Medicare Program: Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Long Term Care Hospital Prospective Payment System, etc.

 
CONTENT

Federal Register: May 4, 2010 (Volume 75, Number 85)

Proposed Rules

Page 23851-24322

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr04my10-32

Page 23851

Part II

Book 2 of 2 Books

Pages 23851-24362

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, et al.

Medicare Program; Proposed Rule

Page 23852

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services 42 CFR Parts 412, 413, 440, 441, 482, 485, and 489

CMS-1498-P

RIN 0938-AP80

Medicare Program; Proposed Changes to the Hospital Inpatient

Prospective Payment Systems for Acute Care Hospitals and the Long-Term

Care Hospital Prospective Payment System and Proposed Fiscal Year 2011

Rates; Effective Date of Provider Agreements and Supplier Approvals; and Hospital Conditions of Participation for Rehabilitation and

Respiratory Care Services Medicaid Program: Accreditation Requirements for Providers of Inpatient Psychiatric Services for Individuals Under

Age 21

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

ACTION: Proposed rule.

SUMMARY: We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems. In addition, in the Addendum to this proposed rule, we describe the proposed changes to the amounts and factors used to determine the rates for Medicare acute care hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2010. We also are setting forth the proposed update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The proposed updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2010.

We are proposing to update the payment policy and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals

(LTCHs). In the Addendum to this proposed rule, we also set forth the proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS. These proposed changes would be applicable to discharges occurring on or after October 1, 2010.

We are proposing changes affecting the Medicare conditions of participation for hospitals relating to the types of practitioners who may provide rehabilitation services and respiratory care services.

We are proposing changes affecting the determination of the effective date of provider agreements and supplier approvals under

Medicare.

Finally, we are proposing to offer psychiatric hospitals, hospitals with inpatient psychiatric programs, and psychiatric facilities that are not hospitals increased flexibility in obtaining accreditation to participate in the Medicaid program. Psychiatric hospitals would have the choice of meeting the existing regulatory requirements to participate in Medicare as a psychiatric hospital or to obtaining accreditation from a national accrediting organization whose psychiatric hospital accrediting program has been approved by CMS.

Hospitals with inpatient psychiatric programs would have the choice of meeting the existing regulatory requirements for participation in

Medicare as a hospital or obtaining accreditation from a national accrediting organization whose hospital accreditation program has been approved by CMS. In addition, psychiatric facilities that are not hospitals would be afforded the flexibility in obtaining accreditation by a national accrediting organization whose program has been approved by CMS, or by any other accrediting organization with comparable standards that is recognized by the State.

DATES: To be assured consideration, comments on this proposed rule must be received at one of the addresses provided below, no later than 5 p.m. Eastern Daylight Time (E.D.T.) on June 18, 2010.

ADDRESSES: When commenting on issues presented in this proposed rule, please refer to file code CMS-1498-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed): 1. Electronically. You may submit electronic comments on this regulation at http://www.regulations.gov. Follow the instructions for

``Comment or Submission'' and enter the file code CMS-1498-P to submit comments on this proposed rule. 2. By regular mail. You may mail written comments (one original and two copies) to the following address only: Centers for Medicare &

Medicaid Services, Department of Health and Human Services, Attention:

CMS-1498-P, P.O. Box 8011, Baltimore, MD 21244-1850.

Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments (one original and two copies) to the following address only: Centers for

Medicare & Medicaid Services, Department of Health and Human Services,

Attention: CMS-1498-P, Mail Stop C4-26-05, 7500 Security Boulevard,

Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to either of the following addresses: a. Room 445-G, Hubert H. Humphrey Building, 200 Independence

Avenue, SW., Washington, DC 20201.

(Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.) b. 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

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

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-

Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs,

Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and

Technology Add-On Payments, Hospital Geographic Reclassifications,

Acute Care Transfers, Capital Prospective Payment, Excluded Hospitals,

Direct and Indirect Graduate Medical Education Payments,

Disproportionate Share Hospital (DSH), and Critical Access Hospital

(CAH) Issues.

Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590,

Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG

Relative Weights Issues.

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Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital

Demonstration Program Issues.

James Poyer, (410) 786-2261, Reporting of Hospital Quality Data for

Annual Payment Update--Program Administration, Validation, and

Reconsideration Issues.

Shaheen Halim, (410) 786-0641, Reporting of Hospital Quality Data for Annual Payment Update--Measures Issues Except Hospital Consumer

Assessment of Healthcare Providers and Systems.

Elizabeth Goldstein, (410) 786-6665 Reporting of Hospital Quality

Data for Annual Payment Update--Hospital Consumer Assessment of

Healthcare Providers and Systems Measures Issues.

Marcia Newton, (410-786-5265) and CDR Scott Cooper (U.S. Public

Health Service), (410) 786-9465, Hospital Conditions of Participation for Rehabilitation Services and Respiratory Therapy Care Issues.

Marilyn Dahl, (410) 786-8665, Provider Agreement and Supplier

Approval Issues.

Melissa Harris, (410) 786-3397 or Adrienne Delozier, (410) 786- 0278, Accreditation of Providers of Inpatient Psychiatric Services to

Individuals under Age 21 Issues.

SUPPLEMENTARY INFORMATION:

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

Comments received timely will also be available for public inspection, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare &

Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244,

Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

This Federal Register document is also available from the Federal

Register online database through GPO Access, a service of the U.S.

Government Printing Office. Free public access is available on a Wide

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Acronyms 3M 3M Health Information System

AAHKS American Association of Hip and Knee Surgeons

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

AHA American Hospital Association

AHIC American Health Information Community

AHIMA American Health Information Management Association

AHRQ Agency for Healthcare Research and Quality

ALOS Average length of stay

ALTHA Acute Long Term Hospital Association

AMA American Medical Association

AMGA American Medical Group Association

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis Related Group System

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

ASC Ambulatory surgical center

ASCA Administrative Simplification Compliance Act of 2002, Public

Law 107-105

ASITN American Society of Interventional and Therapeutic

Neuroradiology

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

BBRA Medicare, Medicaid, and SCHIP [State Children's Health

Insurance Program] Balanced Budget Refinement Act of 1999, Public

Law 106-113

BIC Beneficiary Identification Code

BIPA Medicare, Medicaid, and SCHIP [State Children's Health

Insurance Program] Benefits Improvement and Protection Act of 2000,

Public Law 106-554

BLS Bureau of Labor Statistics

CAH Critical access hospital

CARE [Medicare] Continuity Assessment Record & Evaluation

Instrument

CART CMS Abstraction & Reporting Tool

CBSAs Core-based statistical areas

CC Complication or comorbidity

CCR Cost-to-charge ratio

CDAC [Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CIPI Capital input price index

CMI Case-mix index

CMS Centers for Medicare & Medicaid Services

CMSA Consolidated Metropolitan Statistical Area

COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99- 272

COLA Cost-of-living adjustment

CoP [Hospital] condition of participation

CPI Consumer price index

CRNA Certified Registered Nurse Anesthetist

CY Calendar year

DPP Disproportionate patient percentage

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

DRG Diagnosis-related group

DSH Disproportionate share hospital

ECI Employment cost index

EDB [Medicare] Enrollment Database

EMR Electronic medical record

FAH Federation of Hospitals

FDA Food and Drug Administration

FFY Federal fiscal year

FHA Federal Health Architecture

FIPS Federal information processing standards

FQHC Federally qualified health center

FTE Full-time equivalent

FY Fiscal year

GAAP Generally Accepted Accounting Principles

GAF Geographic Adjustment Factor

GME Graduate medical education

HACs Hospital-acquired conditions

HCAHPS Hospital Consumer Assessment of Healthcare Providers and

Systems

HCFA Health Care Financing Administration

HCO High-cost outlier

HCRIS Hospital Cost Report Information System

HHA Home health agency

HHS Department of Health and Human Services

HICAN Health Insurance Claims Account Number

HIPAA Health Insurance Portability and Accountability Act of 1996,

Pub. L. 104-191

HIPC Health Information Policy Council

HIS Health information system

HIT Health information technology

HMO Health maintenance organization

HPMP Hospital Payment Monitoring Program

HSA Health savings account

HSCRC [Maryland] Health Services Cost Review Commission

HSRV Hospital-specific relative value

HSRVcc Hospital-specific relative value cost center

HQA Hospital Quality Alliance

HQI Hospital Quality Initiative

HwH Hospital-within-a-hospital

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

Clinical Modification

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

Clinical Modification

ICD-10-PCS International Classification of Diseases, Tenth Revision,

Procedure Coding System

ICR Information collection requirement

IHS Indian Health Service

IME Indirect medical education

I-O Input-Output

IOM Institute of Medicine

IPF Inpatient psychiatric facility

IPPS [Acute care hospital] inpatient prospective payment system

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IRF Inpatient rehabilitation facility

LAMCs Large area metropolitan counties

LOS Length of stay

LTC-DRG Long-term care diagnosis-related group

LTCH Long-term care hospital

MA Medicare Advantage

MAC Medicare Administrative Contractor

MCC Major complication or comorbidity

MCE Medicare Code Editor

MCO Managed care organization

MCV Major cardiovascular condition

MDC Major diagnostic category

MDH Medicare-dependent, small rural hospital

MedPAC Medicare Payment Advisory Commission

MedPAR Medicare Provider Analysis and Review File

MEI Medicare Economic Index

MGCRB Medicare Geographic Classification Review Board

MIEA-TRHCA Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Pub. L. 109-432

MIPPA Medicare Improvements for Patients and Providers Act of 2008,

Pub. L. 110-275

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173

MPN Medicare provider number

MRHFP Medicare Rural Hospital Flexibility Program

MRSA Methicillin-resistant Staphylococcus aureus

MSA Metropolitan Statistical Area

MS-DRG Medicare severity diagnosis-related group

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

NAICS North American Industrial Classification System

NALTH National Association of Long Term Hospitals

NCD National coverage determination

NCHS National Center for Health Statistics

NCQA National Committee for Quality Assurance

NCVHS National Committee on Vital and Health Statistics

NECMA New England County Metropolitan Areas

NP Nurse practitioner

NQF National Quality Forum

NTIS National Technical Information Service

NTTAA National Technology Transfer and Advancement Act of 1991 (Pub.

L. 104-113)

NVHRI National Voluntary Hospital Reporting Initiative

OACT [CMS'] Office of the Actuary

OBRA 86 Omnibus Budget Reconciliation Act of 1996, Pub. L. 99-509

OES Occupational employment statistics

OIG Office of the Inspector General

OMB Executive Office of Management and Budget

OPM U.S. Office of Personnel Management

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PA Physician assistant

PIP Periodic interim payment

PLI Professional liability insurance

PMSAs Primary metropolitan statistical areas

POA Present on admission

PPACA Patient Protection and Affordable Care Act, Pub. L. 111-148

PPI Producer price index

PPS Prospective payment system

PRM Provider Reimbursement Manual

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

PRTFs Psychiatric residential treatment facilities

PSF Provider-Specific File

PS&R Provider Statistical and Reimbursement (System)

QIG Quality Improvement Group, CMS

QIO Quality Improvement Organization

RCE Reasonable compensation equivalent

RHC Rural health clinic

RHQDAPU Reporting hospital quality data for annual payment update

RNHCI Religious nonmedical health care institution

RPL Rehabilitation psychiatric long-term care (hospital)

RRC Rural referral center

RTI Research Triangle Institute, International

RUCAs Rural-urban commuting area codes

RY Rate year

SAF Standard Analytic File

SCH Sole community hospital

SFY State fiscal year

SIC Standard Industrial Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications

SOM State Operations Manual

SSN Social Security number

SSO Short-stay outlier

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

TEP Technical expert panel

TMA TMA [Transitional Medical Assistance], Abstinence Education, and

QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 110-90

UHDDS Uniform hospital discharge data set

Table of Contents

I. Background

A. Summary 1. Acute Care Hospital Inpatient Prospective Payment System

(IPPS) 2. Hospitals and Hospital Units Excluded From the IPPS 3. Long-Term Care Hospital Prospective Payment System (LTCH PPS) 4. Critical Access Hospitals (CAHs) 5. Payments for Graduate Medical Education (GME)

B. Provisions of the Patient Protection and Affordable Care Act

(Pub. L. 111-148), as Amended by the Health Care and Education

Reconciliation Act of 2010 (Pub. L. 111-152)

C. Major Content of This Proposed Rule 1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights 2. Proposed Changes to the Hospital Wage Index for Acute Care

Hospitals 3. Other Decisions and Proposed Changes to the IPPS for

Operating Costs and GME Costs 4. Proposed FY 2011 Policy Governing the IPPS for Capital-

Related Costs 5. Proposed Changes to the Payment Rates for Certain Excluded

Hospitals: Rate-of-Increase Percentages 6. Proposed Changes to the LTCH PPS 7. Proposed Changes Relating to Effective Date of Provider

Agreements and Supplier Approvals 8. Proposed Changes to Medicare Conditions of Participation

Affecting Hospital Rehabilitation Services and Respiratory Care

Services 9. Proposed Changes to the Accreditation Requirements for

Medicaid Providers of Inpatient Psychiatric Services for Individuals under Age 21 10. Determining Proposed Prospective Payment Operating and

Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals 11. Determining Proposed Prospective Payments Rates for LTCHs 12. Impact Analysis 13. Recommendation of Update Factors for Operating Cost Rates of

Payment for Hospital Inpatient Services 14. Discussion of Medicare Payment Advisory Commission

Recommendations

E. Interim Final Rule With Comment Period That Implemented

Certain Provisions of the ARRA Relating to Payments to LTCHs and

LTCH Satellite Facilities

II. Proposed Changes to Medicare Severity Diagnosis-Related Group

(MS-DRG) Classifications and Relative Weights

A. Background

B. MS-DRG Reclassifications 1. General 2. Yearly Review for Making MS-DRG Changes

C. Adoption of the MS-DRGs in FY 2008

D. Proposed FY 2011 MS-DRG Documentation and Coding Adjustment,

Including the Applicability to the Hospital-Specific Rates and the

Puerto Rico-Specific Standardized Amount 1. Background on the Prospective MS-DRG Documentation and Coding

Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90 2. Prospective Adjustment to the Average Standardized Amounts

Required by Section 7(b)(1)(A) of Public Law 110-90 3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012

Required by Public Law 110-90 4. Retrospective Evaluation of FY 2008 Claims Data 5. Retrospective Analysis of FY 2009 Claims Data 6. Prospective Adjustment for FY 2010 and Subsequent Years

Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act 7. Recoupment or Repayment Adjustment for FY 2010 Authorized by

Section 7(b)(1)(B) of Public Law 110-90 8. Background on the Application of the Documentation and Coding

Adjustment to the Hospital-Specific Rates 9. Proposed Documentation and Coding Adjustment to the Hospital-

Specific

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Rates for FY 2011 and Subsequent Fiscal Years 10. Background on the Application of the Documentation and

Coding Adjustment to the Puerto Rico-Specific Standardized Amount 11. Proposed Documentation and Coding Adjustment to the Puerto

Rico-Specific Standardized Amount

E. Refinement of the MS-DRG Relative Weight Calculation 1. Background a. Summary of FY 2009 Changes and Discussion for FY 2011 b. Summary of the RAND Corporation Study of Alternative Relative

Weight Methodologies 2. Proposals for FY 2011 and Timeline for Changes to the

Medicare Cost Report

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

Infections 1. Background a. Statutory Authority b. HAC Selection c. Collaborative Process d. Application of HAC Payment Policy to MS-DRG Classifications e. Public Input Regarding Selected and Potential Candidate HACs f. POA Indicator Reporting 2. Proposed HAC Conditions for FY 2011 3. RTI Program Evaluation Summary a. Background b. Preliminary RTI Analysis on POA Indicator Reporting Across

Medicare Discharges c. Preliminary RTI Analysis on POA Indicator Reporting of

Current HACs d. Preliminary RTI Analysis of Frequency of Discharges and POA

Indicator Reporting for Current HACs e. Preliminary RTI Analysis of Circumstances When Application of

HAC Provisions Would Not Result in MS-DRG Reassignment for Current

HACs f. Preliminary RTI Analysis of Coding Changes for HAC-Associated

Secondary Diagnoses for Current HACs g. Preliminary RTI Analysis of Estimated Net Savings for Current

HACs h. Previously Considered Candidate HACs--Preliminary RTI

Analysis of Frequency of Discharges and POA Indicator Reporting i. Current and Previously Considered Candidate HACs--RTI Report on Evidence-Based Guidelines j. Proposals Regarding Current HACs and Previously Considered

Candidate HACs

G. Proposed Changes to Specific MS-DRG Classifications 1. Pre-Major Diagnostic Categories (MDCs a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous

Pancreas/Kidney Transplant) b. Bone Marrow Transplants 2. MDC 1 (Nervous System): Administration of Tissue Plasminogen

Activator (tPA) (rtPA) 3. MDC 5 (Diseases and Disorders of the Circulatory System):

Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray

Coronary Angiography in Coronary Artery Bypass Graft Surgery a. New MS-DRGs for Intraoperative Fluorescence Vascular

Angiography (IFVA) With CABG b. New MS-DRG for Intraoperative Angiography, by Any Method,

With CABG c. New Procedure Codes d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular

Angiography (IFVA) 4. MDC 6 (Diseases and Disorders of the Digestive System):

Gastrointestinal Stenting 5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Pedicle-Based Dynamic Stabilization 6. MDC 15 (Newborns and Other Neonates With Conditions

Originating in the Perinatal Period) a. Discharges/Transfers of Neonates to a Designated Cancer

Center or a Children's Hospital b. Vaccination of Newborns 7. Medicare Code Editor (MCE) Changes a. Unacceptable Principal Diagnosis Edit: Addition of Code for

Gastroparesis b. Open Biopsy Check Edit c. Noncovered Procedure Edit 8. Surgical Hierarchies 9. Complication or Comorbidity (CC) Exclusions List a. Background b. Proposed CC Exclusions List for FY 2011 10. Review of Procedure Codes in MS-DRGs 981 Through 983, 984

Through 986, and 987 Through 989 a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-

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

Through 986, and 987 Through 989 c. Adding Diagnosis or Procedure Codes to MDCs 11. Changes to the ICD-9-CM Coding System, Including Discussion of the Replacement of the ICD-9-CM System With the ICD-10-CM and

ICD-10-PCS Systems in FY 2014 a. ICD-9-CM Coding System b. Code Freeze c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on

Hospital Inpatient Claims

H. Recalibration of MS-DRG Weights

I. Proposed Add-On Payments for New Services and Technologies 1. Background 2. Public Input Before Publication of a Notice of Proposed

Rulemaking on Add-On Payments 3. FY 2011 Status of Technologies Approved for FY 2010 Add-On

Payments a. Spiration[supreg] IBV[supreg] Valve System b. CardioWestTMTemporary Total Artificial Heart

System (CardioWestTMTAH-t) 4. FY 2011 Applications for New Technology Add-On Payments a. Auto Laser Interstitial Thermal Therapy

(AutoLITTTM) System b. LipiScanTMCoronary Imaging System c. LipiScanTMCoronary Imaging System With

Intravascular Ultrasound (IVUS)

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

Hospitals

A. Background

B. Wage Index Reform 1. Wage Index Study Required Under the MIEA-TRHCA a. Legislative Requirement b. Interim and Final Reports on Results of Acumen's Study 2. FY 2009 Policy Changes in Response to Requirements Under

Section 106(b) of the MIEA-TRHCA a. Reclassification Average Hourly Wage Comparison Criteria b. Budget Neutrality Adjustment for the Rural and Imputed Floors

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

D. Proposed Occupational Mix Adjustment to the Proposed FY 2011

Wage Index 1. Development of Data for the Proposed FY 2011 Occupational Mix

Adjustment Based on the 2007-2008 Occupational Mix Survey 2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index 3. Calculation of the Proposed Occupational Mix Adjustment for

FY 2011

E. Worksheet S-3 Wage Data for the Proposed FY 2011 Wage Index 1. Included Categories of Costs 2. Excluded Categories of Costs 3. Use of Wage Index Data by Providers Other Than Acute Care

Hospitals Under the IPPS

F. Verification of Worksheet S-3 Wage Data

G. Method for Computing the Proposed FY 2011 Unadjusted Wage

Index

H. Analysis and Implementation of the Proposed Occupational Mix

Adjustment and the Proposed FY 2011 Occupational Mix Adjusted Wage

Index

I. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications 1. General 2. Effects of Reclassification/Redesignation 3. FY 2011 MGCRB Reclassifications a. FY 2011 Reclassification Requirements and Approvals b. Applications for Reclassifications for FY 2012 c. Appeals of MGCRB Denials of Withdrawals and Terminations 4. Redesignations of Hospitals under Section 1886(d)(8)(B) of the Act 5. Reclassifications Under Section 1886(d)(8)(B) of the Act 6. Reclassifications Under Section 508 of Public Law 108-173

J. Proposed FY 2011 Wage Index Adjustment Based on Commuting

Patterns of Hospital Employees

K. Process for Requests for Wage Index Data Corrections

L. Labor-Market Share for the Proposed FY 2011 Wage Index

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

Costs and GME Costs

A. Reporting of Hospital Quality Data for Annual Hospital

Payment Update 1. Background a. Overview b. Hospital Quality Data Reporting Under Section 501(b) of

Public Law 108-173

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c. Hospital Quality Data Reporting Under Section 5001(a) of

Public Law 109-171 2. Retirement of RHQDAPU Program Measures a. Considerations in Retiring Quality Measures From the RHQDAPU

Program b. Proposed Retirement of Quality Measures Under the RHQDAPU

Program for the FY 2011 Payment Determination and Subsequent Years 3. Proposed Expansion Plan for Quality Measures for the FY 2012,

FY 2013, and FY 2014 Payment Determinations a. Considerations in Expanding and Updating Quality Measures

Under the RHQDAPU Program b. Proposed RHQDAPU Program Quality Measures for the FY 2012

Payment Determination c. Proposed RHQDAPU Program Quality Measures for the FY 2013

Payment Determination d. Proposed RHQDAPU Program Quality Measures for the FY 2014

Payment Determination 4. Possible New Quality Measures for Future Years 5. Form, Manner, and Timing of Quality Data Submission a. Proposed RHQDAPU Program Requirements for FY 2012, FY 2013, and FY 2014 b. Additional Proposed RHQDAPU Program Procedural Requirements for FY 2012, FY 2013, and FY 2014 Payment Determinations 6. RHQDAPU Program Disaster Extensions and Waivers 7. Proposed Chart Validation Requirements for Chart-Abstracted

Measures a. Proposed Chart Validation Requirements and Methods for the FY 2012 Payment Determination b. Proposed Supplements to the Chart Validation Process for the

FY 2013 Payment Determination and Subsequent Years 8. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2012 Payment Determination and Subsequent Years 9. Proposed Public Display Requirements for the FY 2012 Payment

Determination and Subsequent Years 10. Proposed Reconsideration and Appeal Procedures for the FY 2011 Payment Determination 11. Proposed RHQDAPU Program Withdrawal Deadlines 12. Electronic Health Records (EHRs) a. Background b. EHR Testing of Quality Measures Submission c. HITECH Act EHR Provisions 13. Qualification of Registries for RHQDAPU Data Submission

B. Payment for Transfers of Cases From Medicare Participating

Acute Care Hospitals to Nonparticipating Hospitals and CAHs 1. Background 2. Proposed Policy Change

C. Technical Change to Regulations

D. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to

Criteria 1. Background 2. Medicare-Dependency: Counting Medicare Inpatients

E. Rural Referral Centers (RRCs) 1. Case-Mix Index (CMI) 2. Discharges

F. Indirect Medical Education (IME) Adjustment 1. Background 2. IME Adjustment Factor for FY 2011 3. IME-Related Changes in Other Sections of this Proposed Rule

G. Payment Adjustment for Medicare Disproportionate Share

Hospitals (DSHs): Supplemental Security Income (SSI) Fraction 1. Background 2. CMS' Current Data Matching Process for the SSI Fraction 3. Baystate Medical Center v. Leavitt Court Decision 4. CMS' Proposed Process for Matching Medicare and SSI

Eligibility Data a. Inclusion of Stale Records and Forced Pay Records in the SSI

Eligibility Data Files b. Use of SSNs in the Revised Match Process c. Timing of the Match 5. CMS Ruling 6. Clarification of Language on Inclusion of Medicare Advantage

Days in the SSI Fraction of the Medicare DSH Calculation

H. Payments for Direct Graduate Medical Education (GME) Costs 1. Background 2. Identifying ``Approved Medical Residency Programs'' a. Residents in Approved Medical Residency Programs b. Determining Whether an Individual Is a Resident or a

Physician c. Formal Enrollment and Participation in a Program 3. Electronic Submission of Affiliation Agreements

I. Certified Registered Nurse Anesthetist (CRNA) Services

Furnished in Rural Hospitals and CAHs

J. Rural Community Hospital Demonstration Program

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

A. Overview

B. Exception Payments

C. New Hospitals

D. Hospitals Located in Puerto Rico

E. Proposed Changes for FY 2011: MS-DRG Documentation and Coding

Adjustment 1. Background on the Prospective MS-DRG Documentation and Coding

Adjustments for FY 2008 and FY 2009 2. Retrospective Evaluation of FY 2008 Claims Data 3. Retrospective Analysis of FY 2009 Claims Data 4. Proposed Prospective MS-DRG Documentation and Coding

Adjustment to the National Capital Federal Rate for FY 2011 and

Subsequent Years 5. Proposed Documentation and Coding Adjustment to the Puerto

Rico-Specific Capital Rate

F. Other Proposed Changes for FY 2011

VI. Proposed Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

B. Critical Access Hospitals (CAHs) 1. Background 2. CAH Optional Method Election for Payment of Outpatient

Services 3. Costs of Provider Taxes as Allowable Costs for CAHs a. Background and Statutory Basis b. Proposed Clarification of Payment Policy for Provider Taxes

VII. Proposed Changes to the Long-Term Care Hospital Prospective

Payment System (LTCH PPS) for FY 2011

A. Background of the LTCH PPS 1. Legislative and Regulatory Authority 2. Criteria for Classification as a LTCH a. Classification as a LTCH b. Hospitals Excluded From the LTCH PPS 3. Limitation on Charges to Beneficiaries 4. Administrative Simplification Compliance Act (ASCA) and

Health Insurance Portability and Accountability Act (HIPAA)

Compliance

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related

Group (MS-LTC-DRG) Classifications and Relative Weights 1. Background 2. Patient Classifications into MS-LTC-DRGs a. Background b. Proposed Changes to the MS-LTC-DRGs for FY 2011 3. Development of the Proposed FY 2011 MS-LTC-DRG Relative

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

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

FY 2011 c. Data d. Hospital-Specific Relative Value (HSRV) Methodology e. Treatment of Severity Levels in Developing the Proposed MS-

LTC-DRG Relative Weights f. Low-Volume MS-LTC-DRGs g. Steps for Determining the Proposed RY 2011 MS-LTC-DRG

Relative Weights

C. Proposed Changes to the LTCH Payment Rates and Other Proposed

Changes to the FY 2011 LTCH PPS 1. Overview of Development of the LTCH Payment Rates 2. Market Basket for LTCHs Reimbursed Under the LTCH PPS a. Overview b. Market Basket Under the LTCH PPS for FY 2011 c. Proposed Market Basket Update for LTCHs for FY 2011 d. Proposed Labor-Related Share Under the LTCH PPS for FY 2011 3. Proposed Adjustment for Changes in LTCHs' Case-Mix Due to

Changes in Documentation and Coding Practices That Occurred in a

Prior Period a. Background b. Evaluation of FY 2009 Claims Data c. Proposed FY 2011 Documentation and Coding Adjustment

D. Proposed Change in Terminology From ``Rate Year'' to ``Fiscal

Year'' and Other Proposed Changes

VIII. Determination of Effective Date of Provider Agreements and

Supplier Approvals

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A. Background

B. Departmental Appeals Board Decision

C. Proposed Revisions to Regulations

IX. Proposed Changes to Medicare Conditions of Participation

Affecting Hospital Rehabilitation Services and Respiratory Care

Services

X. Proposed Changes to the Accreditation Requirements for Medicaid

Providers of Inpatient Psychiatric Services for Individuals Under

Age 21

A. Background

B. Proposed Revision of Policy and Regulations

XI. MedPAC Recommendations

XII. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements 1. Legislative Requirement for Solicitation of Comments 2. Requirements in Regulation Text a. ICRs Regarding Withdrawing an Application, Terminating an

Approved 3 Year Reclassification, or Canceling a Previous Withdrawal or Termination (Proposed Revised Sec. 412.273) b. ICRs Regarding Condition of Participation: Respiratory Care

Services (Sec. 482.57) 3. Additional Information Collection Requirements a. Present on Admission (POA) Indicator Reporting b. Add-On Payments for New Services and Technologies c. Reporting of Hospital Quality Data for Annual Hospital

Payment Update d. Occupational Mix Adjustment to the FY 2011 Index (Hospital

Wage Index Occupational Mix Survey) e. Hospital Applications for Geographic Reclassifications by the

MGCRB f. Direct GME Payments: General Requirements

C. Response to Comments

Regulation Text

Addendum--Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods

Beginning on or After October 1, 2010

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital

Inpatient Operating Costs for Acute Care Hospitals for FY 2011

A. Calculation of the Adjusted Standardized Amount

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

C. Proposed MS-DRG Relative Weights

D. Calculation of the Proposed Prospective Payment Rates

III. Proposed Changes to Payment Rates for Acute Care Hospital

Inpatient Capital-Related Costs for FY 2011

A. Determination of Federal Hospital Inpatient Capital-Related

Prospective Payment Rate Update

B. Calculation of the Proposed Inpatient Capital-Related

Prospective Payments for FY 2011

C. Capital Input Price Index

IV. Proposed Changes to Payment Rates for Certain Excluded

Hospitals: Rate-of-Increase Percentages

V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 2011

A. Proposed LTCH PPS Standard Federal Rate for FY 2011

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for FY 2011

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

Cases

D. Computing the Proposed Adjusted LTCH PPS Federal Prospective

Payments for FY 2011

VI. Tables

Table 1A.--Proposed National Adjusted Operating Standardized

Amounts, Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent

Nonlabor Share If Wage Index Is Greater Than 1)

Table 1B.--Proposed National Adjusted Operating Standardized

Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor

Share If Wage Index Is Less Than or Equal to 1)

Table 1C.--Proposed Adjusted Operating Standardized Amounts for

Puerto Rico, Labor/Nonlabor

Table 1D.--Proposed Capital Standard Federal Payment Rate

Table 1E.--Proposed LTCH Standard Federal Prospective Payment

Rate

Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges

Occurring in Federal Fiscal Year 2009; Proposed Hospital Wage

Indexes for Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage

Data), and 2011 (2007 Wage Data); and 3-Year Average of Hospital

Average Hourly Wages

Table 3A.--FY 2011 and 3-Year Average Hourly Wage for Acute Care

Hospitals in Urban Areas by CBSA

Table 3B.--FY 2011 and 3-Year Average Hourly Wage for Acute Care

Hospitals in Rural Areas by CBSA

Table 4A.--Proposed Wage Index and Capital Geographic Adjustment

Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by

State--FY 2011

Table 4B.--Proposed Wage Index and Capital Geographic Adjustment

Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by

State--FY 2011

Table 4C.--Proposed Wage Index and Capital Geographic Adjustment

Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State--FY 2011

Table 4D-1.--Proposed Rural Floor Budget Neutrality Factors for

Acute Care Hospitals--FY 2011

Table 4D-2.--Urban Areas with Acute Care Hospitals Receiving the

Proposed Statewide Rural Floor or Imputed Floor Wage Index--FY 2011

Table 4E.--Urban CBSAs and Constituent Counties for Acute Care

Hospitals--FY 2011

Table 4F.--Proposed Puerto Rico Wage Index and Capital

Geographic Adjustment Factor (GAF) for Acute Care Hospitals by

CBSA--FY 2011

Table 4J.--Proposed Out-Migration Adjustment for Acute Care

Hospitals--FY 2011

Table 5.--List of Medicare Severity Diagnosis-Related Groups

(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic

Mean Length of Stay--FY 2011

Table 6A.--New Diagnosis Codes

Table 6B.--New Procedure Codes

Table 6C.--Invalid Diagnosis Codes

Table 6D.--Invalid Procedure Codes

Table 6E.--Revised Diagnosis Code Titles

Table 6F.--Revised Procedure Code Titles

Table 6G.--Additions to the CC Exclusions List (Available

Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/)

Table 6H.--Deletions from the CC Exclusions List (Available

Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/)

Table 6I.--Complete List of Complication and Comorbidity (CC)

Exclusions (Available only through the Internet on the CMS Web site at: http:/www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6J.--Major Complication and Comorbidity (MCC) List

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

Table 6K.--Complication and Comorbidity (CC) List (Available

Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/)

Table 7A.--Medicare Prospective Payment System Selected

Percentile Lengths of Stay: FY 2009 MedPAR Update--December 2009

GROUPER V27.0 MS-DRGs

Table 7B.--Medicare Prospective Payment System Selected

Percentile Lengths of Stay: FY 2009 MedPAR Update--December 2009

GROUPER V28.0 MS-DRGs

Table 8A.--Proposed Statewide Average Operating Cost-to-Charge

Ratios (CCRs) for Acute Care Hospitals--March 2009

Table 8B.--Proposed Statewide Average Capital Cost-to-Charge

Ratios (CCRs) for Acute Care Hospitals--March 2009

Table 8C.--Proposed Statewide Average Total Cost-to-Charge

Ratios (CCRs) for LTCHs--March 2009

Table 9A.--Hospital Reclassifications and Redesignations--FY 2011

Table 9C.--Hospitals Redesignated as Rural Under Section 1886(d)(8)(E) of the Act--FY 2011

Table 10.--Geometric Mean Plus the Lesser of .75 of the National

Adjusted Operating Standardized Payment Amount (Increased To Reflect the Difference Between Costs and Charges) or .75 of One Standard

Deviation of Mean Charges by Medicare Severity Diagnosis-Related

Groups (MS-DRGs)--March 2009

Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric

Average Length of Stay, Short-Stay Outlier Threshold, and IPPS

Comparable Threshold for Discharges Occurring From October 1, 2010

Through

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September 30, 2011 Under the LTCH PPS

Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for

Discharges Occurring from October 1, 2010 Through September 30, 2011

Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for

Discharges Occurring From October 1, 2010 Through September 30, 2011

Appendix A--Regulatory Impact Analysis

I. Overall Impact

II. Objectives of the IPPS

III. Limitations of Our Analysis

IV. Hospitals Included In and Excluded From the IPPS

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

VI. Quantitative Effects of the Proposed Policy Changes Under the

IPPS for Operating Costs

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects of the Proposed Changes to the MS-DRG

Reclassifications and Relative Cost-Based Weights (Column 1)

D. Effects of the Application of Recalibration Budget Neutrality

(Column 2)

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

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

G. Combined Effects of Proposed MS-DRG and Wage Index Changes

(Column 5)

H. Effects of MGCRB Reclassifications (Column 6)

I. Effects of the Proposed Rural Floor and Imputed Floor,

Including Application of Budget Neutrality at the State Level

(Column 7)

J. Effects of the Proposed Wage Index Adjustment for Out-

Migration (Column 8)

K. Effects of All Proposed Changes Prior to Documentation and

Coding (Or CMI) Adjustment (Column 9)

L. Effects of All Proposed Changes With CMI Adjustment (Column 10)

M. Effects of Proposed Policy on Payment Adjustments for Low-

Volume Hospitals

N. Impact Analysis of Table II

VII. Effects of Other Proposed Policy Changes

A. Effects of Proposed Policy on HACs, Including Infections

B. Effects of Proposed Policy Changes Relating to New Medical

Service and Technology Add-On Payments

C. Effects of Proposed Requirements for Hospital Reporting of

Quality Data for Annual Hospital Payment Update

D. Effects of Proposed Policy on Payment for Transfer Cases From

Medicare Participating Hospitals to Nonparticipating Hospitals and

CAHs

E. Effects of Proposed Change in Criteria for MDHs

F. Effects of Proposed Change Relating to Payment Adjustment for

Disproportionate Share Hospitals

G. Effects of Proposed Changes Relating to Payments for IME and

Direct GME 1. Identifying ``Approved Medical Residency Programs'' 2. Submission of Electronic Affiliation Agreements

H. Effects of Proposed Changes Relating to CRNA Services

Furnished in Rural Hospitals and CAHs

I. Effects of Implementation of Rural Community Hospital

Demonstration Program

J. Effects of Proposed Changes Relating to CAHs 1. CAH Optional Method of Payment for Outpatient Services 2. Consideration of Costs of Provider Taxes as Allowable Costs for CAHs

K. Effects of Proposed Policy Relating to Effective Date of

Provider Agreements and Supplier Approvals

L. Effects of Proposed Changes Relating to Hospital

Rehabilitation Services and Respiratory Care Services Conditions of

Participation

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

B. Results

IX. Effects of Proposed Payment Rate Changes and Proposed Policy

Changes Under the LTCH PPS

A. Introduction and General Considerations

B. Impact on Rural Hospitals

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

D. Effect on the Medicare Program

E. Effect on Medicare Beneficiaries

X. Effects of Proposed Policy Changes Relating to Accreditation

Requirements for Medicaid Providers of Inpatient Psychiatric

Services to Individuals Under Age 21

XI. Alternatives Considered

XII. Overall Conclusion

A. Acute Care Hospitals

B. LTCHs

XIII. Accounting Statements

A. Acute Care Hospitals

B. LTCHs

XIV. Executive Order 12866

Appendix B--Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

I. Background

II. Inpatient Hospital Update for FY 2011

III. Secretary's Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and

Updating Payments in Traditional Medicare

I. Background

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

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the

Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs,

Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis- related groups (DRGs).

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in

Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of- living adjustment factor. This base payment rate is multiplied by the

DRG relative weight.

