improvements under the adoption of the MS–DRGs, as we presented in the proposed rule, for FY 2009, we are projecting a 1.0 percent total increase in the case-mix index. We estimate that the real case-mix increase will also equal 1.0 percent for FY 2009. The net adjustment for change in case-mix is the difference between the projected real increase in case-mix and the projected total increase in case-mix. Therefore, as we proposed, the net adjustment for case-mix change in FY 2009 is 0.0 percentage points.
The capital update framework also contains an adjustment for the effects of DRG reclassification and recalibration. This adjustment is intended to remove the effect on total payments of prior year's changes to the DRG classifications and relative weights, in order to retain budget neutrality for all case-mix index-related changes other than those due to patient severity. Due to the lag time in the availability of data, there is a 2-year lag in data used to determine the adjustment for the effects of DRG reclassification and recalibration. For example, we are adjusting for the effects of the FY 2007 DRG reclassification and recalibration as part of our update for FY 2009. As we presented in the proposed rule, we estimate that FY 2007 DRG reclassification and recalibration resulted in a 0.5 percent change in the case-mix when compared with the case-mix index that would have resulted if we had not made the reclassification and recalibration changes to the DRGs. Therefore, as we proposed, we are making a −0.5 percent adjustment for DRG reclassification in the update for FY 2009 to maintain budget neutrality.
The capital update framework also contains an adjustment for forecast error. The input price index forecast is based on historical trends and relationships ascertainable at the time the update factor is established for the upcoming year. In any given year, there may be unanticipated price fluctuations that may result in differences between the actual increase in prices and the forecast used in calculating the update factors. In setting a prospective payment rate under the framework, we make an adjustment for forecast error only if our estimate of the change in the capital input price index for any year is off by 0.25 percentage points or more. There is a 2-year lag between the forecast and the availability of data to develop a measurement of the forecast error. A forecast error of 0.10 percentage point was calculated for the FY 2007 update. That is, current historical data indicate that the forecasted FY 2007 CIPI (1.1 percent) used in calculating the FY 2007 update factor slightly understated the actual realized price increases (1.2 percent) by 0.1 percentage point. This slight underprediction was mostly due to the incorporation of newly available source data for fixed asset prices and moveable asset prices into the market basket. However, because this estimation of the change in the CIPI is less than 0.25 percentage points, it is not reflected in the update recommended under this framework. Therefore, as we proposed, we are making a 0.0 percent adjustment for forecast error in the update for FY 2009.
Under the capital IPPS update framework, we also make an adjustment for changes in intensity. We calculate this adjustment using the same methodology and data that were used in the past under the framework for operating IPPS. The intensity factor for the operating update framework reflects how hospital services are utilized to produce the final product, that is, the discharge. This component accounts for changes in the use of quality-enhancing services, for changes within DRG severity, and for expected modification of practice patterns to remove noncost-effective services.
We calculate case-mix constant intensity as the change in total charges per admission, adjusted for price level changes (the CPI for hospital and related services) and changes in real case-mix. The use of total charges in the calculation of the intensity factor makes it a total intensity factor; that is, charges for capital services are already built into the calculation of the factor. Therefore, we have incorporated the intensity adjustment from the operating update framework into the capital update framework. Without reliable estimates of the proportions of the overall annual intensity increases that are due, respectively, to ineffective practice patterns and the combination of quality-enhancing new technologies and complexity within the DRG system, we assume that one-half of the annual increase is due to each of these factors. The capital update framework thus provides an add-on to the input price index rate of increase of one-half of the estimated annual increase in intensity, to allow for increases within DRG severity and the adoption of quality-enhancing technology.
We have developed a Medicare-specific intensity measure based on a 5-year average. Past studies of case-mix change by the RAND Corporation (
We calculate case-mix constant intensity as the change in total charges per admission, adjusted for price level changes (the CPI for hospital and related services), and changes in real case-mix. As we noted above, in accordance with § 412.308(c)(1)(ii), we began updating the capital standard Federal rate in FY 1996 using an update framework that takes into account, among other things, allowable changes in the intensity of hospital services. For FYs 1996 through 2001, we found that case-mix constant intensity was declining, and we established a 0.0 percent adjustment for intensity in each of those years. For FYs 2002 and 2003, we found that case-mix constant intensity was increasing, and we established a 0.3 percent adjustment and 1.0 percent adjustment for intensity, respectively. For FYs 2004 and 2005, we found that the charge data appeared to be skewed (as discussed in greater detail below), and we established a 0.0 percent adjustment in each of those years. Furthermore, we stated that we would continue to apply a 0.0 percent adjustment for intensity until any increase in charges can be tied to intensity rather than attempts to maximize outlier payments.
As noted above, our intensity measure is based on a 5-year average, and therefore, as we explained in the proposed rule, the intensity adjustment for FY 2009 is based on data from the 5-year period beginning with FY 2003 and extending through FY 2007. There continues to be a substantial increase in hospital charges for 3 of those 5 years without a corresponding increase in the hospital case-mix index. Most dramatically, for FY 2003, the change in hospitals' charges is over 16 percent, which is reflective of the large increases in charges that we found in the 4 years prior to FY 2003 and before our revisions to the outlier policy in 2003 (discussed below). For FY 2004 and FY 2005, the change in hospitals' charges is somewhat lower in comparison to FY 2003, but is still significantly large. For FY 2006 and FY 2007, the change in hospitals' charges appears to be slightly moderating. However, the change in hospitals' charges for FYs 2003 and 2004 and to a somewhat lesser extent FY 2005 remains similar to the considerable increase in hospitals' charges that we found when examining hospitals' charge data in determining the intensity factor in the update recommendations for the past few years, as discussed in the FY 2004 IPPS final rule (68 FR 45482), the FY 2005 IPPS final rule (69 FR 49285), the FY 2006 IPPS final rule (70 FR 47500), the FY 2007 IPPS final rule (72 FR 47500), and the FY 2008 IPPS final rule with comment period (72 FR 47426). If hospitals were treating new or different types of cases, which would result in an appropriate increase in charges per discharge, then we would expect hospitals' case-mix to increase proportionally. As we discussed most recently in the FY 2008 IPPS final rule with comment period (72 FR 47426), because our intensity calculation relies heavily upon charge data and we believe that these charge data may be inappropriately skewed, we established a 0.0 percent adjustment for intensity for FY 2008 just as we did for FYs 2004 through 2007.
On June 9, 2003, we published in the
Therefore, as we proposed, we are making a 0.0 percent adjustment for intensity for FY 2009. In the past (FYs 1996 through 2001) when we found intensity to be declining, we believed a zero (rather than negative) intensity adjustment was appropriate. Similarly, we believe that it is appropriate to apply a zero intensity adjustment for FY 2009 until any increase in charges during the 5-year period upon which the intensity adjustment is based can be tied to intensity rather than to attempts to maximize outlier payments.
Above, we described the basis of the components used to develop the 0.9 percent capital update factor under the capital update framework for FY 2009 as shown in the table below.
In its March 2008 Report to Congress, MedPAC did not make a specific update recommendation for capital IPPS payments for FY 2009. However, in that same report, in assessing the adequacy of current payments and costs, MedPAC recommended an update to the hospital inpatient and outpatient PPS rates equal to the increase in the hospital market basket in FY 2009, concurrent with a quality incentive program. (MedPAC's Report to the Congress: Medicare Payment Policy, March 2008, Section 2A).
Section 412.312(c) establishes a unified outlier payment methodology for inpatient operating and inpatient capital-related costs. A single set of thresholds is used to identify outlier cases for both inpatient operating and inpatient capital-related payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient capital-related costs be reduced by an adjustment factor equal to the estimated proportion of capital-related outlier payments to total inpatient capital-related PPS payments. The outlier thresholds are set so that operating outlier payments are projected to be 5.1 percent of total operating IPPS DRG payments.
In the FY 2008 IPPS final rule with comment (72 FR 66887), we estimated that outlier payments for capital will equal 4.77 percent of inpatient capital-related payments based on the capital Federal rate in FY 2008. Based on the thresholds as set forth in section II.A. of this Addendum, we estimate that outlier payments for capital-related costs will equal 5.35 percent for inpatient capital-related payments based on the capital Federal rate in FY 2009. Therefore, we are applying an outlier adjustment factor of 0.9465 to the capital Federal rate. Thus, we estimate that the percentage of capital outlier payments to total capital standard payments for FY 2009 will be higher than the percentages for FY 2008. This increase is primarily due to the decrease to the fixed-loss amount, which is discussed in section II.A. of this Addendum.
The outlier reduction factors are not built permanently into the capital rates; that is, they are not applied cumulatively in determining the capital Federal rate. The FY 2009 outlier adjustment of 0.9465 is a −0.61 percent change from the FY 2008 outlier adjustment of 0.9523. Therefore, the net change in the outlier adjustment to the capital Federal rate for FY 2009 is 0.9939 (0.9465/0.9523). Thus, the outlier adjustment decreases the FY 2009 capital Federal rate by 0.61 percent compared with the FY 2008 outlier adjustment.
Section 412.308(c)(4)(ii) requires that the capital Federal rate be adjusted so that aggregate payments for the fiscal year based on the capital Federal rate after any changes resulting from the annual DRG reclassification and recalibration and changes in the GAF are projected to equal aggregate payments that would have been made on the basis of the capital Federal rate without such changes. Because we implemented a separate GAF for Puerto Rico, we apply separate budget neutrality adjustments for the national GAF and the Puerto Rico GAF. We apply the same budget neutrality factor for DRG reclassifications and recalibration nationally and for Puerto Rico. Separate adjustments were unnecessary for FY 1998 and earlier because the GAF for Puerto Rico was implemented in FY 1998.
In the past, we used the actuarial capital cost model (described in Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to estimate the aggregate payments that would have been made on the basis of the capital Federal rate with and without changes in the DRG classifications and weights and in the GAF to compute the adjustment required to maintain budget neutrality for changes in DRG weights and in the GAF. During the transition period, the capital cost model was also used to estimate the regular exception payment adjustment factor. As we explain in section III.A. of this Addendum, beginning in FY 2002, an adjustment for regular exception payments is no longer necessary. Therefore, we will no longer use the capital cost model. Instead, we are using historical data based on hospitals' actual cost experiences to determine the exceptions payment adjustment factor for special exceptions payments.
To determine the factors for FY 2009, we compared (separately for the national capital rate and the Puerto Rico capital rate) estimated aggregate capital Federal rate payments based on the FY 2008 DRG relative weights and the FY 2008 GAF to estimated aggregate capital Federal rate payments based on the FY 2009 relative weights and the FY 2009 GAFs. We established the final FY 2008 budget neutrality factors of 0.9902 for the national capital rate and 0.9955 for the Puerto Rico capital rate. In making the comparison, we set the exceptions reduction factor to 1.00. To achieve budget neutrality for the changes in the national GAFs, based on calculations using updated data, we are applying an incremental budget neutrality adjustment of 1.0016 for FY 2009 to the previous cumulative FY 2008 adjustments of 0.9902, yielding an adjustment of 0.9918, through FY 2009. For the Puerto Rico GAFs, we are applying an incremental budget neutrality adjustment of 1.0010 for FY 2009 to the previous cumulative FY 2008 adjustment of 0.9955, yielding a cumulative adjustment of 0.9965 through FY 2009.
We then compared estimated aggregate capital Federal rate payments based on the FY 2008 DRG relative weights and the FY 2009 GAFs to estimated aggregate capital Federal rate payments based on the cumulative effects of the FY 2009 DRG relative weights and the FY 2009 GAFs. The incremental adjustment for DRG classifications and changes in relative weights is 0.9995 both nationally and for Puerto Rico. The cumulative adjustments for DRG classifications and changes in relative weights and for changes in the GAFs through FY 2009 are 0.9995 both nationally and for Puerto Rico. The cumulative adjustments for DRG classifications and changes in relative weights and for changes in the GAFs through FY 2009 are 0.9912 (calculated with unrounded numbers) nationally and 0.9960 for Puerto Rico. The following table summarizes the adjustment factors for each fiscal year:
The methodology used to determine the recalibration and geographic adjustment factor (DRG/GAF) budget neutrality adjustment is similar to the methodology used in establishing budget neutrality adjustments under the IPPS for operating costs. One difference is that, under the operating IPPS, the budget neutrality adjustments for the effect of geographic reclassifications are determined separately from the effects of other changes in the hospital wage index and the DRG relative weights. Under the capital IPPS, there is a single DRG/GAF budget neutrality adjustment factor (the national capital rate and the Puerto Rico capital rate are determined separately) for changes in the GAF (including geographic reclassification) and the DRG relative weights. In addition, there is no adjustment for the effects that geographic reclassification has on the other payment parameters, such as the payments for DSH or IME.
In the FY 2008 IPPS correction notice (72 FR 57636), we calculated a GAF/DRG budget neutrality factor of 0.9996 for FY
The factor accounts for DRG reclassifications and recalibration and for changes in the GAFs. It also incorporates the effects on the GAFs of FY 2009 geographic reclassification decisions made by the MGCRB compared to FY 2008 decisions. However, it does not account for changes in payments due to changes in the DSH and IME adjustment factors.
Section 412.308(c)(3) of our regulations requires that the capital standard Federal rate be reduced by an adjustment factor equal to the estimated proportion of additional payments for both regular exceptions and special exceptions under § 412.348 relative to total capital PPS payments. In estimating the proportion of regular exception payments to total capital PPS payments during the transition period, we used the actuarial capital cost model originally developed for determining budget neutrality (described in Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to determine the exceptions payment adjustment factor, which was applied to both the Federal and hospital-specific capital rates.
An adjustment for regular exception payments is no longer necessary in determining the FY 2009 capital Federal rate because, in accordance with § 412.348(b), regular exception payments were only made for cost reporting periods beginning on or after October 1, 1991 and before October 1, 2001. Accordingly, as we explained in the FY 2002 IPPS final rule (66 FR 39949), in FY 2002 and subsequent fiscal years, no payments are made under the regular exceptions provision. However, in accordance with § 412.308(c), we still need to compute a budget neutrality adjustment for special exception payments under § 412.348(g). We describe our methodology for determining the exceptions adjustment used in calculating the FY 2008 capital Federal rate below.
Under the special exceptions provision specified at § 412.348(g)(1), eligible hospitals include SCHs, urban hospitals with at least 100 beds that have a disproportionate share percentage of at least 20.2 percent or qualify for DSH payments under § 412.106(c)(2), and hospitals with a combined Medicare and Medicaid inpatient utilization of at least 70 percent. An eligible hospital may receive special exceptions payments if it meets the following criteria: (1) A project need requirement as described at § 412.348(g)(2), which, in the case of certain urban hospitals, includes an excess capacity test as described at § 412.348(g)(4); (2) an age of assets test as described at § 412.348(g)(3); and (3) a project size requirement as described at § 412.348(g)(5).
Based on information compiled from our fiscal intermediaries, six hospitals have qualified for special exceptions payments under § 412.348(g). One of these hospitals closed in May 2005. Because we have cost reports ending in FY 2006 for all five of these hospitals, we calculated the adjustment based on actual cost experience. Using data from cost reports ending in FY 2006 from the March 2008 update of the HCRIS data, we divided the capital special exceptions payment amounts for the five hospitals that qualified for special exceptions by the total capital PPS payment amounts (including special exception payments) for all hospitals. Based on the data from cost reports ending in FY 2006, this ratio is rounded to 0.0001. We also computed the ratio for FY 2005, which rounds to 0.0002, and the ratio for FY 2004, which rounds to 0.0003. Because the ratios are trending downward, we are making an adjustment of 0.0001. Because special exceptions are budget neutral, we are offsetting the capital Federal rate by 0.01 percent for special exceptions payments for FY 2009. Therefore, the exceptions adjustment factor is equal to 0.9999 (1−0.0001) to account for special exceptions payments in FY 2009.
In the FY 2008 IPPS final rule with comment period (72 FR 47430), we estimated that total (special) exceptions payments for FY 2008 would equal 0.03 percent of aggregate payments based on the capital Federal rate. Therefore, we applied an exceptions adjustment factor of 0.9997 (1−0.0003) to determine the FY 2008 capital Federal rate. As we stated above, we estimate that exceptions payments in FY 2009 will equal 0.01 percent of aggregate payments based on the FY 2009 capital Federal rate. Therefore, we are applying an exceptions payment adjustment factor of 0.9999 to the capital Federal rate for FY 2009. The exceptions adjustment factor for FY 2009 is somewhat lower than the factor used in determining the FY 2008 capital Federal rate in the FY 2008 IPPS final rule. The exceptions reduction factors are not built permanently into the capital rates; that is, the factors are not applied cumulatively in determining the capital Federal rate. Therefore, the net change in the exceptions adjustment factor used in determining the FY 2009 capital Federal rate is 1.0002 (0.9999/0.9997).
In the FY 2008 IPPS final rule with comment period (72 FR 66888), we established a capital Federal rate of $426.14 for all hospitals for FY 2008. In the FY 2009 IPPS proposed rule, we proposed an update of 0.7 percent in determining the proposed FY 2009 capital Federal rate. In this final rule, we are establishing an update of 0.09 percent in determining the FY 2009 capital Federal rate. In the proposed rule, under the statutory authority at section 1886(d)(3)(A)(vi) of the Act, and as specified in section 7 of Public Law 110–90, we proposed to make an additional 0.9 percent reduction to the standardized amounts for both capital and operating Federal payment rates in FY 2009.
As we discussed in greater detail in the FY 2008 IPPS final rule with comment period (72 FR 23710), beginning in FY 2008, we adopted the new MS–DRG patient classification system for the IPPS to better recognize severity of illness in Medicare payment rates. In that same final rule, we indicated that we believe the adoption of the MS–DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for improved documentation and coding. Without a documentation and coding adjustment, the changes to MS–DRGs would not be budget neutral. As explained in the same final rule (72 FR 47179), substantial evidence supports our conclusion that the case-mix will increase as a result of adoption of MS–DRGs without corresponding growth in patient severity. We provided evidence
Consequently, we continue to believe it is necessary and appropriate to apply an adjustment to the national capital Federal payment rate for FY 2009 to account for changes in documentation and coding due to the adoption of the MS–DRGs. Therefore, in this final rule, as proposed, the national capital Federal payment rate was determined by applying the 0.9 percent reduction for FY 2009. As discussed in greater detail above in section III.A.1.a. of Addendum to this final rule, in accordance with the analytical framework set forth at § 412.308(c)(1), the update to the capital Federal rate for FY 2009 is 0.9 percent. This analytical update framework takes into account changes in the CIPI and several other policy adjustment factors; however, it does not include the adjustment to account for changes in documentation and coding, which is applied separately in the determination of the FY 2009 capital Federal rate. As discussed in the proposed rule (73 FR 23720 through 23721), although the 0.9 percent reduction is outside the established process for developing the capital Federal payment rate, it nevertheless is a factor in the final prospective payment rate to hospitals for capital-related costs. For that reason, the national capital Federal payment rate in this final rule was determined by applying the 0.9 percent reduction. (As discussed below in section II.A.6.of this Addendum, we are not applying the 0.9 percent reduction in developing the FY 2009 Puerto Rico-specific capital rate.) As a result of the 0.90 percent update and other budget neutrality factors discussed above, we are establishing a capital Federal rate of $423.96 for FY 2009. The capital Federal rate for FY 2009 was calculated as follows:
• The FY 2009 update factor is 1.0090, that is, the update is 0.90 percent.
• The FY 2009 budget neutrality adjustment factor that is applied to the capital standard Federal payment rate for changes in the DRG relative weights and in the GAFs is 1.0010.
• The FY 2009 outlier adjustment factor is 0.9465.
• The FY 2009 (special) exceptions payment adjustment factor is 0.9999.
• The FY 2009 reduction for improvements in documentation and coding under the MS–DRGs is 0.9 percent.
Because the capital Federal rate has already been adjusted for differences in case-mix, wages, cost-of-living, indirect medical education costs, and payments to hospitals serving a disproportionate share of low-income patients, we are not making additional adjustments in the capital standard Federal rate for these factors, other than the budget neutrality factor for changes in the DRG relative weights and the GAFs. As noted above, section 124 of Public Law 110–275 extends, through FY 2009, wage index reclassifications under section 508 of Public Law 108–173 (the MMA) and special exceptions contained in the final rule published in the
We are providing the following chart that shows how each of the factors and adjustments for FY 2009 affected the computation of the tentative FY 2009 capital Federal rate in comparison to the FY 2008 capital Federal rate. The FY 2009 update factor has the effect of increasing the capital Federal rate by 0.90 percent compared to the FY 2008 capital Federal rate. The GAF/DRG budget neutrality factor has the effect of increasing the capital Federal rate by 0.09 percent. The FY 2009 outlier adjustment factor has the effect of decreasing the capital Federal rate by 0.61 percent compared to the FY 2008 capital Federal rate. The FY 2009 exceptions payment adjustment factor has the effect of increasing the capital Federal rate by 0.02 percent. The adjustment for improvements in documentation and coding under the MS–DRGs has the effect of decreasing the FY 2009 capital Federal rate by 0.9 percent as compared to the FY 2008 capital Federal rate. The combined effect of all the changes decreases the capital Federal rate by 0.51 percent compared to the FY 2008 capital Federal rate.
We are also providing the following chart that shows how the tentative final FY 2009 capital Federal rate differs from the proposed FY 2009 capital Federal rates s as presented in the FY 2009 IPPS proposed rule (72 FR 23721).
Section 412.374 provides for the use of a blended payment system for payments to hospitals located in Puerto Rico under the PPS for acute care hospital inpatient capital-related costs. Accordingly, under the capital PPS, we compute a separate payment rate specific to hospitals located in Puerto Rico using the same methodology used to compute the national Federal rate for capital-related costs. Under the broad authority of section 1886(g) of the Act, as discussed in section V. of the preamble of this final rule, beginning with discharges occurring on or after October 1, 2004, capital payments to hospitals located in Puerto Rico are based on a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal rate. The Puerto Rico capital rate is derived from the costs of Puerto Rico hospitals only, while the capital Federal rate is derived from the costs of all acute care hospitals participating in the IPPS (including Puerto Rico).
To adjust hospitals' capital payments for geographic variations in capital costs, we apply a GAF to both portions of the blended capital rate. The GAF is calculated using the operating IPPS wage index, and varies depending on the labor market area or rural area in which the hospital is located. We use the Puerto Rico wage index to determine the GAF for the Puerto Rico part of the capital-blended rate and the national wage index to determine the GAF for the national part of the blended capital rate. Because we implemented a separate GAF for Puerto Rico in FY 1998, we also apply separate budget neutrality adjustments for the national GAF and for the Puerto Rico GAF. However, we apply the same budget neutrality factor for DRG reclassifications and recalibration nationally and for Puerto Rico.
In computing the payment for a particular Puerto Rico hospital, the Puerto Rico portion of the capital rate (25 percent) is multiplied by the Puerto Rico-specific GAF for the labor market area in which the hospital is located, and the national portion of the capital rate (75 percent) is multiplied by the national GAF for the labor market area in which the hospital is located (which is computed from national data for all hospitals in the United States and Puerto Rico). In FY 1998, we implemented a 17.78 percent reduction to the Puerto Rico capital rate as a result of Public Law 105–33. In FY 2003, a small part of that reduction was restored.
As noted above, Puerto Rico hospitals are paid based on 75 percent of the national capital Federal rate and 25 percent of the Puerto Rico-specific capital rate. As discussed in section II.D.3. of the preamble of this final rule, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national operating standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific operating standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act which does not apply to the Puerto-Rico-specific standardized amount. In this final rule, consistent with the correction to the Puerto Rico-specific operating standardized amount for FY 2008 presented in section II.D.3. of the preamble of this final rule, we are correcting this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates. The revised FY 2008 Puerto Rico capital rate, effective October 1, 2007, is $202.89. The statute gives broad authority to the Secretary under section 1886(g) of the Act, with respect to the development of and adjustments to a capital PPS. As we discussed in the proposed rule (73 FR 23721), although we would not be outside the authority of section 1886(g) of the Act in applying the documentation and coding adjustment to the Puerto Rico-specific portion of the capital payment rate, we have historically made changes to the capital PPS consistent with those changes made to the IPPS. Thus, we are removing the documentation and coding adjustment from the FY 2008 Puerto Rico-specific capital rate, consistent with its removal from the Puerto Rico-specific operating standardized amount.
As noted above, capital payments to hospitals located in Puerto Rico are based on a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal rate. As also noted previously, because we implemented a separate GAF for Puerto Rico in FY 1998, we also apply separate budget neutrality adjustments for the national GAF and for the Puerto Rico GAF. However, we apply the same budget neutrality factor for DRG reclassifications and recalibration nationally and for Puerto Rico. As we stated above in section III.A.4. of this Addendum, for Puerto Rico, for FY 2009, the GAF budget neutrality factor is 1.0010, while the DRG adjustment is 0.9995, for a combined cumulative adjustment of 1.0004.
For FY 2008, before application of the GAF, the special capital rate for hospitals located in Puerto Rico was $201.67 for discharges occurring on or after October 1, 2007, through September 30, 2008 (72 FR 66888). However, as discussed above, in this final rule, we are revising this rate retroactive to October 1, 2007, to remove the application of the 0.6 percent documentation and coding adjustment for FY 2008, consistent with the correction to the Puerto Rico specific standardized amount for FY 2008. The revised FY 2008 Puerto Rico capital rate, effective October 1, 2007, is $202.89. Consistent with our development of the Puerto Rico-specific operating standardized amount, we are not applying the 0.9 percent documentation and coding adjustment to the FY 2009 Puerto Rico-specific capital rate. However, as also discussed in section II.D.3. of the preamble of this final rule, we may propose to apply such an adjustment to the Puerto Rico operating and capital rates in the future. With the changes we are making to the other factors used to determine the capital rate, the FY 2009 special capital rate for hospitals in Puerto Rico is $198.84.
Because the 10-year capital PPS transition period ended in FY 2001, all hospitals (except “new” hospitals under § 412.324(b) and under § 412.304(c)(2)) are paid based on 100 percent of the capital Federal rate in FY 2007. The applicable capital Federal rate was determined by making the following adjustments:
• For outliers, by dividing the capital standard Federal rate by the outlier reduction factor for that fiscal year; and
• For the payment adjustments applicable to the hospital, by multiplying the hospital's GAF, DSH adjustment factor, and IME adjustment factor, when appropriate.
For purposes of calculating payments for each discharge during FY 2009, the capital standard Federal rate is adjusted as follows: (Standard Federal Rate) × (DRG weight) × (GAF) × (COLA for hospitals located in Alaska and Hawaii) × (1 + DSH Adjustment Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal rate.
Hospitals also may receive outlier payments for those cases that qualify under the thresholds established for each fiscal year. Section 412.312(c) provides for a single set of thresholds to identify outlier cases for both inpatient operating and inpatient capital-related payments. The outlier thresholds for FY 2009 are in section II.A. of this Addendum. For FY 2009, a case qualifies as a cost outlier if the cost for the case plus the IME and DSH payments is greater than the prospective payment rate for the MS–DRG plus the fixed-loss amount of $20,185.
An eligible hospital may also qualify for a special exceptions payment under § 412.348(g) up through the 10th year beyond the end of the capital transition period if it meets the following criteria: (1) A project need requirement described at § 412.348(g)(2), which in the case of certain urban hospitals includes an excess capacity test as described at § 412.348(g)(4); and (2) a project size requirement as described at § 412.348(g)(5). Eligible hospitals include SCHs, urban hospitals with at least 100 beds that have a DSH patient percentage of at least 20.2 percent or qualify for DSH payments under § 412.106(c)(2), and hospitals that have a combined Medicare and Medicaid inpatient utilization of at least 70 percent. Under § 412.348(g)(8), the amount of a special exceptions payment is determined by comparing the cumulative payments made to the hospital under the capital PPS to the cumulative minimum payment level. This amount is offset by: (1) Any amount by which a hospital's cumulative capital payments exceed its cumulative minimum payment levels applicable under the regular exceptions process for cost reporting periods beginning during which the hospital has been subject to the capital PPS; and (2) any amount by which a hospital's current year operating and capital payments (excluding 75 percent of operating DSH payments) exceed its operating and capital costs. Under § 412.348(g)(6), the minimum payment level is 70 percent for all eligible hospitals.
During the transition period, new hospitals (as defined under § 412.300) were exempt from the capital IPPS for their first 2 years of operation and were paid 85 percent of their reasonable costs during that period. Effective with the third year of operation through the remainder of the transition period, under § 412.324(b), we paid the hospitals under the appropriate transition methodology (if the hold-harmless methodology were applicable, the hold-harmless payment for assets in use during the base period would extend for 8 years, even if the hold-harmless payments extend beyond the normal transition period).
Under § 412.304(c)(2), for cost reporting periods beginning on or after October 1, 2002, we pay a new hospital 85 percent of its reasonable costs during the first 2 years of operation unless it elects to receive payment based on 100 percent of the capital Federal rate. Effective with the third year of operation, we pay the hospital based on 100 percent of the capital Federal rate (that is, the same methodology used to pay all other hospitals subject to the capital PPS).
Like the operating input price index, the capital input price index (CIPI) is a fixed-weight price index that measures the price changes associated with capital costs during a given year. The CIPI differs from the operating input price index in one important aspect—the CIPI reflects the vintage nature of capital, which is the acquisition and use of capital over time. Capital expenses in any given year are determined by the stock of capital in that year (that is, capital that remains on hand from all current and prior capital acquisitions). An index measuring capital price changes needs to reflect this vintage nature of capital. Therefore, the CIPI was developed to capture the vintage nature of capital by using a weighted-average of past capital purchase prices up to and including the current year.