If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. 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 eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate based on their costs in a base year. For example, sole community

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hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the

Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services ``in accordance with a prospective payment system established by the Secretary.'' The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the

IPPS are located in 42 CFR part 412, Subparts A through M. 2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare,

Medicaid and SCHIP [State Children's Health Insurance Program] Balanced

Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the

Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are now included as part of the IPPS annual update document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs per discharge.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413. 3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123(a) and (c) of

Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) of the Act). During the 5-year

(optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods beginning on or after

October 1, 2006, all LTCHs are paid 100 percent of the Federal rate.

The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, Subpart O. Beginning October 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS (73 FR 26797 through 26798). 4. Critical Access Hospitals (CAHs)

Under sections 1814(l), 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415. 5. Payments for Graduate Medical Education (GME)

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

B. Provisions of the Patient Protection and Affordable Care Act (Pub.

L. 111-148), as Amended by the Health Care and Education Reconciliation

Act of 2010 (Pub. L. 111-152)

On March 23, 2010, the Patient Protection and Affordable Care Act

(PPACA), Public Law 111-148 was enacted. Following the enactment of

Public Law 111-148, the Health Care and Education Reconciliation Act of 2010, Public L. 111-152 (enacted on March 30, 2010), amended certain provisions of Public Law 111-148. A number of the provisions of Public

Law 111-148, as amended by Public Law 111-152, affect the IPPS and the

LTCH PPS and the providers and suppliers addressed in this proposed rule. However, due to the timing of the passage of the legislation, we are unable to address those provisions in this proposed rule.

Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new

Page 23860

legislation. We plan to issue separate documents in the Federal

Register addressing the provisions of Public Law 111-148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111-148, as amended, that affect the policies and payment rates for FY 2010 under the IPPS and for RY 2010 under the LTCH PPS.

C. Major Content of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the

Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2011. We also are setting forth proposed changes relating to payments for IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis.

In addition, in this proposed rule, we are setting forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2011. We note that because the annual update of payment rates for the LTCH PPS will now take place on the same schedule and in the same publication as for the IPPS, for the sake of clarity, in section VII.D. of this proposed rule, we are proposing to use ``fiscal year (FY)'' instead of ``rate year (RY) when referring to updates and changes to the LTCH PPS to be effective October 1, 2010.

Therefore, throughout this proposed rule, we are using the phrase

``fiscal year (FY)'' in referring to proposed updates and changes to the LTCH PPS.

Below is a summary of the major changes that we are proposing to make: 1. Proposed Changes to MS-DRG Classifications and Recalibrations of

Relative Weights

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

Proposed changes to MS-DRG classifications based on our yearly review.

Proposed application of the documentation and coding adjustment to hospital-specific rates for FY 2011 resulting from implementation of the MS-DRG system.

A discussion of the Research Triangle International, Inc.

(RTI) and RAND Corporation reports and recommendations relating to charge compression.

Proposed recalibrations of the MS-DRG relative weights.

We also presented a listing and discussion of hospital-acquired conditions (HACs), including infections, that are subject to the statutorily required quality adjustment in MS-DRG payments for FY 2011.

We discuss the FY 2011 status of two new technologies approved for add-on payments for FY 2010 and presented our evaluation and analysis of the FY 2011 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub.

L. 108-173, obtained in a town hall meeting). 2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

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

Budget neutrality for the rural floor and imputed floor.

Changes to titles and principal cities of CBSA designations.

The proposed FY 2011 wage index update using wage data from cost reporting periods beginning in FY 2007.

Analysis and implementation of the proposed FY 2011 occupational mix adjustment to the wage index for acute care hospitals, including discussion of the 2010 occupational mix survey.

Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.

The proposed adjustment to the wage index for acute care hospitals for FY 2011 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 2011 hospital wage index.

Determination of the labor-related share for the proposed

FY 2011 wage index. 3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs

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

The reporting of hospital quality data as a condition for receiving the full annual payment update increase.

Payment for transfer cases from Medicare participating hospitals to nonparticipating hospitals and CAHs.

A change to the definition criteria for MDHs.

The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.

The statutorily required IME adjustment factor for FY 2011.

The proposed policy change relating to the determination of the SSI ratio of the Medicare fraction in the formula for determining the payment adjustments for disproportionate share hospitals.

A proposed clarification of ``approved medical residency programs'' policies relating to payment for IME and direct GME and our proposal to accept the electronic submission of Medicare GME affiliation agreements.

Proposed policy change for payments for services furnished by certified registered nurse anesthetists (CRNAs) in rural hospitals and CAHs.

Discussion of the status of the Rural Community Hospital

Demonstration Program. 4. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to this proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2011 and the proposed MS-DRG documentation and coding adjustment for FY 2011. 5. Proposed Changes to the Payment Rates for Certain Excluded

Hospitals: Rate-of-Increase Percentages

In section VI. of the preamble of this proposed rule, we discussed--

Proposed changes to payments to excluded hospitals.

Proposed changes relating to the election by CAHs of the optional method of payment for outpatient services

Proposed clarification of the policies on costs of provider taxes as allowable costs for CAHs. 6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of this proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2011, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the

LTCH PPS for FY 2011 and the proposed MS-DRG documentation and coding adjustment for FY 2011. 7. Proposed Changes Relating to Effective Date of Provider Agreements and Supplier Approvals

In section VIII. of the preamble of this proposed rule, we set forth our proposed change in policies for

Page 23861

determining the effective date of provider agreements and supplier approvals and to make changes to assure that accredited and nonaccredited facilities are treated in the same manner in determining this effective date. 8. Proposed Changes to Medicare Conditions of Participation Affecting

Hospital Rehabilitation Services and Respiratory Care Services

In section IX. of the preamble of this proposed rule, we are proposing changes to the Medicare conditions of participation regarding which practitioners are allowed to order rehabilitation and respiratory care services in the hospital setting. 9. Proposed Changes to the Accreditation Requirements for Medicaid

Providers of Inpatient Psychiatric Services for Individuals under Age 21

In section X. of the preamble of this proposed rule, we are proposing to remove the requirement for accreditation by The Joint

Commission of psychiatric hospitals and hospitals with inpatient psychiatric programs. Hospitals with inpatient psychiatric programs would be afforded the flexibility in obtaining accreditation by a national accrediting organization whose hospital accrediting program has been approved by CMS, and psychiatric rehabilitation treatment facilities would be afforded flexibility in obtaining accreditation by a national accrediting organization whose program has been approved by

CMS, or by any other accrediting organization with comparable standards that is recognized by the State. 10. Determining Proposed Prospective Payment Operating and Capital

Rates and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2011 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also are establishing the proposed threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2011 for certain hospitals excluded from the IPPS. 11. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2011 prospective standard Federal rate. We also are establishing the proposed adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed- loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH

PPS. 12. Impact Analysis

In Appendix A of this proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals and LTCHs. 13. Recommendation of Update Factors for Operating Cost Rates of

Payment for Hospital Inpatient Services

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the appropriate percentage changes for FY 2011 for the following:

A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).

Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.

The standard Federal rate for hospital inpatient services furnished by LTCHs. 14. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies.

MedPAC's March 2010 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs under the IPPS, for hospitals and distinct part hospital units excluded from the IPPS. We address these recommendations in Appendix B of this proposed rule. For further information relating specifically to the MedPAC March 2008 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit

MedPAC's Web site at: http://www.medpac.gov.

E. Interim Final Rule With Comment Period That Implemented Certain

Provisions of the ARRA Relating to Payments to LTCHs and LTCH Satellite

Facilities

Section 4302 of the American Recovery and Reinvestment Act of 2009

(ARRA, Public Law 111-5) included several amendments to section 114 of

Public Law 110-173 (MMSEA) relating to payments to LTCHs and LTCH satellite facilities that were discussed under section X. of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43976 through 43990).

These amendments are effective as if they were enacted as part of section 114 of Public Law 110-173 (MMSEA). We issued instructions to the fiscal intermediaries and Medicare administrative contractors

(MACs) to interpret these amendments (Change Request 6444). In section

XI. of the FY 2010/RY 2010 LTCH PPS final rule (74 FR 43990), we implemented the provisions of section 4302 of Public Law 111-5 through an interim final rule with comment period. We will respond to the public comments that we received in a timely manner on this interim final rule with comment period and finalize the interim final rule with any necessary modification in the final rule for this proposed rule.

II. Proposed Changes to Medicare Severity Diagnosis-Related Group (MS-

DRG) Classifications and Relative Weights

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned.

The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Congress recognized that it would be necessary to recalculate the

DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These

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adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

B. MS-DRG Reclassifications 1. General

As discussed in the preamble to the FY 2008 IPPS final rule with comment period (72 FR 47138), we focused our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its ``Report to the Congress,

Physician-Owned Specialty Hospitals'' in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking severity of illness into account and applying hospital-specific relative value

(HSRV) weights to DRGs.\1\ We began this reform process by adopting cost-based weights over a 3-year transition period beginning in FY 2007 and making interim changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and modifying 32 other DRGs across 13 different clinical areas involving nearly 1.7 million cases. As described in more detail below, these refinements were intermediate steps towards comprehensive reform of both the relative weights and the DRG system as we undertook further study. For FY 2008, we adopted 745 new Medicare Severity DRGs

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

\1\ Medicare Payment Advisory Commission: Report to the

Congress, Physician-Owned Specialty Hospitals, March 2005, page viii.

Currently, cases are classified into MS-DRGs for payment under the

IPPS based on the following information reported by the hospital: The principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. (We refer readers to section

II.G.11.c. of this proposed rule for a discussion of our efforts to increase our internal systems capacity to process diagnosis and procedures on hospital claims to 25 diagnosis codes and 25 procedure codes prior to the use of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision,

Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure coding, effective October 1, 2013.) In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases,

Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1, 2013. We refer readers to section II.G.11.b. of this proposed rule for a reference to the replacement of ICD-9-CM, Volumes 1 and 2, including the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and

ICM-10-PCS Guidelines for Coding and Reporting, effective October 1, 2013 (FY 2014).

The process of developing the MS-DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The

MDCs were formulated by physician panels to ensure that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final MS-DRG could contain patients in different MDCs. For example, MDC 6 is Diseases and

Disorders of the Digestive System. This approach is used because clinical care is generally organized in 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 2010, cases are assigned to one of 746 MS-DRGs in 25

MDCs. The table below lists the 25 MDCs.

Major Diagnostic Categories (MDCs)

1...................... Diseases and Disorders of the Nervous System. 2...................... Diseases and Disorders of the Eye. 3...................... Diseases and Disorders of the Ear, Nose, Mouth, and Throat. 4...................... Diseases and Disorders of the Respiratory

System. 5...................... Diseases and Disorders of the Circulatory

System. 6...................... Diseases and Disorders of the Digestive System. 7...................... Diseases and Disorders of the Hepatobiliary

System and Pancreas. 8...................... Diseases and Disorders of the Musculoskeletal

System and Connective Tissue. 9...................... Diseases and Disorders of the Skin,

Subcutaneous Tissue and Breast. 10..................... Endocrine, Nutritional and Metabolic Diseases and Disorders. 11..................... Diseases and Disorders of the Kidney and

Urinary Tract. 12..................... Diseases and Disorders of the Male Reproductive

System. 13..................... Diseases and Disorders of the Female

Reproductive System. 14..................... Pregnancy, Childbirth, and the Puerperium. 15..................... Newborns and Other Neonates with Conditions

Originating in the Perinatal Period. 16..................... Diseases and Disorders of the Blood and Blood

Forming Organs and Immunological Disorders. 17..................... Myeloproliferative Diseases and Disorders and

Poorly Differentiated Neoplasms. 18..................... Infectious and Parasitic Diseases (Systemic or

Unspecified Sites). 19..................... Mental Diseases and Disorders. 20..................... Alcohol/Drug Use and Alcohol/Drug Induced

Organic Mental Disorders. 21..................... Injuries, Poisonings, and Toxic Effects of

Drugs. 22..................... Burns. 23..................... Factors Influencing Health Status and Other

Contacts with Health Services. 24..................... Multiple Significant Trauma. 25..................... Human Immunodeficiency Virus Infections.

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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 27.0), there are 13 MS-DRGs to which cases are directly assigned on the basis of ICD-9-

CM procedure codes. These MS-DRGs are for heart transplant or implant of heart assist systems; liver and/or intestinal transplants; bone marrow transplants; lung transplants; simultaneous pancreas/kidney transplants; pancreas transplants; and tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the 13 current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)

MS-DRG 001............... Heart Transplant or Implant of Heart Assist

System with MCC.

MS-DRG 002............... Heart Transplant or Implant of Heart Assist

System without MCC.

MS-DRG 003............... ECMO or Tracheostomy with Mechanical

Ventilation 96+ Hours or Principal Diagnosis

Except for Face, Mouth, and Neck Diagnosis with Major O.R.

MS-DRG 004............... Tracheostomy with Mechanical Ventilation 96+

Hours or Principal Diagnosis Except for

Face, Mouth, and Neck Diagnosis with Major

O.R.

MS-DRG 005............... Liver Transplant with MCC or Intestinal

Transplant.

MS-DRG 006............... Liver Transplant without MCC.

MS-DRG 007............... Lung Transplant.

MS-DRG 008............... Simultaneous Pancreas/Kidney Transplant.

MS-DRG 009............... Bone Marrow Transplant.

MS-DRG 010............... Pancreas Transplant.

MS-DRG 011............... Tracheostomy for Face, Mouth, and Neck

Diagnoses with MCC.

MS-DRG 012............... Tracheostomy for Face, Mouth, and Neck

Diagnoses with CC.

MS-DRG 013............... Tracheostomy for Face, Mouth, and Neck

Diagnoses without CC/MCC.

Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC).

Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as

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

O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.

Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect hospital resource consumption.

Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section

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

A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code

Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.

After patient information is screened through the MCE and any further development of the claim is conducted, the cases are classified into the appropriate MS-DRG by the Medicare GROUPER software program.

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

After cases are screened through the MCE and assigned to an MS-DRG by the GROUPER, the PRICER software calculates a base MS-DRG payment.

The PRICER calculates the payment for each case covered by the IPPS based on the MS-DRG relative weight and additional factors associated with each hospital, such as IME and DSH payment adjustments. These additional factors increase the payment amount to hospitals above the base MS-DRG payment.

The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file.

The data in this file are used to evaluate possible MS-DRG classification changes and to recalibrate the MS-DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the 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.

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As we indicated above, for FY 2008, we made significant improvements in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008

GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our MS-DRG analysis for the FY 2009 final rule was based on data from the March 2008 update of the FY 2007 MedPAR file, which contained hospital bills received through March 31, 2008, for discharges occurring through September 30, 2007. For this proposed rule, for FY 2011, our MS-DRG analysis is based on data from the

September 2009 update of the FY 2009 MedPAR file, which contains hospital bills received through September 30, 2009, for discharges occurring through September 30, 2009. 2. Yearly Review for Making MS-DRG Changes

Many of the changes to the MS-DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the

MS-DRG recalibration process, comments about MS-DRG classification issues should be submitted no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.

The actual process of forming the MS-DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS-DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS-

DRG. We also considered variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed a number of recommendations made by MedPAC regarding revisions to the

DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006.

However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of

MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.

For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). Based on public comments received on the FY 2007

IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007

IPPS final rule (71 FR 47906 through 47912), we discussed several concerns raised by commenters regarding the proposal to adopt CS DRGs.

We acknowledged the many comments suggesting the logic of Medicare's

DRG system should continue to remain in the public domain as it has since the inception of the PPS. We also acknowledged concerns about the impact on hospitals and software vendors of moving to a proprietary system. Several commenters suggested that CMS refine the existing DRG classification system to preserve the many policy decisions that were made over the last 20 years and were already incorporated into the DRG system, such as complexity of services and new device technologies.

Consistent with the concerns expressed in the public comments, this option had the advantage of using the existing DRGs as a starting point

(which was already familiar to the public) and retained the benefit of many DRG decisions that were made in recent years. We stated our belief that the suggested approach of incorporating severity measures into the existing DRG system was a viable option that would be evaluated.

Therefore, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.

In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives and our actions for FYs 2008, 2009, and 2010, and our proposals for FY 2011 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 2011 in other sections of this preamble and in the Addendum to this proposed rule.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY

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2007 IPPS proposed rule for determining the DRG relative weights.

Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal.

Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights were adopted over a 3-year transition period in \1/3\ increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the HSRV-based methodology as well as other issues brought to our attention related to the cost-based weighting methodology adopted in the FY 2007 final rule. There was significant concern in the public comments that our cost-based weighting methodology does not adequately account for charge compression--the practice of applying a higher percentage charge markup over costs to lower cost items and services and a lower percentage charge markup over costs to higher cost items and services. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the

Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost report to determine departmental level cost-to- charge ratios (CCRs) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International (RTI) to study both charge compression and to what extent our methodology for calculating

DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the

HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this proposed rule for discussion of the issue of charge compression and the cost-weighting methodology for FY 2011.

We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are proposing to make in this proposed rule for FY 2011 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

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

D. Proposed FY 2011 MS-DRG Documentation and Coding Adjustment,

Including the Applicability to the Hospital-Specific Rates and the

Puerto Rico-Specific Standardized Amount 1. Background on the Prospective MS-DRG Documentation and Coding

Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

As we discussed earlier in this preamble, we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008.

(Currently, there are 746 DRGs for FY 2010; there would be 747 DRGs in

FY 2011, with our proposals in this proposed rule to delete one MS-DRG and to create two new MS-DRGs.) By increasing the number of MS-DRGs and more fully taking into account patients' severity of illness in

Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of -4.8 percent to the national standardized amount. We provided for phasing in this -4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional

Medical Assistance], Abstinence Education, and QI [Qualifying

Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the

FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 and -0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not adjust the FY 2010 -1.8 percent documentation and coding adjustment promulgated in the FY 2008 IPPS final rule with comment period. To comply with section 7(a) of Public Law 110-90, we promulgated a final rule on November 27, 2007 (72 FR 66886) that modified the IPPS documentation and coding adjustment for FY 2008 to -0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly.

These revisions were effective on October 1, 2007.

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of -0.9 percent instead of the -1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As discussed in the FY 2009 IPPS final rule (73 FR 48447) and required by statute, we applied a documentation and coding adjustment of -0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110- 90, are cumulative. As a result, the -0.9 percent documentation and coding adjustment for FY 2009 was in addition to the -0.6 percent adjustment for FY 2008, yielding a combined effect of -1.5 percent. 2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

Section 7(b)(1)(A) of Public Law 110-90 requires that, if the

Secretary determines that implementation of the

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MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years. 3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012

Required by Public Law 110-90

If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case- mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of

Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the

Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup

(or repay) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012. 4. Retrospective Evaluation of FY 2008 Claims Data

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

In that proposed rule, we indicated that we intended to measure and corroborate the extent of the overall national average changes in case- mix for FY 2008 and FY 2009. We expected that the two largest parts of this overall national average change would be attributable to underlying changes in actual patient severity of illness and to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we planned to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within-base DRGs.

The MS-DRGs divide the base DRGs into three severity levels (with

MCC, with CC and without CC); the previously used CMS DRGs had only two severity levels (with CC and without CC). Under the CMS DRG system, the majority of hospital discharges had a secondary diagnosis which was on the CC list, which led to the higher severity level. The MS-DRGs significantly changed the code lists of what was classified as an MCC or a CC. Many codes that were previously classified as a CC are no longer included on the MS-DRG CC list because the data and clinical review showed these conditions did not lead to a significant increase in resource use. The addition of a new level of high severity conditions, the MCC list, also provided a new incentive to code more precisely in order to increase the severity level. We anticipated that hospitals would examine the MS-DRG MCC and CC code lists and then work with physicians and coders on documentation and coding practices so that coders could appropriately assign codes from the highest possible severity level. We note that there have been numerous seminars and training sessions on this particular coding issue. The topic of improving documentation practices in order to code conditions on the

MCC list was also discussed extensively by participants at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting.

Participants discussed their hospitals' efforts to encourage physicians to provide more precise documentation so that coders could appropriately assign codes that would lead to a higher severity level.

Because we expected most of the documentation and coding changes under the MS-DRG system would occur in the secondary diagnoses, we believed that the shifts among base DRGs were less likely to be the result of the MS-DRG system and the shifts within-base DRGs were more likely to be the result of the MS-DRG system. We also anticipated evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the documentation and coding payment effect and to quantify their impact. This step entailed analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

In that same proposed rule, we also stated that, while we believed that the data analysis plan described previously would produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding changes, we might decide, if feasible, to use historical data from our Hospital Payment Monitoring Program (HPMP) to corroborate the within-base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC).

In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for performing a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patients' severity of illness.

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

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implementation of the payment adjustments beginning in FY 2010.

We took these comments into consideration as we developed our proposed analysis plan and in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092 through 24101) solicited public comment on our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008

In the analysis of data for that proposed rule, we found that the within-base DRG increases were almost entirely responsible for the case-mix change, supporting our conclusion that the 2.5 percent estimate was an accurate reflection of the FY 2008 effect of changes in documentation and coding under the MS-DRG system. In fact, almost every base DRG that was split into different severity levels under the MS-DRG system experienced increases in the within-base DRGs. We then further analyzed the changes in the within-base DRGs to determine which MS-DRGs had the highest contributions to this increase. The results of the analysis for the proposed rule provided additional support for our conclusion that the proposed 2.5 percent estimate accurately reflected the FY 2008 increases in documentation and coding under the MS-DRG system. While we attempted to use the CDAC data to distinguish real increase in case-mix growth from documentation and coding in the overall case-mix number, we found aberrant data and significant variation across the FY 1999 through FY 2007 analysis period. It was not possible to distinguish changes in documentation and coding from changes in real case-mix in the CDAC data. Therefore, we concluded that the CDAC data would not support analysis of real case-mix growth that could be used in our retrospective evaluation of the FY 2008 claims data.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772), we responded to comments on our methodology for the retrospective evaluation of FY 2008 claims data. Commenters raised concerns that CMS' estimate in the proposed rule did not fully consider other potential causes of increased case-mix, such as patients requiring less complex services receiving care in other settings and

``healthier'' patients enrolling in Medicare Advantage plans in increasing numbers. Other commenters indicated that factors such as the changes in the CC/MCC definitions, limitations on the number of codes used by CMS for payment and ratesetting, resequencing of secondary diagnoses, the transition to the cost-based weights, less use of ``not otherwise specified'' codes, and increases in real case-mix due to health reform efforts also resulted in an inaccurate documentation and coding analysis. One commenter indicated that, of the overall case-mix increase, 1.0 percent to 1.5 percent is ``real'' case-mix increase, while 1.0 percent to 1.5 percent is due to documentation and coding or other increases.

In considering these comments concerning historical real case-mix, in the FY 2010 final rule, we calculated overall increases in case-mix for the period from FY 2000 to FY 2007 using the cases from each year and the GROUPER and relative weights applicable for each year. The results are shown in the following chart:

Overall Case-Mix Increases for FY 2000 to FY 2007

Overall case-mix

Year

change from prior year (in percent)

FY 2000.............................................

-0.7

FY 2001.............................................

-0.4

FY 2002.............................................

1.0

FY 2003.............................................

1.4

FY 2004.............................................

1.0

FY 2005.............................................

0.9

FY 2006.............................................

1.2

FY 2007.............................................

-0.2

Overall case-mix growth is predominately comprised of three factors: Real case-mix growth; a documentation and coding effect; and a measurement effect. Under the reasonable assumption that there has been a relatively small measurement effect in those years, the assertion that there is a historical pattern of steady annual increases of 1.2 to 1.3 percent in real case-mix implies that the documentation and coding effect in many of those years was negative. For example, as discussed in that rule (74 FR 43769), we estimated a recent measurement effect of

+0.3 percent. The overall case-mix growth of -0.2 percent in FY 2007 net of a measurement effect of +0.3 percent results in growth of +0.1 percent. A real case-mix growth of +1.2 percent in FY 2007, therefore, implies a negative documentation and coding effect of approximately - 1.1 percent. It is not obvious why documentation and coding would have had such a large negative effect in FY 2007, or in any other year where the overall case-mix change is significantly less than the commenter's claimed average annual trend, calling into question the assertion that real case-mix growth is a steady 1.2 to 1.3 percent per year.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43770 through 43771), we indicated that our estimate of the overall case-mix growth for FY 2008 based on more recent data than the data used in the

FY 2010 proposed rule was 2.0 percent, still less than our actuaries' estimate of a 2.5 percent documentation and coding increase. With respect to the concerns raised by commenters about our finding of negative real case-mix growth in FY 2008, a finding of negative real case-mix growth is consistent with the fact that, in some years, overall case-mix growth has been negative, as shown in the chart presented above in this response. 5. Retrospective Analysis of FY 2009 Claims Data

We performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims in the FY 2010 final rule. We first divided the case-mix index (CMI) obtained by grouping the FY 2009 claims data through the FY 2009 GROUPER (Version 26.0) by the CMI obtained by grouping these same FY 2009 claims through the FY 2007 GROUPER (Version 24.0). This resulted in a value of 1.056. Because these cases are the same FY 2009 cases grouped using the Versions 24.0 and 26.0 of the GROUPER, we attribute this increase primarily to two factors: (1) The effect of changes in documentation and coding under the MS-DRG system; and (2) the measurement effect from the calibration of the GROUPER. We estimated the measurement effect from the calibration of the GROUPER by dividing the CMI obtained by grouping cases in the FY 2007 claims data through the FY 2009 GROUPER by the CMI obtained by grouping cases in these same claims through the FY 2007

GROUPER. This resulted in a value of 1.0019. In order to isolate the documentation and coding effect, we then divided the combined effect of the changes in documentation and coding and measurement (1.056) by the measurement effect (1.0019) to yield 1.054. Therefore, our estimate of the documentation and coding increase that did not reflect real changes in case-mix for discharges was 5.4 percent.

We then sought to corroborate this 5.4 percent estimate by examining the increases in the within-base DRGs as compared to the increases in the across

Page 23868

base DRGs as described earlier in our analysis plan. In other words, we looked for improvements in code selection that would lead to a secondary diagnosis increasing the severity level to either a CC or an

MCC level. We found that the within-base DRG increases were almost entirely responsible for the case mix change, supporting our conclusion that the 5.4 percent estimate was an accurate reflection of the FY 2009 effect of changes in documentation and coding under the MS-DRG system.

We then further analyzed the changes in the within-base DRGs to determine which MS-DRGs had the highest contributions to this increase.

The results of the analysis for the proposed rule provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.

GRAPHIC

TIFF OMITTED TP04MY10.000

As reflected in the above chart, for short-term acute care hospitals, SCHs, and MDHs, there is an 8 percentage point increase in the discharge severity with MCCs from 20 percent to 28 percent, and a corresponding decrease of 8 percentage points in discharge severity without CC/MCC from 57 percent to 49 percent.

Consistent with the expectations of our medical coding experts concerning areas with potential for documentation and coding improvements, the top contributors were heart failure, chronic obstructive pulmonary disease, and simple pneumonia and pleurisy. Heart failure is a very common secondary diagnosis among Medicare hospital admissions. The heart failure codes are assigned to all three severity levels. Some codes are classified as non-CCs, while other codes are on the CC and MCC lists. By changing physician documentation to more precisely identify the type of heart failure, coders are able to appropriately change the severity level of cases from the lowest level

(non-CC) to a higher severity level (CC or MCC). This point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM Coordination and

Maintenance Committee meeting as coders discussed their work with physicians on this coding issue. Many of the participants indicated that additional work was still needed with their physicians in order to document conditions in the medical record more precisely.

The results of the analysis for the proposed rule provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.

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

(LDS)-Hospital (National). This Web page describes the file and provides directions and further detailed instructions for how to order.

Persons placing an order must send the following: a Letter of

Request, the LDS Data Use Agreement and Research Protocol (refer to the

Web site for further instructions), the LDS Form, and a check for

$3,655 to:

Mailing address if using the U.S. Postal Service: Centers for

Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O.

Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare &

Medicaid Services, OFM/Division of Accounting--RDDC, 7500 Security

Boulevard, C3-07-11, Baltimore, MD 21244-1850. 6. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

Based on our evaluation of FY 2008 Medicare claims data that were most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, the estimated 2.5 percent change in FY 2008 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the -0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. Under section 7(b)(1)(A) of Public Law 119-90,

Page 23869

the Secretary is required to make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act to the average standardized amounts for subsequent fiscal years in order to eliminate the full effect of the documentation and coding changes on future payments. As we have consistently stated since the initial implementation of the MS-

DRG system, we do not believe it is appropriate for expenditures to increase due to MS-DRG-related changes in documentation and coding that do not reflect real changes in case-mix.

We also estimated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule that the additional change in case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009 was 2.3 percent, which would exceed by 1.4 percentage points the -0.9 percent prospective documentation and coding adjustment for FY 2009 applied under section 7(a) of Public Law 100-90. We had the statutory authority to adjust the

FY 2010 rates for this estimated 1.4 percentage point increase.

However, given that Public Law 100-90 requires a retrospective claims evaluation for the additional adjustments (as described in section

II.D.3. of this preamble), we stated in the FY 2010 IPPS/RY 2010 LTCH

PPS proposed rule and final rule (74 FR 24096 and 43772, respectively) that we believed our evaluation of the extent of the overall national average changes in case-mix for FY 2009 should also be based on a retrospective evaluation of all FY 2009 claims data. Because we did not receive all FY 2009 claims data prior to publication of the FY 2010 final rule, we indicated we would address any difference between the additional increase in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 and the -0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public comment on the proposed -1.9 percent prospective adjustment to the standardized amounts under section 1886(d) of the Act to address the effects of documentation and coding changes unrelated to changes in real case-mix in FY 2008. In addition, we solicited public comments on addressing in the FY 2011 rulemaking cycle any differences between the increase in FY 2009 case-mix due to changes in documentation and coding changes that do not reflect real changes in case-mix for discharges occurring during FY 2009 and the -0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90. In response to the proposed rule, MedPAC summarized its comments on when CMS should reduce payment rates to prevent further overpayments and to recover overpayments occurring in 2008 and 2009 as follows: ``We support CMS's proposal to reduce IPPS payments in 2010 by 1.9 percent to prevent further overpayments. While we and the CMS actuaries believe that a 1.9 percent reduction will not fully prevent overpayments from continuing in 2010, this is a reasonable first step toward reducing overpayments.'' Most of the other commenters opposed the proposed -1.9 percent prospective FY 2010 adjustment for FY 2008 documentation and coding increases, but supported the proposal not to apply a FY 2010 prospective adjustment for estimated FY 2009 documentation and coding increases. Many commenters expressed concern over the financial impact of the proposed

-1.9 percent adjustment and the methodology for calculating the adjustment. Other commenters recommended that CMS seek to extend the timeframe beyond 2 years to phase in the estimated -6.6 percent adjustment to the standardized amount.

In the final FY 2010 IPPS/RY 2010 LTCH PPS rule in response to these commenters, we indicated that we fully understood that our proposed adjustment of -1.9 percent would reduce the increase in payments that affected hospitals would have received in FY 2009 in the absence of the adjustment. We explained that, although we are required to make an prospective adjustment to eliminate the full effect of coding or classification changes that did not reflect real changes in case-mix for discharges occurring during FY 2008, we believed we had some discretion regarding when to implement this adjustment. Section 7(b)(1)(A) of Public Law 110-90 requires that if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case- mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an ``appropriate'' adjustment under section 1886(d)(3)(A)(vi) of the Act.

Thus, we determined that it would be appropriate to postpone adopting documentation and coding adjustments as authorized under section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the

Act until a full analysis of case-mix changes could be completed. We indicated that while we had the statutory authority to make this -1.9 percent prospective adjustment entirely in FY 2010, we believed it would be prudent to wait until we had completed data on the magnitude of the documentation and coding effect in FY 2009. Specifically, we stated that if the documentation and coding effect were to be less in

FY 2009 than our then-current estimates, it could lessen the anticipated adjustment that we had estimated we would have had to make for FY 2008 and FY 2009 combined. We indicated that, in future rulemaking, we would consider applying a prospective adjustment based upon a complete analysis of FY 2008 and FY 2009 claims data, beginning in FY 2011. We indicated that we intended to address any difference between the increase in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 and the -0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.

After analysis of the FY 2009 claims data, we have found a total prospective documentation and coding effect of 1.054. After accounting for the -0.6 percent and the -0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we find a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of -3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an ``appropriate'' adjustment. Therefore, we believe we have some discretion as to the manner in which we apply the prospective adjustment of -3.9 percent.

Applying the full prospective adjustment of -3.9 percent for FY 2011, in combination with the proposed recoupment adjustment of -2.9 percent, discussed below, would require an aggregate adjustment of -6.8 percent.

As we discuss more fully

Page 23870

below, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. As we also discuss below, we are required to implement the adjustment in section 7(b)(1)(B) of Public

Law 110-90 no later than FY 2012, and accordingly, we are proposing an adjustment under that section for FY 2011. Therefore, we believe it is appropriate to not implement any or all of the -3.9 percent prospective adjustment in FY 2011. Accordingly, we are not proposing a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011.

We note that, as a result, payments in FY 2011 (and in each future year until we implement the requisite adjustment) will be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90.

We are seeking public comment on our proposal not to apply in FY 2011 the -3.9 percent prospective adjustment to the average standardized amounts required under section 7(b)(1)(A) of Public Law 110-90 in order to eliminate the full effect of the documentation and coding changes on future payments. We note that this proposal would require us to apply the -3.9 percent adjustment in future payment years, which may be applied all at once in a single year or phased in over more than one year. We intend to update our analysis with FY 2009 data on claims paid through March 2009 for the FY 2011 IPPS/LTCH PPS final rule. 7. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

As indicated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43773), we estimated a 2.5 percent change (estimated from analysis of more recent data for the FY 2010 final rule than the data used for that proposed rule) due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008, exceeding the -0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. We stated that our actuaries had estimated that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion. As described earlier, section 7(b)(1)(B) of Public Law 110-90 requires an adjustment for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of this increase in aggregate payments (including interest). Although section 7(b)(1)(B) of Public Law 110-90 requires us to make this adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to when during this 3 year period we will apply the adjustment.

We did not propose to make an adjustment to the FY 2010 average standardized amounts to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but stated in the proposed rule that we intended to address this issue in future rulemaking. That is, we stated that we would address recouping the additional expenditures that occurred in FY 2008 as a result of the 1.9 percentage point difference between the actual changes in documentation and coding that do not reflect real changes in case-mix

(2.5 percent), and the -0.6 percent adjustment applied under Public Law 110-90 in FY 2011 and/or FY 2012, as required by law. We indicated that, while we had the statutory authority to make this -1.9 percent recoupment adjustment entirely in FY 2010, we were delaying the adjustment until FY 2011 and FY 2012 because we did not yet have any data on the magnitude of the documentation and coding effect in FY 2009. We stated that as we have the authority to recoup the aggregate effect of this 1.9 percentage point difference in FY 2008 IPPS payments in FY 2011 or FY 2012 (with interest), delaying this adjustment would have no effect on Federal budget outlays. We indicated that we intended to wait until we have a complete year of data on the FY 2009 documentation and coding effect before applying a recoupment adjustment for IPPS spending that occurred in FY 2008 or we estimate will occur in

FY 2009.

As discussed above, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43774), we stated that because we would not receive all FY 2009 claims data prior to publication of the final rule, we would address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we perform a retrospective evaluation of the FY 2009 claims data.

At that time, our actuaries estimated that this adjustment would be approximately -3.3 percent. This reflected the difference between the estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3 percent for FY 2009) and the cumulative -1.5 percent documentation and coding adjustments applied under section 7(a) of Public Law 110-90 (- 0.6 percent in FY 2008 and -0.9 percent in FY 2009). We noted that the actual adjustments were multiplicative and not additive. This estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 included the impact of the changes in documentation and coding first occurring in FY 2008 because we believed hospitals would continue these changes in documentation and coding in subsequent fiscal years.

Consequently, we believed that these documentation and coding changes would continue to impact payments under the IPPS absent a prospective adjustment to account for the effect of these changes.

We note that, unlike the adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, any adjustment to the standardized amounts under section 7(b)(1)(B) of

Public Law 110-90 would not be cumulative, but would be removed for subsequent fiscal years once we have offset the increase in aggregate payments for discharges for FY 2008 expenditures and FY 2009 expenditures, if any.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we did not propose to offset the 1.9 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 resulting from the adoption of the MS-DRGs, but to instead address this issue in future rulemaking for FYs 2011 and 2012.

In response to the FY 2010 proposed rule, MedPAC stated in its comments on the adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90: ``In addition, it would be desirable for CMS to minimize year-to-year changes in payment adjustments it must make to recover overpayments that were made in 2008 and 2009. To achieve this goal, CMS should consider spreading the recovery of 2008 overpayments over 3 years, beginning in 2010.'' Some commenters recommended that CMS seek to extend the timeframe beyond 2 years to phase in the estimated -6.6 percent adjustment to the standardized amount. The commenters asked CMS to seek

Page 23871

necessary legislative action to accommodate such a policy. Most commenters expressed concern with the significant negative financial impacts that would be incurred by providers if CMS adopted that proposed -1.9 percent documentation and coding adjustment in FY 2010.

The commenters cited providers' already small or negative margins for

Medicare payments, and requested that CMS not further reduce payments during the current period of economic instability and reduced State funding. Other commenters indicated that it would be appropriate to delay any adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 until after CMS has the opportunity to fully examine the FY 2009 claims data.

In response to these comments in FY 2010, we indicated that we recognized that any adjustment to account for the documentation and coding effect observed in the FY 2008 and FY 2009 claims data may result in significant future payment reductions for providers. However, we indicated that we are required under section 7(b)(1)(B) of Public

Law 110-90 to recapture the difference of actual documentation and coding effect in FY 2008 and FY 2009 that is greater than the prior adjustments. We agreed with the commenters who requested that CMS delay any adjustment and, for the reasons stated above, indicated that we expect to address this issue in this FY 2011 rulemaking.