We periodically update the base year for the operating and capital input price indexes to reflect the changing composition of inputs for operating and capital expenses. The CIPI was last rebased to FY 2002 in the FY 2006 IPPS final rule (70 FR 47387).
Based on the latest forecast by Global Insight, Inc. (second quarter of 2008), we are forecasting the CIPI to increase 1.4 percent in FY 2009. This reflects a projected 2.1 percent increase in vintage-weighted depreciation prices (building and fixed equipment, and movable equipment), and a 2.9 percent increase in other capital expense prices in FY 2009, partially offset by 2.6 percent decline in vintage-weighted interest expenses in FY 2009. The weighted average of these three factors produces the 1.4 percent increase for the CIPI as a whole in FY 2009.
Historically, hospitals and hospital units excluded from the prospective payment system received payment for inpatient hospital services they furnished on the basis of reasonable costs, subject to a rate-of-increase ceiling. An annual per discharge limit (the target amount as defined in § 413.40(a)) was set for each hospital or hospital unit based on the hospital's own cost experience in its base year. The target amount was multiplied by the Medicare discharges and applied as an aggregate upper limit (the ceiling as defined in § 413.40(a)) on total inpatient operating costs for a hospital's cost reporting period. Prior to October 1, 1997, these payment provisions applied consistently to all categories of excluded providers (rehabilitation hospitals and units (now referred to as IRFs), psychiatric hospitals and units (now referred to as IPFs), LTCHs, children's hospitals, and cancer hospitals).
Payment for services furnished in children's hospitals and cancer hospitals that are excluded from the IPPS continues to be subject to the rate-of-increase ceiling based on the hospital's own historical cost experience. (We note that, in accordance with § 403.752(a), RNHCIs are also subject to the rate-of-increase limits established under § 413.40 of the regulations.)
In the FY 2009 IPPS proposed rule, we proposed that the FY 2009 rate-of-increase percentage for cancer and children's hospitals and RNHCIs was the percentage increase in the FY 2009 IPPS operating market basket, estimated to be 3.0 percent. For this final rule, we are using the most recent data available for the IPPS hospital market basket. For cancer and children's hospitals and RNHCIs, the FY 2009 rate-of-increase percentage that is applied to FY 2008 target amounts in order to calculate the FY 2009 target amounts is based on Global Insight, Inc.'s second quarter 2008 forecast of the IPPS operating market basket increase, which is estimated to be 3.6 percent, in accordance with the applicable regulations at 42 CFR 413.40.
IRFs, IPFs, and LTCHs were previously paid under the reasonable cost methodology. However, the statute was amended to provide for the implementation of prospective payment systems for IRFs, IPFs, and LTCHs. In general, the prospective payment systems for IRFs, IPFs, and LTCHs provide transitioning periods of varying lengths of time during which a portion of the prospective payment is based on cost-based reimbursement rules under 42 CFR Part 413 (certain providers do not receive a transitioning period or may elect to bypass the transition as applicable under 42 CFR Part 412, Subparts N, O, and P.) We note that the various transitioning periods provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have ended. For cost reporting periods beginning on or after October 1, 2002, all IRFs are paid 100 percent of the adjusted Federal rate under the IRF PPS. Therefore, for cost reporting periods beginning on or after October 1, 2002, no portion of an IRF PPS payment is subject to 42 CFR Part 413. Similarly, for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the adjusted Federal prospective payment rate under the LTCH PPS. Therefore, for cost reporting periods beginning on or after October 1, 2006, no portion of the LTCH PPS payment is subject to 42 CFR Part 413. Likewise, for cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem amount under the IPF PPS. Therefore, for cost reporting periods beginning on or after January 1, 2008, no portion of an IPF PPS payment is subject to 42 CFR Part 413.
This section contains a majority of the tables referred to throughout the preamble to this final rule and in this Addendum.
The following tables, which contain data relating to the FY 2009 wage indices and the hospital reclassifications and payment amounts for operating and capital-related costs that are affected by Public Law 110–275, which extends through September 30, 2009 (FY 2009) section 508 wage index reclassifications as discussed in section III.I.7. of this final rule, will be posted on the CMS Web site and published in a subsequent
The following tables are included in this final rule as tentative tables and do not reflect the final calculation of the wage indices based on the extension of section 508 wage index reclassifications through FY 2009. Additional information appears with each table. Revised tables reflecting the final calculation of the FY 2009 wage indices will be posted on the CMS Web site and published in a subsequent
The following tables are final and not subject to revision based on the final calculation of the FY 2009 wage index because of the extension of section 508 wage index reclassifications through FY 2009:
The following tables discussed in section II. of the preamble of this final rule are available only through the Internet on the CMS Web site at:
We have examined the impacts of this final rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review) and the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96–354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4), Executive Order 13132 on Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 (as amended by Executive Order 13258) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year).
We have determined that this final rule is a major rule as defined in 5 U.S.C. 804(2). We estimate that the changes for FY 2009 operating and capital payments will redistribute in excess of $100 million among different types of inpatient cases. The market basket update to the IPPS rates required by the statute, in conjunction with other payment changes in this final rule, will result in an approximate $4.7 billion increase in FY 2009 operating and capital payments. Our impact estimate includes the −0.9 percent adjustment for documentation and coding changes to the IPPS standardized amounts and capital Federal rates for FY 2009 in accordance with section 7 of Public Law 110–90. For purposes of the impact analysis, we also assume an additional 1.8 percent increase in case-mix between FY 2008 and FY 2009 because we believe the adoption of the MS–DRGs will result in case-mix growth due to documentation and coding changes that do not reflect real changes in patient severity of illness. The estimates of IPPS operating payments do not reflect any changes in hospital admissions or real case-mix intensity, which would also affect overall payment changes.
The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small government jurisdictions. Most hospitals and most other providers and suppliers are considered to be small entities, either by being nonprofit organizations or by meeting the Small Business Administration definition of a small business (having revenues of $31.5 million or less in any 1 year). (For details on the latest standards for heath care providers, we refer readers to page 33 of the Table of Small Business Size Standards at the Small Business Administration Web site at:
The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), Public Law 104–121, as amended by section 8302 of Public Law 110–28 (enacted May 25, 2007), requires an agency to provide compliance guides for each rule or group of related rules for which an agency is required to prepare a final regulatory flexibility analysis. The compliance guides associated with this final rule are available on the inpatient prospective payment system web page at
In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis for any proposed or final rule that may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we now define a small rural hospital as a hospital that is located outside of an urban area and has fewer than 100 beds. Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98–21) designated hospitals in certain New England counties as belonging to the adjacent urban area. Thus, for purposes of the IPPS, we continue to classify these hospitals as urban hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $130 million. This final rule will not mandate any requirements for State, local, or tribal governments, nor will it affect private sector costs.
Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. As stated above, this final rule will not have a substantial effect on State and local governments.
The following analysis, in conjunction with the remainder of this document, demonstrates that this final rule is consistent with the regulatory philosophy and principles identified in Executive Order 12866, the RFA, and section 1102(b) of the Act. The final rule will affect payments to a substantial number of small rural hospitals, as well as other classes of hospitals, and the effects on some hospitals may be significant.
The primary objective of the IPPS is to create incentives for hospitals to operate efficiently and minimize unnecessary costs while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their legitimate costs. In addition, we share national goals of preserving the Medicare Hospital Insurance Trust Fund.
We believe the changes in this final rule will further each of these goals while maintaining the financial viability of the hospital industry and ensuring access to high quality health care for Medicare beneficiaries. We expect that these changes will ensure that the outcomes of this payment system are reasonable and equitable while avoiding or minimizing unintended adverse consequences.
The following quantitative analysis presents the projected effects of our policy changes, as well as statutory changes effective for FY 2009, on various hospital groups. We estimate the effects of individual policy changes by estimating payments per case while holding all other payment policies constant. We use the best data available, but, generally, we do not attempt to make adjustments for future changes in such variables as admissions, lengths of stay, or case-mix. However, in the FY 2008 IPPS final rule with comment period, we indicated that we believe that implementation of the MS–DRGs would lead to increases in case-mix that do not reflect actual increases in patients' severity of illness as a result of more comprehensive documentation and coding. As explained in section II.D. of the preamble of this final rule, the FY 2008 IPPS final rule with comment period established a documentation and coding adjustment of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010 to maintain budget neutrality for the transition to the MS–DRGs. Subsequently, Congress enacted Public Law 110–90. Section 7 of Public Law 110–90 reduced the IPPS documentation and coding adjustment from −1.2 percent to −0.6 percent for FY 2008 and from −1.8 percent to −0.9 percent for FY 2009. Following the enactment of Public Law 110–90, we revised the FY 2008 standardized amounts (as well as other affected payment factors and thresholds) to reflect the −0.6 percent FY 2008 documentation and coding adjustment. The tentative FY 2009 IPPS national standardized amount included in this final rule reflects the documentation and coding adjustment of −0.9 percent for FY 2009. While we have adopted the statutorily mandated documentation and coding adjustments for payment purposes, we continue to believe that an increase in case-mix of 1.8 percent between FY 2008 and FY 2009 is likely as a result of the adoption of the MS–DRGs. The impacts shown below illustrate the impact of the FY 2009 IPPS changes on hospital operating payments, including the −0.9 percent FY 2009 documentation and coding adjustment to the IPPS national standardized amounts, both prior to and following the expected 1.8 percent growth in case-mix between FY 2008 and FY 2009. As we have done in the previous rules, we solicited comments and information about the anticipated effects of the proposed changes on hospitals and our methodology for estimating them. We did not receive any public comments on the methodology for estimating the impacts.
The prospective payment systems for hospital inpatient operating and capital-related costs encompass most general short-term, acute care hospitals that participate in the Medicare program. There were 35 Indian Health Service hospitals in our database, which we excluded from the analysis due to the special characteristics of the prospective payment methodology for these hospitals. Among other short-term, acute care hospitals, only the 46 such hospitals in Maryland remain excluded from the IPPS under the waiver at section 1814(b)(3) of the Act.
As of July 2008, there are 3,538 IPPS hospitals to be included in our analysis. This represents about 58 percent of all Medicare-participating hospitals. The majority of this impact analysis focuses on this set of hospitals. There are also approximately 1,313 CAHs. These small, limited service hospitals are paid on the basis of reasonable costs rather than under the IPPS. There are also 1,226 specialty hospitals and 2,226 specialty units that are excluded from the IPPS. These specialty hospitals include IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and cancer hospitals, which are paid under separate payment systems. Changes in the prospective payment systems for IPFs and IRFs are made through separate rulemaking. Payment impacts for these specialty hospitals and units are not included in this final rule. There is also a separate rule to update and make changes to the LTCH PPS for its rate year (RY). However, we have traditionally used the IPPS rule to update the LTCH patient classifications and relative weights because the LTCH PPS uses the same DRGs as the IPPS, resulting in the LTCH relative weights being reclassified and recalibrated according to the same schedule as the IPPS (that is, for each Federal fiscal year). The impacts of our policy changes on LTCHs, where applicable, are discussed below. (We note that, as discussed in section II.I. of the preamble of this final rule, in the RY 2009 LTCH PPS final rule 73 FR 26797 through 26798), we moved the annual LTCH PPS RY
As of July 2008, there were 1,226 hospitals excluded from the IPPS. Of these 1,226 hospitals, 56 IPFs, 78 children's hospitals, 11 cancer hospitals, and 19 RNHCIs are either being paid on a reasonable cost basis or have a portion of the PPS payment based on reasonable cost principles subject to the rate-of-increase ceiling under § 413.40. The remaining providers, 226 IRFs, 396 LTCHs, and 440 IPFs, are paid 100 percent of the Federal prospective rate under the IRF PPS and the LTCH PPS, respectively, or 100 percent of the Federal per diem amount under the IPF PPS. As stated above, IRFs and IPFs are not affected by this final rule. The impacts of the changes to LTCHs are discussed separately below. In addition, there are 1,320 IPFs co-located in hospitals otherwise subject to the IPPS, 312 of which are paid on a blend of the IPF PPS per diem payment and the reasonable cost-based payment. The remaining 1,008 IPF units are paid 100 percent of the Federal amount under the IPF PPS. There are 970 IRFs (paid under the IRF PPS) co-located in hospitals otherwise subject to the IPPS.
In the past, certain hospitals and units excluded from the IPPS have been paid based on their reasonable costs subject to limits as established by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Hospitals that continue to be paid fully on a reasonable cost basis are subject to TEFRA limits for FY 2009. For these hospitals (cancer and children's hospitals), consistent with section 1886(b)(3)(B)(ii) of the Act, the update is the percentage increase in the FY 2009 IPPS operating market basket, which is estimated to be 3.6 percent, based on Global Insight, Inc.'s 2008 second quarter forecast of the IPPS operating market basket increase. In addition, in accordance with § 403.752(a) of the regulations, RNHCIs are paid under § 413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to update target amounts by the rate-of-increase percentage. For RNHCIs, the update is the percentage increase in the FY 2009 IPPS operating market basket increase, which is estimated to be 3.6 percent, based on Global Insight, Inc.'s 2008 second quarter forecast of the IPPS operating market basket increase.
The final rule implementing the IPF PPS (69 FR 66922) established a 3-year transition to the IPF PPS during which some providers received a blend of the IPF PPS per diem payment and the TEFRA reasonable cost-based payment. This transitional period for a blended payment amount for IPFs ended for cost reporting periods that began on or after January 1, 2008. Because the reasonable cost-based amount is zero percent for cost reporting periods beginning during CY 2008, no IPF will have a portion of its PPS payment that is based in part on reasonable cost subject to the rate-of-increase ceiling during FY 2009. Thus, there is no longer a need for an update factor for IPFs' TEFRA target amount for FY 2009 and thereafter.
The impact on those excluded hospitals and hospital units of the update in the rate-of-increase limit depends on the cumulative cost increases experienced by each excluded hospital or unit since its applicable base period. For excluded hospitals and units that have maintained their cost increases at a level below the rate-of-increase limits since their base period, the major effect is on the level of incentive payments these hospitals and hospital units receive. Conversely, for excluded hospitals and hospital units with per-case cost increases above the cumulative update in their rate-of-increase limits, the major effect is the amount of excess costs that will not be reimbursed.
We note that, under § 413.40(d)(3), an excluded hospital or unit, that continue to be paid under the TEFRA system, whose costs exceed 110 percent of its rate-of-increase limit receives its rate-of-increase limit plus 50 percent of the difference between its reasonable costs and 110 percent of the limit, not to exceed 110 percent of its limit. In addition, under the various provisions set forth in § 413.40, certain excluded hospitals and hospital units can obtain payment adjustments for justifiable increases in operating costs that exceed the limit.
In this final rule, we are announcing policy changes and payment rate updates for the IPPS for operating costs. Changes to the capital payments are discussed in section VIII. of this Appendix. We note that, due to recently passed legislation (section 124 of Pub. L. 110–275) that extended certain special exceptions and reinstated the provisions of section 508 of Public Law 108–173 relating to the wage index reclassifications of hospitals for an additional year, through FY 2009, as discussed in section III.I. of the preamble of this final rule, we are unable to finalize the FY 2009 wage index at this time. Therefore, we are also unable to finalize budget neutrality calculations, the outlier threshold, the outlier offsets, and the standardized payment amounts. We have calculated tentative amounts for all of these factors and have based the impacts shown in the following pages on these tentative amounts. When we revise the wage index to account for the recently enacted legislation that extends certain exceptions as well as the section 508 reclassifications for an additional year through FY 2009, we will recalculate impacts and publish them in a separate
Based on the overall percentage change in payments per case estimated using our payment simulation model, we estimate that total FY 2009 operating payments will increase 4.7 percent compared to FY 2008, largely due to the statutorily mandated update to the IPPS rates. This amount also reflects the −0.9 percent FY 2009 documentation and coding adjustment to the IPPS national standardized amounts and our assumption of an additional 1.8 percent increase in case-mix between FY 2008 and FY 2009 as a result of improvements in documentation and coding that do not represent real increases in underlying resource demands and patient acuity due to the adoption of the MS–DRGs. The impacts do not illustrate changes in hospital admissions or real case-mix intensity, which will also affect overall payment changes.
We have prepared separate impact analyses of the changes to each system. This section deals with changes to the operating prospective payment system. Our payment simulation model relies on the most recent available data to enable us to estimate the impacts on payments per case of certain changes in this final rule. However, there are other changes for which we do not have data available that would allow us to estimate the payment impacts using this model. For those changes, we have attempted to predict the payment impacts based upon our experience and other more limited data.
The data used in developing the quantitative analyses of changes in payments per case presented below are taken from the FY 2007 MedPAR file and the most current Provider-Specific File that is used for payment purposes. Although the analyses of the changes to the operating PPS do not incorporate cost data, data from the most recently available hospital cost report were used to categorize hospitals. Our analysis has several qualifications. First, in this analysis, we do not make adjustments for future changes in such variables as admissions, lengths of stay, or underlying growth in real case-mix. Second, due to the interdependent nature of the IPPS payment components, it is very difficult to precisely quantify the impact associated with each change. Third, we use various sources for the data used to categorize hospitals in the tables. In some cases, particularly the number of beds, there is a fair degree of variation in the data from different sources. We have attempted to construct these variables with the best available source overall. However, for individual hospitals, some miscategorizations are possible.
Using cases from the FY 2007 MedPAR file, we simulated payments under the operating IPPS given various combinations of payment parameters. Any short-term, acute care hospitals not paid under the IPPS (Indian Health Service hospitals and hospitals in Maryland) were excluded from the simulations. The impact of payments under the capital IPPS, or the impact of payments for costs other than inpatient operating costs, are not analyzed in this section. Estimated payment impacts of FY 2009 changes to the capital IPPS are discussed in section VIII. of this Appendix.
The changes discussed separately below are the following:
• The effects of the annual reclassification of diagnoses and procedures, full implementation of the MS–DRG system and 100 percent cost-based DRG relative weights,
• The effects of the changes in hospitals' wage index values reflecting wage data from hospitals' cost reporting periods beginning during FY 2005, compared to the FY 2004 wage data.
• The effects of the recalibration of the DRG relative weights as required by section
• The effects of geographic reclassifications by the MGCRB that will be effective in FY 2009.
• The effects of the first year of the 3-year transition to apply rural floor budget neutrality adjustment at the State level. In FY 2009, hospitals will receive a blended wage index that is 20 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 80 percent of a wage index with the national budget neutrality adjustment.
• The effects of section 505 of Public Law 108–173, which provides for an increase in a hospital's wage index if the hospital qualifies by meeting a threshold percentage of residents of the county where the hospital is located who commute to work at hospitals in counties with higher wage indexes.
• The effect of the budget neutrality adjustment being made for the adoption of the MS–DRGs under section 1886(d)(3)(A)(iv) of the Act for the change in aggregate payments that is a result of changes in the coding or classification of discharges that do not reflect real changes in case-mix.
• The total estimated change in payments based on the FY 2009 policies relative to payments based on FY 2008 policies.
To illustrate the impacts of the FY 2009 changes, our analysis begins with an FY 2008 baseline simulation model using: The FY 2009 update of 3.6 percent; the FY 2008 DRG GROUPER (Version 25.0); the most current CBSA designations for hospitals based on OMB's MSA definitions; the FY 2008 wage index; and no MGCRB reclassifications. Outlier payments are set at 5.1 percent of total operating DRG and outlier payments.
Section 1886(b)(3)(B)(viii) of the Act, as added by section 5001(a) of Public Law 109–171, provides that for FY 2007 and subsequent years, the update factor will be reduced by 2.0 percentage points for any hospital that does not submit quality data in a form and manner and at a time specified by the Secretary. At the time this impact was prepared, 186 hospitals did not receive the full market basket rate-of-increase for FY 2008 because they failed the quality data submission process. For purposes of the simulations shown below, we modeled the payment changes for FY 2009 using a reduced update for these 186 hospitals. However, we do not have enough information at this time to determine which hospitals will not receive the full market basket rate-of-increase for FY 2009.
Each policy change, statutorily or otherwise, is then added incrementally to this baseline, finally arriving at an FY 2009 model incorporating all of the changes. This simulation allows us to isolate the effects of each change.
Our final comparison illustrates the percent change in payments per case from FY 2008 to FY 2009. Three factors not discussed separately have significant impacts here. The first is the update to the standardized amount. In accordance with section 1886(b)(3)(B)(i) of the Act, we are updating the standardized amounts for FY 2009 using the most recently forecasted hospital market basket increase for FY 2009 of 3.6 percent. (Hospitals that fail to comply with the quality data submission requirements to receive the full update will receive an update reduced by 2.0 percentage points to 1.6 percent.) Under section 1886(b)(3)(B)(iv) of the Act, the updates to the hospital-specific amounts for SCHs and for MDHs are also equal to the market basket increase, or 3.6 percent.
A second significant factor that affects the changes in hospitals' payments per case from FY 2008 to FY 2009 is the change in a hospital's geographic reclassification status from one year to the next. That is, payments may be reduced for hospitals reclassified in FY 2008 that are no longer reclassified in FY 2009. Conversely, payments may increase for hospitals not reclassified in FY 2008 that are reclassified in FY 2009. This impact analysis was prepared under the assumption that certain special exceptions, as well as section 508 of Public Law 108–173, the reclassification provision, were to expire in FY 2009. However, legislation (section 124 of Pub. L. 110–275) enacted after preparation of this impact analysis has extended the certain special exceptions, as well as the section 508 reclassification provision for an additional year through FY 2009, and the impact of the provision will be addressed in a separate
A third significant factor is that we currently estimate that actual outlier payments during FY 2008 will be 4.7 percent of total DRG payments. When the FY 2008 final rule with comment period was published, we projected FY 2008 outlier payments would be 5.1 percent of total DRG plus outlier payments; the average standardized amounts were offset correspondingly. The effects of the lower than expected outlier payments during FY 2009 (as discussed in the Addendum to this final rule) are reflected in the analyses below comparing our current estimates of FY 2008 payments per case to estimated FY 2009 payments per case (with outlier payments projected to equal 5.1 percent of total DRG payments).
Table I displays the results of our analysis of the changes for FY 2009. The table categorizes hospitals by various geographic and special payment consideration groups to illustrate the varying impacts on different types of hospitals. The top row of the table shows the overall impact on the 3,538 hospitals included in the analysis.
The next four rows of Table I contain hospitals categorized according to their geographic location: All urban, which is further divided into large urban and other urban; and rural. There are 2,553 hospitals located in urban areas included in our analysis. Among these, there are 1,408 hospitals located in large urban areas (populations over 1 million), and 1,145 hospitals in other urban areas (populations of 1 million or fewer). In addition, there are 985 hospitals in rural areas. The next two groupings are by bed-size categories, shown separately for urban and rural hospitals. The final groupings by geographic location are by census divisions, also shown separately for urban and rural hospitals.
The second part of Table I shows hospital groups based on hospitals' FY 2009 payment classifications, including any reclassifications under section 1886(d)(10) of the Act. For example, the rows labeled urban, large urban, other urban, and rural show that the numbers of hospitals paid based on these categorizations after consideration of geographic reclassifications (including reclassifications under section 1886(d)(8)(B) and section 1886(d)(8)(E) of the Act that have implications for capital payments) are 2,594, 1,430, 1,164 and 944, respectively.
The next three groupings examine the impacts of the changes on hospitals grouped by whether or not they have GME residency programs (teaching hospitals that receive an IME adjustment) or receive DSH payments, or some combination of these two adjustments. There are 2,495 nonteaching hospitals in our analysis, 808 teaching hospitals with fewer than 100 residents, and 235 teaching hospitals with 100 or more residents.
In the DSH categories, hospitals are grouped according to their DSH payment status, and whether they are considered urban or rural for DSH purposes. The next category groups together hospitals considered urban after geographic reclassification, in terms of whether they receive the IME adjustment, the DSH adjustment, both, or neither.
The next five rows examine the impacts of the changes on rural hospitals by special payment groups (SCHs, RRCs, and MDHs). There were 196 RRCs, 356 SCHs, 157 MDHs, 104 hospitals that are both SCHs and RRCs, and 12 hospitals that are both an MDH and an RRC.
The next series of groupings are based on the type of ownership and the hospital's Medicare utilization expressed as a percent of total patient days. These data were taken from the FY 2005 Medicare cost reports.
The next two groupings concern the geographic reclassification status of hospitals. The first grouping displays all urban hospitals that were reclassified by the MGCRB for FY 2009. The second grouping shows the MGCRB rural reclassifications. The final category shows the impact of the policy changes on the 20 cardiac specialty hospitals in our analysis.
In Column 2 of Table I, we present the effects of the DRG reclassifications, as discussed in section II. of the preamble to this final rule. Section 1886(d)(4)(C)(i) of the Act requires us annually to make appropriate classification changes in order to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.
As discussed in the preamble of this final rule, the FY 2009 DRG relative weights will be 100 percent cost-based and 100 percent MS–DRGs, thus completing our 3-year transition to cost-based relative weights and our 2-year transition to MS–DRGs. For FY 2009, the MS–DRGs are calculated using the FY 2007 MedPAR data grouped to the Version 26.0 (FY 2009) DRGs. The methods of calculating the relative weights and the reclassification changes to the GROUPER are described in more detail in section II.H. of the preamble to this final rule. In previous years, this column also reflected the effects of the recalibration budget neutrality factor that is applied to the hospital-specific rates and the Puerto Rico-specific standardized amount. However, for this final rule, we show the effects of the recalibration budget neutrality factor of 0.998795 in column 4. We note that, consistent with section 1886(d)(4)(C)(iii) of the Act, we are applying a budget neutrality factor to the national standardized amounts to ensure that the overall payment impact of the DRG changes (combined with the wage index changes) is budget neutral. This wage and recalibration budget neutrality factor of 0.999580 is applied to payments in Column 4 and not Column 2.
The changes to the relative weights and DRGs shown in column 2 are prior to any offset for budget neutrality. The “All Hospitals” line indicates that changes in this column will increase payments by 0.1 percent. However, as stated earlier, the changes shown in this column are combined with revisions to the wage index, and the budget neutrality adjustments made for these changes are shown in column 4. Thus, the impact after accounting only for budget neutrality for changes to the DRG relative weights and classification is somewhat lower than the figures shown in this column (approximately 0.1 percent).
Section 1886(d)(3)(E) of the Act requires that, beginning October 1, 1993, we annually update the wage data used to calculate the wage index. In accordance with this requirement, the wage index for FY 2009 is based on data submitted for hospital cost reporting periods beginning on or after October 1, 2004 and before October 1, 2005. The estimated impact of the wage data on hospital payments is isolated in Column 3 by holding the other payment parameters constant in this simulation. That is, Column 3 shows the percentage changes in payments when going from a model using the FY 2008 wage index, based on FY 2004 wage data and having a 100-percent occupational mix adjustment applied, to a model using the FY 2009 pre-reclassification wage index, also having a 100-percent occupational mix adjustment applied, based on FY 2005 wage data (while holding other payment parameters such as use of the Version 26.0 DRG GROUPER constant). The wage data collected on the FY 2005 cost report include overhead costs for contract labor that were not collected on FY 2004 and earlier cost reports. The impacts below incorporate the effects of the FY 2005 wage data collected on hospital cost reports, including additional overhead costs for contract labor compared to the wage data from FY 2004 cost reports that were used to calculate the FY 2008 wage index.
Column 3 shows the impacts of updating the wage data using FY 2004 cost reports. Overall, the new wage data will lead to a 0.0 percent change for all hospitals before application of the wage and DRG recalibration budget neutrality adjustment shown in column 4. Thus, the figures in this column are estimated to be the same as what they otherwise would be if they also illustrated a budget neutrality adjustment solely for changes to the wage index. Among the regions, the largest increase is in the urban Pacific region, which experiences a 1.1 percent increase before applying an adjustment for budget neutrality. The largest decline from updating the wage data is seen in Puerto Rico (0.7 percent decrease).
In looking at the wage data itself, the national average hourly wage increased 4.3 percent compared to FY 2008. Therefore, the only manner in which to maintain or exceed the previous year's wage index was to match or exceed the national 4.3 percent increase in average hourly wage. Of the 3,458 hospitals with wage data for both FYs 2008 and 2009, 1,703, or 49.2 percent, experienced an average hourly wage increase of 4.3 percent or more.
The following chart compares the shifts in wage index values for hospitals for FY 2009 relative to FY 2008. Among urban hospitals, 32 will experience an increase of more than 5 percent and less than 10 percent and 3 will experience an increase of more than 10 percent. Among rural hospitals, none will experience an increase of more than 5 percent and less than 10 percent, and none will experience an increase of more than 10 percent. However, 970 rural hospitals will experience increases or decreases of less than 5 percent, while 2,426 urban hospitals will experience increases or decreases of less than 5 percent. Seventeen urban hospitals will experience decreases in their wage index values of more than 5 percent and less than 10 percent. Ten urban hospitals will experience decreases in their wage index values of greater than 10 percent. No rural hospitals will experience decreases of more than 5 percent. These figures reflect changes in the wage index which is an adjustment to either 69.7 percent or 62 percent of a hospital's standardized amount, depending upon whether its wage index is greater than 1.0 or less than or equal to 1.0. Therefore, these figures are illustrating a somewhat larger change in the wage index than would occur to the hospital's total payment.
The following chart shows the projected impact for urban and rural hospitals.
Section 1886(d)(4)(C)(iii) of the Act requires that changes to MS–DRG reclassifications and the relative weights cannot increase or decrease aggregate payments. In addition, section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to the wage index are to be budget neutral. As noted in the Addendum to this final rule, in determining the budget neutrality factor, we equated simulated aggregate payments for FY 2008 and FY 2009 using the FY 2007 Medicare utilization data after applying the changes to the DRG relative weights and the wage index.