As indicated in section II.D.4. of this preamble, the change due to documentation and coding that did not reflect real changes in case mix for discharges occurring during FY 2008 and FY 2009 exceeded the -0.6 and -0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 for those 2 years respectively by 1.9 percentage points in FY 2008 and 3.9 percentage points in FY 2009. In total, this change exceeded the cumulative prospective adjustments by 5.8 percentage points. Our actuaries currently estimate that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. We note that there may be a need to actuarially adjust the recoupment adjustment to accurately reflect accumulated interest. Therefore, an aggregate adjustment of -5.8 percent in FYs 2011 and 2012, subject to actuarial adjustment to reflect accumulated interest, is necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110- 90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009. We intend to take into account the need to reflect accumulated interest in proposing a recoupment adjustment under section (b)(1)(B) of Public Law 110-90 for FY 2012. We will invite comments on our proposal at that time.

It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year.

Therefore, consistent with the policies we have adopted in many similar cases, we are proposing to make an adjustment to the standardized amount of -2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude allows us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90. As we have previously noted, unlike the prospective adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment or repayment adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is not cumulative, but would be removed for subsequent fiscal years once we have offset the increase in aggregate payments for discharges for FY 2008 expenditures and FY 2009 expenditures. In keeping with our practice of moderating payment adjustments wherever possible, we can anticipate that this proposal will have an additional, and significant, moderating effect on implementing the requirements of section 7(b)(1)(B) of Public Law 110-90 for FY 2012. Specifically, an advantage of our proposal for FY 2011 is that we anticipate removing this proposed FY 2011 -2.9 percent adjustment from the rates in FY 2012, when it would also be necessary under current law to apply the remaining approximately -2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 -2.9 percent adjustment, and applying the remaining adjustment of approximately -2.9 percent, would effectively cancel each other out. The result would be an aggregate adjustment of approximately 0.0 percent (subject to the need to account for accumulated interest, as discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY 2012. However, while we are noting this anticipated effect of our FY 2011 proposal, we are not making a formal proposal for the further implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012 in this proposed rule.

We are seeking public comment on our proposal to offset part of the total 5.8 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-DRGs in FY 2011, noting that this proposal would result in a -2.9 percent adjustment to the standardized amount. We intend to update our analysis with FY 2009 data on claims paid through

March 2009 for the FY 2011 IPPS/LTCH PPS final rule.

FY 2011 MS-DRG Documentation and Coding Adjustment

Required

Required

Proposed prospective

recoupment

recoupment

Remaining adjustment for

adjustment for

Total adjustment adjustment for FY

adjustment

FYs 2008-2009

FYs 2008-2009

2011

FY 2011 Proposal Amount of Adjustment....................

-3.9

-5.8

-9.7

-2.9

-6.8

8. Background on the Application of the Documentation and Coding

Adjustment to the Hospital-Specific Rates

Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; the updated hospital-specific rate based on

FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 costs per discharge. Under

Page 23872

section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period (72 FR 47152 through 47188), we established a policy of applying the documentation and coding adjustment to the hospital- specific rates. In that final rule with comment period, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the Act, which provides us with the authority to adjust ``the standardized amount'' to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix.

However, in the final rule that appeared in the Federal Register on

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

In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rates should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patients' severity of illness.

While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment provision authorizes us to provide ``for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.'' In the FY 2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, for the FY 2010 rulemaking, we planned to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. We further indicated that if we found evidence of significant increases in case- mix for patients treated in these hospitals that do not reflect real changes in case-mix, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act.

In response to public comments received on the FY 2009 IPPS proposed rule, we stated in the FY 2009 IPPS final rule that we would consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we indicated that we planned to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we found that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 is warranted, we indicated that we would include a proposal to do so in the FY 2010 IPPS proposed rule. 9. Proposed Documentation and Coding Adjustment to the Hospital-

Specific Rates for FY 2011 and Subsequent Fiscal Years

In the FY 2010 IPPS/RY 2010 LTCH proposed rule and final rule (74

FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we discussed our performance of a retrospective evaluation of the FY 2008 claims data for SCHs and MDHs using the same methodology described earlier for other IPPS hospitals. We found that, independently for both

SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 slightly exceeded the proposed 2.5 percent result discussed earlier, but did not significantly differ from that result.9

Again, for the FY 2010 proposed rule, we found that the within-base

DRG increases were almost entirely responsible for the case-mix change.

In that proposed rule, we presented two Figures to display our results.

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

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), we solicited public comment on the proposed -2.5 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and our proposal to address in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We also indicated that we intended to update our analysis with FY 2008 data on claims paid through March 2008 [sic] for the FY 2010 IPPS final rule. (We note that the March 2008 update claims paid data date in the proposed rule should have been March 2009.)

Consistent with our approach for IPPS hospitals discussed earlier, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed adoption of a documentation and coding adjustment to the hospital- specific rate until FY 2011. Similar to our approach for IPPS

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hospitals, we indicated that we would consider, through future rulemaking, phasing in the documentation and coding adjustment over an appropriate period. We also indicated that we would address, through future rulemaking, any changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We noted that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-

DRGs. However, as we noted earlier with regard to IPPS hospitals, if the estimated documentation and coding effect determined based on a full analysis of FY 2009 claims data is more or less than our current estimates, it would change, possibly lessen, the anticipated cumulative adjustments that we currently estimate we would have to make for the FY 2008 and FY 2009 combined adjustment. Therefore, we believed that it would be more prudent to delay implementation of the documentation and coding adjustment to allow for a more complete analysis of FY 2009 claims data for hospitals receiving hospital-specific rates.

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Consistent with our analysis of IPPS hospitals, the two charts above show that we found after analysis of FY 2009 discharge data that the distribution of severity discharges for MDH and SCH both proportionally shifted from the

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without CC/MCC to with MCC category. Similarly, we found using a methodology consistent with our analysis of IPPS hospitals that, independently for both SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 slightly exceeded the proposed 2.5 percent result discussed earlier, but did not significantly differ from that result.

As we have noted above, because SCHs and MDHs use the same MS-DRG system as all other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patients' severity of illness.

Therefore, we believe they should be equally subject to a prospective budget neutrality adjustment that we are applying for adoption of the

MS-DRGs to all other hospitals. We believe the documentation and coding estimates for all subsection (d) hospitals should be the same. While the findings for the documentation and coding effect for all IPPS hospitals are similar to the effect for SCHs and slightly different to the effect for MDHs, we continue to believe that this is the appropriate policy so as to neither advantage or disadvantage different types of providers. As we have also discussed above, our best estimate, based on the most recently available data, is that a cumulative adjustment of -5.4 percent is required to eliminate the full effect of the documentation and coding changes on future payments. Unlike the case of standardized amounts paid to IPPS hospitals, we have not made any previous adjustments to the hospital-specific rates paid to SCHs and MDHs to account for documentation and coding changes. Therefore, the entire -5.4 percent adjustment remains to be implemented.

As discussed above, we are proposing to make an adjustment to the standardized amount for IPPS hospitals of -2.9 percent under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. As we also discussed above, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. Because payments for non-SCH and non-MDH

IPPS hospitals and SCHs and MDHs are determined on the basis of the same MS-DRG system, SCHs and MDHs have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patients' severity of illness. Therefore, in determining the level and pace of adjustments to account for such documentation and coding changes, we believe that it is important to maintain, as much as possible, both consistency and equity among these classes of hospitals. In addition, as in the case of the documentation and coding adjustment for non-SCH and non-MDH IPPS hospitals, we also believe that it is important to provide as much as possible for moderating the effects of adjustments on hospital payments. Therefore we are proposing an adjustment of -2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs and MDHs. This proposal is consistent with our proposed adjustment for IPPS hospitals in two ways.

First, as in the case of the IPPS adjustment, we are not proposing to implement the entire adjustment that is warranted by our data (in this case, 5.4 percent) in one year. Second, we are maintaining consistency by proposing the same numerical level of adjustment for both groups of hospitals in FY 2011. While this proposed adjustment to the hospital- specific rates represents somewhat over half of the of the entire adjustment that is appropriate for SCHs and MDHs, it allows us to maintain complete consistency, at least for FY 2011, in the effects on the relevant classes of hospitals. Although the proposed adjustment for

SCHs and MDHs is cumulative and prospective, as opposed to the noncumulative recoupment adjustment we are proposing for other IPPS hospitals, we believe that proposing equal numerical adjustments in this first year is the most appropriate means to maintain such consistency and equity at this time. We will continue, as much as possible, consistent with sections 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments.

We are seeking public comment on the proposed -2.9 percent prospective adjustment to hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in future rule making cycles changes in FY 2008 and FY 2009 case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2008 and FY 2009, noting that our current estimates of the remaining adjustment is -2.5 percent. We intend to update our analysis with FY 2009 data on claims paid through March 2009 for the FY 2011 IPPS/LTCH PPS final rule. 10. Background on the Application of the Documentation and Coding

Adjustment to the Puerto Rico-Specific Standardized Amount

Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the

Act, which provides the Secretary the authority to adjust ``the standardized amounts computed under this paragraph'' to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the

FY 2008 -0.6 percent documentation and coding adjustment to the Puerto

Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico specific standardized amount. In the FY 2009

IPPS final rule (73 FR 48449), we corrected this inadvertent error by removing the -0.6 percent documentation and coding adjustment from the

FY 2008 Puerto Rico-specific rates.

While section 1886(d)(3)(A)(vi) of the Act is not applicable to the

Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the

Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act.

Similar to SCHs and MDHs that are paid based on the hospital-specific rate, we believe that Puerto Rico hospitals that are paid based on the

Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patients' severity of illness.

Consistent with the approach described for SCHs and

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MDHs, in the FY 2009 IPPS final rule (73 FR 48449), we indicated that we planned to examine our FY 2008 claims data for hospitals in Puerto

Rico. We indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that if we found evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico- specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act. 11. Proposed Documentation and Coding Adjustment to the Puerto Rico-

Specific Standardized Amount

For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 claims data for Puerto Rico hospitals using the same methodology described earlier for IPPS hospitals paid under the national standardized amounts under section 1886(d) of the Act. We found that, for Puerto Rico hospitals, the increase in payments for discharges occurring during FY 2008 due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 was approximately 1.1 percent.

When we calculated the within-base DRG changes and the across-base DRG changes for Puerto Rico hospitals, we found that responsibility for the case-mix change between FY 2007 and FY 2008 is much more evenly shared.

Across-base DRG shifts accounted for 44 percent of the changes, and within-base DRG shifts accounted for 56 percent. Thus, the change in the percentage of discharges with an MCC was not as large as that for other IPPS hospitals. In Figure 4 in the FY 2010 proposed rule, we showed that, for Puerto Rico hospitals, there was a 3 percentage point increase in the discharges with an MCC from 22 percent to 25 percent and a corresponding decrease of 3 percentage points from 58 percent to 55 percent in discharges without a CC or an MCC.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24101), we solicited public comment on the proposed -1.1 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and our intent to address in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We also stated that we intended to update our analysis with FY 2008 data on claims paid through March 2009 for the FY 2010 IPPS final rule.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we indicated that, given these documentation and coding increases, consistent with our statements in prior IPPS rules, we would use our authority under section 1886(d)(5)(I)(i) of the Act to adjust the

Puerto Rico-specific rate. However, in parallel to our decision to postpone adjustments to the Federal standardized amount, we indicated that we were adopting a similar policy for the Puerto Rico-specific rate for FY 2010 and would consider the phase-in of this adjustment over an appropriate time period through future rulemaking. The adjustment would be applied to the Puerto Rico-specific rate that accounts for 25 percent of payments to Puerto Rico hospitals, with the remaining 75 percent based on the national standardized amount.

Consequently, the overall reduction to the payment rates for Puerto

Rico hospitals to account for documentation and coding changes will be slightly less than the reduction for IPPS hospitals paid based on 100 percent of the national standardized amount. We noted that, as with the hospital-specific rates, the Puerto Rico-specific standardized amount had not previously been reduced based on estimated changes in documentation and coding associated with the adoption of the MS-DRGs.

However, as we note earlier for IPPS hospitals and hospitals receiving hospital-specific rates, if the estimated documentation and coding effect are determined based on a full analysis of FY 2009 claims data is more or less than our current estimates, it would change, possibly lessen, the anticipated cumulative adjustments that we currently estimate we would have to make for the FY 2008 and FY 2009 combined adjustment. Therefore, we believed that it would be more prudent to delay implementation of the documentation and coding adjustment to allow for a more complete analysis of FY 2009 claims data for Puerto

Rico hospitals.

Consistent with our approach for IPPS hospitals for FY 2010, we indicated that we would address in the FY 2011 rulemaking cycle any change in FY 2009 case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We noted that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-

DRGs.

As we have noted above, similar to SCHs and MDHs, hospitals in

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

MS-DRG system.

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In the above chart, consistent with our findings for IPPS hospitals, for Puerto Rico hospitals, there is a 4 percentage point increase in the discharge severity with MCCs from 22 percent to 26 percent, and a corresponding decrease of 4 percentage points in discharge severity without CC/MCC from 58 percent to 54 percent.

Using the same methodology we applied to estimate documentation and coding changes under IPPS for non-Puerto Rico hospitals, as we have also discussed above, our best estimate, based on the most recently available data, is that a cumulative adjustment of -2.4 percent is required to eliminate the full effect of the documentation and coding changes on future payments from the Puerto Rico-specific rate. Unlike the case of standardized amounts paid to IPPS hospitals, we have not made any previous adjustments to the hospital-specific rates paid to

Puerto Rico hospitals to account for documentation and coding changes.

Therefore, the entire -2.4 percent adjustment remains to be implemented.

As we stated above, we believe it important to maintain both consistency and equity among all hospitals paid on the basis of the same MS-DRG system. At the same time, however, we recognize that the estimated cumulative impact on aggregate payment rates resulting from implementation of the MD-DRG system was smaller for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and MDHs. We therefore are proposing an adjustment of -2.4 percent in FY 2011 to Puerto Rico- specific rate that accounts for 25 percent of payments to Puerto Rico hospitals, with the remaining 75 percent based on the national standardized amount, which we are proposing to adjust as described above. Consequently, the overall reduction to rates for Puerto Rico hospitals to account for the documentation and coding changes will be slightly less than the reduction for IPPS hospitals based on 100 percent of the national standardized amount. We note that this proposed

-2.4 percent prospective adjustment would eliminate the full effect of the documentation and coding changes on the portion of future payments to Puerto Rico hospitals based on the Puerto Rico-specific rate. We believe that this proposed adjustment is the most appropriate means to take into full account the effect of documentation and coding changes on payments, and to maintain equity as much as possible between hospitals paid on the basis of different prospective rates. One reason for proposing the full -2.4 percent adjustment for the Puerto Rico- specific rate in FY 2011 is to maintain equity as much as possible in the documentation and coding adjustments applied to various hospital rates in FY 2011. Because this proposed -2.4 percent adjustment represents the full adjustment that is warranted for the Puerto Rico- specific rate, we do not anticipate proposing any additional adjustments to the rate for documentation and coding effects.

We are seeking public comment on the proposed -2.4 percent prospective adjustment to Puerto Rico-specific standardized amount under section 1886(d)(5)(I)(i) of the Act. We intend to update our analysis with FY 2009 data on claim paid through March 2009 for the FY 2011 IPPS/LTCH PPS final rule.

E. Refinement of the MS-DRG Relative Weight Calculation 1. Background

In the FY 2009 IPPS final rule (73 FR 48450), we continued to implement significant revisions to Medicare's inpatient hospital rates by completing our 3-year transition from charge-based relative weights to cost-based relative weights. Beginning in FY 2007, we implemented relative weights based on cost report data instead of based on charge information. We had initially proposed to develop cost-based relative weights using the hospital-specific relative value cost center (HSRVcc) methodology as recommended by MedPAC. However, after considering concerns expressed in the public comments we received on the proposal, we modified MedPAC's methodology to exclude the hospital-specific relative weight feature. Instead, we developed national CCRs based on distinct hospital departments and engaged a contractor to evaluate the

HSRVcc methodology for future consideration. To mitigate payment instability due to the adoption of cost-based relative weights, we decided to transition cost-based weights over 3 years by blending them with charge-based weights beginning in FY 2007. (We refer readers to the FY 2007 IPPS final rule for details on the HSRVcc methodology and the 3-year

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transition blend from charge-based relative weights to cost-based relative weights (71 FR 47882 through 47898).)

In FY 2008, we adopted severity-based MS-DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS-DRGs. We decided to implement a 2-year transition for the MS-DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight.

In FY 2009, the third and final year of the transition from charge- based weights to cost-based weights, we calculated the MS-DRG relative weights based on 100 percent of hospital costs. We refer readers to the

FY 2007 IPPS final rule (71 FR 47882) for a more detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS

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

As we transitioned to cost-based relative weights, some commenters raised concerns about potential bias in the weights due to ``charge compression,'' which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services.

As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in January 2007 with its findings on charge compression (which was posted on the CMS Web site at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

In its interim draft report, RTI offered a number of recommendations to mitigate the effects of charge compression, including estimating regression-based CCRs to disaggregate the Medical

Supplies Charged to Patients, Drugs Charged to Patients, and Radiology cost centers, and adding new cost centers to the Medicare cost report, such as adding a ``Devices, Implants and Prosthetics'' line under

``Medical Supplies Charged to Patients'' and a ``CT Scanning and MRI'' subscripted line under ``Radiology-Diagnostics''. Despite receiving public comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR, we did not adopt RTI's recommendation to create additional regression-based CCRs. (For more details on RTI's findings and recommendations, we refer readers to the

FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its analysis of charge compression beyond inpatient services to include a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. This interim report was made available in

April 2008 during the public comment period on the FY 2009 IPPS proposed rule and can be found on RTI's Web site at: http:// www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_

Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were separately displayed in the April 2008 interim report, as well as the more recent OPPS chapters, were included in the July 3, 2008 RTI final report entitled, ``Refining Cost-to-Charge Ratios for Calculating APC

Ambulatory Payment Classification

and DRG Relative Payment Weights,'' that became available at the time of the development of the FY 2009

IPPS final rule. The RTI final report can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_

Cost_to_Charge_Ratios_200807_Final.pdf.

RTI's final report found that, under the IPPS and the OPPS, accounting improvements to the cost reporting data reduce some of the sources of aggregation bias without having to use regression-based adjustments. In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the

OPPS.

RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights, and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights. For a more detailed summary of RTI's findings, recommendations, and public comments we received on the report, we refer readers to the FY 2009 IPPS final rule (73 FR 48452 through 48453). b. Summary of the RAND Corporation Study of Alternative Relative Weight

Methodologies

One of the reasons that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS-DRGs. In the FY 2008 final rule with comment period (72 FR 47197), we stated that we engaged the RAND Corporation as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs, and that we would consider its analysis as we prepared for the FY 2009 IPPS rulemaking process.

RAND evaluated six different methods that could be used to establish relative weights; CMS' current relative weight methodology of 15 national CCRs and 5 alternatives, including a method in which the 15 national CCRs are disaggregated using the regression-based methodology, and a method using hospital-specific CCRs for the 15 cost center groupings. In addition, RAND analyzed our standardization methodologies that account for systematic cost differences across hospitals. The purpose of standardization is to eliminate systematic facility-specific differences in cost so that these cost differences do not influence the relative weights. Overall, RAND found that none of the methods it studied 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

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that, after controlling for hospital payment factors, the relative weights are compressed (that is, understated). However, RAND also found that the hospital payment factors are overstated and increase more rapidly than cost. Therefore, while the relative weights are compressed, these payment factors offset the compression such that total payments to hospitals increase more rapidly than hospitals' costs.

In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we provided a summary of the RAND report and the public comments we received in response to the FY 2009 IPPS proposed rule. The report may be found on RAND's Web site at: http://www.rand.org/pubs/working_ papers/WR560/. 2. Proposals for FY 2011 and Timeline for Changes to the Medicare Cost

Report

In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, and because of RAND's finding that regression-based adjustments to the CCRs do not significantly improve payment accuracy, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for ``Medical Supplies Charged to Patients'' and another line for

``Implantable Devices Charged to Patients.'' We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the final rule, we focused on the CCR for Medical Supplies and Equipment because

RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining what should be reported in these respective cost centers, we adopted the commenters' recommendation that hospitals should use revenue codes established by AHA's National Uniform Billing Committee to determine what should be reported in the ``Medical Supplies Charged to Patients'' and the ``Implantable Devices Charged to Patients'' cost centers.

When we developed the FY 2009 IPPS final rule, we considered all of the public comments we received both for and against adopting regression-based CCRs. Also noteworthy is RAND's belief that regression-based CCRs may not significantly improve payment accuracy, and that it is equally, if not more, important to consider revisions to the current IPPS hospital payment factor standardization method in order to improve payment accuracy. For FY 2010, we solicited comments on improving the standardization process, although we did not make any changes to the standardization process for FY 2010. We also stated that we continued to believe that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of the cost weights. Accordingly, a new subscripted line 55.01 for Implantable Devices Charged to Patients was created in July 2009 as part of CMS' Transmittal 20 update to the existing cost report Form CMS-2552-96. This new subscripted cost center is available for use for cost reporting periods beginning on or after

May 1, 2009.

With respect to the initiative to reform, update, and streamline the Medicare cost report, which has been the subject of many comments and our responses in the IPPS (and OPPS) Federal Register notices of rulemaking over the past several years, CMS is continuing to work on this project. The new draft hospital cost report Form CMS-2552-10 was published in the Federal Register on July 2, 2009, and was subject to a 60-day review and comment period, which ended August 31, 2009. CMS received numerous comments on the draft hospital cost report Form CMS- 2552-10, specifically regarding the creation of new cost centers from which data would be ultimately used in the relative weights calculation, even though CMS had not proposed to add these cost centers. The public comments on the July 2, 2009 Federal Register notice will be addressed in detail in the Federal Register notice that will be issued to finalize Form CMS-2525-10. We now plan to issue the revised draft of the hospital cost report Form CMS-2552-10, which will include a standard cost center for Implantable Devices Charged to

Patients, through a notice in the Federal Register, which will allow for a 30-day comment period, in the spring or summer of 2010. However, in part in this IPPS proposed rule, we are providing a summary of the public comments received on the July 2, 2009 notice that specifically related to the relative weights and responding to those comments. Our responses to the comments in this IPPS proposed rule constitute our proposals for FY 2011 regarding the relative weights.

Several commenters asked that CMS create cost centers to house the costs of magnetic resonance imaging (MRI), Computed Tomography (CT), nuclear medicine services, cardiac catheterization, drugs that require detailed coding, and magnetoencephalography (MEG). One commenter indicated, that in RTI's July 2008 report (http://www.rti.org/reports/ cms/), RTI made an argument that CMS should create new standard cost centers in which hospitals would report the costs of MRI scans, CT scans, cardiac catheterization, and drugs that require detailed coding, in addition to the new cost center for ``Implantable Devices Charged to

Patients.'' The commenter stated that these additional lines are needed to distinguish items and services that hospitals tend to markup differently within existing revenue centers, citing RTI's finding that

CT scans have a significantly higher markup than most other radiology services. The commenter indicated that when CMS uses the overall radiology department CCR to convert charges for CT scans to costs, it overestimates the cost of these services, resulting in overstated relative weights for MS-DRGs under the IPPS and for APCs under the OPPS that incorporate CT scanning. The commenter argued that having a separate cost center for each of these services would resolve the problem. The commenter also stated that, while CMS has done something similar with the creation of the cost center for high cost medical devices, making cost center changes for some services, but not others, where such changes are warranted could create additional distortion in the relative weights. The commenter further argued that cost center changes should be made for all service areas with significant volume where services with sizable differences in markup are currently combined in a single cost center. The commenter asserted that creating these cost centers should not create reporting burden for hospitals because the RTI report indicated that roughly one-third of the hospitals are already reporting costs for CT scans, MRI scans, and cardiac catheterization under the specific nonstandard cost centers currently available in the cost report.

Another commenter also recommended the creation of the cost centers for CT scans, MRI scans, and nuclear medicine services, but for different reasons than the first commenter. Specifically, this commenter believed these new cost centers are necessary in order for the high capital costs to be appropriately allocated to these services and to be correctly reflected in the CCRs that are used in the establishment of the MS-DRG and APC payment rates for the services. The commenter stated that, under the existing cost report structure, some providers are allocating high capital costs for these services in a

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single radiology line, diluting the high capital costs associated with

CT scans, MRI scans, and nuclear medicine services across all radiology services, including low cost services. Therefore, the commenter concluded that the resulting radiology CCRs that CMS applies to charges for CT scans, MRI scans, and nuclear medicine services to arrive at the relative costs used to set payment rates for both the IPPS and OPPS understate the cost of high cost radiology services and overstate the cost of low cost radiology services, resulting in payments that are too low for the high cost services. The commenter indicated that CMS should not only create these new costs centers but should also require all hospitals to use them, and should issue explicit instructions on how to report the costs of these services in the new standard cost centers.

We agree that it is appropriate to create standard cost centers for

CT scans, MRI scans, and cardiac catheterization and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS 2552-10. As we discussed in the FY 2009 IPPS and CY 2009 OPPS proposed and final rules, RTI found that the costs and charges of CT scans, MRI scans, and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and OPPS relative weights would better estimate the costs of those services if CMS were to add standard costs centers for CT scanning, MRIs, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the cost from charges on claims data.

In its analysis, RTI concluded that the estimated costs for CT scanning and MRI scans would decline significantly and that the estimated cost for cardiac catheterization would increase modestly if specific standard cost centers were used. RTI found that cardiac catheterization has very different cost inputs from most cardiac testing (for example, electrocardiograms or cardiac stress testing) captured in the 5300 ``Electrocardiology'' cost center and that the accuracy of the CCR for both types of services, cardiac catheterization and other cardiac testing, would improve with creation of a standard cost center for cardiac catheterization. RTI also found that one-third of hospitals already report cardiac catheterization costs and charges separately through the available nonstandard cost center or through subscripted lines to the ``Electrocardiology'' cost center. Similarly,

RTI found that approximately one-third of hospitals already separately report the costs for CT scanning and MRI scans on their Medicare cost report through subscripted lines and the available nonstandard cost centers. We believe the current prevalence of reporting for the nonstandard cost centers for these three services suggests a modest hospital burden required to adopt these cost centers.

We discussed the possibility of creating standard cost centers for these three different services in our CY 2009 OPPS proposed and final rule with comment period (73 FR 41432 and 73 FR 68525) and solicited general comments on RTI's recommendations. The commenters who objected to the creation of the standard cost centers for CT scanning and MRI scans largely did so based on RTI projected lower estimated costs for these services if CMS created these cost centers. The commenters suggested that the current CCRs for advanced imaging may reflect a misallocation of capital costs and requested that CMS not adopt separate cost centers or statistical adjustment simulating lower CCRs for CT scanning and MRI until CMS could understand how providers are allocating the extensive capital costs for these services to the revenue producing cost centers. We also received comments suggesting that the accuracy of estimated costs would improve with better allocation, potentially increasing the CCR as more capital cost would be appropriately allocated to both CT scanning and MRI and not spread across all services in the radiology cost center. We noted in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68525) that our recommended allocation of moveable equipment costs in Worksheet A of the Medicare cost report is based on dollar value, and that it would be important to encourage improved accuracy of capital allocation through dollar value or direct assignment if we were to make these cost centers standard cost centers. At this time, we do not know the impact on CCRs and estimated costs of adopting standard cost centers specific to CT scanning and MRI. However, we believe that, because these areas constitute significant payment under both the IPPS and OPPS and because these are common imaging services already widely reported by hospitals, we are proposing to adopt new standard cost centers for CT scanning and

MRI. We agree with those commenters who asserted that creation of standard cost centers for CT scanning and MRI would improve the accuracy of cost estimation for these services, in part by creating incentives for hospitals to more accurately allocate the capital and equipment associated with these services.

With regard to cardiac catheterization, we received one comment on the CY 2009 OPPS/ASC proposed rule suggesting that hospitals might find it difficult to allocate costs for these services to specific cost centers, especially for cardiac catheterization, and that allocated overhead costs would, in most cases, be an estimate (73 FR 68527).

However, given the number of hospitals already reporting the nonstandard cost center for cardiac catheterization and the number subscripting these costs and charges (approximately 50 percent, according to RTI's July 2008 report (pages 71 and 72) at: http:// www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_

Charge_Ratios_200807_Final.pdf), we believe that hospitals do allocate overhead costs to a cardiac catheterization-specific cost center. For these reasons, we are proposing to create standard cost centers for CT scanning, MRI, and cardiac catheterization in Form CMS 2552-10.

We also received public comments on the cost report notice urging us to create standard cost centers for nuclear medicine services, for drugs that require detailed coding, and for MEG. We continue to believe that it is not appropriate to create standard cost centers for these three services. The Medicare cost report already contains standard cost center 4300 (Radioisotope) to capture the costs and charges for the radioisotopes used in nuclear medicine services, the items that may have significantly different costs and hospital markup than the supplies and equipment used in other radiology services. Moreover, the cost report already contains standard cost center 4100 (Diagnostic

Radiology) in which the costs of staff, equipment, and supplies for diagnostic nuclear medicine services can be reported. Therefore, we continue to believe that creating a new standard cost center for nuclear medicine services is not necessary. We also continue to believe that it is not appropriate to create a standard cost center for drugs that require detailed coding. We refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68655) for a detailed discussion on our final decision not to create this cost center. Finally, with respect to MEG services, the extremely low volume of

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claims for MEG services furnished to Medicare beneficiaries in the hospital outpatient setting and the extremely low number of hospitals that report these codes relative to the volumes we typically have considered in adding both standard and nonstandard cost centers to the cost report lead us to conclude that a specific cost center for MEG is not justified at this time.

There is typically a 3-year lag between the availability of the cost report data that we use to calculate the relative weights both under the IPPS and the OPPS and a given fiscal or calendar year. We expect the data from the proposed standard cost centers for CT scans,

MRI, and cardiac catheterization respectively, should they be finalized, to be available for possible use in calculating the relative weights not earlier than 3 years after Form CMS-2552-10 becomes available. At that time, we would analyze the data and determine if it is appropriate to use those data to create distinct CCRs from these cost centers for use in the relative weights for the respective payment systems. If we decide to finalize these proposed new cost centers, the upcoming Federal Register notice that will finalize Form CMS-2552-10 will provide more information regarding the addition of these proposed new standard cost centers for CT scans, MRI, and cardiac catheterization, including the instructions for completing these cost centers on the new cost report.

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

Infections 1. Background a. Statutory Authority

Section 1886(d)(4)(D) of the Act addresses certain hospital- acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease

Control and Prevention (CDC), at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying

MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines.

Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with CDC, from time to time as long as the list contains at least two conditions.

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

The POA indicator reporting requirement and the HAC payment provision apply to IPPS hospitals only. Non-IPPS hospitals, including

CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in Maryland operating under waivers, rural health clinics, federally qualified health centers, RNHCIs, and Department of Veterans

Affairs/Department of Defense hospitals, are exempt from POA reporting and the HAC payment provision. Throughout this section, the term

``hospital'' refers to an IPPS hospital.

The HAC provision found in section 1886(d)(4)(D) of the Act is part of an array of Medicare value-based purchasing (VBP) tools that we are using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization

(QIO) activities. The application of VBP tools, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

These VBP tools are highly compatible with the underlying purposes as well as existing structural features of Medicare's IPPS. Under the

IPPS, hospitals are encouraged to treat patients efficiently because they receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would otherwise receive for cases without these conditions. To this extent, the IPPS encourages hospitals to avoid complications.

However, the treatment of certain conditions can generate higher

Medicare payments in two ways. First, if a hospital incurs exceptionally high costs treating a patient, the hospital stay may generate an outlier payment. Because the outlier payment methodology requires that hospitals experience large losses on outlier cases before outlier payments are made, hospitals have an incentive to prevent outliers. Second, under the MS-DRGs system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain conditions can generate higher payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 258 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. The presence of a

CC or MCC generally results in a higher payment. However, since we implemented the HAC provisions, if a secondary diagnosis acquired during a hospital stay is a HAC and no other CCs or MCCs are present, the hospital receives a payment under the MS-DRGs as if the HACs were not present. (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).) b. HAC Selection

In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public input regarding conditions with evidence-based prevention guidelines that should be selected in implementing section 1886(d)(4)(D) of the

Act. The public comments we received were summarized in the FY 2007

IPPS final rule (71 FR 48051 through 48053).

In the FY 2008 IPPS proposed rule (72 FR 24716 through 24726), we sought public comment on conditions that we proposed to select. In the

FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we selected 8 categories to which the HAC payment provisions would apply.

In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed several additional candidate HACs as well as refinements to the previously selected HACs. In the FY 2009 IPPS final rule (73 FR 48471), we expanded and refined

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several of the previously selected HACs, and we selected 2 additional categories of HACs.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106), we proposed the addition of ICD-9-CM codes 813.46 (Torus fracture of ulna) and 813.47 (Torus fracture of radius and ulna) to more precisely define the previously selected HAC category of Falls and Trauma. In the

FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43784), we finalized the addition of these codes. A complete list of the 10 current categories of HACs is included in section II.F.2. of this preamble. c. Collaborative Process

In establishing the HAC payment policy under section 1886(d)(4)(D) of the Act, our experts have worked closely with public health and infectious disease professionals from across the Department of Health and Human Services, including CDC, the Agency for Healthcare Research and Quality (AHRQ), and the Office of Public Health and Science (OPHS), to identify the candidate preventable HACs, review comments, and select

HACs. CMS and CDC have also collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital

Medicare claims and on the payment implications of the various POA reporting options. As discussed below, we have also used rulemaking and

Listening Sessions to receive public input. d Application of HAC Payment Policy to MS-DRG Classifications

As described above, in certain cases application of the HAC payment policy provisions can result in MS-DRG reassignment to a lower paying

MS-DRG. The following diagram portrays the logic of the HAC payment policy provision as adopted in the FY 2008 IPPS final rule (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR 48471):

GRAPHIC

TIFF OMITTED TP04MY10.003 e. Public Input Regarding Selected and Potential Candidate HACs

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24104 through 24106), we did not propose to add or remove categories of HACs.

However, as we indicated in that proposed rule, we continue to encourage public dialogue about refinements to the HAC list. During and after the December 18, 2008 Listening Session, we received many oral and written stakeholder comments about both previously selected and potential candidate HACs. In response to the Listening Session, commenters strongly supported using information gathered from early experience with the HAC payment provision to inform maintenance of the

HAC list and consideration of future potential candidate HACs.

Commenters also emphasized the need for a robust program evaluation prior to modifying the HAC list.

In response to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74

FR 24106), commenters expressed strong support for a program evaluation prior to modifying the HAC list. We responded to these commenters and expressed our appreciation for the public's support for our decision to undertake a program evaluation. We indicated that we planned to include updates and findings from the evaluation on CMS' Hospital-Acquired

Conditions and Present on Admission Indicator Web site available at: http://www.cms.hhs.gov/HospitalAcqCond/. We also responded to commenters regarding POA indicator reporting as well as to comments addressing other topics related to HACs and POA reporting (74 FR 43785). f. POA Indicator Reporting

Collection of POA indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision as well as for broader public health uses of Medicare data.

Through Change Request No. 5679 (released on June 20, 2007), we issued instructions requiring IPPS hospitals to submit POA indicator data for all diagnosis codes on Medicare claims. We also issued Change Request

No. 6086 (released on June 13, 2008) regarding instructions for processing non-IPPS claims. Specific instructions on how to select the correct POA indicator for each diagnosis code are included in the ICD- 9-CM Official Guidelines for Coding and Reporting, available on the CDC

Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide09.pdf.

Additional information regarding POA indicator reporting and application of the POA reporting

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options is available on the CMS Web site at: http://www.cms.hhs.gov/

HospitalAcqCond. Historically we have not provided coding advice.

Rather, we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. We have been collaborating with the AHA to promote the Coding Clinic for ICD-9-CM as the source for coding advice about the POA indicator.

There are five POA indicator reporting options, as defined by the

ICD-9-CM Official Guidelines for Coding and Reporting:

Indicator

Descriptor

Y................................................... Indicates that the condition was present on admission.

W................................................... Affirms that the hospital has determined that, based on data and clinical judgment, it is not possible to document when the onset of the condition occurred.

N................................................... Indicates that the condition was not present on admission.

U................................................... Indicates that the documentation is insufficient to determine if the condition was present at the time of admission. 1................................................... Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 4010A1. A list of exempt ICD-9-CM diagnosis codes is available in the ICD-9-CM Official Guidelines for Coding and Reporting.

In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted as final our proposal to: (1) Pay the CC/MCC MS-DRGs for those

HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC

MS-DRGs for those HACs coded with ``N'' and ``U'' indicators.

Beginning on or after January 1, 2011, hospitals will begin reporting with the 5010 format. The 5010 format removes the need to report a POA indicator of ``1'' for codes that are exempt from POA reporting. The POA indicator of ``1'' is being used because of reporting restrictions from the use of the 4010 format. Therefore, hospitals that begin reporting with the 5010 format on and after

January 1, 2011, will no longer report a POA indicator of ``1'' for POA exempt codes. The POA field will instead be left blank for codes exempt from POA reporting. We are planning to issue CMS instructions on this reporting change. 2. Proposed HAC Conditions for FY 2011

As changes to diagnosis codes and new diagnosis codes are proposed and finalized for the list of CCs and MCCs, we will modify the list of selected HACs to reflect these changes. In Table 6A in the Addendum to this proposed rule, we have listed the proposed addition of five new

ICD-9-CM diagnosis codes to replace existing ICD-9-CM code 999.6 (ABO incompatibility reaction) for FY 2011. ICD-9-CM code 999.6 is currently the only code identified under the Blood Incompatibility HAC category.

We are proposing to delete code 999.6 and form a new subcategory of 999.6 to identify new diagnoses relating to ABO incompatibility reaction due to transfusion of blood or blood products. These diagnoses meet the criteria for the Blood Incompatibility HAC category based on the predecessor code 999.6 being a selected HAC.