We computed a wage and MS–DRG recalibration budget neutrality factor of 0.999580 (which is applied to the national standardized amounts) and a recalibration budget neutrality factor 0.998795 (which is applied to the hospital-specific rates and the Puerto Rico-specific standardized amount). The 0.0 percent impact for all hospitals demonstrates that the MS–DRG and wage changes, in combination with the budget neutrality factor, are budget neutral. In Table I, the combined overall impacts of the effects of both the MS–DRG reclassifications and the updated wage index are shown in Column 4. The estimated changes shown in this column reflect the combined effects of the changes in Columns 2 and 3 and the budget neutrality factors discussed previously.
We estimate that the combined impact of the changes to the relative weights and DRGs and the updated wage data with budget neutrality applied will increase payments to hospitals located in large urban areas (populations over 1 million) by approximately 0.3 percent. These changes will generally increase payments to hospitals in all urban areas (0.1 percent) and teaching hospitals (0.1 percent). Rural hospitals will generally experience a decrease in payments (−1.0 percent). Among the rural hospital categories, rural hospitals with less than 50 beds will experience the greatest decline in payment (−2.3 percent) primarily due to the changes to MS–DRGs and the relative cost weights.
Our impact analysis to this point has assumed hospitals are paid on the basis of their actual geographic location (with the exception of ongoing policies that provide that certain hospitals receive payments on other bases than where they are geographically located). The changes in Column 5 reflect the per case payment impact of moving from this baseline to a simulation incorporating the MGCRB decisions for FY 2009 which affect hospitals' wage index area assignments.
By Spring of each year, the MGCRB makes reclassification determinations that will be effective for the next fiscal year, which begins on October 1. The MGCRB may approve a hospital's reclassification request for the purpose of using another area's wage index value. Hospitals may appeal denials of MGCRB decisions to the CMS Administrator. Further, hospitals have 45 days from publication of the IPPS rule in the
The overall effect of geographic reclassification is required by section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, for the purposes of this impact analysis, we are applying an adjustment of 0.991339 to ensure that the effects of the section 1886(d)(10) reclassifications are budget neutral. (See section II.A. of the Addendum to this final rule.) Geographic reclassification generally benefits hospitals in rural areas. We estimate that geographic reclassification will increase payments to rural hospitals by an average of 2.1 percent.
However, we note that this budget neutrality factor and this impact are both calculated using wage adjustments applied prior to legislation that extends certain special exceptions and section 508 reclassifications for an additional year through FY 2009. As noted earlier in section III.I.7. of the preamble of this final rule, for affected areas, CMS will use best efforts to apply a reclassification decision for FY 2009 on behalf of hospitals to give them the highest wage index. Hospitals will have 15 days from the date of publication to revise the decision that CMS made on their behalf. We are unable to state with certainty that all of the reclassified providers shown in tentative Table 9A of the Addendum to this final rule will retain their approved reclassifications for FY 2009 once the wage indices that account for the new legislation are known. We will include the FY 2009 wage related impacts and our reclassification decisions made on behalf of hospitals in a separate
As discussed in section III.B. of the preamble of this FY 2009 final rule, section 4410 of Public Law 105–33 established the rural floor by requiring that the wage index for a hospital in any urban area cannot be less than the wage index received by rural hospitals in the same State. In FY 2008, we changed how we applied budget neutrality to the rural floor. Rather than applying a budget neutrality adjustment to the standardized amount, a uniform budget neutrality adjustment is applied to the wage index. In the FY 2009 proposed rule, we had proposed to apply the rural floor budget neutrality adjustment at the State level, which will redistribute payments within the State rather than across all other providers within the Nation. In this final rule, we are finalizing the policy to apply the rural floor budget neutrality at the State level with a 3-year transition. In FY 2009, hospitals will receive a blended wage index that is 20 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 80 percent of a wage index with the national budget neutrality adjustment. The national rural floor budget neutrality applied to the wage index is 0.996355. The within-State rural floor budget neutrality factors applied to the wage index will be available in Table 4D that will be published in a separate
Furthermore, the FY 2005 IPPS final rule (69 FR 49109) established a temporary imputed floor for all urban States from FY 2005 to FY 2007. The rural floor requires that an urban wage index cannot be lower than the wage index for any rural hospital in that State. Therefore, an imputed floor was established for States that do not have rural areas or rural IPPS hospitals. In the FY 2008 IPPS final rule with comment period (72 FR 47321), we finalized our rule to extend the imputed floor for 1 additional year. In this final rule, we are extending the imputed floor for an additional 3 years through FY 2011. Furthermore, in the proposed rule, we wanted the application of the imputed floor budget neutrality to be consistent with our application of the rural floor budget neutrality adjustment at the State level, so we proposed to apply the imputed floor budget neutrality adjustment to the wage index at the State level. In this final rule, we will have a 3-year transition to the rural floor budget neutrality adjustment at the State level. Therefore, we will also apply the imputed floor budget neutrality adjustment at the State level through a 3-year transition, so that wage indices adjusted for the imputed floor will be blended where 80 percent of the wage index will have the national rural and imputed floor budget neutrality factor applied and 20 percent of the wage index will have the within-State rural and imputed budget neutrality factor applied. The national rural floor budget neutrality factor listed also incorporates the imputed floor in its adjustment to the wage index. Column 6 shows the projected impact of the rural floor and the imputed floor, including the application of the transition to within-State rural and imputed floor budget neutrality. The column compares the post-reclassification FY 2009 wage index of providers before the rural floor adjustment and the post-reclassification FY 2009 wage index of providers with the rural floor and
We project that, in aggregate, rural hospitals will experience a 0.1 percent decrease in payments as a result of the transition to within-State rural floor budget neutrality. We project hospitals located in other urban areas (populations of 1 million or fewer) will experience a 0.1 percent increase in payments because those providers benefit from the rural floor. Rural New England hospitals can expect the greatest decrease in payment, 0.3 percent, because under the blended rural floor budget neutrality adjustment, hospitals in Vermont will receive a rural floor budget neutrality adjustment of 0.97721 or a reduction of approximately 2 percent, and hospitals in Connecticut will receive a rural floor budget neutrality adjustment of 0.98968 or a reduction of approximately 1 percent. New Jersey, which is the only State that benefits from the imputed floor, is expected to receive a rural floor budget neutrality adjustment of 0.99441, or a reduction of less than 1 percent.
We note that these wage indices and rural floor budget neutrality factors are subject to change when we revise these factors to account for the recent enacted legislation that extended certain special exceptions and section 508 reclassifications through FY 2009. In the notice that we will publish in the
The table that appears in section III B.2.b. of the preamble of this final rule compares payments under our former policy of applying rural floor budget neutrality at the national level to payments under our new policy to undergo a 3-year transition to apply the rural floor budget neutrality within the State so that, for FY 2009, hospitals receive a blended wage index where 20 percent of their wage index has the within-State rural floor budget neutrality applied and 80 percent of their wage index has the national rural floor budget neutrality applied. The last column of the table shows the net effect on State payments resulting from this policy change. The table shows that, under our former policy of applying budget neutrality at the national level, States that do not have any hospitals receiving the rural floor wage index will expect a decrease in payments because, in order to maintain budget neutrality nationally, these hospitals have to pay for the hospitals in other States that do receive a rural floor. For example, States such as Arizona, New York, and Rhode Island, which do not have hospitals receiving a rural floor, will expect to lose 0.2 percent in payments under a national rural floor budget neutrality adjustment. However, under our new policy to transition to within-State rural floor budget neutrality and to have a blended budget neutral wage index for FY 2009, States with providers that receive the rural floor will expect minor decreases in their payments under blended budget neutral wage indices relative to a wage index with national rural floor budget neutrality applied. Therefore, States such as California and Connecticut, which have several hospitals that benefit from the rural floor, can expect decreases in payments by 0.2 and 0.4, respectively. States that do not have hospitals receiving a floor will see a negligible change in payments (compared with our previous policy of applying budget neutrality at the national level) because a majority of their wage index (80 percent) has a national rural floor budget neutrality applied, resulting in a zero percent change in payments relative to national rural floor budget neutrality. For States that do not have hospitals receiving a floor, their wage indices is a blend of a wage index with within-State budget neutrality applied (which is 1.0 because they do not have a rural floor) and a wage index with a national rural floor budget neutrality applied (which is 0.996355), so the blended wage index would be reduced by 0.19 percent.
Section 1886(d)(13) of the Act, as added by section 505 of Public Law 108–173, 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 area with a higher wage index. Hospitals located in counties that qualify for the payment adjustment are to receive an increase in the wage index that is equal to a weighted average of the difference between the wage index of the resident county, post-reclassification and the higher wage index work area(s), weighted by the overall percentage of workers who are employed in an area with a higher wage index. With the out-migration adjustment, rural providers will experience a 0.1 percent increase in payments in FY 2009 relative to no adjustment at all. We included these additional payments to providers in the impact table shown above, and we estimate the impact of these providers receiving the out-migration increase to be approximately $34 million.
As section 505 reclassification adjustments must be calculated using wage data after accounting for the extension of certain special exceptions and section 508 reclassifications through FY 2009, we are unable to assess whether any new counties would qualify for section 505 reclassification adjustments for FY 2009. In the notice that we will publish in the
Column 8 compares our estimate of payments per case between FY 2008 and FY 2009 with all changes reflected in this final rule for FY 2009, including a −0.9 percent documentation and coding adjustment to the FY 2009 national standardized amounts to account for anticipated improvements in documentation and coding that are expected to increase case-mix. We generally apply an adjustment to the DRGs to ensure budget neutrality assuming constant utilization. However, in the FY 2008 IPPS final rule with comment period, we indicated that we believe that the adoption of MS–DRGs would lead to increases in case-mix as a result of improved documentation and coding. In the FY 2008 IPPS final rule with comment period, we had finalized a policy to apply a documentation and coding adjustment to the standardized amount of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010 to offset the expected increase in case-mix and achieve budget neutrality. However, in compliance with section 7 of Public Law 110–90, we reduced the documentation and coding adjustment to −0.6 percent for FY 2008. In accordance with section 7 of Public Law 110–90, for FY 2009, we are applying a documentation and coding adjustment of −0.9 percent to the FY 2009 national standardized amounts (in addition to the −0.6 percent adjustment made for FY 2008). We are not applying the documentation and coding adjustment to the FY 2009 hospital-specific rates and the FY 2009 Puerto Rico-specific standardized amount. However, we continue to believe that case-mix growth of an additional 1.8 percent compared to FY 2008 is likely to occur across all hospitals as a result of improvements in documentation and coding.
Column 8 illustrates the total payment change for FY 2009 compared to FY 2008, taking into account the −0.9 percent FY 2009 documentation and coding adjustment but not the projected 1.8 percent case-mix increase itself. Therefore, this column illustrates a total payment change that is less than what is anticipated to occur.
Column 9 compares our estimate of payments per case between FY 2008 and FY 2009, incorporating all changes reflected in this final rule for FY 2009 (including statutory changes). This column includes the FY 2009 documentation and coding adjustment of −0.9 percent and the projected 1.8 percent increase in case-mix from improved documentation and coding (with the 1.8 percent case-mix increase assumed to occur equally across all hospitals). We note that this impact is calculated using standardized amounts, outlier estimates, and budget neutrality factors that do not account for wage index changes due to the recently
Column 9 reflects the impact of all FY 2009 changes relative to FY 2008, including those shown in Columns 2 through 7. The average increase for all hospitals is approximately 4.7 percent. This increase includes the effects of the 3.6 percent market basket update. It also reflects the 0.4 percentage point difference between the projected outlier payments in FY 2008 (5.1 percent of total DRG payments) and the current estimate of the percentage of actual outlier payments in FY 2008 (4.7 percent), as described in the introduction to this Appendix and the Addendum to this final rule. As a result, payments are projected to be 0.4 percentage points lower in FY 2008 than originally estimated, resulting in a 0.4 percentage point greater increase for FY 2009 than would otherwise occur. This analysis accounts for the impact of expiration of certain special exceptions and section 508 reclassification, a nonbudget neutral provision, which results in a decrease in estimated payments by 0.1 percent. However, recently enacted legislation has extended certain special exceptions and section 508 reclassifications for FY 2009, and a revised impacts analysis to account for this change will be published in a
The overall change in payments per case for hospitals in FY 2009 is estimated to increase by 4.7 percent. Hospitals in urban areas will experience an estimated 4.8 percent increase in payments per case compared to FY 2008. Hospitals in large urban areas will experience an estimated 5.0 percent increase and hospitals in other urban areas will experience an estimated 4.5 percent increase in payments per case in FY 2008. Hospital payments per case in rural areas are estimated to increase 3.9 percent. The increases that are larger than the national average for larger urban areas and smaller than the national average for other urban and rural areas are largely attributed to the differential impact of adopting MS–DRGs.
Among urban census divisions, the largest estimated payment increases will be 6.4 percent in the Pacific region (generally attributed to MS–DRGs and wage data) and 5.4 percent in the Mountain region (mostly due to MS–DRGs). The smallest urban increase is estimated at 3.6 percent in the Middle Atlantic region.
Among the rural regions in Column 9, the providers in the New England region experience the smallest increase in payments (3.3 percent) primarily due to the transition to the within-State rural floor budget neutrality adjustment. The Pacific and South Atlantic regions will have the highest increases among rural regions, with 4.6 percent and 4.3 percent estimated increases, respectively. Again, increases in rural areas are generally less than the national average due to the adoption of MS–DRGs.
Among special categories of rural hospitals in Column 9, the MDH and the RRC providers will receive an estimated increase in payments of 4.7 percent, and the MDHs and RRCs will experience an estimated increase in payments by 3.6 percent.
Urban hospitals reclassified for FY 2009 are anticipated to receive an increase of 4.9 percent, while urban hospitals that are not reclassified for FY 2009 are expected to receive an increase of 4.8 percent. Rural hospitals reclassifying for FY 2009 are anticipated to receive a 4.2 percent payment increase and rural hospitals that are not reclassifying are estimated to receive a payment increase of 3.4 percent.
For FY 2009, we are continuing to apply the volume adjustment criteria we specified in the FY 2005 IPPS final rule (69 FR 49099). We expect that three providers will receive the low-volume adjustment for FY 2009. We estimate the impact of these providers receiving the additional 25-percent payment increase to be approximately $22,000.
Table II presents the projected impact of the changes for FY 2009 for urban and rural hospitals and for the different categories of hospitals shown in Table I. It compares the estimated payments per case for FY 2008 with the average estimated payments per case for FY 2009, as calculated under our models. Thus, this table presents, in terms of the average dollar amounts paid per discharge, the combined effects of the changes presented in Table I. The percentage changes shown in the last column of Table II equal the percentage changes in average payments from Column 9 of Table I.
In addition to those policy changes discussed above that we are able to model using our IPPS payment simulation model, we are making various other changes in this final rule. Generally, we have limited or no specific data available with which to estimate the impacts of these changes. Our estimates of the likely impacts associated with these other changes are discussed below.