As shown in Table 6C in the Addendum to this proposed rule, we are proposing that code 999.6 become invalid as a diagnosis code in FY 2011 with the creation of this new ICD-9-CM subcategory. This proposed new subcategory would allow room for expansion and the creation of the following new diagnosis codes:

ICD-9-CM code

Code descriptor

Proposed CC/MCC designation

999.60....................................... ABO incompatibility reaction,

CC unspecified. 999.61....................................... ABO incompatibility with

CC hemolytic transfusion reaction not specified as acute or delayed. 999.62....................................... ABO incompatibility with acute

CC hemolytic transfusion reaction. 999.63....................................... ABO incompatibility with delayed CC hemolytic transfusion reaction. 999.69....................................... Other ABO incompatibility

CC reaction.

We are inviting public comments on the proposed adoption of the five ICD-9-CM diagnosis codes as CCs that are listed above, which, if finalized, would be added to the current HAC Blood Incompatibility category.

The following table lists the current HACs categories and the ICD- 9-CM codes that identify the conditions that have been finalized through FY 2010. For FY 2011, we are proposing that these conditions continue to be subject to the HAC payment provision, with a proposed refinement to the codes to identify blood incompatibility as described above.

HAC

CC/MCC (ICD-9-CM code)

Foreign Object Retained After Surgery........ 998.4 (CC) 998.7 (CC)

Air Embolism................................. 999.1 (MCC)

Blood Incompatibility........................ 999.6 (CC)

Pressure Ulcer Stages III & IV............... 707.23 (MCC) 707.24 (MCC)

Falls and Trauma............................. Codes within these ranges on the CC/MCC list:

--Fracture............................... 800-829

--Dislocation............................ 830-839

--Intracranial Injury.................... 850-854

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--Crushing Injury........................ 925-929

--Burn................................... 940-949

--Electric Shock......................... 991-994

Catheter-Associated Urinary Tract Infection 996.64 (CC)

(UTI).

Also excludes the following from acting as a CC/MCC: 112.2 (CC) 590.10 (CC) 590.11 (MCC) 590.2 (MCC) 590.3 (CC) 590.80 (CC) 590.81 (CC) 595.0 (CC) 597.0 (CC) 599.0 (CC)

Vascular Catheter-Associated Infection....... 999.31 (CC)

Manifestations of Poor Glycemic Control...... 250.10-250.13 (MCC) 250.20-250.23 (MCC) 251.0 (CC) 249.10-249.11 (MCC) 249.20-249.21 (MCC)

Surgical Site Infections

Surgical Site Infection, Mediastinitis,

519.2 (MCC)

Following Coronary Artery Bypass Graft

And one of the following

(CABG).

procedure codes: 36.10-36.19

Surgical Site Infection Following Certain

996.67 (CC)

Orthopedic Procedures.

998.59 (CC)

And one of the following procedure codes: 81.01- 81.08, 81.23-81.24, 81.31-81.38, 81.83, 81.85

Surgical Site Infection Following Bariatric

Principal Diagnosis--

Surgery for Obesity.

278.01 998.59 (CC)

And one of the following procedure codes: 44.38, 44.39, or 44.95

Deep Vein Thrombosis and Pulmonary Embolism 415.11 (MCC)

Following Certain Orthopedic Procedures.

415.19 (MCC) 453.40-453.42 (CC)

And one of the following procedure codes: 00.85- 00.87, 81.51-81.52, or 81.54

We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed analyses supporting the selection of each of these HACs. We invite public comments on our proposal that these conditions continue to be subject to the HAC payment provision, with a proposed refinement of the codes to identify blood incompatibility as described above. 3. RTI Program Evaluation Summary a. Background

On September 30, 2009, a contract was awarded to Research Triangle

Incorporated (RTI) to evaluate the impact of the Hospital-Acquired

Condition-Present on Admission (HAC-POA) provisions on the changes in the incidence of selected conditions, effects on Medicare payments, impacts on coding accuracy, unintended consequences, and infection and event rates. This is an intra-agency project with funding and technical support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also examine the implementation of the program and evaluate additional conditions for future selection.

RTI's evaluation of the HAC-POA provisions is divided into several parts, only some of which will be complete prior to the publication date of this proposed rule. Below we summarize the analyses that are complete. RTI's analyses of POA indicator reporting, frequencies and net savings associated with current HACs, and frequencies of previously considered candidate HACs reflect MedPAR claims from October 2008 through June 2009. In the final rule, we intend to update our summary of these analyses with additional data that have become available. b. Preliminary RTI Analysis on POA Indicator Reporting Across Medicare

Discharges

To better understand the impact of HACs on the Medicare program, it is necessary to first examine the incidence of POA indicator reporting across all eligible Medicare discharges. As mentioned previously, only

IPPS hospitals are required to submit POA indicator data for all diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals were excluded, as well as providers in waiver States (Maryland) and territories other than Puerto Rico.

Using MedPAR claims data from October 2008 through June 2009, RTI found a total of approximately 50.22 million secondary diagnoses across approximately 7.17 million discharges. As shown in Chart A below, the majority of all secondary diagnoses (83.52 percent) were reported with a POA indicator of ``Y,'' meaning the condition was POA.

Page 23884

Chart A--POA Code Distribution Across All Secondary Diagnoses

Number

Percentage

Total Discharges in Final File..........

7,175,139 ..............

Total Number of Secondary Diagnoses

50,216,195

100.00

Across Total Discharges................

POA

Indicator Description

Y............................................. Condition present on admission..

41,938,234

83.52

W............................................. Status cannot be clinically

12,547

0.02 determined.

N............................................. Condition not present on

3,440,815

6.85 admission.

U............................................. Documentation not adequate to

110,771

0.22 determine if condition was present on admission. 1............................................. Exempted ICD-9-CM code..........

4,713,828

9.39

Source: RTI Analysis of MedPAR IPPS Claims, October 2008 through June 2009. c. Preliminary RTI Analysis on POA Indicator Reporting of Current HACs

Following the initial analysis of POA indicator reporting for all secondary diagnoses, RTI then evaluated POA indicator reporting for specific HAC-associated secondary diagnoses. The term ``HAC-associated secondary diagnosis'' refers to those diagnoses that are on the selected HAC list and were reported as a secondary diagnosis. Chart B below shows a summary of the HAC categories with the frequency in which each HAC was reported as a secondary diagnosis and the corresponding

POA indicators assigned on the claims. It is important to note that, because more than one HAC-associated diagnosis code can be reported per discharge (that is, on a single claim), the frequency of HAC-associated diagnosis codes may be more than the actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis.

Below we discuss the frequency of each HAC-associated diagnosis code and the POA indicators assigned to those claims.

RTI analyzed the frequency of each reported HAC-associated secondary diagnosis (across all 7.17 million discharges) and the POA indicator assigned to the claim. Chart B below shows that the most frequently reported conditions were in the Falls and Trauma HAC category, with a total of 132,666 HAC-associated diagnosis codes being reported for that HAC category. Of these 132,666 diagnoses, 4,081 reported a POA indicator of ``N'' for not POA and 128,286 diagnoses reported a POA indicator of ``Y'' for POA. The lowest frequency appears in the Surgical Site Infection (SSI) Following Bariatric Surgery for

Obesity HAC category with only 12 HAC-associated secondary diagnosis codes (and procedure codes) reported.

Chart B--POA Status of Current HACS: October 2008 Through June 2009

Not Present on Admission

Present on Admission

Frequency ---------------------------------------------------------------------------------------

Selected HAC

as a

POA = N

POA = U

POA = Y

POA = W

Secondary ---------------------------------------------------------------------------------------

Diagnosis

Number

Percent

Number

Percent

Number

Percent

Number

Percent

1. Foreign Object Retained After Surgery (CC)........

378

172

45.5

0

0.0

206

54.5

0

0.0 2. Air Embolism (MCC)................................

29

23

79.3

0

0.0

6

20.7

0

0.0 3. Blood Incompatibility (CC)........................

23

8

34.8

0

0.0

15

65.2

0

0.0 4. Pressure Ulcer Stages III & IV (MCC)..............

80,190

944

1.2

56

0.1

79,165

98.7

25

0.0 5. Falls and Trauma (MCC & CC)....................... 132,666

4,081

3.1

232

0.2 128,286

96.7

67

0.1 6. Catheter-Associated UTI (CC)......................

11,424

1,887

16.5

15

0.1

9,496

83.1

26

0.2 7. Vascular Catheter-Associated Infection (CC).......

5,470

2,091

38.2

19

0.3

3,348

61.2

12

0.2 8. Poor Glycemic Control (MCC).......................

11,070

344

3.1

9

0.1

10,711

96.8

6

0.1 9A. Surgical Site Infection Mediastinitis CABG (CC)..

29

21

72.4

0

0.0

8

27.6

0

0.0 9B. Surgical Site Infection Following Bariatric

12

10

83.3

0

0.0

2

16.7

0

0.0

Surgery for Obesity (CC)............................ 9B. Surgical Site Infection Following Certain

202

125

61.9

1

0.5

75

37.1

1

0.5

Orthopedic Procedures (CC).......................... 10. Pulmonary Embolism & DVT Orthopedic (MCC)........

2,706

2,029

75.0

15

0.6

647

23.9

15

0.6

Total *.......................................... 244,199 ......... .........

347 ......... ......... .........

152 .........

* Discharges can appear in more than one row. The total figure is not adjusted for the 47 discharges with more than one HAC that appear as secondary diagnoses (15 of these discharges resulted in MS-DRG reassignment).

Page 23885

We welcome public comments on these data that can provide insight into the accuracy of the data, using comparative data sets or analysis such as how aspects of the coding system might influence these data.

As described earlier, in the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted as final our proposal to: (1) Pay the CC/MCC

MS-DRGs for those HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC MS-DRGs for those HACs coded with ``N'' and ``U'' indicators. We also discussed the comments we received urging CMS to strongly consider changing the policy and to pay for those HACs assigned a POA indicator of ``U'' (documentation is insufficient to determine if the condition was present at the time of admission). We stated we would monitor the extent to which and under what circumstances the ``U'' POA reporting option is used. In the FY 2010

IPPS/RY 2010 LTCH PPS final rule, we also discussed and responded to comments regarding HACs coded with the ``U'' indicator (74 FR 43784 and 43785). As shown in Chart B above, RTI's analysis provides some initial data on a total of 347 HAC-associated secondary diagnoses reported with a POA indicator of ``U''. Of those diagnoses, 232 (0.2 percent) were assigned to the Falls and Trauma HAC category.

We continue to believe that better documentation will result in more accurate public health data. Because the RTI analysis is based on preliminary data, at this time we are not proposing to change our policy under which CMS does not pay at the higher CC/MCC amount when a selected HAC diagnosis code is reported with a POA indicator of ``U.''

We encourage readers to further review the RTI detailed report which demonstrates the frequency of each individual HAC-associated diagnosis code within the HAC categories. For example, in the Foreign

Object Retained After Surgery HAC category, there are two unique ICD-9-

CM diagnosis codes to identify that condition: code 998.4 (Foreign body accidentally left during a procedure) and code 998.7 (Acute reaction to foreign substance accidentally left during a procedure). In the detailed RTI report, readers can view that code 998.4 was reported 368 times and code 998.7 was reported 10 times, for a total of 378 times, as shown in Chart B above. The RTI detailed report is available at the following Web site: http://www.rti.org/reports/cms/. d. Preliminary RTI Analysis of Frequency of Discharges and POA

Indicator Reporting for Current HACs

RTI further analyzed the effect of the HAC provision by studying the frequency in which a HAC-associated diagnosis was reported as a secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that number, how many resulted in MS-DRG reassignment. In Chart C below,

Column A shows the number of discharges for each HAC category where the

HAC-associated diagnosis was reported as a secondary diagnosis. For example, there were 29 discharges that reported Air Embolism as a secondary diagnosis. Column C shows the number of discharges for each

HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with the example of Air Embolism, the chart shows that, of the 29 reported discharges, 23 discharges (79.31 percent) had a POA indicator of ``N'' or ``U'' and was identified as a HAC discharge. There were a total of 23 discharges to which the HAC policy applies and that could, therefore, have had an MS-DRG reassignment. Column E shows the number of discharges where an actual MS-DRG reassignment occurred. As shown in

Column E, the number of discharges with an Air Embolism that resulted in actual MS-DRG reassignments is 12 (52.17 percent of the 23 discharges with a POA indicator of ``N'' or ``U''). Thus, while there were 23 discharges (79.31 percent of the original 29) with an Air

Embolism reported with a POA indicator of ``N'' or ``U'' identified as a HAC discharge that could have caused MS-DRG reassignment, the end result was 12 (52.17 percent) actual MS-DRG reassignments. There are a number of reasons why a selected HAC reported with a POA indicator of

``N'' or ``U'' will not result in MS-DRG reassignment. These reasons were illustrated with the diagram in section II.F.1.c. of this preamble and will be discussed in further detail in section II.F.3.e. of this preamble.

Chart C below also shows that, of the 216,764 discharges with a

HAC-associated diagnosis as a secondary diagnosis, 3,038 discharges ultimately resulted in MS-DRG reassignment. As will be discussed below, there were 15 claims that resulted in MS-DRG reassignment where two

HACs were reported on the same admission. The four HAC categories that had the most discharges resulting in MS-DRG reassignment were: (1)

Falls and Trauma; (2) Pressure Ulcer Stages III & IV; (3) Pulmonary

Embolism and DVT Orthopedic (Orthopedic PE/DVT); and (4) Catheter-

Associated Urinary Tract Infection (UTI). Codes falling under the Falls and Trauma HAC category were the most frequently reported secondary diagnoses with 109,728 discharges. Of these 109,728 discharges, 3,852

(3.51 percent) were coded as not POA and identified as HAC discharges.

This category also contained the greatest number of discharges that resulted in an MS-DRG reassignment. Of the 3,852 discharges within this

HAC category that were not POA, 1,476 (38.32 percent) resulted in an

MS-DRG reassignment.

Of the 216,764 total discharges reporting HAC-associated diagnoses as a secondary diagnosis, 2,494 discharges were coded with a secondary diagnosis of Orthopedic PE/DVT. Of these 2,494 discharges, 1,892 (75.86 percent) were coded as not POA and identified as HAC discharges. This category contained the second greatest number of discharges resulting in an MS-DRG reassignment. Of the 1,892 discharges in this HAC category that were not POA, 845 discharges (44.66 percent) resulted in an MS-DRG reassignment.

The Pressure Ulcer Stages III & IV category had the second most frequently coded secondary diagnoses, with 76,014 discharges. Of these discharges, 960 (1.26 percent) were coded as not POA and identified as

HAC discharges. This category contained the third greatest number of discharges resulting in an MS-DRG reassignment. Of the 960 discharges in this HAC category that were not POA, 337 discharges (35.10 percent) resulted in an MS-DRG reassignment.

The Catheter-Associated UTI category had the third most frequently coded secondary diagnoses, with 11,434 discharges. Of these discharges, 1,896 (16.60 percent) were coded as not POA and identified as HAC discharges. This category contained the fourth greatest number of discharges resulting in an MS-DRG reassignment. Of the 1,896 discharges in this HAC category that were not POA, 197 discharges (10.39 percent) resulted in a MS-DRG reassignment.

The remaining 6 HAC categories only had 183 discharges that ultimately resulted in MS-DRG reassignment. We note that, even in cases where a large number of HAC-associated secondary diagnoses were coded as not POA, this finding did not necessarily translate into a large number of discharges that resulted in MS-DRG reassignment. For example, only 23 of the 2,107 Vascular Catheter-Associated Infection secondary diagnoses that were coded as not POA and identified as HAC discharges resulted in a MS-DRG reassignment.

Page 23886

There were a total of 277 discharges with a HAC-associated secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that were excluded from acting as a HAC discharge (subject to MS-DRG reassignment) due to the CC Exclusion List logic within the GROUPER.

The CC Exclusion List identifies secondary diagnosis codes designated as a CC or MCC that are disregarded by the GROUPER logic when reported with certain principal diagnoses. For example, a claim with the principal diagnosis code of 250.83 (Diabetes with other specified manifestations, type 1 [juvenile type], uncontrolled) and a secondary diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile type], uncontrolled) with a POA indicator of ``N'' would result in the

HAC-associated secondary diagnosis code 250.13 being ignored as a CC.

According to the CC Exclusion List, code 250.13 is excluded from acting as a CC when code 250.83 is the principal diagnosis. As a result, the

HAC logic would not be applicable to that case. For a detailed discussion on the CC Exclusion List, we refer readers to section

II.G.9. of this preamble.

Discharges where the HAC logic was not applicable due to the CC

Exclusion List occurred among the following 4 HAC categories: Pressure

Ulcer Stages III and IV (29 cases), Falls and Trauma (206 cases),

Catheter-Associated UTI (6 cases), Vascular Catheter-Associated

Infection (3 cases), and Manifestations of Poor Glycemic Control (33 cases). Further information regarding the specific number of cases that were excluded for each HAC-associated secondary diagnosis code within each of the above mentioned HAC categories is also available. We refer readers to the RTI detailed report at the following Web site: http:// www.rti.org/reports/cms/.

In summary, Chart C below demonstrates that there were a total of 216,764 discharges with a reported HAC-associated secondary diagnosis.

Of the total 216,764 discharges, 11,383 (5.25 percent) discharges were

HACs reported with a POA indicator of ``N'' or ``U'' that were identified as a HAC discharge. Of these 11,383 discharges, the number of discharges resulting in MS-DRG reassignments was 3,038 (26.69 percent).

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An extremely small number of discharges had multiple HACs reported during the same stay. In reviewing the 7.17 million claims, RTI found 47 cases in which two HACs were reported on the same discharge. Chart D below summarizes these cases. There were eight cases in which a Falls and Trauma HAC was reported in addition to a Pressure Ulcer Stages III

& IV HAC. Eighteen of the cases with two HACs involved Pressure Ulcer

Stages III & IV and 15 cases involved Falls or Trauma. Other multiple

HAC cases included 9 Catheter-Associated UTI cases and 5 Vascular

Catheter-Associated Infection cases.

Some of these cases with multiple HACs reported had both HAC codes ignored in the MS-DRG assignment. Of these 47 claims, 32 did not receive higher payments based on the presence of one or both of these reported HACs and we describe these claims below in section

II.F.3.f.(2) of this preamble. Depending on the MS-DRG to which the cases were originally assigned, ignoring the HAC codes would have led to a MS-DRG reassignment if there were no other MCCs or CCs reported, if the MS-DRG was subdivided into severity levels, and if the case were not already in the lowest severity level prior to ignoring the HAC codes.

Chart D--Claims With More Than One HAC Secondary Diagnosis October 2008 Through June 2009

7. Vascular 4. Pressure

5. Falls and

6. Catheter-

catheter-

HAC

ulcer stages III trauma-- MCC & associated UTI-- associated

& IV--MCC

CC

CC

infection--CC

2. Air embolism--MCC.................... ................

1 ................ ................ 5. Falls and Trauma--MCC & CC...........

8 ................ ................ ................ 6. Catheter-Associated UTI--CC..........

2

3 ................ ................ 7. Vascular Catheter-Associated

5

4

6 ................

Infection--CC.......................... 8. Poor Glycemic Control--MCC...........

1 ................ ................

1 9C. Surgical Site Infection Following

................ ................

2

1

Bariatric Surgery for Obesity--CC...... 10. Pulmonary Embolism & DVT Orthopedic--

2

7

1

3

MCC....................................

Total...............................

18

15

9

5

e. Preliminary RTI Analysis of Circumstances When Application of HAC

Provisions Would Not Result in MS-DRG Reassignment for Current HACs

As discussed in section II.F.1. and illustrated in the diagram in section II.F.1.c. of this preamble, there are instances when the MS-DRG assignment does not change even when a HAC-associated secondary diagnosis has a POA indicator of either ``N'' or ``U.'' In analyzing our claims data, RTI identified four main reasons why a MS-DRG assignment would not change despite the presence of a HAC. Those four reasons are described below and are shown in Chart E below. Column A shows the frequency of discharges that included a HAC-associated secondary diagnosis. Column B shows the frequency of discharges where the HAC-associated secondary diagnosis was

Page 23889

coded as not POA and identified as a HAC discharge. Column C shows the frequency of discharges in which the HAC-associated secondary diagnosis coded as not POA resulted in a change in MS-DRG. Columns D, E, F, and G show the frequency of discharges in which the HAC-associated secondary diagnosis coded as not POA did not result in a change in MS-DRG assignment. Columns D, E, F, and G are explained in more detail below.

(1) Other MCCs/CCs Prevent Reassignment

Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below indicates the number of cases reporting a HAC-associated secondary diagnosis code that did not have a MS-DRG reassignment because of the presence of other secondary diagnoses on the MCC or CC list. A claim that is coded with a HAC-associated secondary diagnoses and a POA status of either ``N'' or ``U'' may have other secondary diagnoses that are classified as an MCC or a CC. In such cases, the presence of these other MCC and CC diagnoses will still lead to the assignment of a higher severity level, despite the fact that the GROUPER software is disregarding the ICD-9-CM code that identifies the selected HAC in making the MS-DRG assignment for that claim. For example, there were 83 cases in which the ICD-9-CM codes for the Foreign Object Retained After

Surgery HAC category were present, but the presence of other secondary diagnoses that were MCCs or CCs resulted in no change to the MS-DRG assignment. Chart E shows that a total of 6,074 cases did not have a change in the MS-DRG assignment because of the presence of other reported MCCs and CCs.

(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment

Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does

Not Impact MS-DRG Assignment) shows the frequency with which discharges with a HAC as a secondary diagnosis coded as not POA did not result in an MS-DRG change because the MS-DRG is subdivided solely by the presence or absence of an MCC. A claim with a HAC and a POA indicator of either ``N'' or ``U'' may be assigned to an MS-DRG that is subdivided solely by the presence or absence of an MCC. In such cases, removing a HAC ICD-9-CM CC code will not lead to further changes in the

MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in the footnotes to the chart and include the following examples:

MS-DRGs 100 and 101 (Seizures with or without MCC, respectively)

MS-DRGs 102 and 103 (Headaches with or without MCC, respectively)

The codes that fall under the HAC category of Foreign Object

Retained After Surgery are CCs. If this case were assigned to a MS-DRG with an MCC subdivision such as MS-DRGs 100 and 101, the presence of the HAC code would not affect the MS-DRG severity level assignment. In other words, if the Foreign Object Retained After Surgery code were the only secondary diagnosis reported, then the case would be assigned to

MS-DRG 101. If the POA indicator was ``N,'' the HAC Foreign Object

Retained After Surgery code would be ignored in the MS-DRG assignment logic. Despite the fact that the code was ignored, the case would still be assigned to the same, lower severity level MS-DRG. Therefore, there would be no impact on the MS-DRG assignment.

Column E in Chart E below shows that there were 1,446 cases where the HAC code was ``N'' or ``U'' and the MS-DRG assignment did not change because the case was already assigned to the lowest severity level.

(3) No Severity Levels

Column F (Number of MS-DRGs with No Severity Levels) shows the frequency with which discharges with an HAC as a secondary diagnosis coded as not POA did not result in an MS-DRG change because the MS-DRG is not subdivided by severity levels. A claim with a HAC and a POA of

``N'' or ``U'' may be assigned to a MS-DRG with no severity levels. For instance, MS-DRG 311 (Angina Pectoris) has no severity level subdivisions; this MS-DRG is not split based on the presence of an MCC or a CC. If a patient assigned to this MS-DRG develops a secondary diagnosis such as a Stage III pressure ulcer after admission, the condition would be considered to be a HAC. The code for the Stage III pressure ulcer would be ignored in the MS-DRG assignment because the condition developed after the admission (the POA indicator was ``N'').

Despite the fact that the ICD-9-CM code for the HAC Stage III pressure ulcer was ignored, the MS-DRG assignment would not change. The case would still be assigned to MS-DRG 311. Chart E below shows that 818 cases reporting a HAC-associated secondary diagnosis did not undergo a change in the MS-DRG assignment based on the fact that the case was assigned to a MS-DRG that had no severity subdivisions (that is, the

MS-DRG is not subdivided based on the presence or absence of an MCC or a CC, rendering the presence of the HAC irrelevant for payment purposes).

(4) MS-DRG Logic

Column G (MS-DRG Logic Issues) shows the frequency with which a HAC as a secondary diagnosis coded as not POA did not result in an MS-DRG change because of MS-DRG assignment logic. There were seven discharges where the HAC criteria were met and the HAC logic was applied, however, due to the structure of the MS-DRG logic, these cases did not result in

MS-DRG reassignment. These cases may appear similar to those discharges where the MS-DRG is subdivided into two severity levels by the presence or absence of an MCC and did not result in MS-DRG reassignment; however, these discharges differ slightly in that the MS-DRG logic also considers specific procedures that were reported on the claim. In other words, for certain MS-DRGs, a procedure may be considered the equivalent of an MCC or CC. The presence of the procedure code dictates the MS-DRG assignment despite the presence of the HAC-associated secondary diagnosis code with a POA indicator of ``N'' or ``U''.

For example, a claim with the principal diagnosis code of 441.1

(Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis code of 996.64 (Infection and inflammatory reaction due to indwelling urinary catheter) and diagnosis code 599.0 (Urinary tract infection, site not specified), having POA indicators of ``Y'', ``N'', ``N'', respectively, and procedure code 39.73 (Endovascular implantation of graft in thoracic aorta) results in an assignment to MS-DRG 237 (Major

Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair).

In this case, the thoracic aortic aneurysm repair is what dictated the

MS-DRG assignment and the presence of the HAC-associated secondary diagnosis code, 996.64, did not affect the MS-DRG assigned. Other examples of MS-DRGs that are subdivided in this same manner are as follows:

MS-DRG 029 (Spinal procedures with CC or Spinal

Neurostimulators)

MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or

Major Device)

MS-DRG 246 (Percutaneous Cardiovascular Procedure with

Drug-Eluting Stent with MCC or 4+ Vessels/Stents)

Column G in the chart below shows that four of the seven cases that did not result in MS-DRG reassignment due to the MS-DRG logic were in the Catheter Associated UTI HAC category, one case was in the Foreign

Body Retained after

Page 23890

Surgery HAC Category, one case was in the Falls and Trauma HAC category, and one case was in the Vascular Catheter-Associated

Infection HAC Category.

In conclusion, a total of 8,345 cases (6,074 + 1,446 + 818 + 7) did not have a change in MS-DRG assignment, regardless of the presence of a

HAC. The reasons described above explain why only 3,038 cases had a change in MS-DRG assignment despite the fact that there were 11,383 HAC cases with a POA of ``N'' or ``U.''

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f. Preliminary RTI Analysis of Coding Changes for HAC-Associated

Secondary Diagnoses for Current HACs

In addition to studying claims from October 2008 through June 2009,

RTI evaluated claims data from 2 years prior to determine if there were significant changes in the number of discharges with a HAC being reported as a secondary diagnosis. To provide consistency with the FY 2009 data studied, RTI examined claims using discharge dates from

October 2006 through June 2007 (for FY 2007) and October 2007 through

June 2008 (for FY 2008) and compared these data to the FY 2009 data.

RTI's analysis found that there was an increase in the reporting of secondary diagnoses that are currently designated as HACs from FY 2007 to FY 2008. The most significant increase was in the Falls and Trauma

HAC category, with 108,397 discharges being reported in FY 2007, while 116,832 discharges were reported in FY 2008, an increase of 8,435 cases.

However, the analysis found that there was a decrease in reported

HAC-associated secondary diagnoses from FY 2008 to FY 2009. The most significant decrease was in the Falls and Trauma HAC category, with 116,832 discharges being reported in FY 2008, while 109,246 discharges were reported in FY 2009, a decrease of 7,586 cases. We point out that because diagnosis codes for the Pressure Ulcer Stages III & IV HAC did not become effective until October 1, 2008, there are no data available for FY 2007 or FY 2008.

We refer readers to the RTI detailed report for all the conditions in each fiscal year (FY 2007 through FY 2009) as described above at the following Web site: http://www.rti.org/reports/cms/. g. Preliminary RTI Analysis of Estimated Net Savings for Current HACs

RTI determined preliminary estimates of the net savings generated by the HAC payment policy based on MedPAR claims from October 2008 through June 2009 for the 9-month period.

(1) Net Savings Estimation Methodology

The payment impact of a HAC is the difference between the IPPS payment amount under the initially assigned MS-DRG and the amount under the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on the MedPAR files. To construct this, RTI modeled the IPPS payments for each MS-DRG following the same approach that we use to model the impact of IPPS annual rule changes. Specifically, RTI replicated the payment computations carried out in the IPPS PRICER program using payment factors for IPPS providers as identified in various CMS downloaded files. The files used are as follows:

Version 26 of the Medicare Severity GROUPER software

(applicable to discharges between October 1, 2008 and September 30, 2009). IPPS MedPAR claims were run through this file to obtain needed

HAC-POA output variables.

The FY 2009 MS-DRG payment weight file. This file includes the weights, geometric mean length of stay (GLOS), and the postacute transfer payment indicators.

CMS standardized operating and capital rates. Tables 1A through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/IPPS2009, include the full update and reduced update amounts, as well as the information needed to compute the blended amount for providers located in Puerto Rico.

The IPPS impact files for FY 2009, also as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/.

This file includes the wage index and geographic adjustment factors, plus the provider type variable to identify providers qualifying for alternative hospital-specific amounts and their respective HSP rates.

The IPPS impact files for FY 2010, as downloaded from the

Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/10FR/. This file includes indirect medical education (IME) and disproportionate share

(DSH) percent adjustments that were in effect as of March 2009.

CMS historical provider-specific files (PSF). This includes the indicator to identify providers subject to the full or reduced standardized rates and the applicable operating and capital cost-to-charge ratios. An SAS version was downloaded from the Web site at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.

There were 50 providers with discharges in the final HAC analysis file that did not appear in the FY 2009 impact file, of which 11 also did not appear in the FY 2010 impact file. For these providers, we identified the geographic CBSA from the historical PSF and assigned the wage index using values from Tables 4A and 4C as downloaded from the

Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. For providers in the FY 2010 file but not the FY 2009 file, we used IME and

DSH rates from FY 2010. The 11 providers in neither impact file were identified as non-IME and non-DSH providers in the historical PSF file.

The steps for estimating the HAC payment impact are as follows:

Step 1: Re-run the Medicare Severity GROUPER on all records in the analysis file. This is needed to obtain information on actual HAC- related MS-DRG reassignments in the file, and to identify the CCs and

MCCs that contribute to each MS-DRG assignment.

Step 2: Model the base payment and outlier amounts associated with the initial MS-DRG if the HAC were excluded using the computations laid out in the CMS file ``Outlier Example FY2007 new.xls,'' as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_ outlier.asp#TopOfPage, and modified to accommodate FY 2009 factors.

RTI's first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers or

HSP amounts.

Step 3: Model the base payment and outlier amounts associated with the final MS-DRG where the HAC was excluded using the computations laid out in the CMS file ``Outlier Example FY2007 new.xls,'' as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_ outlier.asp#TopOfPage and modified to accommodate FY 2009 factors.

RTI's first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers or

HSP amounts.

Step 4: Compute MS-DRG base savings as the difference between the nonoutlier payments for the initial and final MS-DRGs. Compute outlier amounts as the difference in outlier amounts due under the initial and final reassigned MS-DRG. Compute net savings due to HAC reassignment as the sum of base savings plus outlier amounts.

Step 5: Adjust the model to incorporate short-stay transfer payment adjustments.

Step 6: Adjust the model to incorporate hospital-specific payments for qualifying rural providers receiving the hospital-specific payment rates.

It is important to mention that using the methods described above, the MS-DRG and outlier payments amounts that are modeled for the final assigned MS-DRG do not always match the DRG price and outlier amounts that appear in the MedPAR record. There are several reasons for this.

Some discrepancies are caused by using single wage index, IME and DSH factors for the full period

Page 23893

covered by the discharges, when in practice these payment factors can be adjusted for individual providers during the course of the fiscal year. In addition, RTI's approach disregards any Part A coinsurance amounts owed by individual beneficiaries with greater than sixty covered days in a spell of illness. Five percent of all HAC discharges showed at least some Part A coinsurance amount due from the beneficiary, although less than two percent of reassigned discharges

(55 cases in the analysis file) showed Part A coinsurance amounts due.

Any Part A coinsurance payments would reduce the actual savings incurred by the Medicare program.

There are also a number of less common special IPPS payment situations that are not factored into RTI's modeling. These could include new technology add-on payments, payments for blood clotting factors, reductions for replacement medical devices, adjustments to the capital rate for new providers, and adjustments to the capital rate for certain classes of providers who are subject to a minimum payment level relative to capital cost.

(2) Net Savings Estimate

Chart F below summarizes the estimated net savings of current HACs based on MedPAR claims from October 2008 through 2009, based on the methodology described above. Column A shows the number of discharges where an MS-DRG reassignment for each HAC category occurred. For example, there were 12 discharges with an Air Embolism that resulted in an actual MS-DRG reassignment. Column B shows the total net savings caused by MS-DRG reassignments for each HAC category. Continuing with the example of Air Embolism, the chart shows that the 12 discharges with an MS-DRG reassignment resulted in a total net savings of

$148,394. Column C shows the net savings per discharge for each HAC category. For the Air Embolism HAC category, the net savings per discharge is $12,366.

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As shown in Chart F above, the total net savings calculated for the 9-month period from October 2008 through June 2009 was roughly $16.44 million. The three HACs with the largest number of discharges resulting in MS-DRG reassignment, Falls and Trauma, Orthopedic PE/DVT, and

Pressure Ulcer Stages III & IV, generated $15.10 million of net savings for the 9-month period. Estimated net savings for the 9-month period associated with the Falls and Trauma category were $7.58 million.

Estimated net savings associated with Orthopedic PE/DVT for the 9-month period were $5.61 million. Estimated net savings for the 9-month period associated with Pressure Ulcer Stages III & IV were $1.87 million.

The mean net savings per discharge calculated for the 9-month period from October 2008 through June 2009 was roughly $5,456. The HAC categories of Air Embolism; SSI, Mediastinitis, Following Coronary

Artery Bypass Graft (CABG); and SSI Following Certain Orthopedic

Procedures had the highest net savings per discharge, but represented a small proportion of total net savings because the number of discharges that resulted in MS-DRG reassignment for these HACs was low. With the exception of Blood Incompatibility, where no savings occurred because no discharges resulted in MS-DRG reassignment, SSI Following Bariatric

Surgery for Obesity and Catheter-Associated UTI had the lowest net savings per discharge.

We refer readers to the RTI detailed report available at the following Web site: http://www.rti.org/reports/cms/.

As mentioned previously, an extremely small number of cases in the 9-month period of FY 2009 analyzed by RTI had multiple HACs during the same stay. In reviewing our 7.17 million claims, RTI found 47 cases where two HACs were reported on the same admission as noted in section

II.F.3.g.(2) of this preamble. Of these 47 claims, 15 resulted in MS-

DRG reassignment. Chart G below summarizes these cases. There were 15 cases that had two HACs not POA that resulted in an MS-DRG reassignment. Of these, 5 discharges involved Pressure Ulcer Stages III

& IV and Falls and Trauma and 4 discharges involved Orthopedic PE/DVT and Falls and Trauma.

Chart G--Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred October 2008

Through June 2009

4. Pressure 5. Falls and 6. Catheter-

Selected HAC

ulcer stages trauma--MCC & associated

III & IV--MCC

CC

UTI--CC

3. Blood Incompatibility--CC.................................... ..............

1 .............. 5. Falls and Trauma--MCC & CC...................................

5 .............. .............. 6. Catheter-Associated Urinary Tract Infection (UTI)--CC........

1

1 .............. 7. Vascular Catheter-Associated Infection--CC................... ..............

1

1 10. Pulmonary Embolism & DVT Orthopedic--MCC....................

1

4 ..............

Total.......................................................

7

7

1

As we discuss in section II.F.1.b. of this preamble, implementation of this policy is the part of an array of Medicare VBP tools that we are using to promote increased quality and efficiency of care. We point out that a decrease over time in the number of discharges where these conditions are not POA is a desired consequence. We recognize that estimated net savings would likely decline as the number of such discharges decline. However, we believe that the sentinel effect resulting from CMS identifying these conditions is critical. (We refer readers to section IV.A. of this preamble for a discussion of the inclusion of the incidence of these conditions in the RHQDAPU program.)

It is our intention to continue to monitor trends associated with the frequency of these HACs and the estimated net payment impact through

RTI's program evaluation and possibly beyond. h. Previously Considered Candidate HACs--Preliminary RTI Analysis of

Frequency of Discharges and POA Indicator Reporting

RTI evaluated the frequency of conditions previously considered, but not adopted as HACs in prior rulemaking, that were reported as secondary diagnoses (across all 7.17 million discharges) as well as the

POA indicator assignments for these conditions. Chart H below indicates that the three previously considered candidate conditions most frequently reported as a secondary diagnosis were: (1) Clostridium

Difficile-Associated Disease (CDAD), which demonstrated the highest frequency, with a total of 66,502 secondary diagnoses codes being reported for that condition, of which 23,323 reported a POA indicator of ``N''; (2) Staphylococcus aureus Septicemia, with a total of 17,662 secondary diagnoses codes being reported for that condition, with 3,949 of those reporting a POA indicator of ``N''; and (3) Iatrogenic

Pneumothorax, with a total of 16,765 secondary diagnoses codes being reported for that condition, with 14,604 of those reporting a POA indicator of ``N.'' As these three conditions had the most significant impact for reporting a POA indicator of ``N,'' it is reasonable to believe that these same three conditions would have the greatest number of potential MS-DRG reassignments. The frequency of discharges for the previously considered HACs that could lead to potential changes in MS-

DRG assignment is discussed in the next section. We take this opportunity to remind readers that because more than one previously considered HAC diagnosis code can be reported per discharge (on a single claim) that the frequency of these diagnosis codes may be more than the actual number of discharges with a previously considered candidate condition reported as a secondary diagnosis.