In section II.F. of the preamble of this final rule, we discuss our implementation of section 1886(d)(4)(D) of the Act, which requires the Secretary to identify conditions that are: (1) High cost, high volume, or both; (2) result in the assignment of a case to an MS–DRG that has a higher payment when present as a secondary diagnosis; and (3) could reasonably have been prevented through application of evidence-based guidelines. For discharges occurring on or after October 1, 2008, hospitals will not receive additional payment for cases in which one of the selected conditions was not present on admission, unless based on data and clinical judgment, it cannot be determined at the time of admission whether a condition is present. That is, the case will be paid as though the secondary diagnosis were not present. However, the statute also requires the Secretary to continue counting the condition as a secondary diagnosis that results in a higher IPPS payment when doing the budget neutrality calculations for MS–DRG reclassifications and recalibration. Therefore, we will perform our budget neutrality calculations as though the payment provision did not apply, but Medicare will make a lower payment to the hospital for the specific case that includes the secondary diagnosis. Thus, the provision will result in cost savings to the Medicare program.
We note that the provision will only apply when one or more of the selected conditions are the only secondary diagnosis or diagnoses present on the claim that will lead to higher payment. Medicare beneficiaries will generally have multiple secondary diagnoses during a hospital stay, such that beneficiaries having one MCC or CC will frequently have additional conditions that also will generate higher payment. Only a small percentage of the cases will have only one secondary diagnosis that would lead to a higher payment. Therefore, if at least one nonselected secondary diagnosis that leads to higher payment is on the claim, the case will continue to be assigned to the higher paying MS–DRG and there will be no Medicare savings from that case.
The HAC payment provision will go into effect on October 1, 2008. Our savings estimates for the next 5 fiscal years are shown below:
In section II.I. of the preamble to this final rule, we discuss the MS–LTC–DRGs (Version 26.0 of the GROUPER) and development of the relative weights for use under the LTCH PPS for FY 2009. We also discuss that when we adopted the new severity adjusted MS–LTC–DRG patient classification system under the LTCH PPS in the FY 2008 IPPS final rule with comment, we implemented a 2-year transition, in which the MS–LTC–DRG relative weights for FY 2009 will be based completely on the MS–LTC–DRG patient classification system (and no longer based in part on the former LTC–DRG patient classification system). Consistent with the requirement at § 412.517 established in the RY 2008 LTCH PPS final rule (72 FR 26880 through 26884), the annual update to the classification and relative weights under the LTCH PPS for RY 2009 was done in a budget neutral manner, such that estimated aggregate LTCH PPS payments would be unaffected; that is, they would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS–LTC–DRG classification and relative weight changes. To achieve budget neutrality under § 412.517, in determining the FY 2009 MS–LTC–DRG relative weights, we applied a factor of 1.03887 in the first step of the budget neutrality process (normalization), and we applied a budget neutrality factor of 1.04186 after normalization (see section II.I.4. (step 7) of the preamble of this final rule). These factors that were applied to maintain budget neutrality were based on the most recent available LTCH claims data (FY 2007 MedPAR files) for the 388 LTCHs in our database. Consistent with the budget neutrality requirement under § 412.517, we estimate that with the changes to the MS–LTC–DRG classifications and relative weights for FY 2009, there will be no change in aggregate LTCH PPS payments. In applying the budget neutrality adjustment described above, we assumed constant utilization.
In section II.J. of the preamble to this final rule, we discuss add-on payments for new medical services and technologies. As explained in that section, add-on payments for new technology under section 1886(d)(5)(K) of the Act are not required to be budget neutral. As discussed in section II.J.4. of this final rule, one applicant, the CardioWest(tm) temporary Total Artificial Heart system (TAH-t) met the criteria for new technology add-on payments for FY 2009. There were no technologies receiving new technology add-on payment in FY 2008. In the proposed rule, we estimated that Medicare's new technology add-on payments would remain unchanged in FY 2009 compared to FY 2008 because we believed it was premature to predict which, if any, new technology add-on payment applications would be approved in the FY 2009 final rule. In the proposed rule, we stated that if any of the four applicants were found to be eligible for new technology add-on payments for FY 2009, in the final rule, we would discuss the estimated payment impact for FY 2009 in that final rule. As stated above, the TAH-t was approved for FY 2009 new technology add-on payments. The maximum add-on payment for the TAH-t is $53,000 per case and the applicant estimates that there will be approximately 180 cases in FY 2009. Therefore, we estimate that total new technology add-on payments will be $9.54 million in FY 2009.
In section IV.B. of the preamble of this final rule, we discuss the requirements for hospitals to report quality data in order for hospitals to receive the full annual hospital payment update for FY 2009 and FY 2010. We also note that, for the FY 2009 payment update, hospitals must pass our validation requirement of a minimum of 80 percent reliability, based upon our chart-audit validation process, for the fourth quarter of data from CY 2006 and first three quarters of data from CY 2007. These data were due to the QIO Clinical Warehouse by May 15, 2007 (fourth quarter CY 2006 discharges), August 15, 2007 (first quarter CY 2007 discharges), November 15, 2007 (second quarter CY 2007 discharges), and February 15, 2008 (third quarter CY 2006 discharges). We have continued our efforts to ensure that QIOs provide assistance to all hospitals that wish to submit data. In the preamble of this final rule, we are providing additional validation criteria to ensure that the quality data being sent to CMS are accurate. The requirement of 5 charts per hospital will result in approximately 21,500 charts per quarter total submitted to the agency. We reimburse hospitals for the cost of sending charts to the Clinical Data Abstraction Center (CDAC) 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 at the CDAC is approximately 150 pages. Thus, the agency will have expenditures of approximately $597,600 per quarter to collect the charts. Given that we reimburse for the data collection effort, we believe that a requirement for five charts per hospital per quarter represents a minimal burden to the participating hospital.
In section IV.D. of the preamble of this final rule, we discuss a change to the methodology we will use to compute the average nursing staff factors (nursing hours per patient days) for the volume decrease adjustment for SCHs and MDHs. If certain requirements are met, this adjustment may be made if the hospital's total discharges decrease by more than 5 percent from one cost reporting period to the next. We do not believe this change will have any significant
As we discussed in detail in section IV.G. of the preamble of this final rule, we are finalizing the current GME regulations that were included in interim final rules with comment periods issued on April 12, 2006 (71 FR 18654) and November 27, 2007 (72 FR 66580), as they apply to emergency Medicare GME affiliated groups, with two modifications. They provide for greater flexibility in training residents in approved residency programs during times of disaster. Specifically, this final rule modifies the provision for “emergency Medicare GME affiliated groups” to extend the submission deadline for emergency Medicare GME affiliation agreements and also provides for home and host hospitals with valid emergency Medicare GME affiliation agreements an exemption to the application of the IRB ratio cap. That is, IME payments for home and host hospitals with valid emergency Medicare GME affiliation agreements are calculated based on the 3-year rolling average FTE resident count, subject to the hospital's FTE resident cap for IME; and the calculation is not subject to the IRB ratio cap.
We believe that there is limited, if any, impact associated with modifying the existing emergency Medicare GME affiliation regulations to extend the deadline for hospitals to submit emergency Medicare GME affiliation agreements. In estimating the impact resulting from the exemption from application of the IRB ratio cap for home and host hospitals with valid emergency Medicare GME affiliation agreements, CMS' Office of the Actuary notes that it is nearly impossible to predict the occurrence of future emergencies, the magnitude of those emergencies, or how they would affect graduate medical education programs at teaching hospitals in a declared emergency area under section 1135 of the Act. However, for purposes of estimating the impact of the change to hospitals affected by Hurricanes Katrina and Rita, the Office of the Actuary estimates that the IRB ratio cap exemption for home and host hospitals will result in an additional cost of no more than $1 million per year for the remaining 2 years for which emergency Medicare GME affiliation agreements due to Hurricanes Katrina and Rita are permitted.
In section IV.H. of the preamble of this final rule, we discuss our revision of our regulations to clarify that CMS has the authority to require MA organizations to submit encounter data for each item and service provided to an MA plan enrollee. The revision also clarifies that CMS will determine the formats for submitting encounter data, which may be more abbreviated than those used for the Medicare fee-for-service claims data submission process. At this time, we have not yet determined an approach for submission of the encounter data. Therefore, we are not in a position to determine the extent to which the cost impact of submitting encounter data would differ from the current costs to MA organizations of submitting risk adjustment data.
In section IV.I. of the preamble of this final rule, we are clarifying our policy regarding the applicability of EMTALA to hospital inpatients. We are stating that when an individual covered by EMTALA is admitted as an inpatient and remains unstabilized with an emergency medical condition, a receiving hospital with specialized capabilities does not have an EMTALA obligation to accept that individual. In addition, we are making two changes related to the requirements for on-call physicians in hospital emergency departments. We are deleting the provision related to maintaining a list of on-call physicians from the EMTALA regulations at § 489.24(j)(1) and merging it with § 489.20(r)(2) because the requirement to maintain an on-call list is not found in the EMTALA statutory provision at section 1867 of the Act, but rather in section 1866 of the Act which outlines the requirements for provider agreements. We are incorporating the language of § 489.24(j)(1) as replacement language for the existing § 489.20(r)(2) and amending the regulatory language to make it more consistent with the statutory language found at section 1866(a)(1)(I)(iii) of the Act, which refers to provider agreements and the requirement to maintain an on-call list. These changes will make the regulations consistent with the statutory basis for maintaining an on-call list. In addition, we are amending our regulations to provide that hospitals may comply with the on-call list requirement by participating in a formal community call plan so long as the plan includes a number of elements that are specified in the final rule. Lastly, we are making a technical change to the regulations to conform them to the statutory language found in the Pandemic and All-Hazards Preparedness Act. These changes do not include any substantive new requirements. Although hospitals choosing to participate in a community call arrangement will be required to devise a formal community call plan, such a plan will increase a hospital's flexibility in meeting its on-call requirements. We are estimating no impact on Medicare expenditures and no significant impact on hospitals with emergency departments.
In section IV.K. of the preamble to this final rule, we discuss our implementation of section 410A of Public Law 108–173 that required the Secretary to establish a demonstration that will modify reimbursement for inpatient services for up to 15 small rural hospitals. Section 410A(c)(2) requires that “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” There are currently 13 hospitals participating in the demonstration; 4 of these hospitals were selected to participate in the demonstration as of July 1, 2008, as a result of our February 6, 2008 solicitation (73 FR 6971).
As discussed in section IV.K. of the preamble to this final rule, we are satisfying this requirement by adjusting national IPPS rates by a factor that is sufficient to account for the added costs of this demonstration. We estimate that the average additional annual payment for FY 2009 that will be made to each participating hospital under the demonstration will be approximately $1,753,106. We based this estimate on the recent historical experience of the difference between inpatient cost and payment for hospitals that are participating in the demonstration. We estimate that the total annual impact of the demonstration program for FY 2009 for the 13 participating hospitals will be $22,790,388. The adjustment factor to the Federal rate used in calculating Medicare inpatient prospective payments as a result of the demonstration is 0.999764.
In section VI.F. of the preamble of this final rule, we discuss our policy change to allow a HwH that, because of state law, cannot meet the criteria in regulations for a separate governing body solely because it is a State hospital occupying space with another State hospital or located on the same campus as another State hospital and both hospitals are under the same governing authority, or the governing authority of a third entity that controls both State hospitals, to nevertheless qualify for an exclusion from the IPPS if the hospital meets other applicable criteria for HwHs in the regulations and the specified criteria in this final rule. We are only aware of one hospital that would qualify for exclusion from the IPPS under the criteria and to expand its bed size under the provisions. Because any expansion would occur at some point in the future, we are unable to quantify the impact of this change.
In section VII. of the preamble of this final rule, we discuss revisions to the definition of a physician-owned hospital at § 489.3 to include hospitals that have ownership or investment interests by a physician and/or by an immediate family member of a physician. We are excepting from the definition of physician-owned hospital those hospitals that do not have at least one owner/investor who is either a physician who refers patients to the hospital or an immediate family member of a referring physician. We believe that the changes to the definition of physician-owned hospital will result in no more than a
We expect that under the final policy for an exception to the definition of physician-owned hospital, the number of hospitals that now are subject to the disclosure requirement may be reduced slightly as we understand that there are some hospitals that have no referring physician owner/investors but rather have physician owner/investors who have retired from the practice of medicine. Thus, for both of our final changes to the definition of physician-owned hospital, the net result may be no change, or a minimal increase or decrease in the number of hospitals that are subject to the disclosure requirement. Finally, by changing the definition of physician-owned hospital to encompass immediate family members, we believe that some hospitals that already meet the definition based on the investment of referring physicians may have to amend their list of physician owner/investors to add immediate family members, which we believe will be a minimal burden.
As specified in section VII. of the preamble of this final rule, and in new § 489.20(u)(1), the list of the hospital's owners or investors who are physicians or immediate family members of physicians must be provided to the patient at the time the request for the list is made by or on behalf of the patient. We note that hospitals are already currently required to furnish the list of physician owners or investors and, thus, we believe that the impact of stipulating a timeframe for furnishing the list is negligible. Also specified in section VII. of this final rule, in new 489.20(u)(2), all hospitals must require that all physician owners who also are members of the hospital's medical staff to agree, as a condition of continued medical staff membership or admitting privileges, to disclose, in writing, to all patients they refer to the hospital any ownership or investment interest that is held by themselves or by an immediate family member (as defined in § 411.351). Disclosure will be required at the time the referral is made. Both hospitals and physicians will participate in the disclosure process. We believe this requirement will have a minimal financial impact on physician-owned hospitals to the extent that it may require them to change their by-laws or make similar changes. We are collectively referring to the requirements of §§ 489.20(u)(1) and (u)(2) as “physician ownership disclosure requirements.”
We do not anticipate that these policy changes discussed in section VII. of the preamble of this final rule will have a significant economic impact on a substantial number of physicians, other health care providers and suppliers, or the Medicare or Medicaid programs and their beneficiaries. Specifically, we believe that this final rule will affect mostly hospitals, physicians, and beneficiaries. The changes concerning both the definition of a physician-owned hospital and the disclosure of physician ownership in hospitals are consistent with the physician self-referral statute and regulations as well as the current practices of most hospitals. Thus, our requirement that the list of physician owners be provided to the patient at the time the request for the list is made by or on behalf of the patient will present a negligible economic impact on the hospital. Similarly, the cost borne by individual physicians to implement these provisions will be limited to a one-time cost associated with developing a disclosure notice that will be shared with patients at the time the referral is made in addition to the negligible time associated with providing the list to the patient and maintaining a copy of the notice in the patient's medical record.
Also specified in section VII. of the preamble of this final rule, new § 489.20(w) requires that hospitals and CAHs furnish written notice to all patients at the beginning of their hospital or outpatient visit if a physician is not available 24 hours per day, 7 days per week and describe how the hospital will meet the medical needs of any patient who develops an emergency medical condition at a time when there is no physician present in the hospital. We referred to this requirement in section VII. of the preamble of this final rule as the “physician availability disclosure requirement.” This requirement was finalized in the FY 2008 IPPS final rule and previously located at § 489.20(v). Thus, there is no impact associated with this requirement.
In section VII. of the preamble of this final rule, we discuss revisions to § 489.53(c) to establish additional bases for terminating the Medicare provider agreement. In the case of a physician-owned hospital, as defined at § 489.3, CMS may terminate the provider agreement if the hospital failed to comply with the requirements of § 489.20(u) or (w). In the case of a participating hospital, as defined at § 489.24, CMS may terminate the provider agreement if the participating hospital failed to comply with the requirements of § 489.20(w). We believe that the cost borne by hospitals to implement these requirements will be limited to a one-time cost associated with completing minor revisions to the hospital's policies and procedures to comply with the requirements of its Medicare provider agreement. Most hospitals have standard procedures to satisfy CMS by correcting deficiencies (such as the failure to furnish notice of physician ownership in the hospital to patients) before action is taken by CMS to terminate the Medicare provider agreement.
Overall, we believe that beneficiaries will be positively impacted by these provisions. Specifically, disclosure of physician ownership or investment interests equips patients to make informed decisions about where they elect to receive care. These policies make no significant changes that have the potential to impede patient access to health care facilities and services. In fact, we believe that our policies will help minimize anti-competitive behavior that can affect the decision as to where a beneficiary receives health care services and possibly the quality of the services furnished.
In section VIII. of the preamble of this final rule, we discuss changes in our policies pertaining to physician self-referral provisions, including: “Stand in the shoes,” period of disallowance, alternative method of compliance with certain exceptions, percentage-based compensation, unit of service (“per-click”) payments in lease arrangements, services provided “under arrangements,” exception for obstetrical malpractice insurance subsidies, ownership or investment interest in retirement plans, and burden of proof. We do not anticipate that these final policies will have a significant impact on physicians, other health care providers and suppliers, or the Medicare or Medicaid programs and their beneficiaries.
With respect to the policies pertaining to the physician “stand in the shoes” provisions, we do not anticipate that entities that have financial relationships with one or more physician organizations will find it necessary to restructure those relationships. We believe that compliance with the “stand in the shoes” provisions will be made easier by simplifying the required analysis of arrangements in which a physician organization is interposed between the referring physician and the entity furnishing DHS. We are not finalizing our proposal to make an entity “stand in the shoes,” whereby an entity that furnishes DHS would have been deemed to stand in the shoes of an organization in which it has a 100-percent ownership interest and would have been deemed to have the same compensation arrangements with the same parties and on the same terms as does the organization that it owns. In not finalizing this proposal, we anticipate no additional impact on the industry.
Our policy pertaining to the period of disallowance is a codification of what we believe is existing law and reflects what we believe most entities furnishing DHS are already following. Therefore, we do not anticipate a significant economic impact on the industry.
The following policies set forth in section VIII. of the preamble of this final rule pertain to the expansion of physician self-referral exceptions; exception for obstetrical malpractice insurance subsidies, ownership or investment interest in retirement plans, and alternative method of compliance with certain exceptions. To the extent that expanded exceptions permit additional legitimate arrangements to comply with the law, this rule will reduce the potential costs of restructuring such arrangements, and the consequences of noncompliance may be avoided entirely.
We anticipate that our remaining physician self-referral policies set forth in section VIII. of the preamble of this final rule will result in savings to the program by reducing overutilization and anti-competitive business arrangements. We cannot gauge with any
As discussed in section IX. of the preamble to this final rule, 500 hospitals will be required to furnish information concerning their financial relationships with their physicians. The financial relationships include ownership and investment interests and compensation arrangements. This information will be submitted in a collection of information instrument that CMS has developed—the “DFRR.” We are unable to quantify the number of physicians who have ownership and investment interests and compensation arrangements with hospitals. Even if we assume that the 500 or less hospitals have a substantial number of financial relationships with physicians, we believe that, in general, the economic impact on these hospitals would not be substantial. Because the physician information requested in the DFRR will be on file at the hospital, we believe there should be negligible, if any, impact upon physicians or other health care providers or suppliers. Specifically, we believe that the cost to complete the DFRR for each hospital would be approximately $4,080, and the total cost burden for the industry would be approximately $2,040,000.
We expect that this final rule may result in savings to the Medicare program by minimizing anti-competitive business arrangements as well as financial incentives that encourage overutilization. In addition, to the extent that we determine that any arrangements are noncompliant with the physician self-referral statute and regulations, there may be monies returned to the Medicare Trust Fund. We cannot gauge with any certainty the extent of these savings to the Medicare program at this time. Finally, we do not anticipate any financial burden on beneficiaries or impact on beneficiary access to medically necessary services because the completion of the DFRR would be conducted by hospitals.
Currently, an SCH is paid under the IPPS based on whichever of the following rates yields the greatest aggregate payment for the cost reporting period: The Federal payment rate applicable to IPPS hospitals or the hospital-specific rate based on FY 1982, FY 1987, or FY 1996 updated costs per discharge. As discussed in section IV.D.2. of the preamble of this final rule, section 122 of Public Law 110–275, effective for cost reporting periods beginning on or after January 1, 2009, an SCH's hospital-specific rate will be based on its costs per discharge in FY 2006 if greater than the hospital-specific rates based on its costs in FY 1982, FY 1987, or FY 1986, or the IPPS rate based on the standardized amount.
In this final rule, we are incorporating this self-implementing provision of section 122 of Public Law 110–275 in our regulations.
At this time, many FY 2006 cost reports have not as yet been settled by the Medicare fiscal intermediary/MAC. Therefore, we are unable to determine with any degree of accuracy a hospital's FY 2006 costs per discharge. Because we cannot determine whether the use of the SCH's hospital-specific rate based on its FY 2006 cost report would yield the greatest aggregate payment for the cost reporting period, we are unable to determine which SCHs would benefit from this provision. However, we note that, in scoring the provision of section 112 of Public Law 110–275, the CMS Office of the Actuary estimated the cost of this provision to be $140 million for 2009 from its effective date in January 2009 through the end of FY 2009 (September 30, 2009) and the 5-year impact for FYs 2009 through 2013 to be $2.74 billion (per FY in millions: $140 in 2009, $550 in 2010, $640 in 2011, $680 in 2012, and $730 in 2013).
Fiscal year (FY) 2001 was the last year of the 10-year transition period established to phase in the PPS for hospital capital-related costs. During the transition period, hospitals were paid under one of two payment methodologies: fully prospective or hold harmless. Under the fully prospective methodology, hospitals were paid a blend of the capital Federal rate and their hospital-specific rate (see § 412.340). Under the hold-harmless methodology, unless a hospital elected payment based on 100 percent of the capital Federal rate, hospitals were paid 85 percent of reasonable costs for old capital costs (100 percent for SCHs) plus an amount for new capital costs based on a proportion of the capital Federal rate (see § 412.344). As we state in section V. of the preamble of this final rule, with the 10-year transition period ending with hospital cost reporting periods beginning on or after October 1, 2001 (FY 2002), beginning in FY 2002 capital prospective payment system payments for most hospitals are based solely on the capital Federal rate. Therefore, we no longer include information on obligated capital costs or projections of old capital costs and new capital costs, which were factors needed to calculate payments during the transition period, for our impact analysis.
The basic methodology for determining a capital IPPS payment is set forth at § 412.312. The basic methodology for calculating capital IPPS payments in FY 2009 is as follows: (Standard Federal Rate) × (DRG weight) × (GAF) × (COLA for hospitals located in Alaska and Hawaii) × (1 + DSH Adjustment Factor + IME Adjustment Factor, if applicable).
We note that, in accordance with § 412.322(c), the IME adjustment factor for FY 2009 is equal to half of the current adjustment, as discussed in section V.B.2. of the preamble of this final rule. In addition, hospitals may also receive outlier payments for those cases that qualify under the threshold established for each fiscal year.
The data used in developing the impact analysis presented below are taken from the March 2008 update of the FY 2007 MedPAR file and the March 2008 update of the Provider-Specific File that is used for payment purposes. Although the analyses of the changes to the capital prospective payment system do not incorporate cost data, we used the March 2008 update of the most recently available hospital cost report data (FYs 2005 and 2006) to categorize hospitals. Our analysis has several qualifications. We use the best data available and make assumptions about case-mix and beneficiary enrollment as described below. In addition, as discussed in section III. of the Addendum to this final rule, as we established for FY 2008, we are adjusting the national capital rate to account for improvements in documentation and coding under the MS–DRGs in FY 2009. (As discussed in section III.A.6. of the Addendum to this final rule, we are not adjusting the Puerto Rico specific capital rate to account for improvements in documentation and coding under the MS–DRGs in FY 2009.) Furthermore, due to the interdependent nature of the IPPS, it is very difficult to precisely quantify the impact associated with each change. In addition, we draw upon various sources for the data used to categorize hospitals in the tables. In some cases (for instance, the number of beds), there is a fair degree of variation in the data from different sources. We have attempted to construct these variables with the best available sources overall. However, for individual hospitals, some miscategorizations are possible.
Using cases from the March 2008 update of the FY 2007 MedPAR file, we simulated payments under the capital PPS for FY 2008 and FY 2009 for a comparison of total payments per case. Any short-term, acute care hospitals not paid under the general IPPS (Indian Health Service hospitals and hospitals in Maryland) are excluded from the simulations. As discussed in section III.A. of the Addendum to this final rule, section 124 of Public Law 110–275 extends, through FY 2009, wage index reclassifications under section 508 of Public Law 108–173 and special exceptions contained in the final rule published in the
As we explain in section III.A. of the Addendum to this final rule, payments are no longer made under the regular exceptions provision under §§ 412.348(b) through (e). Therefore, we no longer use the actuarial capital cost model (described in Appendix B of the August 1, 2001 proposed rule (66 FR 40099)). We modeled payments for each hospital by multiplying the capital Federal rate by the GAF and the hospital's case-mix. We then added estimated payments for indirect medical education (which are reduced by 50 percent in FY 2009 in
• We estimate that the Medicare case-mix index will increase by 1.0 percent in both FYs 2008 and 2009. (We note that this does not reflect the expected growth in case-mix due to improvement in documentation and coding under the MS–DRGs, as discussed below.)
• We estimate that the Medicare discharges will be approximately 13 million in both FY 2008 and FY 2009.
• The capital Federal rate was updated beginning in FY 1996 by an analytical framework that considers changes in the prices associated with capital-related costs and adjustments to account for forecast error, changes in the case-mix index, allowable changes in intensity, and other factors. As discussed in section III.A.2.1. of the Addendum to this final rule, the FY 2009 update is 0.9 percent.
• In addition to the FY 2009 update factor, the FY 2009 capital Federal rate was calculated based on a GAF/DRG budget neutrality factor of 1.0010, an outlier adjustment factor of 0.9465, and an exceptions adjustment factor of 0.9999.
• For FY 2009, as discussed in section III.A. of the Addendum to this final rule, the FY 2009 national capital rate was further adjusted by a factor to account for anticipated improvements in documentation and coding that are expected to increase case-mix under the MS–DRGs. In the FY 2008 IPPS final rule with comment period (72 FR 47186), we established adjustments to the IPPS rates based on the Office of the Actuary projected case-mix growth resulting from improved documentation and coding of 1.2 percent for FY 2008, 1.8 percent for FY 2009, and 1.8 percent for FY 2010. However, we reduced the documentation and coding adjustment to −0.6 percent for FY 2008, and for FY 2009, we are applying an adjustment of 0.9 percent, consistent with section 7 of Public Law 110–90. As noted above and as discussed in section III.A.6. of the Addendum to this final rule, we are not adjusting the Puerto Rico-specific capital rate to account for improvements in documentation and coding under the MS–DRGs in FY 2009.
We used the actuarial model described above to estimate the potential impact of our changes for FY 2009 on total capital payments per case, using a universe of 3,538 hospitals. As described above, the individual hospital payment parameters are taken from the best available data, including the March 2008 update of the FY 2007 MedPAR file, the March 2008 update to the PSF, and the most recent cost report data from the March 2008 update of HCRIS. In Table III, we present a comparison of estimated total payments per case for FY 2008 compared to FY 2009 based on the FY 2009 payment policies. Column 2 shows estimates of payments per case under our model for FY 2008. Column 3 shows estimates of payments per case under our model for FY 2009. Column 4 shows the total percentage change in payments from FY 2008 to FY 2009. The change represented in Column 4 includes the 0.9 percent update to the capital Federal rate, other changes in the adjustments to the capital Federal rate (for example, the 50 percent reduction to the teaching adjustment for FY 2009), and the additional 0.9 percent reduction to the national capital rate to account for improvements in documentation and coding (or other changes in coding that do not reflect real changes in case-mix) for implementation of the MS–DRGs). Consistent with the impact analysis for the policy changes under the IPPS for operating costs in section VI. of this Appendix, for purposes of this impact analysis, we also assume a 1.8 percent increase in case-mix growth for FY 2009, as determined by the Office of the Actuary, because we believe the adoption of the MS–DRGs will result in case-mix growth due to documentation and coding changes that do not reflect real changes in patient severity of illness. The comparisons are provided by: (1) Geographic location; (2) region; and (3) payment classification.
The simulation results show that, on average, capital payments per case in FY 2009 are expected to increase as compared to capital payments per case in FY 2008. The capital rate for FY 2009 will decrease 0.51 percent as compared to the FY 2008 capital rate, and the changes to the GAFs are expected to result in a slight decrease (0.3 percent) in capital payments. In addition, the 50 percent reduction to the teaching adjustment in FY 2009 will also result in a decrease in capital payments from FY 2008 as compared to FY 2009. Countering these factors is the projected case-mix growth as a result of improved documentation and coding (discussed above) as well as an estimated increase in outlier payments in FY 2008 as compared to FY 2009. The net result of these changes is an estimated 0.4 percent change in capital payments per discharge from FY 2008 to FY 2009 for all hospitals (as shown below in Table III).
The results of our comparisons by geographic location and by region are consistent with the results we expected with the decrease to the teaching adjustment in FY 2009 (§ 412.522(c)). The geographic comparison shows that, on average, all urban hospitals are expected to experience a 0.4 percent increase in capital IPPS payments per case in FY 2009 as compared to FY 2008, while hospitals in large urban areas are expected to experience a 0.1 percent increase in capital IPPS payments per case in FY 2009 as compared to FY 2008. Capital IPPS payments per case for rural hospitals are expected to increase 1.0 percent. These differences in payments per case by geographic location are mostly due to the decrease in the teaching adjustment. Because teaching hospitals generally tend to be located in urban or large urban areas, we expect that the 50 percent decrease in the teaching adjustment for FY 2009 will have a more significant impact on hospitals in those areas than those hospitals located in rural areas.