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In Chart I below, Column A shows the number of discharges for each previously considered candidate HAC category when the condition was reported as a secondary diagnosis. For example, there were 66,502 discharges that reported CDAD as a secondary diagnosis. Previously considered candidate HACs reported with a POA indicator of ``N'' or

``U'' may cause MS-DRG reassignment (which would result in reduced payment to the facility). Column C shows the discharges for each previously considered candidate HAC reported with a POA indicator of

``N'' or ``U.'' Continuing with the example of CDAD, Chart I shows that, of the 66,502 discharges, 23,702 discharges (35.64 percent) had a

POA indicator of ``N'' or ``U.'' Therefore, there were a total of 23,702 discharges that could potentially have had an MS-DRG reassignment. Column E shows the number of discharges where an actual

MS-DRG reassignment could have occurred; the number of discharges with

CDAD that could have resulted in actual MS-DRG reassignments is 739

(3.12 percent). Thus, while there were 23,702 discharges with CDAD reported with a POA indicator of ``N'' or ``U'' that could potentially have had an MS-DRG reassignment, the result was 739 (3.12 percent) potential MS-DRG reassignments. As discussed above, there are a number of reasons why a condition reported with a POA indicator of ``N'' or

``U'' would not result in a MS-DRG reassignment.

In summary, Chart I below demonstrates there were a total of 159,485 discharges with a previously considered candidate HAC reported as a secondary diagnosis. Of those, 47,010 discharges were reported with a POA indicator of ``N'' or ``U.'' The total number of discharges that could have resulted in MS-DRG reassignments is 2,932.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C i. Current and Previously Considered Candidate HACs--RTI Report on

Evidence-Based Guidelines

The RTI program evaluation includes a report that provides references for all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions.

Guidelines were primarily identified using the AHRQ National Guidelines

Clearing House (NGCH) and the CDC, along with relevant professional societies. Guidelines published in the United States were used, if available. In the absence of U.S. guidelines for a specific condition, international guidelines were included.

Evidence-based guidelines that included specific recommendations for the prevention of the condition were identified for each of the 10 selected conditions. In addition, evidence-based guidelines were also found for the previously considered candidate conditions.

RTI prepared a final report to summarize its findings regarding evidence-based guidelines, which can be found on the Web site at: http://www.rti.org/reports/cms. j. Proposals Regarding Current HACs and Previously Considered Candidate

HACs

We believe that the RTI analysis summarized above does not provide additional information that would require us to change our previous determinations regarding either current HACs (as described in section

II.F.2. of this preamble) or previously considered candidate HACs in the FY 2008 IPPS final rule with comment period and FY 2009 IPPS final rule (72 FR 47200 through 47218 and 73 FR 48471 through 48491, respectively). Accordingly, we are not proposing to add or remove categories of HACs at this time, although we note that we are proposing

Page 23898

to revise the Blood Incompatibility HAC category as discussed in section II.F.2. of this preamble. (We also note that, as discussed in section II.F.3.b. of this preamble, we are not proposing to change our current policy regarding the treatment of the ``U'' POA indicator.)

However, we continue to encourage public dialogue about refinements to the HAC list.

We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed discussion supporting our determination regarding each of these conditions.

G. Proposed Changes to Specific MS-DRG Classifications

We are inviting public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which are also discussed below. In some cases, we are proposing changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we are proposing to maintain the existing MS-DRG classification based on our analysis of claims data. 1. Pre-Major Diagnostic Categories (MDCs) a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous Pancreas/

Kidney Transplant)

Diabetes mellitus is a pancreatic disorder in which the pancreas fails to produce sufficient insulin, or in which the body cannot process insulin. Many patients with diabetes will eventually experience complications of the disease, including poor kidney function. When these patients show signs of advanced kidney disease, they are usually referred for transplant evaluation. Currently, many doctors recommend that individuals with diabetes being evaluated for kidney transplantation also be considered for pancreas transplantation. A successful pancreas transplant may prevent, stop, or reverse the complications of diabetes.

Occasionally, secondary diabetes may be surgically induced following a pancreas transplant. This condition would be identified by using ICD-9-CM diagnosis code 251.3 (Postsurgical hypoinsulinemia).

However, currently the list of principal diagnosis codes assigned to surgical MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant) does not include diagnosis code 251.3. Therefore, when diagnosis code 251.3 is assigned to a case as a principal diagnosis, the case is not assigned to MS-DRG 008. Instead, these cases are grouped to MS-DRG 652 (Kidney

Transplant) under MDC 11 (Diseases and Disorders of the Kidney and

Urinary Tract). In addition, the use of diagnosis code 251.3 as a principal diagnosis without a secondary diagnosis of diabetes mellitus and with a procedure code for pancreas transplant only during that admission results in assignment of the case to MS-DRG 628, 629, or 630

(Other Endocrine, Nutritional & Metabolic Operating Room Procedures with MCC, with CC, and without CC/MCC, respectively) under MDC 10

(Endocrine, Nutritional and Metabolic Diseases and Disorders).

We believe that the exclusion of diagnosis code 251.3 from the list of principal diagnosis codes assigned to surgical MS-DRG 008 is an error of omission. Therefore, we are proposing to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to

MS-DRG 008. As a conforming change, we also are proposing to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to MS-DRG 010 (Pancreas Transplant). b. Bone Marrow Transplants

We received two requests to review whether cost differences between an autologous bone marrow transplant (where the patient's own bone marrow or stem cells are used) and an allogeneic bone marrow transplant

(where bone marrow or stem cells come from either a related or unrelated donor) necessitate the creation of separate MS DRGs to more appropriately account for the clinical nature of the services being rendered as well as the costs. One of the requestors stated that there are dramatic differences in the costs between the two types of transplants where allogeneic cases are significantly more costly.

Bone marrow transplantation and peripheral blood stem cell transplantation are used in the treatment of certain cancers and bone marrow diseases. These procedures restore stem cells that have destroyed by high doses of chemotherapy and/or radiation treatment.

Currently, all bone marrow transplants are assigned to MS-DRG 009 (Bone

Marrow Transplant).

We performed an analysis of the FY 2009 MedPAR data and found 1,664 total cases assigned to MS-DRG 009 with average costs of approximately

$43,877 and an average length of stay of approximately 21 days. Of these MS-DRG 009 cases, 395 of them were allogeneic bone marrow transplant cases reported with one of the following ICD-9-CM procedure codes: 41.02 (Allogeneic bone marrow transplant with purging); 41.03

(Allogeneic bone marrow transplant without purging); 41.05 (Allogeneic hematopoietic stem cell transplant without purging); 41.06 (Cord blood stem cell transplant); or 41.08 (Allogeneic hematopoietic stem cell transplant). The average costs of these allogeneic cases, approximately

$64,845, were higher than the overall average costs of all cases in MS-

DRG 009, approximately $43,877. The average length of stay for the allogeneic cases, approximately 28 days, was slightly higher than the average length of stay for all cases assigned to MS-DRG 009, approximately 21 days.

We found 1,269 autologous bone marrow transplant cases reported with one of the following ICD-9-CM procedure codes: 41.00 (Bone marrow transplant, not otherwise specified); 41.01 (Autologous bone marrow transplant without purging); 41.04 (Autologous hematopoietic stem cell transplant without purging); 41.07 (Autologous hematopoietic stem cell transplant with purging); or 41.09 (Autologous bone marrow transplant with purging). The average costs of these cases, approximately $37, 350, was less than the overall average costs of all cases in MS-DRG 009 and the average costs associated with the allogeneic bone marrow transplant cases. The average length of stay, of approximately 19 days, was less than the average lengths of stay for all the cases assigned to

MS-DRG 009 and for the allogeneic bone marrow transplant cases. We included in our analysis of the autologous bone marrow transplants cases, 5 cases that were reported with procedure code 41.00 (Bone marrow transplant, not otherwise specified). These 5 cases had average costs of approximately $41,084 and an average length of stay of approximately 12 days, which was similar to the other autologous bone marrow transplant cases.

The table below illustrates our findings:

Page 23899

Number of

Average length

MS-DRG

cases

of stay

Average cost

009--All cases..................................................

1,664

21.22

$43,877 009--Cases with allogeneic bone marrow transplants..............

395

27.7

64,845 009--Cases with autologous bone marrow transplants..............

1,269

19.1

37,350

As a result of our analysis, the data support the requestor's suggestion that there are cost differences associated with the autologous bone marrow transplants and allogeneic bone marrow transplants and warrants a separate MS-DRG for these procedures.

Therefore, we are proposing to delete MS-DRG 009 and create two new MS-

DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015

(Autologous Bone Marrow Transplant).

Proposed MS-DRG 014 would include cases reported with one of the following ICD-9-CM procedure codes: 41.02, Allogeneic bone marrow transplant with purging 41.03, Allogeneic bone marrow transplant without purging 41.05, Allogeneic hematopoietic stem cell transplant without purging 41.06, Cord blood stem cell transplant 41.08, Allogeneic hematopoietic stem cell transplant

Proposed MS-DRG 015 would include cases reported with one of the following ICD-9-CM procedure codes: 41.00 (Bone marrow transplant, not otherwise specified) 41.01 (Autologous bone marrow transplant without purging) 41.04 (Autologous hematopoietic stem cell transplant without purging) 41.07 (Autologous hematopoietic stem cell transplant with purging) 41.09 (Autologous bone marrow transplant with purging) 2. MDC 1 (Nervous System): Administration of Tissue Plasminogen

Activator (tPA) (rtPA)

During the comment period for the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we received a public comment that had not been the subject of a proposal in that proposed rule. The commenter had requested that CMS conduct an analysis of diagnosis code V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility) under MDC 1

(Diseases and Disorders of the Nervous System). Diagnosis code V45.88 was created for use beginning October 1, 2008, to identify patients who are given tissue plasminogen activator (tPA) at one institution and then transferred and admitted to a comprehensive stroke center for further care. This situation is referred to as the ``drip-and-ship'' issue that was discussed at detail in the FY 2009 IPPS final rule (73

FR 48493).

According to the commenter, the concern at the receiving facilities is that the costs associated with [caring for] more complex stroke patients that receive tPA are much higher than the cost of the drug, presumably because stroke patients initially needing tPA have more complicated strokes and outcomes. However, because these patients do not receive the tPA at the second or transfer hospital, the receiving hospital will not be assigned to one of the higher weighted tPA stroke

MS-DRGs when it admits these patients whose care requires the use of intensive resources. The MS-DRGs that currently include codes for the use of tPA are: 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). These MS-DRGs have higher relative weights than the next six MS-DRGs relating to brain injury in the hierarchy. The commenter requested an analysis of the use of diagnosis code V45.88 reflected in the MedPAR data for FY 2009 and FY 2010. The commenter believed that the data would show that the use of this code could potentially result in a new MS-DRG or a new set of MS-DRGs in FY 2011.

In addressing this public comment in the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (74 FR 43798), we noted that the comment was out of scope for the FY 2010 proposed rule and reiterated that the deadline for requesting data review and potential MS-DRG changes had been the previous December. We are now able to address the commenter's concern because we have been able to conduct an analysis of MedPAR claims data for this diagnosis code for this proposed rule.

For this proposed rule, we undertook an analysis of MedPAR claims data for FY 2009. For our analysis, we did not include claims for patient cases assigned to MS-DRGs 061, 062, or 063 because patients whose cases were assigned to these MS-DRGs would have been given the tPA at the initial hospital, with assignment of procedure code 99.10

(Injection or infusion of thrombolytic agent), prior to their transfer to a comprehensive stroke center. The tPA should not have been given at the receiving hospital; therefore, inclusion of code 99.10 on their claims would constitute erroneous coding. Likewise, we did not include

MS-DRGs 067 and 068 (Nonspecific CVA & Precerebral Occlusion without

Infarction with MCC, and without MCC, respectively), or MS-DRG 069

(Transient Ischemia). Claims assigned to MS-DRGs 067, 068, and 069 are unlikely to contain cases in which tPA had been administered.

Our data analysis included MS-DRGs 064, 065, and 066 (Intracranial

Hemorrhage or Cerebral Infarction with MCC, with CC, and without CC/

MCC, respectively) because claims involving diagnosis code V45.88 would be properly reported in the data for these MS-DRGs for FY 2009. The following table reflects the results of our analysis of the MedPAR data in which diagnosis code V45.88 was reported as a secondary diagnosis for FY 2009.

Average

MS-DRG

Number of

length of

Average cost cases

stay

MS-DRG 064--All Cases...........................................

65,884

6.80

$11,305

MS-DRG 064--Cases with secondary diagnosis code V45.88..........

249

7.00

12,285

MS-DRG 065--All Cases...........................................

96,274

4.75

7,264

MS-DRG 065--Cases with secondary diagnosis code V45.88..........

448

5.06

8,732

MS-DRG 066--All Cases...........................................

62,337

3.29

5,291

Page 23900

MS-DRG 066--Cases with secondary diagnosis code V45.88..........

210

3.35

6,325

Based on our review of the data for all of the cases in MS-DRGs 064, 065, and 066, compared to the subset of cases containing the

V45.88 secondary diagnosis code, we concluded that the movement of cases with diagnosis code V45.88 as a secondary diagnosis from MS-DRGs 064, 065, and 066 into MS-DRGs 061, 062, and 063 is not warranted. We determined that the differences in the average lengths of stay and the average costs are too small to warrant an assignment to the higher weighted MS-DRGs. Likewise, neither the lengths of stay nor the average costs are substantial enough to justify the creation of an additional

MS-DRG for transferred tPA cases, or to create separate MS-DRGs that would mirror the MCC, CC or without CC/MCC severity levels.

Therefore, for FY 2011, we are not proposing any change to MS-DRGs 061, 062, 063, 064, 065, or 066, or any change involving the assignment of diagnosis code V45.88. 3. MDC 5 (Diseases and Disorders of the Circulatory System):

Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray

Coronary Angiography in Coronary Artery Bypass Graft Surgery

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43785 through 43787), we discussed a request we received to reassign cases reporting the use of intraoperative fluorescence vascular angiography (IFVA) with coronary artery bypass graft (CABG) procedures from MS-DRGs 235 and 236

(Coronary Bypass without Cardiac Catheterization with and without MCC, respectively) to MS-DRG 233 (Coronary Bypass with Cardiac

Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac

Catheterization without MCC). Effective October 1, 2007, procedure code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) was established to describe this technology.

In addition, we also discussed receiving related requests (74 FR 43798 through 43799) that were outside the scope of issues addressed for MDC 5 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. There were three components to these requests. The first component involved the creation of new MS-DRGs. One request was to create four new MS-DRGs that would differentiate the utilization of resources between intraoperative angiography and IFVA when utilized with CABG. A second request was to create only one new MS-DRG to separately identify the use of intraoperative angiography, by any method, in CABG surgery. The second component involved reviewing the ICD-9-CM procedure codes.

Currently, the ICD-9-CM procedure codes do not distinguish between preoperative, intraoperative, and postoperative angiography. Procedure code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) is one intraoperative angiography technique that allows visualization of the coronary vasculature. The third component involved reassigning cases with procedure code 88.59 to the ``Other Cardiovascular MS-

DRG''s: MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with

MCC, CC, and without CC/MCC, respectively). We stated our intent to consider these requests during the FY 2011 rulemaking process.

After publication of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we were contacted by one of the requestors, the manufacturer of the

IFVA technology. We met with the requestor in mid-November 2009 to discuss evaluating the data for IFVA (procedure code 88.59) again in consideration of a proposal to create new MS-DRGs and to discuss a request for a new procedure code(s).

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

ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage. a. New MS-DRGs for Intraoperative Fluorescence Vascular Angiography

(IFVA) With CABG

As stated earlier, the manufacturer requested that we create four new MS-DRGs for CABG to distinguish CABG surgeries performed with IFVA and those performed without IFVA. According to the requestor, these four new MS-DRGs would correspond to the existing MS-DRG for CABG but would also include intraoperative angiography. The requestor proposed the following four new MS-DRGs:

MS-DRG XXX (Coronary Bypass with Cardiac Catheterization with MCC with

Intraoperative Angiography)

MS-DRG XXX (Coronary Bypass with Cardiac Catheterization without MCC with Intraoperative Angiography)

MS-DRG XXX (Coronary Bypass without Cardiac Catheterization with MCC with Intraoperative Angiography)

MS-DRG XXX (Coronary Bypass without Cardiac Catheterization without MCC with Intraoperative Angiography)

Using claims data from the FY 2009 MedPAR file, we examined cases identified by procedure code 88.59 in MS-DRGs 233, 234, 235, and 236.

As shown in the table below, for both MS-DRGs 235 and 236, the cases utilizing IFVA technology (code 88.59) have a shorter length of stay and lower average costs compared to all cases in MS-DRGs 235 and 236.

There were a total of 10,281 cases in MS-DRG 235 with an average length of stay of 10.61 days and average costs of $34,639. There were 114 cases identified by procedure code 88.59 with an average length of stay of 10.38 days with average costs of $28,238. In MS-DRG 236, there were a total of 22,410 cases with an average length of stay of 6.37 days and average costs of $23,402; and there were 186 cases identified by procedure code 88.59 with an average length of stay of 6.54 days and average costs of $19,305. Similar to the data reported last year, the data for FY 2009 clearly demonstrate that the IFVA cases (identified by procedure code 88.59) are assigned appropriately to MS-DRGs 235 and 236. We also examined cases identified by procedure code 88.59 in MS-

DRGs 233 and 234. Likewise, in MS-DRGs 233 and 234 cases identified by code 88.59 reflect shorter lengths of stay and lower

Page 23901

average costs compared to the remainder of the cases in those MS-DRGs; and there were a total of 16,475 cases in MS-DRG 233 with an average length of stay of 13.47 days and average costs of $42,662. There were 58 cases identified by procedure code 88.59 with an average length of stay of 12.12 days and average costs of $35,940. In MS-DRG 234, there were a total of 23,478 cases with an average length of stay of 8.61 days and average costs of $29,615; and there were 67 cases identified by procedure code 88.59 with an average length of stay of 8.85 days and average costs of $25,379. The data clearly demonstrate the IFVA cases

(identified by procedure code 88.59) are appropriately assigned to MS-

DRGs 233 and 234.

Average

MS-DRG

Number of

length of

Average cost cases

stay

235--All cases..................................................

10,281

10.61

$34,639 235--Cases with procedure code 88.59............................

114

10.38

28,238 235--Cases without procedure code 88.59.........................

10,167

10.62

34,711 236--All cases..................................................

22,410

6.37

23,402 236--Cases with code procedure 88.59............................

186

6.54

19,305 236--Cases without procedure code 88.59.........................

22,224

6.37

23,436

Average

MS-DRG

Number of

length of

Average cost cases

stay

233--All cases..................................................

16,475

13.47

$42,662 233--Cases with procedure code 88.59............................

58

12.12

35,940 233--Cases without procedure code 88.59.........................

16,417

13.47

42,686 234--All cases..................................................

23,478

8.61

29,615 234--Cases with procedure code 88.59............................

67

8.85

25,379 234--Cases without procedure code 88.59.........................

23,411

8.61

29,627

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

In summary, the data do not support moving IFVA cases (procedure code 88.59) from MS-DRGs 235 and 236 to MS-DRGs 233 and 234. Therefore, we are not proposing to make any MS-DRG modifications for cases reporting procedure code 88.59 for FY 2011. b. New MS-DRG for Intraoperative Angiography, by Any Method, With CABG

We also received a request to create a single MS-DRG for any type of intraoperative angiography utilized in CABG surgery. The requestor suggested the following title for the proposed new MS-DRG: XXX Coronary

Bypass with Intraoperative Angiography, by any Method.

Currently, the only ICD-9-CM procedure code that identifies an intraoperative angiography is procedure code 88.59 (Intraoperative fluorescence vascular angiography), as described in the previous section. Due to the structure of the ICD-9-CM procedure classification system, it is not possible to distinguish when other types of angiography are performed intraoperatively. Therefore, we are unable to evaluate any data, other than that for procedure code 88.59, as shown in the tables above. We are not proposing to create a new MS-DRG in FY 2011 for coronary bypass with intraoperative angiography, by any method. c. New Procedure Codes

In response to our invitation to submit public comments regarding the proposal not to make any MS-DRG modifications for cases reporting procedure code 88.59 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule

(74 FR 24106-24107), one requestor presented another option involving the creation of new ICD-9-CM procedure codes. According to the requestor, the purpose of these new codes would be to separately identify the two technologies used to perform intraoperative coronary angiography in CABG surgery: X-ray coronary angiography with cardiac catheterization and fluoroscopy versus intraoperative fluorescence coronary angiography (IFVA). The requestor stated that due to the structure of the current codes and MS-DRGs for CABG, it is difficult to identify when x-ray angiography is performed.

X-ray angiography is commonly performed as a separate procedure in a catheterization laboratory. Currently, there are no procedure codes to distinguish if this angiography was performed preoperatively, intraoperatively, and/or postoperatively. We informed the requestor that they could submit a proposal for creating a new procedure code(s) to the ICD-9-CM Coordination and Maintenance Committee for its consideration. Therefore, this topic will be further evaluated through the ICD-9-CM Coordination and Maintenance Committee meeting process. d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular

Angiography (IFVA)

One requestor suggested reassigning procedure code 88.59

(Intraoperative Fluorescence Vascular Angiography), to the ``Other

Cardiovascular MS-DRGs:'' MS-DRGs 228, 229, and 230 (Other

Cardiothoracic Procedures with MCC, CC, and without CC/MCC, respectively). The requestor noted that these MS-DRGs have three levels of severity and that other procedures assigned to these MS-DRGs (for example, transmyocardial revascularization) are frequently performed at the same time as a CABG. The requestor believed that reassigning cases that report IFVA (procedure code 88.59) to these MS-DRGs would not result in a significant overpayment to hospitals.

We point out that, in the surgical hierarchy, MS-DRGs 228, 229, and 230 rank higher than MS-DRGs 233, 234, 235, and 236, which were evaluated in the above tables for CABG procedures

Page 23902

performed with IFVA (procedure code 88.59). The surgical hierarchy reflects the relative resource requirements of various surgical procedures. For example, if a CABG surgery were performed along with another procedure currently assigned to MS-DRGs 228, 229, and 230, the case would be assigned to one of the ``Other Cardiothoracic Procedures

MS-DRGs'' (228, 229, and 230) because patients with multiple procedures are assigned to the highest surgical hierarchy to which one of the procedures is assigned.

Therefore, as the data shown above did not demonstrate that IFVA utilized an equivalent (or additional) amount of resources as a cardiac catheterization to warrant a proposal to reassign IFVA cases to MS-DRGs 233 and 234 and the fact that IFVA cases with CABG performed with a procedure assigned to MS-DRGs 228, 229, and 230 would already be grouped to those same MS-DRGs, we are not proposing to reassign cases reporting procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 2011. 4. MDC 6 (Diseases and Disorders of the Digestive System):

Gastrointestinal Stenting

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43799), we discussed a request we received to create new MS-DRGs in FY 2011 to better identify patients who undergo the insertion of a gastrointestinal stent. The request was considered outside the scope of issues addressed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule; therefore, we stated our intent to consider this request during the FY 2011 rulemaking process.

Gastrointestinal stenting is performed by inserting a tube (stent) into the esophagus, duodenum, biliary tract or colon to reestablish or maintain patency of these structures and allow swallowing, drainage, or passage of waste. The commenter requested that the new MS-DRGs be subdivided into three severity levels (with MCC, with CC, and without

CC/MCC) to better align payment rates with resource consumption and improve the clinical coherence of these cases.

In its own analysis using FY 2008 MedPAR data, the commenter identified gastrointestinal stenting cases using relevant diagnosis codes and a combination of procedure codes with revenue code 0278 in

MS-DRGs 374, 375, and 376 (Digestive Malignancy with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 391and 392 (Esophagitis,

Gastroenteritis and Miscellaneous Digestive Disorders with MCC and without MCC, respectively), and MS-DRGs 393, 394, and 395 (Other

Digestive System Diagnoses with MCC, with CC, and without CC/MCC, respectively) in MDC 6 (Diseases and Disorders of the Digestive

System); and MS-DRGs 435, 436, and 437 (Malignancy of Hepatobiliary

System or Pancreas with MCC, with CC, and without CC/MCC, respectively) in MDC 7 (Diseases and Disorders of the Hepatobiliary System and

Pancreas).

As stated above, the commenter utilized a combination of procedure codes along with revenue code 0278 for its analysis. There were a total of six procedure codes included, of which, only three (procedure codes 42.81, 51.87, and 52.93) actually describe the insertion of a stent.

The complete list of procedure codes is as follows: 42.81 (Insertion of permanent tube into esophagus) 45.13 (Other endoscopy of small intestine) 45.22 (Endoscopy of large intestine through artificial stoma) 46.85 (Dilation of intestine) 51.87 (Endoscopic insertion of stent (tube) into bile duct) 52.93 (Endoscopic insertion of stent (tube) into pancreatic duct)

The commenter aggregated the results by the previously mentioned

MS-DRG groupings and did not present results for individual stenting procedures. According to the commenter, mean standardized charges for gastrointestinal stenting procedures were higher than those for nonstenting procedures across all levels of severity of illness. In addition, the commenter believed that the difference in charges was not simply related to the costs of the stents, but rather that the extent of the difference in charges reflected the severity of illness and resource intensity associated with gastrointestinal stenting procedures.

In response to the commenter's request, we point out that we do not utilize revenue codes in our process to evaluate if new MS-DRGs are warranted. The use of revenue codes in the MS-DRG reclassification process would require a major structural change from the current process that has been utilized since the inception of the IPPS. In addition, the commenter included procedure codes in its analysis that do not identify the insertion of a stent; thereby, the data are unreliable. Furthermore, two procedure codes describing the insertion of a colonic stent were recently implemented, effective with discharges occurring on or after October 1, 2009--procedure code 46.86 (Endoscopic insertion of colonic stent(s)) and procedure code 46.87 (Other insertion of colonic stent(s)). However, we do not have data currently available on these two new procedure codes to include them in a comprehensive analysis. Lastly, as the commenter indicated, the differences between those procedures with and without stents is a reflection on the severity of illness and resource consumption associated with these types of procedures. The commenter also acknowledged that patients receiving a gastrointestinal stent who are severely debilitated due to prolonged illness are reflected by the fact that the majority of cases are assigned to MS-DRGs for patients with

MCCs (major complications or comorbidities). Therefore, the medical MS-

DRGs to which these procedures are currently assigned already account for the severity of illness and intensity of resources utilized.

Using FY 2009 MedPAR data, we analyzed the three procedure codes that truly identify and describe the insertion of a stent (procedure codes 42.81, 51.87, and 52.93) within the MS-DRGs referenced above.

Similar to the commenter's findings, our analysis demonstrated a small volume of cases in which insertion of a gastrointestinal stent occurred in the specified MS-DRGs. Of the 411,390 total cases across the digestive system MS-DRGs the requestor identified, there were only 2,011cases that involved the actual insertion of a gastrointestinal stent. These cases had average costs ranging from a low of $5,846 to a high of $17,626. Based on these findings, we do not believe it is appropriate to assign cases with such disparity in costs into a single, new MS-DRG. Furthermore, in applying the five criteria used to establish new MS-DRGs, the data do not support the creation of new MS-

DRGs with three severity levels (with MCC, with CC, and without CC/

MCC).

For the reasons stated above, we invite the public to submit comments on our proposal not to make any MS-DRG modifications at this time to cases involving the use of gastrointestinal stents for FY 2011. 5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and

Connective Tissue): Pedicle-Based Dynamic Stabilization

As we did for FY 2009 (73 FR 45820), we received a request from a manufacturer to reassign procedure code 84.82 (Insertion or replacement of pedicle-based dynamic stabilization device(s)), effective October 1, 2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460

Page 23903

(Spinal Fusion Except Cervical without MCC). According to the manufacturer, the technology that is identified by this procedure code, the Dynesys[supreg] Dynamic Stabilization System, is clinically similar to lumbar spinal fusion and requires similar utilization of resources.

Dynamic stabilization is a concept that utilizes a flexible system to stabilize the spine without fusion. The primary goals of dynamic stabilization are to limit the amount of unnatural spinal motion and preserve as much of the patient's natural anatomic structures as possible. The Dynesys[supreg] Dynamic Stabilization System is comprised of three components with specific functions: Titanium alloy pedicle screws that anchor the system to the spine; a polyethylene- terephthalate (PET) cord that connects the Dynesys[supreg] screws; and a polycarbonate-urethane (PCU) spacer that runs over the cord between the Dynesys[supreg] screws. The system is placed under tension creating a dynamic interaction between the components.

The MS-DRGs are comprised of clinically coherent groups of patients who consume similar utilization of resources and complexity of services. The insertion of a Dynesys[supreg] Dynamic Stabilization

System is clinically not a lumbar fusion. As stated previously, dynamic stabilization is a concept that utilizes a flexible system to stabilize the spine without fusion. Therefore, it would be clinically inappropriate to reassign cases reporting procedure code 84.82 in the fusion MS-DRG.

In conclusion, the Dynesys[supreg] Dynamic Stabilization System is currently FDA approved for use only as an adjunct to spinal fusion, there is uncertainty regarding the coding and reporting of procedure code 84.82, as well as off-label use, and currently, all other similar nonfusion devices are assigned to MS-DRG 490.

For the reasons listed above, we are not proposing to reassign cases reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for

FY 2011. 6. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period) a. Discharges/Transfers of Neonates to a Designated Cancer Center or

Children's Hospital

We received a request to add patient discharge status code 05

(Discharged/transferred to a designated cancer center or children's hospital) to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or

Transferred to Another Acute Care Facility). Currently, neonate cases with the discharge status code 05 are being assigned to MS-DRG 795

(Normal Newborn).

The definition of discharge status code 05 was changed on April 1, 2008, from ``discharged/transferred to another type of health care institution not defined elsewhere in this code list'' to ``discharged/ transferred to a designated cancer center or children's hospital.'' We examined cases in the FY 2009 MedPAR file but did not find any cases with the discharge status code 05 that were assigned to either MS-DRG 789 or MS-DRG 795. However, we believe that the request has merit in identifying neonate cases appropriately. Therefore, for FY 2011, we are proposing to add discharge status code 05 to the MS-DRG GROUPER logic for MS-DRG 789. b. Vaccinations of Newborns

We received a request to examine the assignment of code V64.05

(Vaccination not carried out because of caregiver refusal) to MS-DRG 794 (Neonate with Other Significant Problems). Code V64.05 is currently being reported when a physician documents that a parent/caregiver has refused immunization for a child. The reporting of this code as a principal or secondary diagnosis impacts the MS-DRG assignment for normal newborns cases being assigned to MS-DRG 794.

We examined cases in the FY 2009 MedPAR file but did not find any cases of code V64.05 assigned to MS-DRG 794. Our medical advisors agree that code V64.05 should not be assigned to MS-DRG 794. We determined that the presence of code V64.05 does not indicate that there is a significant problem with the newborn and should not be assigned to MS-

DRG 794. Therefore, we believe that assignment of code V64.05 to MS-DRG 795 (Normal Newborn) would be more appropriate for this code because it does not identify a significant problem.

The logic for MS-DRG 795 contains a list of principal diagnosis codes for normal newborn and no secondary diagnosis or a list of only secondary diagnosis codes. Therefore, in this proposed rule, for FY 2011, we are proposing to remove code V64.05 from MS-DRG 794 and add this code to the only secondary diagnosis list for MS-DRG 795. 7. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this proposed rule, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into a MS-DRG. For FY 2011, we intend to make the following changes to the MCE edits and invite public input on whether or not we should do so: a. Unacceptable Principal Diagnosis Edit: Addition of Code for

Gastroparesis

It has been brought to our attention that code 536.3

(Gastroparesis) has a ``code first underlying disease'' note. This note indicates that code 536.3 should not be used as a principal diagnosis.

Therefore, code 536.3 should have been included on the list of unacceptable principal diagnoses in the MCE.

We agree that code 536.3 should have been included on the list of unacceptable principal diagnoses in the MCE. Therefore, for FY 2011, we intend to add code 536.3 to that list. b. Open Biopsy Check Edit

The Open Biopsy Check edit in the MCE dates back to the early years of the IPPS when the surgical and medical DRGs were not as expansive as they are today. In the mid-1980s when the Open Biopsy Check edit was created, the ICD-9-CM codes did not have many biopsy procedure codes that clearly showed the approach, such as codes for open, percutaneous, and closed biopsies. Furthermore, under the current MS-DRGs, the open biopsy codes do not have as significant an impact as they did in the early versions of the DRGs. We believe that the Open Biopsy Check edit no longer serves a useful purpose. Therefore, for FY 2011, we intend to delete the entire Open Biopsy Check edit from the MCE, which means removing the following 63 codes from the edit: 01.11 (Closed [Percutaneous] [Needle] biopsy of cerebral meninges) 01.12 (Open biopsy of cerebral meninges) 01.13 (Closed [Percutaneous] [Needle] biopsy of brain) 01.14 (Open biopsy of brain) 04.11 (Closed [Percutaneous] [Needle] biopsy of cranial or peripheral nerve or ganglion) 04.12 (Open biopsy of cranial or peripheral nerve or ganglion) 06.11 (Closed [Percutaneous] [Needle] biopsy of thyroid gland) 06.12 (Open biopsy of thyroid gland) 07.11 (Closed [Percutaneous] [Needle] biopsy of adrenal gland) 07.12 (Open biopsy of adrenal gland)

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22.11 (Closed [Endoscopic] [Needle] biopsy of nasal sinus) 22.12 (Open biopsy of nasal sinus) 25.01 (Closed [Needle] biopsy of tongue) 25.02 (Open biopsy of tongue) 26.11 (Closed [Needle] biopsy of salivary gland or duct) 26.12 (Open biopsy of salivary gland or duct) 31.43 (Closed [Endoscopic] biopsy of larynx) 31.44 (Closed [Endoscopic] biopsy of trachea) 31.45 (Open biopsy of larynx or trachea) 33.24 (Closed [Endoscopic] biopsy of bronchus) 33.25 (Open biopsy of bronchus) 33.26 (Closed [Percutaneous] [Needle] biopsy of lung) 33.28 (Open biopsy of lung) 34.25 (Closed [Percutaneous] [Needle] biopsy of mediastinum) 34.26 (Open mediastinal biopsy) 41.32 (Closed [Aspiration] [Percutaneous] biopsy of spleen) 41.33 (Open biopsy of spleen) 42.24 (Closed [Endoscopic] biopsy of esophagus) 42.25 (Open biopsy of esophagus) 44.14 (Closed [Endoscopic] biopsy of stomach) 44.15 (Open biopsy of stomach) 45.14 (Closed [Endoscopic] biopsy of small intestine) 45.15 (Open biopsy of small intestine) 45.25 (Closed [Endoscopic] biopsy of large intestine) 45.26 (Open biopsy of large intestine) 48.24 (Closed [Endoscopic] biopsy of rectum) 48.25 (Open biopsy of rectum) 50.11 (Closed (Percutaneous) [Needle] biopsy of liver) 50.12 (Open biopsy of liver) 51.12 (Percutaneous biopsy of gallbladder or bile ducts) 51.13 (Open biopsy of gallbladder or bile ducts) 52.11 (Closed [Aspiration] [Needle] [Percutaneous] biopsy of pancreas) 52.12 (Open biopsy of pancreas) 54.23 (Biopsy of peritoneum) 54.24 (Closed [Percutaneous] [Needle] biopsy of intra- abdominal mass) 55.23 (Closed [Percutaneous] [Needle] biopsy of kidney) 55.24 (Open biopsy of kidney) 56.32 (Closed percutaneous biopsy of ureter) 56.34 (Open biopsy of ureter) 57.33 (Closed [Transurethral] biopsy of bladder) 57.34 (Open biopsy of bladder) 60.11 (Closed [Percutaneous] [Needle] biopsy of prostate) 60.12 (Open biopsy of prostate) 60.13 (Closed [Percutaneous] biopsy of seminal vesicles) 60.14 (Open biopsy of seminal vesicles) 62.11 (Closed [Percutaneous] [Needle] biopsy of testis) 62.12 (Open biopsy of testis) 68.13 (Open biopsy of uterus) 68.14 (Open biopsy of uterine ligaments) 68.15 (Closed biopsy of uterine ligaments) 68.16 (Closed biopsy of uterus) 85.11 (Closed [Percutaneous] [Needle] biopsy of breast) 85.12 (Open biopsy of breast) c. Noncovered Procedure Edit

The ICD-9-CM procedure codes 52.80 (Pancreatic transplant, not otherwise specified) and 52.82 (Homotransplant of pancreas) alone (that is, without procedure code 55.69 (Other kidney transplantation)) are considered noncovered procedures, except when either one is combined with at least one specific principal or secondary diagnosis code. These specific diagnosis codes identify Type I diabetes mellitus, not stated as uncontrolled, or else identified as uncontrolled.

To conform to the proposed change to Pre-MDC MS-DRGs 008 and 010 as discussed in section II.G.1. of this preamble, in which we are proposing to add code 251.3 (Postsurgical hypoinsulinemia) to those MS-

DRGs, we intend to add procedure code 251.3 to the list of acceptable principal or secondary diagnosis codes in the MCE. 8. Surgical Hierarchies

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

Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class.

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

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class ``kidney transplant'' consists of a single MS-DRG (MS-DRG 652) and the class ``major bladder procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655).

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

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

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the ``other O.R. procedures'' surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The ``other O.R. procedures'' class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur

Page 23905

if no other surgical class more closely related to the diagnoses in the

MDC is appropriate.

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

Based on the changes that we are proposing for FY 2011, as discussed in section II.C.2 of this preamble, we are proposing to revise the surgical hierarchy for Pre-MDCs and MDC 10 (Endocrine,

Nutritional and Metabolic Diseases and Disorders) to reflect the resource intensiveness of the MS-DRGs, as follows:

In Pre-MDCs, we are proposing to reorder proposed new MS-DRG 014

(Allogeneic Bone Marrow Transplant) above MS-DRG 007 (Lung Transplant); and proposed new MS-DRG 015 (Autologous Bone Marrow Transplant) above

MS-DRG 010 (Pancreas Transplant).

In MDC 10, we are proposing to reorder MS-DRG 614 (Adrenal and

Pituitary Procedures With CC/MCC) and MS-DRG 615 (Adrenal and Pituitary

Procedures Without CC/MCC) above MS-DRG 625 (Thyroid, Parathyroid and

Thyroglossal Procedures With MCC). 9. Complications or Comorbidity (CC) Exclusions List a. Background

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

DRGs we adopted for FY 2008 (72 FR 47121 through 47152). b. Proposed CC Exclusions List for FY 2011

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons:

(1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new

CCs or deleting CCs already on the list.

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

Chronic and acute manifestations of the same condition should not be considered CCs for one another.

Specific and nonspecific (that is, not otherwise specified

(NOS)) diagnosis codes for the same condition should not be considered

CCs for one another.

Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.

Codes for the same condition in anatomically proximal sites should not be considered CCs for one another.

Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining

CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC.\2\

\2\ See the FY 1989 final rule (53 FR 38485, September 30, 1988), for the revision made for the discharges occurring in FY 1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September 4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR 43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the

FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994 revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994), for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782,

September 1, 1995), for the FY 1996 revisions; the FY 1997 final rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the

FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998 revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August 1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR 39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the

FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004 revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004), for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640,

August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule

(71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule (72

FR 47130) for the FY 2008 revisions, the FY 2009 final rule (73 FR 48510), and the FY 2010 final rule (74 FR 43799). In the FY 2000 final rule (64 FR 41490, July 30, 1999, we did not modify the CC

Exclusions List because we did not make any changes to the ICD-9-CM codes for FY 2000.

(1) Proposed Limited Revisions Based on Changes to the ICD-9-CM

Diagnosis Codes

For FY 2011, we are proposing to make limited revisions to the CC

Exclusions List for FY 2011 to take into account the changes made in the ICD-9-CM diagnosis coding system effective October 1, 2009. (We refer readers to section II.G.11. of the preamble of this proposed rule for a discussion of ICD-9-CM changes.) We are proposing to make these changes in accordance with the principles established when we created the CC Exclusions List in 1987. In addition, we are indicating on the

CC Exclusions List some changes as a result of updates to the ICD-9-CM codes to reflect the exclusion of codes from being MCCs under the MS-

DRG system that we adopted in FY 2008.

(2) Suggested Changes to Severity Levels for Obesity-Related and Major

Osseous Defect Diagnosis Codes

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43793 through 43794), we indicated that several commenters on the FY 2010

IPPS proposed rule recommended that CMS consider making further adjustments to the MS-DRG assignments based on obesity and major osseous defects. The commenters stated that obesity, high Body Mass

Index (BMI) ratings, and major osseous defects add to the complexity of care for patients such as those patients undergoing orthopedic procedures. The commenters recommended the following changes to the list of MCCs and CCs:

Several commenters recommended that CMS add the following diagnosis codes, which are classified as non-CCs, to the CC or MCC list:

Page 23906

731.3 (Major osseous defects)

V85.35 (Body mass index 35.0-35.9, adult)

V85.36 (Body mass index 36.0-36.9, adult)

V85.37 (Body mass index 37.0-37.9, adult)

V85.38 (Body mass index 38.0-38.9, adult)

V85.39 (Body mass index 39.0-39.9, adult)

Several commenters recommended that CMS add the following diagnosis code, which is on the CC list, to the MCC list:

V85.40 (Body mass index 40 and over, adult)

We stated that we believed these comments were outside the scope of the proposal in the proposed rule. We did not propose significant revisions to the MS-DRGs in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24091) for these codes. We stated that we were encouraging individuals with comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment.

Therefore, we did not add these codes to the MCC list or the CC list for FY 2010. We stated that we would consider their appropriateness for inclusion in next year's annual proposed rule.

In addition to the diagnosis codes mentioned above, we also have received requests that we consider changing the following diagnosis codes from a non-CC to a CC: 278.00 (Obesity NOS) 278.01 (Morbid obesity) 278.02 (Overweight)

We analyzed claims data for the diagnosis codes mentioned above related to obesity and major osseous defects. We used the same approach we used in initially creating the MS-DRGs and classifying secondary diagnosis codes as non-CCs, CCs, or MCC. A detailed discussion of the process and criteria we used in this process is described in the FY 2008 IPPS final rule (72 FR 47158 through 47161). We refer the readers to this discussion for complete information on our approach to developing the non-CC, CC, and MCC lists. Each diagnosis for which

Medicare data were available was evaluated to determine its impact on resource use and to determine the most appropriate CC subclass (non-CC,

CC, or MCC) assignment. In order to make this determination, the average cost for each subset of cases was compared to the expected cost for cases in that subset. The following format was used to evaluate each diagnosis:

Code Diagnosis

Cnt1

C1

Cnt2

C2

Cnt3

C3

Count (Cnt) is the number of patients in each subset. C1, C2, and

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

The following chart shows the analysis for each of the obesity related and major osseous defect diagnosis codes that are currently classified as non-CCs.

Code

Diagnosis

Cnt1

C1

Cnt2

C2

Cnt3

C3

278.00........................................ Obesity NOS........................... 130,310

1.0755 116,304

1.7234

45,565

2.3843 278.01........................................ Morbid obesity........................

51,832

1.2619 106,169

1.9630

52,398

2.6787 278.02........................................ Overweight............................

5,242

0.9948

3,594

1.7042

1,033

2.3471 731.3......................................... Major osseous defects.................

215

1.3833

575

2.3390

186

2.7627

V85.35........................................ BMI 35.0-35.9, adult..................

2,621

0.9759

1,480

1.6932

499

2.3664

V85.36........................................ BMI 36.0-36.9, adult..................

2,359

0.9729

1,298

1.6536

466

2.3107

V85.37........................................ BMI 37.0-37.9, adult..................

2,305

0.9849

1,271

1.7225

473

2.4032

V85.38........................................ BMI 38.0-38.9, adult..................

2,152

0.9713

1,231

1.5964

432

2.2743

V85.39........................................ BMI 39.0-39.9, adult..................

2,253

0.9857

1,141

1.7741

445

2.4919

The C1 findings do not support a reclassification of any of these diagnosis codes from a non-CC to a CC. As can be seen by the C1 findings, the codes range from a low of 0.9729 for code V85.35 to a high of 1.3833 for diagnosis code 731.3. These findings are consistent with a classification as a non-CC. Therefore, for FY 2011, we are not proposing to change the CC classification of any of the diagnosis codes mentioned in the chart above from a non-CC to a CC. Our clinical advisors agree with this recommendation.

We also examined claims data for diagnosis code V85.4 (Body mass index 40 and over, adult), which is classified as a CC. We received a request to reclassify this code as a MCC. The following chart summaries our findings for this diagnosis code:

Code

Diagnosis

Cnt1

C1

Cnt2

C2

Cnt3

C3

V85.4......................................... BMI 40 and over, adult................

51,871

1.2323

59,941

2.1711

57,220

3.0465

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We note that the C1 finding of 1.2323 does not support a reclassification of this diagnosis code from a CC to a MCC. This finding is much more consistent with classifying the code as a non-CC.

Our clinical advisors recommended that CMS not reclassify this diagnosis code from a CC to a non-CC at this time. They recommended that CMS analyze data associated with this diagnosis code again in the future to determine if it continues to act like a non-CC. We are not recommending any change in the severity classification of diagnosis code V85.4. We are proposing to retain it as a CC for FY 2011.

We welcome public comments on our proposal not to change the severity levels of the diagnosis codes mentioned above.

(3) Suggested Change to the Severity Level for Alzheimer's Disease

Diagnosis Code

We received a request to change the severity classification for diagnosis code 331.0 (Alzheimer's disease). Currently, this diagnosis code is classified as a non-CC. We analyzed claims data for this diagnosis code. The following chart shows our findings:

Code

Diagnosis

Cnt1

C1

Cnt2

C2

Cnt3

C3

331.0......................................... Alzheimer's disease...................

83,743

1.1381 114,445

1.8890

77,841

2.4185

The C1 finding of 1.1381 for Alzheimer's disease supports the current classification of this diagnosis code as a non-CC. Our clinical advisors agree with this classification. Therefore, we are not proposing to change the severity classification of diagnosis code 331.0 from a non-CC to a CC for FY 2011. We believe the code is appropriately classified as a non-CC.

(4) Proposed Change to the Severity Level for Acute Renal Failure,

Unspecified Diagnosis Code

We received a request to reclassify diagnosis code 584.9 (Acute renal failure, unspecified) from a MCC to a CC. The commenter stated that this code is being widely used to capture degrees of renal failure that range from that which is caused by mild dehydration with only minor laboratory abnormalities all the way through severe renal failure that requires dialysis. The commenter pointed out that there are no clinical criteria for assigning diagnosis code 584.9 (Acute renal failure, unspecified). The attending physician must simply document the presence of acute renal failure for the diagnosis code to be assigned.

The concern is that the diagnosis code for Acute renal failure, unspecified (diagnosis code 584.9) is being assigned to patients with a low clinical severity level.

We also point out that the Editorial Advisory Board of Coding

Clinic for ICD-9-CM has received a number of requests to clarify the use of diagnosis code 584.9. Coders are observing the terminology of

``acute renal failure'' being applied to patients who are simply dehydrated. These patients do not require renal dialysis, and they do not appear to be severely ill. Coders have stated that there appears to be an increase in the use of the terminology of acute renal failure for patients who were previously referred to as acute renal insufficiency.

When acute renal insufficiency is documented, the ICD-9-CM index directs the use of code 593.9 (Unspecified disorder of kidney and ureter). Diagnosis code 593.9 includes acute renal insufficiency and is classified as a non-CC. The problem is further compounded by the fact that there is no consistent convention among clinicians for documenting acute renal insufficiency versus acute renal failure.

We examined claims data on diagnosis code 584.9, and our findings are shown in the table below:

Code

Diagnosis

Cnt1

C1

Cnt2

C2

Cnt3

C3

584.9..................................... Acute kidney failure, unspecified......... 124,428

1.8364 411,667

2.6151 417,359

3.2429

The C1 finding of 1.8364 is more consistent with a classification of a CC. Our clinical advisors agreed that cases captured by diagnosis code 584.9 are more appropriately classified as a CC. This unspecified type of kidney failure is clearly not capturing patients with a MCC severity level. Therefore, we are proposing to change the severity level for diagnosis code 584.9 from a MCC to a CC for FY 2011.

Tables 6G and 6H, Additions to and Deletions from the CC Exclusion

List, respectively, which are effective for discharges occurring on or after October 1, 2010, are not being published in the Addendum to this proposed rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses for which there is a CC exclusion is shown in Tables 6G and 6H in the Addendum to this proposed rule with an asterisk, and the conditions that will not count as a CC, are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is also available through the Internet on the CMS Web site at: http:// www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or after October 1, 2010, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

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

There were no additions to the MS-DRG MCC List for FY 2011 (Table 6I.1).

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Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health

Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current MS-DRG Definitions Manual, Version 27.0, is available for

$250.00, which includes shipping and handling. Version 27.0 of the manual is also available on a CD for $200.00; a combination hard copy and CD is available for $400.00. Version 28.0 of this manual, which will include the final FY 2011 MS-DRG changes, will be available on CD only for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by obtaining an order form at the Web site: http://www.3MHIS.com. Please specify the revision or revisions requested. 10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 986; and 987 Through 989

Each year, we review cases assigned to former CMS DRG 468

(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and

CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal

Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-

DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal

Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure

Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989

(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively).

MS-DRGs 981 through 983, 984 through 986, and 987 through 989

(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These MS-DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis: 60.0, Incision of prostate 60.12, Open biopsy of prostate 60.15, Biopsy of periprostatic tissue 60.18, Other diagnostic procedures on prostate and periprostatic tissue 60.21, Transurethral prostatectomy 60.29, Other transurethral prostatectomy 60.61, Local excision of lesion of prostate 60.69, Prostatectomy, not elsewhere classified 60.81, Incision of periprostatic tissue 60.82, Excision of periprostatic tissue 60.93, Repair of prostate 60.94, Control of (postoperative) hemorrhage of prostate 60.95, Transurethral balloon dilation of the prostatic urethra 60.96, Transurethral destruction of prostate tissue by microwave thermotherapy 60.97, Other transurethral destruction of prostate tissue by other thermotherapy 60.99, Other operations on prostate

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis.\3\

\3\ The original list of the ICD-9-CM procedure codes for the procedures we consider nonextensive procedures, if performed with an unrelated principal diagnosis, was published in Table 6C in section

IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56

FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173), and the FY 1998 final rule (62 FR 45981), we moved several other procedures from DRG 468 to DRG 477, and some procedures from DRG 477 to DRG 468. No procedures were moved in FY 1999, as noted in the final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65

FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule

(67 FR 49999) we did not move any procedures from DRG 477. However, we did move procedure codes from DRG 468 and placed them in more clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365), we moved several procedures from DRG 468 to DRGs 476 and 477 because the procedures are nonextensive. In the FY 2005 final rule (69 FR 48950), we moved one procedure from DRG 468 to 477. In addition, we added several existing procedures to DRGs 476 and 477. In the FY 2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and assigned it to DRGs 479, 553, and 554. In FYs 2008, 2009, and FY 2010, no procedures were moved, as noted in the FY 2008 final rule with comment period (72 FR 46241), the FY 2009 final rule (73 FR 48513), and the FY 2010 final rule (74 FR 43796).

Our review of MedPAR claims data showed that there were 59 cases in which procedures related to the prostate were arrayed across 10 different MDCs. None of the 59 cases were cases that should logically be assigned to any of the other MDCs. For example, there were a total of 16 cases of other transurethral prostate surgery that occurred in

MDC 5 (Diseases and Disorders of the Circulatory System). In addition, none of the cases had lengths of stay or average charges that would indicate that these cases were anything other than some of the expected irregularities of medical care. Therefore, for FY 2011, we are not proposing to change the procedures assigned among these MS-DRGs. a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987

Through 989 Into MDCs

We annually conduct a review of procedures producing assignment to

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

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls.

Our review of claims data showed that there were 4,443 cases in MS-DRGs 981 through 983. These 4,443 cases were arrayed across 18 MDCs. The single most common procedure was code 00.66 (Percutaneous transluminal coronary angioplasty [PTCA] of coronary atherectomy), 21 cases, located in MDC 1 (Diseases and Disorders of the Nervous System). These cases represent a very small volume of cases that are unlikely to indicate medical practice trends. In addition, from a clinical coherence standpoint, we do not believe it benefits the GROUPER system to add cardiac procedures to the nervous system MDC. The same situation was evident in MS-DRGs 987 through 989. There were a total of 1,601 cases across 17 MDCs and, again, the cases did not

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represent clinically coherent examples of medical care that warranted movement of procedure codes into additional MS-DRGs. Examples of cases that we reviewed included six cases of bone biopsies in MDC 21

(Injuries, Poisonings and Toxic Effects of Drugs) and one case of a destruction of a lesion of the knee in MDC 13 (Diseases and Disorders of the Female Reproductive System). Again, the volume of these cases is negligible, and clinical coherence is not demonstrated to the degree that a change in the MS-DRGs is warranted. Therefore, for FY 2011, we are not proposing to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis is assigned. b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984

Through 986, and 987 Through 989

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

To reiterate, our review of claims data showed that 18 MDCs were represented in MS-DRGs 981 through 983, for a total of 4,443 cases.

There were 10 MDCs represented in MS-DRGs 984 through 986, which contained 59 cases. In addition, our review of claims data for MS-DRGs 987 through 989 showed 1,601 cases across 17 MDCs. However, these cases represent such disparate situations as one case of a large bowel incision assigned to MDC 1 (Diseases and Disorders of the Nervous

System) and one case of a revision of the femoral component of a hip replacement assigned to MDC 3 (Diseases and Disorders of the Ear, Nose,

Mouth, and Throat). We do not believe that any of these cases represent shifts in either treatment practice or reporting practice. As these types of cases do not represent clinical coherence, we do not believe that the addition of these procedure codes identified in our review would positively benefit the overall MS-DRG logic. Therefore, for FY 2011, we are not proposing to move any procedure codes among these MS-

DRGs. c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs as described above in sections G.10.a. and b., we are not proposing to add any diagnosis or procedure codes to MDCs for FY 2011. 11. Changes to the ICD-9-CM Coding System, Including Discussion of the

Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD- 10-PCS Systems in FY 2014 a. ICD-9-CM Coding System

As described in section II.B.1. of the preamble of this proposed rule, the ICD-9-CM is a coding system currently used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National

Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD- 9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the

ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

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

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

CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the

American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2011 at a public meeting held on September 16-17, 2009 and finalized the coding changes after consideration of comments received at the meetings and in writing by November 20, 2009. Those coding changes are announced in Tables 6A through 6F in the Addendum to this proposed rule. The Committee held its 2010 meeting on March 9-10, 2010. New codes for which there was a consensus of public support and for which complete tabular and indexing changes are made by May 2010 will be included in the October 1, 2010 update to ICD-9-CM. Code revisions that were discussed at the March 9-10, 2010 Committee meeting but that could not be finalized in time to include them in the Addendum to this proposed rule will be included in Tables 6A through 6F of the final rule and will be marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the

Committee's September 16-17, 2009 meeting and March 9-10, 2010 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/

ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 16-17, 2009 meeting and

March 9-10, 2010 meeting are found at: http://www.cdc.gov/nchs/icd.htm.

These Web sites also provide detailed

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information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM

Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo

Road, Hyattsville, MD 20782. Comments may be sent by e-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management,

Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by e-mail to: patricia.brooks2@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2010. The new ICD-9-CM codes are listed, along with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis

Codes and New Procedure Codes, respectively) in the Addendum to this proposed rule. As we stated above, the code numbers and their titles were presented for public comment at the ICD-9-CM Coordination and

Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved.

In this proposed rule, we are soliciting comments on the proposed classification of these new codes, which are shown in Tables 6A and 6B of the Addendum to this proposed rule.

For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A in the Addendum to this proposed rule. New procedure codes are shown in

Table 6B in the Addendum to this proposed rule. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes) in the Addendum to this proposed rule. These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2010. Table 6D in the Addendum to this proposed rule contains invalid procedure codes. These invalid procedure codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2010. Revisions to diagnosis code titles are in

Table 6E (Revised Diagnosis Code Titles) in the Addendum to this proposed rule, which also includes the MS-DRG assignments for these revised codes. Table 6F in the Addendum to this proposed rule includes revised procedure code titles for FY 2011.

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 9-10, 2010 Committee meeting that receive consensus and that are finalized by May 2010 will be included in Tables 6A through 6F in the Addendum to the final rule.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on

October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the ``Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the

Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.'' This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

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

The ICD-9-CM Coordination and Maintenance Committee holds its meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year.

Items are placed on the agenda for the ICD-9-CM Coordination and

Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, is published on the CMS and NCHS Web sites in May of each year.

Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance

Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital 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

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the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests.

There were no requests approved for an expedited April 1, 2010 implementation of an ICD-9-CM code at the September 16-17, 2009

Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2010.

Current addendum and code title information is published on the CMS

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

CMS also sends copies of all ICD-9-CM coding changes to its

Medicare contractors for use in updating their systems and providing education to providers.

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-

CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process.

Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same

MS-DRG in which its predecessor code was assigned so there will be no

MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates will be available through the Web sites indicated above and through the

Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software systems. We will strive to have the April 1 updates available through these Web sites 5 months prior to implementation

(that is, early November of the previous year), as is the case for the

October 1 updates. b. Code Freeze

The International Classification of Diseases, 10th Revision (ICD- 10) coding system applicable to hospital inpatient services will be implemented on October 1, 2013, as described in the Health Insurance

Portability and Accountability Act (HIPAA) Administrative

Simplification: Modifications to Medical Data code Set Standards to

Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362,

January 16, 2009). The ICD-10 coding system includes the International

Classification of Diseases, 10th Revision, Clinical Modification (ICD- 10-CM) for diagnosis coding and the International Classification of

Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the Official ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), there was a discussion of the need for a partial or total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment addressed in this final rule stated that the annual code set updates should cease l year prior to the implementation of ICD-10.

The commenters stated that this freeze of code updates would allow for instructional and/or coding software programs to be designed and purchased early, without concern that an upgrade would take place immediately before the compliance date, necessitating additional updates and purchases.

We responded to comments in the ICD-10 final rule that the ICD-9-CM

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

At the March 11-12, 2009 ICD-9-CM Coordination and Maintenance

Committee meeting, the public was notified that there would be a discussion of whether there was a need to freeze updates to ICD-9-CM and/or ICD-10-CM and ICD-10-PCS prior to the implementation of ICD-10.

The audience was asked to consider this issue and be prepared to discuss the topic at the September 16-17, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Advance written comments on this topic were welcomed. The first part of the meeting was devoted to this topic.

CMS received comments in advance of the meeting. CMS staff summarized these advanced comments at the meeting as follows:

No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2010 (36 months for implementation activities without annual code updates). This approach involves updating ICD-9-CM and ICD-10 codes on October 1, 2010, and not updating them again until after ICD-10 implementation on

October 1, 2013. The commenters mentioned the extensive work needed to prepare for the transition to ICD-10 which will affect vendors, payers, providers, trainers, clearinghouses, and all claims handling organizations. The commenters stated that the 36 months between the last ICD-9-CM and ICD-10 updates on October 1, 2010 and the implementation of ICD-10 on October 1, 2013, were necessary to prepare and train for the transition.

No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2011 (24 months for implementation activities without annual code updates). This approach involves updating ICD-9-CM and ICD-10 codes on October 1, 2011, and not updating them again until after ICD-10 implementation on

October 1, 2013. The commenters raised similar concerns to those mentioned above. The commenters stated that, if codes continue to change, the changes would make it difficult for vendors, payers, and providers to be ready and for coder training to be successful. One commenter suggested that a provision be developed to perform limited annual updates to capture new technologies or new diagnoses.

No ICD-10-CM/PCS updates beginning October 1, 2012 but continue annual updates to ICD-9-CM. This commenter supported annual updates to

ICD-9-CM to capture advances in medical science. However, the commenter supported a freeze of ICD-10 beginning October 1, 2012, to give the industry time to update systems and prepare for ICD-10 implementation.

No ICD-10 updates on October 1, 2012, but update ICD-9-CM without interruption. (No period for implementation activities without annual code updates.) The commenter recommended no ICD-10 updates on October 1, 2012, but then updating ICD-10 again on October 1, 2013. The commenter recommended updating ICD-9-CM continuously through a final update on October 1, 2012. The commenter stated that having a two or three year gap between updating the

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code books would lead to a loss of data. The commenter stated that there is a need to retain the ability to update the code books to capture conditions such as Swine flu.

Update both ICD-9-CM and ICD-10-CM/PCS annually through October 1, 2013 (no period for implementation activities without annual code updates). The commenter stated that codes should not be frozen prior to the implementation of ICD-10. The commenter stated that freezing the updates would inhibit the recognition of new technologies.

Many of the commenters suggested a resumption of updates to ICD-10-

CM and ICD-10-PCS beginning on October 1, 2014. However, one commenter suggested annual updates of ICD-10-CM and ICD-10-PCS without interruptions, including on October 1, 2013.

The topic was then opened for public discussion at the Committee meeting. CMS received a variety of comments from the participants that mirrored the advance written comments. These comments ranged from those supporting a complete freeze for both coding systems to those who recommended that both coding systems continue to be updated annually prior to ICD-10 implementation. There were also many comments that supported a more limited update process beginning on October 1, 2011, or October 1, 2012, which would allow only a small number of new codes to capture new technologies or new diseases. A number of commenters pointed out that section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year to capture new technologies. The commenters stated that CMS must make a provision to capture new technologies despite any requests to freeze code updates.

Commenters voiced concerns about the impact on vendors creating new

ICD-10 products when both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes were extensively updated on an annual basis. Commenters stated that vendors and educators were reluctant to begin ICD-10 products and training materials until there was a period of stability without extensive annual updates. Some commenters stated that it was important for physician offices to have time to prepare for the implementation of

ICD-10. Reducing the annual ICD-9-CM and ICD-10 annual updates would be helpful to physician offices.

Other commenters stated that it was important to update codes annually so that information on new diseases and technologies can be captured. These commenters stated that vendors, providers, system maintainers, and coders were used to annual code updates, and that they should continue.

One commenter requested that ICD-10-CM codes be frozen on October 1, 2011 so that ICD-10-CM codes could be coordinated with the

Diagnostic and Statistical Manual of Mental Disorders (DSM), Fifth

Edition. The commenter stated that the American Psychiatric Association plans to publish the fifth edition in 2012. Updates to ICD-10-CM on or after October 1, 2011, would disrupt those plans.

One commenter suggested an approach that would greatly reduce the number of updates and provide more stability in the coding systems during the implementation period. This commenter suggested that the large, regular code updates on ICD-9-CM be discontinued beginning on

October 1, 2011, or October 1, 2012. The commenter suggested that CMS and CDC raise the bar for new code requests at that time and only consider requests for new codes that clearly describe a new technology or a new disease. The commenter stated that this may lead to the creation of some new procedure codes which do not ultimately receive

FDA approval, as is the case now.

CMS and CDC have carefully reviewed the comments received at the

ICD-9-CM Coordination and Maintenance Committee meeting as well as the written comments submitted. Most commenters proposed a limited freeze on code updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS code sets, with an exception made for adding codes for new technologies and diseases. Providing this exception would comply with section 503(a) of

Public Law 108-173, which, as previously stated, includes a requirement for updating ICD-9-CM codes twice a year to capture new technologies.

There was support for making the last regular update on October 1, 2011. The commenters recommended that the ICD-9-CM Coordination and

Maintenance Committee continue to discuss any new code updates for both coding systems. However, new codes would only be added to ICD-9-CM or

ICD-10 to capture new technologies, as required by section 503(a) of

Public Law 108-173. Other coding issues raised would be held for consideration after ICD-10 is implemented.

In this proposed rule, we are soliciting additional input on this subject, especially in light of the requirements on hospitals for meaningful use of electronic health records. We welcome public comments that explore whether a freeze is needed to help with adoption of health

IT, given other priorities such as achievement of meaningful use and implementation of ICD-10 by FY 2013. We welcome input on having the last regular, annual update to both ICD-9-CM and ICD-10 be made on

October 1, 2011. On October 1, 2012, there would be only limited code updates to both the ICD-9-CM and ICD-10 coding systems to capture new technologies and diseases. On October 1, 2013, there would be only limited code updates to ICD-10 to capture new technologies and diagnoses. Any other issues raised would be considered for implementation in ICD 10 on October 1, 2014, a year after ICD-10 is implemented. We agree with commenters that there is a need to provide the provider, payer, and vendor community time to prepare for the implementation of ICD-10 and the accompanying system and product updates. The vendor community is especially interested in providing a more stable code set for ICD-10 while they are developing new products.

We believe that this advance notice of a partial code freeze would provide the health care industry ample time to request last major code updates to ICD-9-CM and ICD-10, which could be discussed at the

September 15-16, 2010 and the March 2011 ICD-9-CM Coordination and

Maintenance Committee meeting. Codes discussed at these two meetings would be considered for the final major code updates on October 1, 2011. Any code issues raised after that time would be addressed at the

ICD-9-CM Coordination and Maintenance Committee meetings in September 2011 through March 2013 to determine if they represented new technologies or new diseases. Any new technologies and diseases would be added during the regular annual updates. Other code requests would be held for implementation on October 1, 2014.

We welcome additional input on having the last regular code updates to ICD-9-CM and ICD-10 on October 1, 2011, and to only add codes for new technologies and diseases on October 1, 2012 and 2013. We also welcome additional input on having the next regular update to ICD-10 occur again on October 1, 2014.

Information on ICD-10 can be found on the CMS Web site at: http:// www.cms.hhs.gov/ICD10. The final ICD-10 version of MS-DRGs would be adopted under the formal rulemaking process as part of our annual IPPS updates.

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

Inpatient Claims

We have received repeated requests from the hospital community to process all 25 diagnosis codes and 25 procedure codes submitted on electronic hospital inpatient claims. Hospitals can submit up to 25 diagnoses and 25 procedures; however, CMS' current system limitations allow for the processing of only the first 9 diagnoses and 6 procedures. While CMS accepts all 25 diagnoses and 25 procedures submitted on the claims, we do not process all of the codes because of these system limitations. We recognize that much valuable information is lost by not processing the additional diagnosis and procedure codes that are reported by hospitals.

We responded to hospitals' requests that we process up to 25 diagnosis codes and 25 procedure codes in the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (74 FR 43798). In that final rule, we referred readers to the ICD-10 final rule (74 FR 3328 through 3362) where we discuss the updating of Medicare systems prior to the implementation of ICD-10 on

October 1, 2013. We mentioned that part of the system updates in preparation for ICD-10 is the ``expansion of our ability to process more diagnosis and procedure codes.'' In the FY 2009 IPPS final rule

(73 FR 48433 through 48444), we also responded to multiple requests to increase the number of codes processed from 9 diagnosis and 6 procedure codes to 25 diagnosis and 25 procedure codes.

CMS is currently undergoing extensive system updates as part of the move to 5010, which includes the ability to accept ICD-10 codes. This complicated transition involves converting many internal systems prior to October 1, 2013, when ICD-10 will be implemented. One important step in this planned conversion process is the expansion of our ability to process additional diagnosis and procedure codes. We are currently planning to complete the expansion of this internal system capability so that we are able to process up to 25 diagnoses and 25 procedures on hospital inpatient claims as part of the HIPPA ASC X12 Technical

Reports Type 3, Version 005010 (Version 5010) standards system update.

CMS will be able to process up to 25 diagnosis codes and 25 procedure codes when received on the 5010 format starting on January 1, 2011. We recognize the value of the additional information provided by this coded data for multiple uses such as for payment, quality measures, outcome analysis, and other important uses. We will continue to pursue this additional processing capacity as aggressively as possible in response to the multiple requests from the hospital industry. We appreciate the support of the health care community for this extensive system update process that will allow us to process more of this important data. Therefore, for claims submitted on the 5010 format beginning January 1, 2011, we will increase the capacity to process diagnosis and procedure codes on hospital inpatient claims from the current 9 diagnoses and 6 procedures up to 25 diagnoses and 25 procedures.

H. Recalibration of MS-DRG Weights

In developing the proposed FY 2011 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 2009 MedPAR data used in this proposed rule include discharges occurring on October 1, 2008, through September 30, 2009, based on bills received by CMS through December 31, 2009, 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 2009 MedPAR file used in calculating the proposed relative weights includes data for approximately 11,004,046

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 2008 Medicare cost report data files from HCRIS

(that is, cost reports beginning on or after October 1, 2007, and before October 1, 2008), which represents the most recent full set of cost report data available. We used the December 31, 2009 update of the

HCRIS cost report files for FY 2008 in setting the relative cost-based weights.

The methodology we used to calculate the DRG cost-based relative weights from the FY 2009 MedPAR claims data and FY 2008 Medicare cost report data is as follows:

To the extent possible, all the claims were regrouped using the proposed FY 2011 MS-DRG classifications discussed in sections

II.B. and G. of the preamble of this proposed rule.

The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2009 MedPAR file. (Medicare coverage for heart, heart- lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)

Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.

Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.

At least 96.1 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 cost centers were deleted.

Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.

Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to ``Y'' for ``Yes'' for all claims that otherwise have an ``N'' (No) or a ``U'' (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the

POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim.

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Specifically, if the particular condition is present on admission (that is, a ``Y'' indicator is associated with the diagnosis on the claim), then it is not a HAC, and the hospital is paid for the higher severity

(and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an ``N'' indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HACs are likely to be higher as well. Thus, if the higher charges of these HAC claims are grouped into lower severity MS-

DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity

MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost.

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

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels,

IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital

IPPS as well. Charges were then summed by MS-DRG for each of the 15 cost groups so that each MS-DRG had 15 standardized charge totals.

These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2008 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.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

We developed the national average CCRs as follows:

Taking the FY 2008 cost report data, we removed CAHs, Indian Health

Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland as we are including their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center

CCRs and removed any cost center CCRs where the log of the cost center

CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The

Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-4 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the

Medicare-specific charges for each line item from Worksheet D-4. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total

Medicare-specific charges to produce national average, charge-weighted

CCRs.

After we multiplied the total charges for each MS-DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 ``costs'' across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the

MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The new cost-based relative weights were then normalized by an adjustment factor of 1.57461 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 15 proposed national average CCRs for FY 2011 are as follows:

Group

CCR

Routine Days............................... 0.553

Intensive Days............................. 0.480

Drugs...................................... 0.200

Supplies & Equipment....................... 0.348

Therapy Services........................... 0.415

Laboratory................................. 0.163

Operating Room............................. 0.282

Cardiology................................. 0.181

Radiology.................................. 0.161

Emergency Room............................. 0.278

Blood and Blood Products................... 0.424

Other Services............................. 0.426

Labor & Delivery........................... 0.462

Inhalation Therapy......................... 0.201

Anesthesia................................. 0.136

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

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. In this FY 2011 proposed rule, we are proposing to use that same case threshold in recalibrating the MS-DRG weights for FY 2011. Using the FY 2009 MedPAR data set, there are 8 MS-

DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients age 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients age 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights.

Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have heard frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. Newborns are unique and require separate MS-DRGs that are not mirrored in the adult population.

Therefore, it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs listed below are for newborns.

In FY 2011, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, we are proposing to compute weights for the low-volume MS-DRGs by adjusting their FY 2010 weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

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Low[dash]Volume MS-DRG

MS-DRG title

Crosswalk to MS-DRG

768.................... Vaginal Delivery with

FY 2010 FR weight

O.R. Procedure Except

(adjusted by percent

Sterilization and/or

change in average

D&C.

weight of the cases in other MS-DRGs). 789.................... Neonates, Died or

FY 2010 FR weight

Transferred to Another (adjusted by percent

Acute Care Facility.

change in average weight of the cases in other MS-DRGs). 790.................... Extreme Immaturity or

FY 2010 FR weight

Respiratory Distress

(adjusted by percent

Syndrome, Neonate.

change in average weight of the cases in other MS-DRGs). 791.................... Prematurity with Major FY 2010 FR weight

Problems.

(adjusted by percent change in average weight of the cases in other MS-DRGs). 792.................... Prematurity without

FY 2010 FR weight

Major Problems.

(adjusted by percent change in average weight of the cases in other MS-DRGs). 793.................... Full-Term Neonate with FY 2010 FR weight

Major Problems.

(adjusted by percent change in average weight of the cases in other MS-DRGs). 794.................... Neonate with Other

FY 2010 FR weight

Significant Problems.

(adjusted by percent change in average weight of the cases in other MS-DRGs). 795.................... Normal Newborn......... FY 2010 FR weight

(adjusted by percent change in average weight of the cases in other MS-DRGs).

I. Proposed Add-On Payments for New Services and Technologies 1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as

``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the

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

The regulations implementing these provisions specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new;

(2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. These three criteria are explained below in the ensuing paragraphs in further detail.

Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a specific medical service or technology will be considered ``new'' for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. Typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) and when data reflecting the use of the medical service or technology are used to calculate the MS-DRG weights. For example, data from discharges occurring during FY 2009 are used to calculate the proposed FY 2011 MS-

DRG weights in this proposed rule. Section 412.87(b)(2) of the regulations therefore provides that ``a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the MS-

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 this proposed rule, we generally refer to both FDA approval and FDA clearance as FDA

``approval.'') However, in some cases, there may be few to no Medicare data available for the new service or technology following FDA approval. For example, the newness period could extend beyond the 2- year to 3-year period after FDA approval is received in cases where the product initially was generally unavailable to Medicare patients following FDA approval, such as in cases of a national noncoverage determination or a documented delay in bringing the product onto the market after that approval (for instance, component production or drug production has been postponed following FDA approval due to shelf life concerns or manufacturing issues). After the MS-DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the medical service or technology is no longer eligible for special add-on payment for new medical services or technologies (as specified under Sec. 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2008 and entered the market at that time may be eligible to receive add-on payments as a new technology for discharges occurring before October 1, 2011 (the start of FY 2012). Because the FY 2012 MS-DRG weights would be calculated using FY 2010 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2012 MS-DRG weights. Therefore, the new technology would no longer be eligible to receive add-on payments as a new technology for discharges occurring in FY 2012 and thereafter.

We do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered ``new'' for purposes of new technology add-on payments if it is ``substantially similar'' to a technology that was approved by FDA and has been on the market for more than 2 to 3 years.

In the FY 2006 IPPS final rule (70 FR

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47351), we explained our policy regarding substantial similarity in detail and its relevance for assessing if the hospital charge data used in the development of the relative weights for the relevant DRGs reflect the costs of the technology. In that final rule, we stated that, for determining substantial similarity, we consider (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, and (2) whether a product is assigned to the same or a different DRG. We indicated that both of the above criteria should be met in order for a technology to be considered ``substantially similar'' to an existing technology. However, in that same final rule, we also noted that, due to the complexity of issues regarding the substantial similarity component of the newness criterion, it may be necessary to exercise flexibility when considering whether technologies are substantially similar to one another. Specifically, we stated that we may consider additional factors, depending on the circumstances specific to each application.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we noted that the discussion of substantial similarity in the

FY 2006 IPPS final rule related to comparing two separate technologies made by different manufacturers. Nevertheless, we stated that the criteria discussed in the FY 2006 IPPS final rule also are relevant when comparing the similarity between a new use and existing uses of the same technology (or a very similar technology manufactured by the same manufacturer). In other words, we stated that it is necessary to establish that the new indication for which the technology has received

FDA approval is not substantially similar to that of the prior indication. We explained that such a distinction is necessary to determine the appropriate start date of the newness period in evaluating whether the technology would qualify for add-on payments

(that is, the date of the ``new'' FDA approval or that of the prior approval), or whether the technology could qualify for separate new technology add-on payments under each indication.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we added a third factor of consideration to our analysis of whether a new technology is substantially similar to one or more existing technologies. Specifically, in making a determination of whether a technology is substantially similar to an existing technology, we will consider whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population (74 FR 24130), in addition to considering the already established factors described in the FY 2006 IPPS final rule (that is,

(1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; and (2) whether a product is assigned to the same or a different DRG). As we noted in the FY 2010 IPPS/RY 2010

LTCH PPS final rule, if all three components are present and the new use is deemed substantially similar to one or more of the existing uses of the technology (that is beyond the newness period), we would conclude that the technology is not new and, therefore, is not eligible for the new technology add-on payment.