Most regions are estimated to experience an increase in total capital payments per case from FY 2008 to FY 2009. These increases vary by region and range from a 2.8 percent increase in the Pacific urban region to a 0.4 percent increase in the West North Central urban region. Two urban regions are projected to experience a relatively larger decrease in capital payments, with the difference mostly due to changes in the GAFs and the 50 percent reduction in the teaching adjustment for FY 2009: −2.3 percent in the Middle Atlantic urban region and −2.6 percent in the New England urban region. The East North Central urban region is also expected to experience a decrease of 0.6 percent in capital payments in FY 2009 as compared to FY 2008, mostly due to changes in the GAFs. There are two rural regions that are also expected to experience a decrease in total capital payments per case: a −3.2 percent decrease in the New England rural region and a −0.6 percent decrease in the Middle Atlantic rural region. Again, for these two rural regions, the projected decrease in capital payments is mostly due to changes in the GAF, as well as a smaller than average expected increase in payments due to the adoption of the MS–DRGs.
By type of ownership, voluntary and proprietary hospitals are estimated to experience an increase of 0.2 percent and 2.0 percent, respectively. The projected increase in capital payments per case for proprietary hospitals is mostly because these hospitals are expected to experience a smaller than average decrease in their payments due to the 50 percent teaching adjustment reduction for FY 2009. Government hospitals are estimated to experience a decrease in capital payments per case of −0.3 percent. This estimated decrease in capital payments is mostly due to a larger than average decrease in payments resulting from the 50 percent teaching adjustment reduction for FY 2009.
Section 1886(d)(10) of the Act established the MGCRB. Before FY 2005, hospitals could apply to the MGCRB for reclassification for purposes of the standardized amount, wage index, or both. Section 401(c) of Public Law 108–173 equalized the standardized amounts under the operating IPPS. Therefore, beginning in FY 2005, there is no longer reclassification for the purposes of the standardized amounts; however, hospitals still may apply for reclassification for purposes of the wage index for FY 2009. Reclassification for wage index purposes also affects the GAFs because that factor is constructed from the hospital wage index.
To present the effects of the hospitals being reclassified for FY 2009, we show the average capital payments per case for reclassified hospitals for FY 2008. All classifications of reclassified hospitals are expected to experience an increase in payments in FY 2009 as compared to FY 2008. Rural nonreclassified hospitals are expected to have the smallest increase in capital payments of 0.3 percent, while rural reclassified hospitals are expected to have the largest increase in capital payments of 1.4 percent. Other reclassified hospitals (that is, hospitals reclassified under section 1886(d)(8)(B) of the Act) are expected to experience a 1.3 percent increase in capital payment from FY 2008 to FY 2009. The large than average increase in projected changes in capital payments for rural reclassified and other reclassified hospitals is mainly due to
This final rule contains a range of policies. The preamble of this final rule provides descriptions of the statutory provisions that are addressed, identifies those policies when discretion has been exercised, and presents rationale for our decisions and, where relevant, alternatives that were considered.
The changes we are making in this final rule will affect all classes of hospitals. Some hospitals are expected to experience significant gains and others less significant gains, but overall hospitals are projected to experience positive updates in IPPS payments in FY 2009. Table I of section VI. of this Appendix demonstrates the estimated distributional impact of the IPPS budget neutrality requirements for MS–DRG and wage index changes, and for the wage index reclassifications under the MGCRB. Table I also shows an overall increase of 4.7 percent in operating payments. We estimate operating payments to increase by $4.709 billion. This accounts for the projected savings associated with the HACs policy, which have an estimated savings of $21 million. In addition, this estimate includes the hospital reporting of quality data program costs for $2.39 million, the estimated new technology payments of $9.54 million, and all operating payment policies as described in section VII. of this Appendix. Capital payments are estimated to increase by 0.4 percent per case, as shown in Table III of section VIII. of this Appendix. Therefore, we project that the increase in capital payments in FY 2009 compared to FY 2008 will be approximately $40 million. The cumulative operating and capital payments should result in a net increase of $4.749 billion to IPPS providers. The discussions presented in the previous pages, in combination with the rest of this final rule, constitute a regulatory impact analysis.
As required by OMB Circular A–4 (available at
In accordance with the provisions of Executive Order 12866, the Office of Management and Budget reviewed this final rule.
Section 1886(e)(4)(A) of the Act requires that the Secretary, taking into consideration the recommendations of the MedPAC, recommend update factors for inpatient hospital services for each fiscal year that take into account the amounts necessary for the efficient and effective delivery of medically appropriate and necessary high quality care. Under section 1886(e)(5)(B) of the Act, we are required to publish update factors recommended by the Secretary in the proposed and final IPPS rules, respectively. Accordingly, this Appendix provides the final recommendations for the update factors for the IPPS national standardized amount, the Puerto Rico-specific standardized amount, the hospital-specific rates for SCHs and MDHs, and the rate-of-increase limits for hospitals and hospital units excluded from the IPPS, as well as LTCHS, IPFs, and IRFs. We also discuss our response to MedPAC's recommended update factors for inpatient hospital services.
Section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 5001(a) of Public Law 109–171, sets the FY 2009 percentage increase in the operating cost standardized amount equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to the hospital submitting quality information under rules established by the Secretary in accordance with 1886(b)(3)(B)(viii) of the Act. For hospitals that do not provide these data, the update is equal to the market basket percentage
This revision to the FY 2009 market basket increase is primarily due to the increase in prices associated with energy components, both primary and secondary. The price pressures with these secondary energy components (chemicals, rubber and plastics, accounting for 4.1 percent of the hospital market basket) are responsible for approximately 50 percent of the revision. Most of the increased price pressure in energy components is a result of changing fundamentals; that is, supply and demand. There is an increase in global demand for the commodity from emerging market countries, and there is an inability or lack of desire for oil-producing countries to increase supply. A secondary effect is an overall increase in many goods and commodity prices due to the weakness of the U.S. dollar, coupled with increased global demand.
Also contributing to the revision in the FY 2009 forecast of the IPPS market basket is the short-term price increase in the wages for hospital workers as a result of continued tightness in the market and pressure for providers to increase wages to keep pace with inflation. The health service sector has continued to show growth, unlike other service sectors that have seen a slackening in wage growth due to weakness in their labor markets.
Section 1886(d)(9)(C)(1) of the Act is the basis for determining the percentage increase to the Puerto Rico-specific standardized amount. In the proposed rule, we proposed to apply the full rate-of-increase in the hospital market basket for IPPS hospitals to the Puerto Rico-specific standardized amount. Because we did not receive any public comments on this proposal, for FY 2009, we are applying the full rate-of-increase in the hospital market basket for IPPS hospitals to the Puerto Rico-specific standardized amount. Therefore, the update to the Puerto Rico-specific standardized amount is 3.6 percent.
Section 1886(b)(3)(B)(iv) of the Act sets the FY 2009 percentage increase in the hospital-specific rates applicable to SCHs and MDHs equal to the rate set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS, or the rate-of-increase in the market basket). Therefore, the update to the hospital-specific rates applicable to SCHs and MDHs is 3.6, or 1.6 percent, depending upon whether the hospital submits quality data.
Section 1886(b)(3)(B)(ii) of the Act is used for purposes of determining the percentage increase in the rate-of-increase limits for children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of the Act sets the percentage increase in the rate-of-increase limits equal to the market basket percentage increase. In accordance with § 403.752(a) of the regulations, RNHCIs are paid under § 413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to update the percentage increase in the rate-of-increase limits. Section 1886(j)(3)(C) of the Act addresses the increase factor for the Federal prospective payment rate of IRFs. Section 123 of Public Law 106–113, as amended by section 307(b) of Public Law 106–554, provides the statutory authority for updating payment rates under the LTCH PPS. As discussed below, for cost reporting periods beginning on or after October 1, 2006, LTCHs that are not defined as new under § 412.23(e)(4), and that had not elected to be paid under 100 percent of the Federal rate are paid 100 percent of the adjusted Federal PPS rate. Therefore, because no portion of LTCHs' prospective payments will be based on reasonable cost concepts for cost reporting periods beginning on or after October 1, 2006, we are not establishing a rate-of-increase percentage to the reasonable cost portion for FY 2009 for LTCHs to be used under § 413.40. In addition, section 124 of Public Law 106–113 provides the statutory authority for updating all aspects of the payment rates for IPFs. Under this broad authority, IPFs that are not defined as new under § 412.426(c) are paid under a blended methodology for cost reporting periods beginning on or after January 1, 2005, and before January 1, 2008. For cost reporting periods beginning on or after January 1, 2008, existing IPFs are paid based on 100 percent of the Federal per diem rate. Therefore, because no portion of the existing IPFs prospective payments will be based on reasonable cost concepts for cost reporting periods beginning on or after January 1, 2008, we are not establishing a rate-of-increase percentage to the reasonable cost portion for FY 2009 for IPFs to be used under § 412.428(b). New IPFs are paid based on 100 percent of the Federal per diem payment amount.
Currently, children's hospitals, cancer hospitals, and RNHCIs are the remaining three types of hospitals still reimbursed under the reasonable cost methodology. We are providing our current estimate of the FY 2009 IPPS operating market basket percentage increase (3.6 percent) to update the target limits for children's hospitals, cancer hospitals, and RNHCIs.
Effective for cost reporting periods beginning on or after October 1, 2002, LTCHs have been paid under the LTCH PPS. Additionally, for cost reporting periods beginning on or after October 1, 2006, no portion of a LTCH's PPS payments can be based on reasonable cost concepts. Consequently, there is no need to update the target limit under § 413.40 effective October 1, 2008, for LTCHs.
In the RY 2009 LTCH PPS final rule (73 FR 26812), we established an update of 2.7 percent to the LTCH PPS Federal rate for RY 2009, which is based on a market basket increase of 3.6 percent and an adjustment of 0.9 percent to account for the increase in case-mix in a prior year that resulted from changes in coding practices rather than an increase in patient severity. The market basket of 3.6 percent used in determining this update factor is based on our final policy in the RY 2009 LTCH final rule to extend the LTCH RY 2009 by 3 months (a total of 15 months instead of 12 months) through September 30, 2009. (A full discussion of the reasons for this extension of RY 2009 can be found in the RY 2009 LTCH PPS final rule (73 FR 26797 through 26798).)
Effective for cost reporting periods beginning on or after January 1, 2005, IPFs are paid under the IPF PPS. IPF PPS payments are based on a Federal per diem rate that is derived from the sum of the average routine operating, ancillary, and capital costs for each patient day of psychiatric care in an IPF, adjusted for budget neutrality. For cost reporting periods beginning on or after January 1, 2005, and before January 1, 2008, existing IPFs (those not defined as “new” under § 412.426(c)) are paid based on a blend of the reasonable cost-based PPS payments and the Federal per diem base rate. For cost reporting periods beginning on or after January 1, 2008, existing IPFs are paid based on 100 percent of the Federal per diem rate. Consequently, there is no need to update the target limit under § 413.40 effective October 1, 2008, for IPFs.
IRFs are paid under the IRF PPS for cost reporting periods beginning on or after January 1, 2002. For cost reporting periods beginning on or after October 1, 2002 (FY 2003), and thereafter, the Federal prospective payments to IRFs are based on 100 percent of the adjusted Federal IRF prospective payment amount, updated annually (69 FR 45721). Section 1886(j)(3)(C) of the Act, as amended by section 115 of Public Law 110–173, sets the FY 2009 IRF PPS update factor equal to 0 percent. Thus, we are not applying an update (market basket) to the IRF PPS rates for FY 2009.
We did not receive any public comments on the market basket updates and, therefore, are finalizing the market basket updates for FY 2009.
MedPAC is recommending an inpatient hospital update equal to the market basket rate of increase for FY 2009. MedPAC's rationale for this update recommendation is described in more detail below. Based on the FY 2009 President's Budget, we are recommending an inpatient hospital update to the standardized amount of zero percent. We are recommending that this same update factor also apply to SCHs and MDHs.
Section 1886(d)(9)(C)(1) of the Act is the basis for determining the percentage increase to the Puerto Rico-specific standardized amount. As noted above, for FY 2009, we are applying the full rate-of-increase in the hospital market basket for IPPS hospitals to the Puerto Rico-specific standardized amount. Therefore, the update to the Puerto Rico-specific standardized amount is 3.6 percent.
In addition to making a recommendation for IPPS hospitals, in accordance with section 1886(e)(4)(A) of the Act, we are also recommending update factors for all other types of hospitals. Consistent with the President's Budget, we are recommending an update similar to the IPPS update of zero percent for children's hospitals, cancer hospitals, and RNHCIs. As mentioned above, for cost reporting periods beginning on or after January 1, 2008, existing IPFs are paid based on 100 percent of the Federal per diem rate (and are no longer paid a blend of the reasonable cost-based PPS payments and the Federal per diem base rate). Consequently, we are no longer recommending an update factor for the portion of the payment that is based on reasonable costs. Consistent with the President's Budget, as we implemented in a
In the RY 2009 LTCH PPS final rule (73 FR 26812), we established an update of 2.7 percent to the LTCH PPS Federal rate for RY 2009, which is based on a market basket increase of 3.6 percent and an adjustment of 0.9 percent to account for the increase in case-mix in a prior year that resulted from changes in coding practices rather than an increase in patient severity. The market basket of 3.6 percent used in determining this final update factor is based on our final policy in the LTCH final rule to extend the LTCH RY 2009 by 3 months (a total of 15 months instead of 12 months) through September 30, 2009. (A full discussion on the reasons for this extension of RY 2009 can be found in the RY 2009 LTCH PPS final rule (73 FR 26797 through 26798).) Finally, consistent with the President's FY 2009 Budget, we are recommending a zero percent update to the IRF PPS Federal rate for FY 2009.
In its March 2008 Report to Congress, MedPAC assessed the adequacy of current payments and costs, and the relationship between payments and an appropriate cost base, utilizing an established methodology used by MedPAC in the past several years.
MedPAC recommended an update to the hospital inpatient rates equal to the increase in the hospital market basket in FY 2009, concurrent with implementation of a quality incentive program. Similar to last year, MedPAC also recommended that CMS put pressure on hospitals to control their costs rather than accommodate the current rate of cost growth, which is, in part, caused by a lack of pressure from private payers.
MedPAC noted that indicators of payment adequacy are almost uniformly positive. MedPAC expects Medicare margins to remain low in 2008. At the same time though, MedPAC's analysis finds that hospitals with low non-Medicare profit margins have below average standardized costs and most of these facilities have positive overall Medicare margins.
As discussed in section II. of the preamble of this final rule, CMS implemented the MS–DRGs in FY 2008 to better account for severity of illness under the IPPS and is basing the DRG weights on costs rather than charges. We continue to believe that these refinements will better match Medicare payment of the cost of care and provide incentives for hospitals to be more efficient in controlling costs.
We note that, because the operating and capital prospective payment systems remain separate, we are continuing to use separate updates for operating and capital payments. The final update to the capital rate is discussed in section III. of the Addendum to this final rule.