Under the second criterion, Sec. 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-

DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. In the

FY 2004 IPPS final rule (68 FR 45385), we established the threshold at the geometric mean standardized charge for all cases in the MS-DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and converted back to charges) for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs, if the new medical service or technology occurs in more than one MS-DRG).

However, section 503(b)(1) of Public Law 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005,

CMS will apply ``a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation for the diagnosis-related group involved.'' (We refer readers to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion of the revision of the regulations to incorporate the change made by section 503(b)(1) of Pub. L. 108-173.) Table 10 that was included in the final rule published in the Federal Register on August 27, 2009, contains the final thresholds that are being used to evaluate applications for new technology add-on payments for FY 2011 (74 FR 44173). We note that we plan to issue separate documents in the Federal

Register addressing the provisions of Public Law 111-148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions addressing the provisions of Public Law 111-148, as amended, that affect the policies and payment rates for FY 2010 under the IPPS and the LTCH PPS. At the time we issue those documents, we plan to update Table 10 that was published in the Federal Register on

August 27, 2009 and Table 10 in the Addendum to this proposed rule.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the 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 for Civil Rights has since amended the HIPAA Privacy Rule, but the results remain. The HIPAA

Privacy Rule no longer requires covered entities to obtain consent from patients to use or disclose protected health information for treatment, payment, or health care operations, and expressly permits such entities to use or to disclose protected health information for any of these purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and 164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually

Identifiable Health Information published in the Federal Register on

August 14, 2002, for a full discussion of changes in consent requirements.)

Under the third criterion, Sec. 412.87(b)(1) of our existing regulations

Page 23925

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 Sec. 412.88, if the costs of the discharge (determined by applying cost to charge ratios (``CCRs'') as described in Sec. 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 50 percent of the estimated costs of the new technology

(if the estimated costs for the case including the new technology exceed Medicare's payment); or (2) 50 percent of the difference between the full DRG payment and the hospital's estimated cost for the case.

Unless the discharge qualifies for an outlier payment, Medicare payment is limited to the full MS-DRG payment plus 50 percent of the estimated costs of the new technology.

Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual MS-DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not more or less than they were in the prior fiscal year (i.e., they are

``budget neutral''). Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year, while at the same time estimating the payment effect of changes to the MS-DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. However, section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

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

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

Quality (OCSQ) and the Director of the Center for Medicare Management

(CMM), who is also designated as the CTI's Executive Coordinator.

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

Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for

Medicare beneficiaries.

CMS plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an ``innovator's guide'' to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_ 25_08.pdf.

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

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

CTI@cms.hhs.gov or from the ``Contact Us'' section of the CTI home page

(http: //www.cms.hhs.gov/CouncilonTechInnov/).

We note that applicants for add-on payments for new medical services or technologies for FY 2012 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on our Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/08_newtech.asp. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2012, the Web

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site also will list the tracking forms completed by each applicant. 2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

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

Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries;

Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending;

Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement; and

Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add- on payments for new medical services and technologies for FY 2011 prior to publication of this FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, we published a notice in the Federal Register on November 27, 2009 (74 FR 62339 through 62342), and held a town hall meeting at the CMS

Headquarters Office in Baltimore, MD, on February 19, 2010. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for each of the FY 2011 new medical service and technology add-on payment applications before the publication of this FY 2011 proposed rule.

Approximately 80 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. Each of the three FY 2011 applicants presented information on its technology, including a discussion of data reflecting the substantial clinical improvement aspect of the technology. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on the applications, in our evaluation of the new technology add-on applications for FY 2011 in this proposed rule.

In response to the published notice and the new technology town hall meeting, we received 11 written comments regarding applications for FY 2011 new technology add-on payments. We summarized these comments or, if applicable, indicated that there were no comments received, at the end of each discussion of the individual applications in this proposed rule.

Comment: One commenter, a medical technology association, recommended that CMS, in its consideration as to whether a new technology meets the substantial clinical improvement criterion, judge a diagnostic device on the basis of a diagnostic outcome (improved diagnosis) rather than a therapeutic outcome, recognizing that earlier and improved detection of disease often leads to improved patient outcomes.

Response: We thank the commenter for its comments on the substantial clinical improvement criterion. Similar to our statements in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43817 through 43819), section 1886(d)(5)(K)(vi) of the Act authorizes the Secretary to establish through notice and comment rulemaking the criteria that a new medical service or technology must meet in order to be eligible for the new technology add-on payment. Under this authority, in the

September 7, 2001 final rule, we established three criteria through notice and comment rulemaking--the newness criterion, the cost criterion, and the substantial clinical improvement criterion (66 FR 46924). Specifically, Sec. 412.87(b)(1) of the regulations provides that a new medical service or technology must ``represent an advance that substantially improves, relating to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.''

As we explained in the September 7, 2001 final rule, we consider a diagnostic technology to meet the substantial clinical improvement criterion if the technology not only ``offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods,'' but also if ``use of the device to make a diagnosis affects the management of the patient'' (66 FR 46914). We believe that this evidence is necessary to determine whether the new technology affords a ``clear improvement over the use of previously available technologies.'' We do not consider any particular type of evidence to be dispositive; instead, we consider all information presented for each application to determine whether there is evidence to support a conclusion that ``use of the device to make a diagnosis affects the management of the patient'' (in the case of a diagnostic technology). Specifically, we consider whether the peer-reviewed medical literature supports or clinical studies indicate that the diagnostic device should generally be used by providers in guiding the management of their patients. In addition, we consider evidence demonstrating clinically accepted use of the device in a manner that actually affects the management of patients.

Under the commenter's recommendation, a diagnostic technology effectively would only need to receive FDA approval and be the only technology approved for a particular diagnostic capability in order to be deemed a ``substantial improvement'' for purposes of new technology add-on payments, regardless of its ability to positively affect patient management. This approach would deem a device that led to the identification of new information as a substantial improvement in diagnosis even if such detection has not been ``demonstrated to represent a substantial improvement in caring for Medicare beneficiaries'' and was not linked to evidence-based, significant, and positive changes in the management of patients or, ultimately, to changes in clinical outcomes. We do not believe this rationale is consistent with our prior statements regarding the substantial clinical improvement criterion of the new technology add-on payment provision.

Comment: One commenter, a medical device association, recommended that CMS ``deem a device to satisfy the substantial clinical improvement criteria if it was granted a humanitarian device exemption or priority review based on the fact that it represents breakthrough technologies, which offer significant advantages over existing approved alternatives, for which no alternatives exist, or the availability of which is in the best interests of the patients.'' In addition, the commenter

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remarked that this process would simplify CMS' evaluation of applications for new technology add-on payments and would promote access to innovative treatments, as intended by Congress. Although the commenter also made remarks that were unrelated to substantial clinical improvement, because the purpose of the town hall meeting was specifically to discuss substantial clinical improvement of pending new technology applications, those comments are not summarized in this proposed rule.

Response: We thank the commenter for its comments. We note that we have previously addressed the comment concerning automatically approving technologies that have a humanitarian device exemption (HDE) in the FY 2008 IPPS final rule (72 FR 47302). We refer readers to that rule for our response. A further discussion of our evaluation of the applications and the documentation for new technology add-on payments submitted for FY 2011 approval is provided under the specified areas under this section. 3. FY 2011 Status of Technologies Approved for FY 2010 Add-On Payments a. Spiration[supreg] IBV[supreg] Valve System

Spiration, Inc. submitted an application for new technology add-on payments for the Spiration[supreg] IBV[supreg] Valve System

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

With regard to the newness criterion, the Spiration[supreg]

IBV[supreg] received an HDE approval from the FDA on October 24, 2008.

We were unaware of any previously FDA-approved predicate devices, or otherwise similar devices, that could be considered substantially similar to the Spiration[supreg] IBV[supreg]. However, the applicant asserted that the FDA had precluded the device from being used in the treatment of any patients until Institutional Review Board (IRB) approvals regarding its study sites. Therefore, the Spiration[supreg]

IBV[supreg] met the newness criterion once it obtained at least one IRB approval because the device would then be available on the market to treat Medicare beneficiaries.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for the

Spiration[supreg] IBV[supreg] and consideration of the public comments we received on the FY 2010 IPPS proposed rule, including the additional analysis of clinical data and supporting information submitted by the applicant, we approved the Spiration[supreg] IBV[supreg] for new technology add-on payments for FY 2010. The Spiration[supreg]

IBV[supreg] is the only device currently approved for the purpose of treating prolonged air leaks following lobectomy, segmentectomy, and

LVRS patients in the United States. We stated that without the availability of this device, patients with prolonged air leaks

(following lobectomy, segmentectomy, and LVRS) might otherwise remain inpatients in the hospital (and have a longer length of stay than they might otherwise have without the Spiration[supreg] IBV[supreg]) or might even require additional invasive surgeries to resolve the air leak. We also noted that use of the Spiration[supreg] IBV[supreg] may lead to more rapid beneficial resolution of prolonged air leaks and reduce recovery time following the three lung surgeries mentioned above.

However, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823), we indicated that we remained interested in seeing whether the clinical evidence continues to find it to be effective. This approval was on the basis of using the Spiration[supreg] IBV[supreg] consistent with the FDA approval (HDE), and we emphasized the need for appropriate patient selection accordingly. Therefore, we limited the add-on payment to cases involving prolonged air leaks following lobectomy, segmentectomy and LVRS in MS-DRGs 163, 164, and 165. Cases involving the Spiration[supreg] IBV[supreg] that are eligible for the new technology add-on payment are identified by assignment to MS-DRGs 163, 164, and 165 with procedure code 33.71 or 33.73 in combination with one of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that the average cost of the Spiration[supreg] IBV[supreg] is reported as

$2,750. Based on data from the FY 2010 application, the average amount of valves per case is 2.5. Therefore, the total maximum cost for the

Spiration[supreg] IBV[supreg] was expected to be $6,875 per case

($2,750 x 2.5). Under Sec. 412.88(a)(2) of our regulations, new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, we finalized a maximum add-on payment for a case involving the Spiration[supreg] IBV[supreg] as $3,437.50. b. CardioWestTMTemporary Total Artificial Heart System

(CardioWestTMTAH-t)

SynCardia Systems, Inc. submitted an application for approval of the CardioWestTMtemporary Total Artificial Heart system

(TAH-t) in FY 2009. The TAH-t is a technology that is used as a bridge to heart transplant device for heart transplant-eligible patients with end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of blood per minute. This high level of perfusion helps improve hemodynamic function in patients, thus making them better heart transplant candidates.

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 that success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who would be followed up to 1 year, including (but not limited to) the following endpoints: survival to transplant; adverse events; and device malfunction.

In the past, Medicare did not cover artificial heart devices, including the TAH-t. However, on May 1, 2008, CMS issued a final national coverage determination (NCD) expanding Medicare coverage of artificial hearts when they are implanted as part of a study that is approved by the FDA and is determined by CMS to meet CMS' Coverage with

Evidence Development (CED) clinical research criteria. (The final NCD is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/ viewdecisionmemo.asp?id=211.)

We indicated in the FY 2009 IPPS/RY 2009 LTCH PPS final rule (73 FR 48555) that, because Medicare's previous coverage policy with respect to this device had precluded payment from Medicare, we did not expect the costs associated with this technology to be

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currently reflected in the data used to determine the relative weights of MS-DRGs. As we have indicated in the past, and as we discussed in the FY 2009 IPPS/RY 2009 LTCH PPS final rule, although we generally believe that the newness period would begin on the date that FDA approval was granted, in cases where the applicant can demonstrate a documented delay in market availability subsequent to FDA approval, we would consider delaying the start of the newness period. This technology's situation represented such a case. We also noted that section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years ``beginning on the date on which an inpatient hospital code is issued with respect to the service or technology.'' Furthermore, the statute specifies that the term ``inpatient hospital code'' means any code that is used with respect to inpatient hospital services for which payment may be made under the IPPS and includes ICD-9-CM codes and any subsequent revisions. Although the TAH-t has been described by the ICD-9-CM code(s) since the time of its FDA approval, because the TAH-t had not been covered under the Medicare program (and, therefore, no Medicare payment had been made for this technology), this code could not be

``used with respect to inpatient hospital services for which payment'' is made under the IPPS, and thus we assumed that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS-DRG relative weights for FY 2009. For this reason, as discussed in the FY 2009 IPPS/RY 2009 LTCH

PPS final rule, despite the FDA approval date of the technology, we determined that TAH-t would still be eligible to be considered ``new'' for purposes of the new technology add-on payment because the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the TAH-t and consideration of the public comments we received in response to the

FY 2009 IPPS/RY 2009 LTCH PPS proposed rule, we approved the TAH-t for new technology add-on payments for FY 2009 (73 FR 48557). We indicated that we believed the TAH-t offered a new treatment option that previously did not exist for patients with end-stage biventricular failure. However, we indicated that we recognized that Medicare coverage of the TAH-t is limited to approved clinical trial settings.

The new technology add-on payment status does not negate the restrictions under the NCD nor does it obviate the need for continued monitoring of clinical evidence for the TAH-t. We remain interested in seeing whether the clinical evidence demonstrates that the TAH-t continues to be effective. If evidence is found that the TAH-t may no longer offer a substantial clinical improvement, we reserve the right to discontinue new technology add-on payments, even within the 2- to 3- year period that the device may still be considered to be new. We also continued to make new technology add-on payments for the TAH-t in FY 2010. We welcome public comment regarding whether there is new evidence that demonstrates that the TAH-t continues to be effective and whether it should still be considered to be a substantial clinical improvement for FY 2011.

The new technology add-on payment for the TAH-t for FY 2010 is triggered by the presence of ICD-9-CM procedure code 37.52

(Implantation of total heart replacement system), condition code 30, and the diagnosis code reflecting clinical trial--V70.7 (Examination of participant in clinical trial). For FY 2010, we finalized a maximum add-on payment of $53,000 (that is, 50 percent of the estimated operating costs of the device of $106,000) for cases that involve this technology.

Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362). The TAH-t is still eligible to be considered

``new'' for purposes of the new technology add-on payment because the 3-year anniversary date of the TAH-t entry on the market was in the second half of the fiscal year and the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008. Therefore, for FY 2011, we are proposing to continue new technology add-on payments for cases involving the TAH-t in FY 2011 with a maximum add-on payment of

$53,000. 4. FY 2011 Applications for New Technology Add-On Payments

We received five applications to be considered for new technology add-on payment for FY 2011. However, two applicants withdrew their applications: Nycomed Austria GmbH, which submitted an application for new technology add-on payments for FY 2011 for TachoSil[supreg]; and

Zimmer, which submitted an application for new technology add-on payments for FY 2011 for the Dynesys Dynamic Stabilization System.

Nycomed Austria GmbH withdrew its application from further review in

January 2010, and Zimmer withdrew its application in February 2010.

Because both applications were withdrawn prior to the town hall meeting and publication of this proposed rule, we are not discussing these two applications in this proposed rule.

A discussion of the remaining three applications is presented below. At the time this proposed rule was developed, one of the technologies had not yet received FDA approval. Consequently, our discussion below of this application may be limited. a. Auto Laser Interstitial Thermal Therapy (AutoLITTTM)

System

Monteris Medical submitted an application for new technology add-on payments for FY 2011 for the AutoLITTTM. We note that the applicant submitted an application for new technology add-on payments for FY 2010 but withdrew its application prior to the FY 2010 IPPS/RY 2010 LTCH PPS final rule. AutoLITTTMis a minimally invasive, MRI-guided catheter tipped laser designed to destroy malignant brain tumors with interstitial thermal energy causing immediate coagulation and necrosis of diseased tissue. The applicant asserts that the AutoLITTTMdelivers laser energy to the lesion with a proprietary 3mm diameter probe that directs the energy radially (that is, at right angle to the axis of the probe, or side- firing) toward the targeted tumor tissue in a narrow beam profile and at the same time, a proprietary probe cooling system removes heat from tissue not directly in the path of the laser beam, ostensibly protecting it from thermal damage and enabling the physician to selectively ablate only targeted tissue. The AutoLITTTM received a 510K FDA clearance in May 2009. The AutoLITTTMis indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in medicine and surgery in the discipline of neurosurgery with 1064 nm lasers. The

AutoLITTTMmay be used in patients with glioblastoma multiforme brain tumors. The applicant stated in its application and through supplemental information that, due to required

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updates, the technology was actually introduced to the market in

December 2009. The applicant explained that it was necessary to reduce the thermal damage lines from three to one and complete International

Electrotechnical Commission/Underwriter Laboratory testing, which led to the introduction of the technology to the market in December 2009, although the technology was approved by FDA in May 2009. The applicant also stated through supplementary information to its application that the first sale of the product took place on March 19, 2010. However, because the product was already available for use in December 2009, it appears that the newness date would begin in December 2009. We welcome public comments on this issue.

With regard to the newness criterion, we are concerned that the

AutoLITTTMmay be substantially similar to the device that it listed as its predicate device in its application to the FDA for approval. Specifically, in making a determination of substantial similarity, we consider the following: (1) Whether a product uses the same or similar mechanism of action to achieve a therapeutic action; and (2) whether a product is assigned to the same of different MS-DRG; and (3) whether the new use of a technology involves the treatment of the same or similar type of disease and the same or similar patient population. The applicant identified Visual-ase as its predicate device

(which was approved by the FDA in 2006), which is also used to treat tumors of the brain. The applicant maintains that

AutoLITTTM; can be distinguished from the Visual-ase by its mechanism of action (that is, side-firing laser versus elliptical firing). Additionally, as mentioned above, the technology contains a proprietary probe cooling system that removes heat from tissue not directly in the path of the laser beam. We welcome comments from the public regarding whether or not the AutoLITTTMis substantially similar to the Visual-ase and if it meets the newness criteria.

The technology can be identified by ICD-9-CM procedure codes 17.61

(Laser interstitial thermal therapy [LITT] of lesion or tissue of brain under guidance), and 17.62 (Laser interstitial thermal therapy [LITT] of lesion or tissue of head and neck under guidance), which were effective on October 1, 2009.

In an effort to demonstrate that AutoLITTTMmeets the cost criterion, the applicant used 2007 Medicare data from the

Healthcare Cost and Utilization Project (HCUP). We first note that the applicant believes that cases eligible for the AutoLITTTM will map to MS-DRG 25 (Craniotomy and Endovascular Intracranial

Procedures with MCC), MS-DRG 26 (Craniotomy and Endovascular

Intracranial Procedures with CC), and MS-DRG 27 (Craniotomy and

Endovascular Intracranial Procedures without CC or MCC). The applicant explained through supplemental information to its application that most cases of the AutoLITTTMwould map to MS-DRG 25 in the near- term. As the technology becomes more widely available, clinicians will use the technology instead of performing a craniotomy for brain cancer and on other different types of brain cancers including metastases, which would map to other MS-DRGs aside from MS-DRG 25. The applicant further stated that life expectancy with brain cancer is predicated on the removal of as much of the cancer as possible and asserted that over time the AutoLITTTMwill do a better job of removing the majority of the cancer that is present within the brain tissue compared to other procedures. The applicant believes that physicians with the

AutoLITTTMhave a better tool at removing more cancer and killing it more precisely and accessing parts of the brain that surgical resection cannot access. Lastly, the applicant believes that the minimally invasive nature of the procedure will also result in broader usage to other less complicated procedures (as clinical and patient awareness expands).

The applicant searched HCUP hospital data for cases potentially eligible for the AutoLITTTMthat was assigned one of the following ICD-9-CM diagnosis codes: a diagnosis code that begins with a prefix of 191 (Malignant neoplasm of brain); diagnosis code 225.0

(Benign neoplasm of brain and other parts of nervous system); or diagnosis code 239.6 (Neoplasm of the brain of unspecified nature). The applicant found 41,021 cases and weighted the standardized charge per case based on the number of cases found within each of the diagnosis codes listed above rather than the percentage of cases that would group to different MS-DRGs. Based on this analysis, the applicant calculated an average standardized charge per case was $57,511. While the applicant's analysis established a case-weighted average charge per case in the aggregate, it did not provide a case-weighted average standardized charge per case by MS-DRG (as required by the application).

The applicant also noted that their estimate of the case-weighted average standardized charge per case of $57,511 did not include charges related to the AutoLITTTM. Therefore, it is necessary to add the charges related to the device to the case-weighted average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of the AutoLITTTMper case, the applicant stated that the cost of the device was proprietary information. Based on a study of charge compression data by RTI \4\ and charge master data from Stanford University and University of California, San Francisco, the applicant estimates $38,886 in charges related to the

AutoLITTTM(we note that some of the data used a markup of 294 percent of the costs). Adding the estimated charges related to the device to the average standardized charge per case resulted in a total average standardized charge per case of $96,397 ($57,511 plus $38,886).

We note, in the applicant's discussion of substantial clinical improvement below, the applicant maintains that improved clinical outcomes using nonfocused LITT included reduced recovery time and a reduced rate of complications. Therefore, we are seeking comment on how reduced recovery time and a reduced rate of complications would affect the total case-weighted average standardized charge per case and the average length of stay (for cases eligible for the

AutoLITTTM).

\4\ RTI International, A Study of Charge Compression in

Calculating DRG Relative Weights, RTI Project No. 0207964.012.008;

January 2007.

As noted above, the applicant's analysis established a case- weighted average charge per case in the aggregate, but it did not provide a case-weighted average standardized charge per case by MS-DRG.

However, the applicant explained through supplemental information to its application that the total average standardized charge per case significantly exceeds the cost threshold established by CMS for FY 2011 in Table 10 (74 FR 44173) of $84,185 for MS-DRG 25. Additionally, the applicant further explained that the total average standardized charge per case would also exceed the cost thresholds established by CMS of

$58,612 for MS-DRGs 26 and $47,053 for MS-DRG 27. Because the total average standardized charge per case exceeds the threshold amount for each individual MS-DRG to which the technology would map (MS-DRGs 25, 26, and 27), the applicant maintains that the AutoLITTTM would meet the cost criterion. We invite public comment on whether or not the AutoLITTTMmeets the cost criterion for a new technology add-on payment for FY 2011.

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With respect to the substantial clinical improvement criterion, the applicant maintains that it meets this criterion in its application.

Specifically, the applicant stated that several non-

AutoLITTTMclinical trials have demonstrated that nonfocused

LITT (and more recently, the use of LITT plus MRI) improved survival, quality of life, and recovery in patients with advanced glioblastoma multiforme tumors and advanced metastatic brain tumors that cannot be effectively treated with surgery, radiosurgery, radiation, chemotherapy, or any currently available clinical procedure. In a number of these patients, nonfocused LITT was the treatment of last resort, due to either the unresponsiveness or inability of these therapies to treat the brain tumor (due to tumor location, type, or size, among others). The applicant also maintains that when compared to craniotomy, it offers improved clinical outcomes using nonfocused LITT, including reduced recovery time and a reduced rate of complications

(that is, infection, brain edema). The applicant stated that these factors, as discussed in the FY 2001 final rule (66 FR 46914 through 46915) demonstrate that the AutoLITTTMmeets the new technology criterion for substantial clinical improvement.

The applicant further asserts that AutoLITTTMwould represent a substantial clinical improvement over existing standards of care for a number of reasons and should build upon less sophisticated, nonfocused LITT therapies. These clinical improvements cited by the applicant include: A less invasive method of tumor ablation, potentially leading to lower complication rates post procedure

(infection, edema); an ability to employ multiple interventions over shorter periods of time and an ability to be used as a treatment of last resort (radiosurgery is limited due to radiation dosing and craniotomy is limited to 1 to 2 procedures); an ability to be used in hard-to-reach brain tumors (the AutoLITTTMmay be used as a treatment of last resort); and a shorter recovery time (the possibility for same day surgery, which has been demonstrated above with nonfocused

LITT).

We appreciate the applicant's summary of why this technology represents a substantial clinical improvement. While we recognize the future potential of this interesting therapy, we have concerns that to date the AutoLITTTMhas been used for the treatment of only a few patients as part of a safety evaluation with no comparative efficacy data and, therefore, there may not be sufficient objective clinical evidence to determine if the AutoLITTTMmeets the substantial clinical improvement criteria. The applicant did note in its presentation at the new technology town hall meeting that it is currently conducting a clinical trial with a summary report expected in the near future. We welcome additional clinical data to demonstrate whether the AutoLITTTMmeets the substantial clinical improvement criterion and invite public comment on whether or not the

AutoLITTTMmeets the substantial clinical improvement criterion.

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

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2011 for the LipiScanTMCoronary Imaging

System (LipiScanTM). We note that an application was also submitted for FY 2010, but the application was denied on the grounds that it did not meet the substantial clinical improvement criterion at that time. The application for FY 2011 contains some additional clinical and charge data that were not available at the time that the

FY 2010 new technology add-on payment decisions were made.

The LipiScanTMdevice is a diagnostic tool that uses

Intravascular Near Infrared Spectroscopy (INIRS) during an invasive coronary catheterization to scan the artery wall in order to determine coronary plaque composition. The purpose of the device is to identify lipid-rich areas in the artery because such areas have been shown to be more prone to rupture. The procedure does not require flushing or occlusion of the artery. INIRS identifies the chemical content of plaque by focusing near infrared light at the vessel wall and measuring reflected light at different wavelengths (that is, spectroscopy). The

LipiScanTMsystem collects approximately 1,000 measurements per 12.5 mm of pullback, with each measurement interrogating an area of 1 to 2 mm\2\ of lumen surface perpendicular to the longitudinal axis of the catheter. When the catheter is in position, the physician activates the pullback and rotation device and the scan is initiated providing 360 degree images of the length of the artery. The rapid acquisition speed for the image freezes the motion of the heart and permits scanning of the inside of the arterial wall in less than 2 minutes.

When the catheter pullback is completed, the console displays the scan results, which are referred to as a ``chemogram'' image. The chemogram image requires reading by a trained user, but, according to the applicant was designed to be simple to interpret.

With regard to the newness criterion, the LipiScanTM received a 510K FDA clearance for a new indication on April 25, 2008, and was available on the market immediately thereafter. On June 23, 2006, InfraReDx, Inc. was granted a 510K FDA clearance for the

``InfraReDx Near Infrared (NIR) Imaging System.'' Both devices are under the common name of ``Near Infrared Imaging System'' according to the 510K summary document from the FDA. However, the InfraReDx NIR

Imaging System device that was approved by the FDA in 2006 was approved

``for the near infrared imaging of the coronary arteries,'' whereas the

LipiscanTMdevice cleared by the FDA in 2008 is for a modified indication. The modified indication specified that

LipiscanTMis ``intended for the near-infrared examination of coronary arteries* * *, the detection of lipid-core-containing plaques of interest* * *[and] for the assessment of coronary artery lipid core burden.'' In the FY 2010 IPPS/RY 201 LTCH PPS proposed rule

(74 FR 24132 through 24134), we noted that we had concerns with whether

LipiscanTMwas substantially similar to its predicate device that was approved by the FDA in 2006. However, those concerns were addressed by the manufacturer during the comment period. Specifically, the manufacturer stated that there were technical problems with the original device and that LipiScanTMhad to be modified in the following ways:

Marketed 2008 2006 NIRS device

lipiScan

Console..................... No display of

Results displayed results of scan.

immediately.

Catheter.................... Saline-filled with

Air-filled with no microbubble problem microbubble obscuring many

problem. scans.

Page 23931

Algorithm................... No algorithmic

Algorithm validated processing of NIR

in over 1,000 signals--no means

autopsy of certifying that measurements lipid core plaque

proving that NIRS is present.

can detect lipid core plaque, and providing diagnosis of lipid core plaque to the MD during the case.

The problems with the LipiScanTMdevice that was approved in 2006 were addressed in the second device that was granted

FDA approval in April 2008. The LipiScanTMdevice was not marketed until after its second FDA clearance. Therefore, we no longer needed to make a determination as to whether the newer device was substantially similar to the predicate device and we determined in the

FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43815) that

LipiscanTMwould be considered to be ``new'' to the market as of the date of its FDA approval in April 2008. Because a technology may be considered new for a period of up to 3 years if, during the third year, the technology is new for more than 6 months of the fiscal year, it appears that the technology would still be in the newness period for FY 2011. We welcome public comment on whether

LipiscanTMmeets the newness criterion.

We note that the LipiscanTMtechnology is identified by

ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which became effective October 1, 2008, and cases involving the use of this device generally map to MS-DRG 246 (Percutaneous Cardiovascular

Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents);

MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting

Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular

Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/

Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-

Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous

Cardiovascular Procedures without Coronary Artery Stent with MCC); and

MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary

Artery Stent without MCC).

In an effort to demonstrate that the technology meets the cost criterion, the applicant used the FY 2010 final rule After Outliers

Removed (AOR) file (posted on the CMS Web site) to identify cases potentially eligible for LipiscanTM. The applicant believes that every case within MS-DRGs 246, 247, 248, 249, 250, and 251 is eligible for LipiscanTM. In addition, the applicant believes that LipiscanTMwill be evenly distributed across patients in each of those six MS-DRGs (16.7 percent within each MS-DRG). Using data from the AOR file, the applicant found the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was

$67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, equating to a case-weighted average standardized charge per case of

$52,230 (calculation performed using unrounded numbers). The applicant indicated that the case-weighted average standardized charge per case does not include charges related to LipiscanTM; therefore, it is necessary to add the charges related to the device to the average case-weighted standardized charge per case to evaluate the cost threshold criterion. Although the applicant submitted data related to the estimated cost per case of LipiscanTM, the applicant stated that the cost of the device is proprietary information. Based on a sampling of all 10 non-VA hospitals that are actively using the device, the applicant determined that the average charge for the device was $7,497. Adding the estimated average charge related for the device to the case-weighted standardized charge per case (based on the case distribution from the applicant's FY 2010 AOR analysis) results in a total case-weighted average standardized charge per case of $59,727

($52,230 plus $7,497). Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is

$56,487 (all calculations above were performed using unrounded numbers). Because the applicant's calculation of the total case- weighted average standardized charge per case for the applicable MS-

DRGs exceeds the case-weighted threshold amount, the applicant maintains that LipiscanTMmeets the cost criterion.

We note that in the applicant's analysis of the cost criterion, instead of determining the case-weighted average standardized charge per case and the case-weighted threshold amount based on the actual number of cases from the FY 2010 AOR file in the applicable MS-DRGs that are eligible for the LipiscanTM, the applicant's analysis assumed an even distribution of patients in the applicable MS-

DRGs. However, the data from the FY 2010 AOR file shows a varied distribution of cases in each of the applicable MS-DRGs. We believe the more appropriate way to determine the case-weighted average standardized charge per case and the case-weighted threshold amount for evaluating the cost criterion is to use the actual distribution of cases in the applicable MS-DRGs based on the number of cases from the

AOR file because this would more accurately reflect the number and type of Medicare cases typically treated in the applicable MS-DRGs.

Moreover, this would better conform with the applicant's assertion that the probability of use of LipiscanTMis the same in each of those six MS-DRGs. Using data from the FY 2010 AOR file, for MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,411, 147,952, 19,736, 67,964, 8,184, and 38,091 cases, respectively. Using this case distribution and the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 from the application (that is,

$67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, as stated above), the case-weighted average standardized charge per case is $46,657. As the applicant indicated above, the case-weighted average standardized charge per case does not include charges related to LipiscanTM. Therefore, it is necessary to add the average charge of $7,497 related to the device to the case-weighted standardized charge per case to evaluate the cost threshold criterion.

Adding the estimated charges related to the device to the case-weighted average standardized charge per case (based on the case distribution from the FY 2010 AOR final rule file) results in a total case-weighted average standardized charge per case of $54,154 ($46,657 plus $7,497).

Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/

RY 2010 LTCH PPS final rule (74 FR 44173) and the actual case distribution from the AOR file, the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,700 (all calculations above were performed using unrounded numbers). Because this alternative calculation of total case-weighted average standardized charge per case for the applicable MS-DRGs also exceeds the case-weighted threshold amount, it appears that LipiscanTMwould meet the cost criterion. We invite public comment on

Page 23932

whether or not LipiscanTMmeets the cost criterion.

With regard to substantial clinical improvement, CMS determined that the FY 2010 new technology add-on payment application for

LipiscanTMdid not meet the substantial clinical improvement criterion because the evidence and information available at the time the new technology decisions were made did not allow CMS to determine that the application represented a substantial clinical improvement over existing technologies. Specifically, CMS found that there was a lack of evidence that demonstrated that LipiscanTMaffected the medical management of patients in which the device was used.

The applicant maintains that the device meets this criterion for the following reasons. The applicant noted that from November 2008 to 2009, the number of patients in whom LipiscanTMhas been used for clinical purposes has increased from 100 to 500 and during the same period, the number of hospitals using the product has increased from 6 to 16. In addition, the applicant asserts that ``during the past year, two LipiscanTMpublications demonstrate that dilation of a lipid core plaque is responsible for slow or no reflow and myocardial infarction during the procedure.'' The applicant noted that this is important because ``several treatments are available that could prevent this stenting complication.'' The applicant referenced the

``700 patient PROSPECT Study'' which was presented at Transcatheter

Cardiovascular Therapeutics Conference in September 2009 and found that 20.4 percent of patients experience a new event in the 3.4 years following stenting. The applicant pointed to that finding as evidence that there is a need for improved safety and efficacy of stenting and maintained that LipiscanTMoffers clinicians the ability to make decisions that result in such improvements.

The PROSPECT (Providing Regional Observations to Study Predictors of Events in the Coronary Tree) study is a cohort study of patients with acute coronary syndrome who underwent percutaneous coronary angioplasty and stenting (percutaneous coronary intervention).

Following the procedure, angiography and intravascular ultrasound

(IVUS) were performed. If a patient had a subsequent event, a new angiogram and IVUS image were obtained and compared to the original results. The investigators reported that ``angiographically mild lesions with certain morphologic features on grayscale and IVUS present with a 3 year cardiac event rate of 17%, versus other morphologies

(indistinguishable by conventional angiograms) with three year event risks of less than 1%.'' We are concerned that with this type of study design, it is not possible to determine whether the information for the

IVUS image would have altered the angioplasty and stenting procedures since the images were collected after the procedure. The results are suggestive, but a prospective study is needed to determine the clinical utility of IVUS and whether use of IVUS leads to changes in clinical practice or improvements in health outcomes. The PROSPECT study generated a hypothesis that use of IVUS may help determine which plaques are vulnerable to future events but further clinical research is needed to confirm this hypothesis. We note that the PROSPECT study was presented at the Transcatheter Cardiovascular Therapeutics

Conference in 2009, but that the study results have yet to be published in a peer-reviewed journal. We also note that methods and conclusions from a study may change from what was verbally presented during the peer review process that is required to publish the study results.

As it did in its prior application, the applicant noted that the

September 1, 2001 final rule states that one facet of the criterion for substantial clinical improvement is ``the device offers the ability to diagnose a medical condition in a patient population where the medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient''

(66 FR 46914). The applicant believes that LipiscanTMmeets all facets of this criterion. The applicant asserted that the device is able to detect a condition that is not currently detectable. The applicant explained that LipiScanTMis the first device of its kind to be able to detect lipid-core-containing plaques of interest and to assess of coronary artery lipid core burden. The applicant further noted that FDA, in its approval documentation, has indicated that ``This is the first device that can help assess the chemical makeup of coronary artery plaques and help doctors identify those of particular concern.''

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

The applicant also noted that the device has the ability to make a diagnosis that better affects the management of the patient.

Specifically, the applicant asserted that LipiScanTM``is currently used in the management of patients undergoing coronary stenting to improve the safety and efficacy of the procedure'' and that while stenting has steadily improved, its results are not optimal in approximately 30 percent of cases due to 3 problems: (1) Peri-stenting

MI due to embolization of lipid core contents and side branch occlusion; (2) major adverse coronary events (MACE) post stenting from difficulties at the stented site; and (3) MACE post stenting for non- stented vulnerable sites. We note that in order to demonstrate that the technology represents a substantial clinical improvement, there must be evidence that use of the device to make a diagnosis affects the medical management of the patient and leads to improved clinical outcomes.

The applicant described three case studies where each of the above problems was addressed by use of the LipiScanTM. In addition, the applicant asserts that the chemogram results are available to the interventional cardiologist during the PCI procedure, and have been found to be useful in decision-making. According to the applicant, physicians have reported changes in therapy based on

LipiScanTMfindings in 20 to 50 percent of patients in which the device has been used. According to the applicant, the most common use of LipiScanTMresults has been by physicians for selection of the length of artery to be stented. In some cases a longer stent has been used when there is a lipid-core-containing plaque adjacent to the area that is being stented because a flow-limiting stenosis is present. The applicant also noted that, in some cases, physicians have chosen to use down-stream protective devices during stenting procedures on the basis of information gathered by use of

LipiscanTMin several patients, and that this has directly impacted their outcome by capturing emboli and preventing further cardiac damage. Therefore, the applicant contends that the use of

LipiScanTMby clinicians to select the length of artery to be stented and as an aid in selection of intensity of lipid-altering therapy, demonstrates that

Page 23933

LipiScanTMaffects the management of patients.

While we recognize that the identification of lipid-rich plaques in the coronary vasculature holds promise in the management of coronary artery disease, we are concerned that statements in the FDA approval documents, as well as statements made by investigators in the literature, suggest that the clinical implications of identifying these lipid-rich plaques are not yet certain and that further studies need to be done to understand the clinical implications of obtaining this information.

The applicant also submitted commentary from Interventional

Cardiologists (a group of clinicians who currently utilize the

LipiScanTMdevice) explaining the clinical benefits of the device. The applicant further noted that the device may have other potential uses that would be of clinical benefit, and studies are currently being conducted to investigate these other potential uses.

The applicant explained that LipiScanTMoffers promise as a means to enhance progress against the two leading problems in coronary disease management: (1) The high rate of second events that occur even after catheterization, revascularization, and the institution of optimal medical therapy; and (2) the failure to diagnose coronary disease early, which results in sudden death or MI being the first sign of the disease in most patients. The applicant further stated that the identification of coronary lipid-core-containing plaques, which can most readily be done in those already undergoing catheterization, is likely to be of benefit in the prevention of second events. In the longer term, the applicant stated that the identification of lipid- core-containing plaques by LipiScanTMmay contribute to the important goal of primary prevention of coronary events, which, in the absence of adequate diagnostic methods, continue to cause extensive morbidity, mortality and health care expenditures in Medicare beneficiaries and the general population.

We welcome public comment regarding whether or not the

LipiScanTMtechnology represents a substantial clinical improvement in the Medicare population.

We received approximately nine public comments during the town hall meeting public comment period on the LipiScanTMand

LipiScanTMIVUS. The comments relating to

LipiScanTMIVUS are summarized at the end of the

LipiScanTMIVUS application.

Comment: Several commenters supported approving the

LipiScanTMdevice for new technology add-on payments. They stated (using nearly identical language) that LipiScanTM provided accurate information about the presence of lipid core plaques that was previously unavailable. They also stated that the device

``permits the detection of an earlier stage of coronary artery disease.'' The commenters also stated that, ``over the past year evidence has been obtained documenting that the presence of a lipid- core plaque at a stenotic site (as detected by LipiScanTM) is an excellent predictor or peri-stenting myocardial infarction due to distal embolization of the lipid core following balloon dilation. This valuable diagnostic information can be combined with well-established treatments (prophylactic administration of vasodilators and/or direct stenting) as a means to reduce the stenting complication of peri- stenting MI.''

One commenter stated that ``the knowledge that a patient possesses lipid laden atheroma will markedly alter medical therapy in order to prevent thrombotic events. These heretofore unrecognized (asymptomatic) patients identified to be at high risk by the Lipiscan chemogram will be treated with intensive antihyperlipdemic therapy and other medical strategies that otherwise would not have been implemented to modify risk.'' Some commenters indicated that other potential uses of

LipiScanTMinclude ``determination of the length of the artery to be stented and selection of the intensity of lipid-altering therapy.''

Several commenters stated that the ``lack of specific reimbursement'' for the technology was an impediment to the use and development of it.

Response: We thank the commenters for their comments. We have considered the comments concerning the town hall meeting in this proposed rule. As stated above, we invite additional public comment on objective data regarding the assertions made by the commenters.

Specifically, we welcome additional information (including specific case-descriptions) regarding how the use of the technology has affected the medical management of patients and how the changes in management have led to improved clinical outcomes for those patients (again, specific examples are welcomed).

In response to the comments concerning Medicare reimbursement for

LipiScanTM, we note that LipiScanTMis currently covered by Medicare and would thus be included in the MS-DRG payment made to the hospital. In general, the MS-DRG payment is considered to cover all costs associated with the case including those of new technologies. As noted above, typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) and when data reflecting the use of the medical service or technology are used to calculate the MS-DRG weights. In addition, Congress specified that a new medical service or technology may be considered for new technology add-on payment if, ``based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.''

While we agree with the commenter that at this time there is no specific reimbursement for LipiscanTMwithin the MS-DRGs in the form of a new technology add-on payment, because

LipiscanTMhas applied for new technology add-on payments, we will evaluate it to determine whether it meets the criteria to receive new technology add-on payments in FY 2011. If the technology does not meet the new technology add-on payment criteria, it will continue to be paid as part of the regular MS-DRG payment and once the lag of 2 to 3 years is over, the costs associated of

LipiscanTMwill be fully reflected in the relative weights that are used to recalibrate the MS-DRGs. c. LipiScanTMCoronary Imaging System With Intravascular

Ultrasound (IVUS)

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2011 for the LipiScanTMCoronary Imaging

System with Intravascular Ultrasound (LipiScanTMIVUS). The

LipiScanTMIVUS device is a diagnostic device that uses

Intravascular near infrared spectroscopy (INIRS) combined with intravascular ultrasound (IVUS) during an invasive coronary angiography to determine the chemical composition of coronary plaques, which is accomplished using near infrared spectroscopy (INIRS) and to visualize stents and the structural features of coronary lesions, which is accomplished using IVUS. This new technology combines both capabilities in a single catheter. The IVUS part of the device utilizes sound to interrogate the artery and, according to the applicant, provides an image of the size of the plaque, the degree of stenosis produced by the plaque, the size of the artery and the degree of expansion of the stent. The device consists of a single-use catheter, a console and a

``single pullback with the artery.'' The

Page 23934

device is intended to be used in patients already undergoing coronary stenting.

With respect to the newness criterion, we note that this device is not currently approved by the FDA, but the manufacturer anticipates that FDA approval will be granted in the second quarter of 2010. We also note that IVUS has existed for over 20 years. Therefore, IVUS, on its own, would not meet the newness criterion. The applicant asserts that one difference from the LipiscanTMproduct, for which it has also submitted an application for new technology add-on payments, is that the catheter for the combined product is filled with saline (which is required for transmission of sound). The manufacturer has also stated that the combined device only requires the use of one catheter, as opposed to two separate ones. The manufacturer asserts that the single-use catheter for the combined technologies is only supplied by InfraRedX (the manufacturer of LipiScanTM).

However, we note that a physician could use LipiScanTMand

IVUS as two separate products in the same patient (through the use of two catheters) and still be able to obtain the INIRS image and the ultrasound that are achieved through the combined product albeit separately.

We welcome public comments regarding whether the combined

LipiScanTMIVUS device should be considered to be ``new'' as of the date of the existing LipiScanTMdevice received FDA approval or whether it should be considered new from the FDA approval date for LipiScanTMIVUS (should such an approval be granted). We also welcome public comments regarding whether

LipiScanTMIVUS, as a combined technology, should be considered to be substantially similar to each individual technology separately as of the date that each separate technology received FDA approval (or the date that each technology became available on the market, if either technology was not available on the market until a date after FDA approval).

As stated above, in making a determination of substantial similarity, we consider the following: (1) Whether a product uses the same or similar mechanism of action to achieve a therapeutic action;

(2) whether a product is assigned to the same or a different DRG; and

(3) whether new use of a technology involves treatment of the same or similar type of disease and the same or similar patient population. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that ``due to the complexity of issues regarding the substantial similarity component of the newness criterion, it may be necessary to exercise flexibility when considering whether technologies are substantially similar to one another (74 FR 43813).

We note that the LipiScanTMIVUS device is identified by

ICD-9-CM procedure codes 38.23 (Intravascular spectroscopy) and 00.24

(Intravascular imaging of coronary vessels). Cases involving the use of this device generally map to MS-DRG 246 (Percutaneous Cardiovascular

Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents);

MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting

Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular

Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/

Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-

Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous

Cardiovascular Procedures without Coronary Artery Stent with MCC); and

MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary

Artery Stent without MCC).

In an effort to demonstrate that the technology meets the cost criterion, the applicant used the FY 2010 final rule After Outliers

Removed (AOR) file (posted on the CMS Web site) to identify cases potentially eligible for LipiscanTMIVUS. The applicant believes that every case within MS-DRGs 246, 247, 248, 249, 250, and 251 is eligible for LipiscanTMIVUS. In addition, the applicant believes that LipiscanTMIVUS will be evenly distributed across patients in each of those six MS-DRGs (16.7 percent within each MS-DRG). Using data from the AOR file, the applicant found the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and

$38,864 respectively, equating to a case-weighted average standardized charge per case of $52,230 (calculation performed using unrounded numbers). The applicant indicated that the case-weighted average standardized charge per case does not include charges related to

LipiscanTMIVUS. Therefore, it is necessary to add the charges related to the device to the average case-weighted standardized charge per case to evaluate the cost threshold criterion. Although the applicant submitted data related to the estimated cost per case of

LipiscanTMIVUS, the applicant stated that the cost of the device is proprietary information. The applicant analyzed Hospital Cost

Report Information System (``HCRIS'') data from 2008 to determine the charges related to the device. Specifically, the applicant searched for the 100 cardiac catheterization labs that had the highest volume of cases in the United States. Based on the HCRIS data from these 100 labs, the applicant determined the mean cost-to-charge ratio was 0.188 with a mark-up of 532 percent yielding a charge of $15,957 for

LipiscanTMIVUS. (We note that this estimate of charges related to the LipiscanTMIVUS is significantly higher than the estimate of charges related to the LipiscanTMdevice.)

Adding the estimated average charge related for the device to the case- weighted standardized charge per case (based on the case distribution from the applicant's FY 2010 AOR analysis) results in a total case- weighted average standardized charge per case of $68,190 ($52,230 plus

$15,960). Using the FY 2011 thresholds published in Table 10 of the FY 2011 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $56,487 (all calculations above were performed using unrounded numbers). Because the applicant's calculation of the total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that LipiscanTM

IVUS meets the cost criterion.

We note that in the applicant's analysis of the cost criterion, instead of determining the case-weighted average standardized charge per case and the case-weighted threshold amount based on the actual number of cases from the FY 2010 AOR file in the applicable MS-DRGs that are eligible for the LipiscanTMIVUS, the applicant's analysis assumed an even distribution of patients in the applicable MS-

DRGs. However, the data from the FY 2010 AOR file shows a varied distribution of cases in each of the applicable MS-DRGs. We believe the more appropriate way to determine the case-weighted average standardized charge per case and the case-weighted threshold amount for evaluating the cost criterion is to use the actual distribution of cases in the applicable MS-DRGs based on the number of cases from the

AOR file because this would more accurately reflect the number and type of Medicare cases typically treated in the applicable MS-DRGs.

Moreover, this would better conform with the applicant's assertion that that the probability of use of LipiscanTMis the same in each of those six MS-DRGs. Using data from the FY 2010 AOR file, for

MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,411, 147,952, 19,736, 67,964, 8,184, and 38,091 cases, respectively. Using this case distribution and the average standardized charge per case for MS-

Page 23935

DRGs 246, 247, 248, 249, 250, and 251 from the application (that is,

$67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, as stated above), the case-weighted average standardized charge per case is $46,657. As the applicant indicated above, the case-weighted average standardized charge per case does not include charges related to LipiscanTMIVUS. Therefore, it is necessary to add the average charge of $15,960 related to the device to the case-weighted standardized charge per case to evaluate the cost threshold criterion.

Adding the estimated charges related to the device to the case-weighted average standardized charge per case (based on the case distribution from the FY 2010 AOR final rule file) results in a total case-weighted average standardized charge per case of $62,617 ($46,657 plus $15,960).

Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/

RY 2010 LTCH PPS final rule (74 FR 44173) and the actual case distribution from the AOR file, the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,700 (all calculations above were performed using unrounded numbers). Because this alternative calculation of total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, it appears that LipiscanTMIVUS would meet the cost criterion.

In addition to the analysis above, the applicant searched the FY 2008 MedPAR file for cases potentially eligible for use of the

LipiscanTMIVUS. Because the technology can potentially be used for all cases within MS-DRGs 246 through 251, the applicant searched the FY 2008 MedPAR file for all cases within these MS-DRGs.

The applicant found 30,265 cases (or 9.7 percent of all cases) in MS-

DRG 246; 147,695 cases (or 47.4 percent of all cases) in MS-DRG 247; 19,642 cases (or 6.3 percent of all cases) in MS-DRG 248; 67,840 cases

(or 21.8 percent of all cases) in MS-DRG 249; 8,120 cases (or 2.6 percent of all cases) in MS-DRG 250; and 38,022 cases (or 12.2 percent of all cases) in MS-DRG 251. The average standardized charge per case was $66,958 for MS-DRG 246, $50,192 for MS-DRG 247, $72,099 for MS-DRG 248, $45,086 for MS-DRG 249, $71,355 for MS-DRG 250, and $46,141 for

MS-DRG 251, equating to a case-weighted average standardized charge per case of $45,964.

Similar to above, the average standardized charge per case does not include charges related to the LipiscanTMIVUS; therefore, it is necessary to add the charges related to the device to the average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of LipiscanTMIVUS per case, the applicant noted that the cost of the device was proprietary information. Based on 2008 HCRIS data from the cardiac catheterization laboratories for all

IPPS hospitals, the applicant determined a mean cost-to-charge ratio of 0.246 with a markup of 351 percent, yielding a charge of $10,543 for

LipiscanTMIVUS. Assuming that the LipiscanTM

IVUS device was marked up 351 percent, the total case-weighted average standardized charge per case for cases involving the use of

LipiscanTMIVUS would be $56,507 ($45,964 plus $10,543) across MS-DRGs 246 through 251.

Using the FY 2011 thresholds published in Table 10 of the FY 2010

IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,692 (all calculations above were performed using unrounded numbers). Because the applicant's calculation of the total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that LipiscanTM

IVUS meets the cost criterion. We invite public comment on whether or not LipiscanTMIVUS meets the cost criterion.

With regard to substantial clinical improvement, the applicant asserts that LipiScanTMIVUS lends all the same benefits of

LipiScanTMby itself (see discussion of

LipiScanTMwith respect to clinical improvement in the above application analysis) and also gives added benefits of IVUS.

Specifically, the applicant maintains that LipiScanTMIVUS is superior to perfusion imaging and coronary angiography because those procedures only provide information about the lumen, but not the wall of the vessel. The applicant asserts that it is superior to IVUS (by itself) because IVUS alone cannot identify plaque composition. The applicant further maintains that LipiScanTMIVUS provides a substantial clinical benefit over Optical Coherence Tomography (OCT) because OCT cannot be used if blood is present in the field of view and identification of lipid by OCT is ``time-consuming with a requirement for expert interpretation.'' In contrast, ``the LipiScanTM signal is available immediately after the coronary pullback and does not require expert interpretation.''

The applicant also states that LipiScanTMIVUS makes it possible to find the lipid core plaques that are strongly associated with peri-stenting MI and adverse events post MI that current methods of diagnosis fail to find.

Finally, the applicant asserts that LipiScanTMIVUS affects the management of the patient by improving the safety and efficacy of stenting. Further, the applicant states that while stenting has steadily improved, its results are not optimal in approximately 30% of cases due to 3 problems: (1) Peri-stenting MI due to embolization of lipid core contents and side branch occlusion; (2) major adverse coronary events (MACE) post stenting from difficulties at the stented site; and (3) MACE post stenting for non-stented vulnerable sites.''

The applicant described three case studies where each of the above problems were addressed by use of the LipiScanTMIVUS.

LipiScanTMIVUS achieves its utility to differentiate lipid core plaque from fibrotic plaque, a differentiation that cannot be made by angiography or grayscale IVUS.

The applicant referenced the ``700 patient PROSPECT Study'' which was presented at Transcatheter Cardiovascular Therapeutic Conference in

September 2009 and found that 20.4 percent of patients experience a new event in the 3.4 years following stenting. The applicant pointed to that finding as evidence that there is a need for improved safety and efficacy of stenting and maintained that LipiscanTMoffers clinicians the ability to make decisions that result in such improvements.

The PROSPECT (Providing Regional Observations to Study Predictors of Events in the Coronary Tree) study is a cohort study of patients with acute coronary syndrome who underwent percutaneous coronary angioplasty and stenting (percutaneous coronary intervention).

Following the procedure, angiography and IVUS were performed. If a patient had a subsequent event, a new angiogram and IVUS image were obtained and compared to the original results. The investigators reported that ``angiographically mild lesions with certain morphologic features on grayscale and IVUS present with a 3 year cardiac event rate of 17%, versus other morphologies (indistinguishable by conventional angiograms) with three year event risks of less than 1%.'' We are concerned that with this type of study design, it is not possible to determine whether the information for the IVUS image would have altered the angioplasty and stenting procedures since the images were collected after the procedure. The results are suggestive, but a prospective study is needed to determine the clinical utility of IVUS

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and whether use of IVUS leads to changes in clinical practice or improvements in health outcomes. The PROSPECT study generated a hypothesis that use of IVUS may help determine which plaques are vulnerable to future events but further clinical research is needed to confirm this hypothesis. We note that the PROSPECT study was presented at the Transcatheter Cardiovascular Therapeutics Conference in 2009, but that the study results have yet to be published in a peer reviewed journal. We also note that methods and conclusions from a study may change from what was verbally presented during the peer review process that is required to publish the study results.

We are concerned that, in the LipiScanTMIVUS application, the applicant has generally repeated the statements made regarding use of LipiScanTMalone and has not provided information that indicates that combined use of LipiScanTM plus IVUS offers additional clinical benefit. Indeed, we note that most of the studies that were presented in an effort to support that

LipiScanTMby itself was a substantial clinical improvement, were also included to support the LipiScanTMIVUS application. The applicant did not present any published peer-reviewed journal articles that were specifically related to the clinical merits of the combined LipiScanTMIVUS device.

We welcome public comments on whether the LipiScanTM

IVUS represents a substantial clinical improvement over existing technologies as well as public comments on what is the appropriate comparison for LipiScanTMIVUS.

As we noted at the end of the discussion of the

LipiScanTMapplication, we received approximately nine public comments on both the LipiScanTMand the

LipiScanTMIVUS applications.

Comment: Several commenters acknowledged that LipiScanTM

IVUS is not yet approved by the FDA, but stated that they would support the LipiScanTMIVUS being approved for new technology add-on payments should FDA approval be granted. With regard to the clinical merits of LipiScanTMIVUS, the commenters stated that the

LipiScanTMIVUS afforded all the same diagnostic abilities of the LipiScanTM, but also provided the added benefit of

IVUS, which has ``been used in patients for over 20 years [and] is already supported by the [American College of Cardiologists and the

American Hospital Association] for usage in stenting.''

One commenter stated that once the LipiScanTMIVUS becomes approved by the FDA, he plans to use it in all of his patients who need IVUS imaging ``because of the wealth of added information regarding the presence of lipid laden plaque, a harbinger of myocardial infarction and sudden death.''

Response: We thank the commenters for their comments. However, we note that unless the technology is approved by the FDA by July 1, 2010, it cannot be approved for add-on payments in FY 2011 since it would not be considered ``new.'' Should the technology receive FDA approval by

July 1, 2010, we will take these comments into consideration in our review of the application for new technology add-on payments for FY 2011.

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

Hospitals

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the

Secretary must adjust the standardized amounts ``for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.'' In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the definitions of statistical areas established by the Office of Management and Budget

(OMB). A discussion of the proposed FY 2011 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 of the Act provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The proposed adjustment for

FY 2011 is discussed in section II.B. of the Addendum to this proposed rule.

As discussed below in section III.I. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating

IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the

Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the

Act are equal to the aggregate prospective payments that would have been made absent these provisions. The proposed budget neutrality adjustment for FY 2011 is discussed in section II.A.4.b. of the

Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short- term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are proposing to apply beginning October 1, 2010 (the proposed FY 2011 wage index) appears under section III.D. of this preamble.

B. Wage Index Reform 1. Wage Index Study Required under the MIEA-TRHCA a. Legislative Requirement

Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required

MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare wage index classification system applied under the

Medicare IPPS. Section 106(b) of MIEA-TRHCA required the report to include any alternatives that MedPAC recommends to the method to compute the wage index under section 1886(d)(3)(E) of the Act.

In addition, section 106(b)(2) of the MIEA-TRHCA instructed the

Secretary of Health and Human Services, taking into account MedPAC's recommendations on the Medicare wage index classification system, to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also to consider each of the following:

Problems associated with the definition of labor markets for the wage index adjustment.

The modification or elimination of geographic reclassifications and other adjustments.

The use of Bureau of Labor of Statistics (BLS) data or other data or methodologies to calculate relative wages for each geographic area.

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Minimizing variations in wage index adjustments between and within MSAs and statewide rural areas.

The feasibility of applying all components of CMS' proposal to other settings.

Methods to minimize the volatility of wage index adjustments while maintaining the principle of budget neutrality.

The effect that the implementation of the proposal would have on health care providers on each region of the country.

Methods for implementing the proposal(s), including methods to phase in such implementations.

Issues relating to occupational mix such as staffing practices and any evidence on quality of care and patient safety including any recommendation for alternative calculations to the occupational mix.

In the FY 2009 IPPS final rule (73 FR 48563 through 48567), we discussed the MedPAC's study and recommendations, the CMS contract with

Acumen, L.L.C. for assistance with impact analysis and study of wage index reform, and public comments we received on the MedPAC recommendations and the CMS/Acumen study and analysis. b. Interim and Final Reports on Results of Acumen's Study

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

Wage Index

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

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

Methodology

Acumen's final report addressing the issues in section 106(b)(2) of the MIEA-TRHCA is divided into two parts. In the FY 2010 IPPS/RY 2010

LTCH PPS final rule (74 FR 43824), we provided a description of

Acumen's analyses for both parts. The first part of Acumen's final report analyzed the strengths and weaknesses of the data sources used to construct the MedPAC and CMS indexes. The first part of the report was published on Acumen's Web site after the publication of the FY 2010

IPPS/RY 2010 LTCH PPS proposed rule. In its conclusion, Acumen suggested that MedPAC's recommended methods for revising the wage index represented an improvement over the existing methods, and that the BLS data should be used so that the MedPAC approach can be implemented.

The second part of Acumen's final report focuses on the methodology of wage index construction and covers issues related to the definition of wage areas and methods of adjusting for differences among neighboring wage areas, as well as reasons for differential impacts of shifting to a new index. Acumen published the second part of its final report in March 2010 on its Web site at: http:/www./acumenllc.com/ reports/cms. In particular, the report analyzes MedPAC's recommended method of improving upon the definition of the wage areas used in the current wage index. MedPAC's method first blends MSA and county-level wages and then implements a ``smoothing'' step that limits differences in wage index values between adjacent counties to no more than 10 percent. Acumen found MedPAC's method to be an improvement over the current wage index construct. However, although MedPAC's method diminishes the size of differences between adjacent areas, Acumen suggested that MedPAC's method does not guarantee an accurate representation of a hospital labor market and would not necessarily eliminate or reduce hospitals' desire to reclassify for a higher wage index. Acumen recommended further exploration of labor market area definitions using a wage area framework based on hospital-specific characteristics, such as commuting times from hospitals to population centers, to construct a more accurate hospital wage index. Acumen suggested that such an approach offers the greatest potential for replacing or greatly reducing the need for hospital reclassifications and exceptions.

We indicated in the FY 2009 IPPS final rule (73 FR 48566) that, in developing any proposal(s) for additional wage index reform that may be included in the FY 2010 IPPS proposed rule, we would consider all of the public comments on the MedPAC recommendations that we had received in that proposed rulemaking cycle, along with the interim and final reports to be submitted to us by Acumen. As Acumen's study was not complete at the time of issuance of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we did not propose any additional changes to the hospital wage index for the FY 2010 IPPS. We also are not proposing any additional changes regarding reforming the wage index for the FY 2011

IPPS. We welcome comments regarding the second part of Acumen's final report. 2. FY 2009 Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA

To implement the requirements of section 106(b) of the MIEA-TRHCA and respond to MedPAC's recommendations in its June 2007 report to

Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574), we made the following policy changes relating to the hospital wage index. (We refer readers to the FY 2009 IPPS final rule for a full discussion of the basis for the proposals, the public comments received, and the FY 2009 final policy.) In the FY 2010 IPPS final rule

(74 FR 43825), we reiterated these policy changes, especially as they related to the FY 2010 IPPS. a. Reclassification Average Hourly Wage Comparison Criteria

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

Addendum to this proposed rule. We note that these criteria were recently changed by provisions of section 3137(c) of the PPACA (Pub. L. 111-148). We will address the changes made by Public Law 111-148 in a separate rulemaking document in the Federal Register. b. Budget Neutrality Adjustment for the Rural and Imputed Floors

In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we adopted State level budget neutrality (rather than the national budget neutrality adjustment) for the rural and imputed floors, effective beginning with the FY 2009

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wage index. The transition from the national budget neutrality adjustment to the State level budget neutrality adjustment was phased in over a 3-year period. In FY 2009, hospitals received a blended wage index that was 20 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 80 percent of a wage index with the national budget neutrality adjustment. In FY 2010, the blended wage index reflects 50 percent of the State level adjustment and 50 percent of the national adjustment. In FY 2011, as reflected in the IPPS wage index in this proposed rule, the adjustment will be completely transitioned to the State level methodology.

In the FY 2009 IPPS final rule, we incorporated this policy in our regulation at Sec. 412.64(e)(4). Specifically, the regulations specify 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 floor under Sec. 412.64(h)(4) are made in a manner that ensures that aggregate payments to hospitals are not affected and that, beginning

October 1, 2008, CMS would transition from a nationwide adjustment to a statewide adjustment, with a statewide adjustment fully in place by

October 1, 2010.

As stated above, these policies for the rural and imputed floors were adopted in the FY 2009 IPPS final rule and are reflected in the wage index in the Addendum to this proposed rule. However, these policies were recently changed by the provisions of section 3141 of the

PPACA (Pub. L. 111-148). We will address the provisions of section 3141 of Public Law 111-148 in a separate rulemaking document in the Federal

Register.

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

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the

Act, beginning with FY 2005, we define hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by OMB and announced in December 2003 (69 FR 49027). For a discussion of OMB's revised definitions of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).

As with the FY 2010 final rule, in this FY 2011 proposed rule, we are proposing to provide that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we are proposing to determine a wage index for FY 2011 employing wage index data from hospital cost reports for cost reporting periods beginning during FY 2007 and using the CBSA labor market definitions. We consider CBSAs that are MSAs to be urban, and CBSAs that are Micropolitan Statistical Areas as well as areas outside of

CBSAs to be rural. In addition, it has been our longstanding policy that where an MSA has been divided into Metropolitan Divisions, we consider the Metropolitan Division to comprise the labor market areas for purposes of calculating the wage index (69 FR 49029) (regulations at Sec. 412.64(b)(1)(ii)(A)).

On December 1, 2009, OMB announced changes to the principal cities and, if applicable, titles of a number of CBSAs and Metropolitan

Divisions (OMB Bulletin No. 10-2). The changes to the principal cities and titles are as follows:

San Marcos, TX qualifies as a new principal city of the

Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San

Marcos, TX CBSA.

Delano, CA qualifies as a new principal city of the

Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA.

Conroe, TX qualifies as a new principal city of the

Houston-Sugar Land-Baytown, TX CBSA. The CBSA title is unchanged.

North Port, FL qualifies as a new principal city of the

Bradenton-Sarasota-Venice, FL CBSA. The new title is North Port-

Bradenton-Sarasota, FL CBSA. The new code is CBSA 35840.

Sanford, FL qualifies as a new principal city of the

Orlando-Kissimmee, FL CBSA. The new title is Orlando-Kissimmee-Sanford,

FL CBSA.

Glendale, AZ qualifies as a new principal city of the

Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-

Glendale, AZ CBSA.

Palm Desert, CA qualifies as a new principal city of the

Riverside-San Bernardino-Ontario, CA CBSA. The CBSA title is unchanged.

New Braunfels, TX qualifies as a new principal city of the

San Antonio, TX CBSA. The new title is San Antonio-New Braunfels, TX

CBSA.

Auburn, WA qualifies as a new principal city of the

Seattle-Tacoma-Bellevue, WA CBSA. The CBSA title is unchanged.

The changes to titles resulting from changes to the order of principal cities based on population are as follows:

Rockville, MD replaces Frederick, MD as the second most populous principal city in the Bethesda-Frederick-Rockville, MD

Metropolitan Division. The new title is Bethesda-Rockville-Frederick,

MD Metropolitan Division.

Rock Hill, SC replaces Concord, NC as the third most populous principal city in the Charlotte-Gastonia-Concord, NC-SC CBSA.

The new title is Charlotte-Gastonia-Rock Hill, NC-SC CBSA.

Joliet, IL replaces Naperville, IL as the second most populous principal city in the Chicago-Naperville-Joliet, IL

Metropolitan Division. The new title is Chicago-Joliet-Naperville, IL

Metropolitan Division.

Crestview, FL replaces Fort Walton Beach, FL as the most populous principal city in the Fort Walton Beach-Crestview-Destin, FL

CBSA. The new title is Crestview-Fort Walton Beach-Destin, FL CBSA. The new code is 18880.

Hillsboro, OR replaces Beaverton, OR as the third most populous principal city in the Portland-Vancouver-Beaverton, OR-WA

CBSA. The new title is Portland-Vancouver-Hillsboro, OR-WA CBSA.

Steubenville, OH replaces Weirton, WV as the most populous principal city in the Weirton-Steubenville, WV-OH CBSA. The new title is Steubenville-Weirton, OH-WV CBSA. The new CBSA code is 44600.

The OMB bulletin is available on the OMB Web site at http:// www.whitehouse.gov/OMB_go to ``Agency Information'' and click on

``Bulletins''. CMS will apply these changes to the IPPS beginning

October 1, 2010.

D. Proposed Occupational Mix Adjustment to the Proposed FY 2011 Wage

Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the

Medicare program, in order to construct an occupational mix adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mix adjustment is to control for the effect of hospitals' employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses, licensed practical nurses, nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying labor costs associated with these choices reflect hospital management decisions rather

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than geographic differences in the costs of labor. 1. Development of Data for the Proposed FY 2011 Occupational Mix

Adjustment Based on the 2007-2008 Occupational Mix Survey

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

For the FY 2010 hospital wage index, we used occupational mix data collected on a revised 2007-2008 Medicare Wage Index Occupational Mix

Survey (the 2007-2008 survey) to compute the occupational mix adjustment for FY 2010. (We refer readers to the FY 2010 IPPS final rule (74 FR 43827) for a detailed discussion of the 2007-2008 survey.)

Again, for the proposed FY 2011 hospital wage index, we used data from the 2007-2008 survey (including revised data for 45 hospitals) to compute the proposed FY 2011 adjustment. 2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index

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 2007-2008 survey to compute the occupational mix adjustment for FY 2010 and the proposed FY 2011 wage index in this proposed rule. We also plan to use the 2007-2008 survey data for the FY 2012 wage index. Therefore, a new measurement of occupational mix will be required for FY 2013.

Since we implemented the 2007-2008 survey, we received several public comments suggesting further improvements to the occupational mix survey. Specifically, commenters recommended that CMS use the calendar year (that is, January 1 through December 31) as the 1-year reporting period instead of July 1 through June 30. Commenters also requested that CMS allow for a 6-month period after the end of the survey reporting period for hospitals to complete and submit their data to their Medicare fiscal intermediaries and MACs. The commenters suggested that these changes will allow hospitals more time to develop their occupational mix data before submitting the data to the Medicare contractors and CMS for use in development of the wage index. Based on these comments, we revised the occupational mix survey. The new 2010 survey (Form CMS-10079 (2010)) will provide for the collection of hospital-specific wages and hours data for calendar year 2010 (that is, payroll periods ending between January 1, 2010 and December 31, 2010) and will be applied beginning with the FY 2013 wage index.

On September 4, 2009, we published in the Federal Register a notice soliciting comments on the proposed 2010 survey (74 FR 45860). The comment period for the notice ended on November 3, 2009. After considering the comments we received, we made a few minor editorial changes and published the final 2010 survey in the Federal Register on

January 15, 2010 (75 FR 2548). The survey was approved by OMB on

February 26, 2010 (OMB control number 0938-0907) and is available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/ list.asp#TopOfPage, and through the fiscal intermediaries/MACs.

Hospitals are required to submit their completed 2010 surveys to their fiscal intermediaries/MACs by July 1, 2011. The preliminary, unaudited 2010 survey data will be released in early October 2011, along with the

FY 2009 Worksheet S-3 wage data, for the FY 2013 wage index review and correction process. 3. Calculation of the Proposed Occupational Mix Adjustment for FY 2011

For FY 2011 (as we did for FY 2010), we are proposing to calculate the occupational mix adjustment factor using the following steps:

Step 1--For each hospital, determine the percentage of the total nursing category attributable to a nursing subcategory by dividing the nursing subcategory hours by the total nursing category's hours. Repeat this computation for each of the four nursing subcategories: registered nurses; licensed practical nurses; nursing aides, orderlies, and attendants; and medical assistants.

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

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

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

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

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

(from Step 4).

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

Step 7--For each hospital, calculate the occupational mix adjusted salaries and wage-related costs for the total nursing category by multiplying the hospital's total salaries and wage-related costs (from

Step 5 of the unadjusted wage index calculation in section III.G. of this preamble) by the percentage of the hospital's total workers attributable to the total nursing category (using the occupational mix survey data, this percentage is determined by dividing the hospital's total nursing category salaries by the hospital's total salaries for

``nursing and all other'') and by the total nursing category's occupational mix adjustment factor (from Step 6 above).

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

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

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salaries and wage-related costs for all other employees (from Step 7).

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

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

Step 10--To compute the national occupational mix adjusted average hourly wage, sum the total occupational mix adjusted salaries and wage- related costs for all hospitals in the Nation, then sum the total hours for all hospitals in the Nation. Next, divide the national occupational mix adjusted salaries and wage-related costs by the national hours. The proposed FY 2011 occupational mix adjusted national average hourly wage is $34.9124.

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

Step 12--To compute the Puerto Rico specific occupational mix adjusted wage index, follow Steps 1 through 11 above. The proposed FY 2011 occupational mix adjusted Puerto Rico-specific average hourly wage is $14.7567.

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

BILLING CODE 4120-01-P

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GRAPHIC

TIFF OMITTED TP04MY10.021

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GRAPHIC

TIFF OMITTED TP04MY10.022

BILLING CODE 4120-01-C

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Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2011 wage index. For the FY 2007-2008 survey, the response rate was 90.4 percent.

In computing the proposed FY 2011 wage index, if a hospital did not respond to the occupational mix survey, or if we determined that a hospital's submitted data were too erroneous to include in the wage index, we assigned the hospital the average occupational mix adjustment for the labor market area. We believe this method had the least impact on the wage index for other hospitals in the area. For areas where no hospital submitted data for purposes of calculating the proposed occupational mix adjustment, we applied the national occupational mix factor of 1.0000 in calculating the area's proposed FY 2011 occupational mix adjusted wage index. In addition, if a hospital submitted a survey, but that survey data could 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 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 0.9252 (CBSA 17780, College Station-Bryan, TX), to a high of 1.1199

(CBSA 40980, Saginaw-Saginaw Township North, MI). 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 2011, there are 5 CBSAs (that include 5 hospitals) for which we did not have occupational mix data for any of its hospitals. The CBSAs are:

CBSA 21940 Fajardo, PR (one hospital)

CBSA 22140 (Farmington, NM (one hospital)

CBSA 36140 Ocean City, NJ (one hospital)

CBSA 41900 San German-Cabo Rojo, PR (two hospitals)

CBSA 49500 Yauco, PR (one hospital)

Since the FY 2007 IPPS final rule, we have periodically discussed applying a hospital-specific penalty to hospitals that fail to submit occupational mix survey data. (71 FR 48013 through 48014; 72 FR 47314 through 47315; 73 FR 48580; and 74 FR 43832). During the FY 2008 rulemaking cycle, some commenters suggested a penalty equal to a 1- to 2-percent reduction in the hospital's wage index value or a set percentage of the standardized amount. During the FY 2009 and FY 2010 rulemaking cycles, several commenters reiterated their view that full participation in the occupational mix survey is critical, and that CMS should develop a methodology that encourages hospitals to report occupational mix survey data but does not unfairly penalize neighboring hospitals. We indicated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule that, while we were not proposing a penalty at that time, we would consider the public comments we previously received, as well as any public comments on the proposed rule, as we develop the proposed FY 2011 wage index.

To gain a better understanding of why some hospitals are not submitting the occupational mix data, beginning with the new 2010 occupational mix survey (discussed in section III.D.2. of this preamble), we will require hospitals that do not submit occupational mix data to provide an explanation for not complying with the submission requirements. We will instruct fiscal intermediaries/MACs to gather this information as part of the FY 2013 wage index desk review process. We note that we reserve the right to apply a different approach in future years, including potentially penalizing nonresponsive hospitals.

E. Worksheet S-3 Wage Data for the Proposed FY 2011 Wage Index

The proposed FY 2011 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2007 (the FY 2010 wage index was based on data from cost reporting periods beginning during FY 2006). 1. Included Categories of Costs

The proposed FY 2011 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, for developing pension and deferred compensation costs for purposes of the wage index, CMS requires hospitals to comply with the requirements in 42 CFR 413.100, the

Provider Reimbursement Manual (PRM), Part I, Sections 2140, 2141, and 2142, and related Medicare program instructions, as discussed in the cost reporting instructions for Worksheet S-3, Part II, Lines 13 through 20, and in the FY 2006 IPPS final rule (70 FR 47369). On March 28, 2008, CMS published Revision 436, a technical clarification to the

PRM, Part I policies for pension and deferred compensation costs. In addition, in November 2009, CMS released, through a Joint Signature

Memorandum, instructions and a spreadsheet to assist hospitals and

Medicare contractors in determining the annual allowable defined benefit pension cost for the FY 2011 wage index (JSM/TDL-10061, 11-20- 09, December 3, 2009). These instructions and spreadsheet crosswalk the current interest, liability, and normal cost terminology found in the

Medicare reimbursement policies under Section 2142 of the PRM, Part I to the new terminology applicable under the Pension Protection Act of 2006. The spreadsheet and instructions can be downloaded from the CMS

Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/ itemdetail.asp?filterType=none&filterByDID=0&sortByDID=3&sortOrder=desce nding&itemID=CMS1231035&intNumPerPage=10.

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2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2009, the wage index for FY 2010 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The proposed FY 2011 wage index also excludes the salaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and

Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397). 3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals under the IPPS

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

F. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2011 wage index were obtained from Worksheet S-3, Parts II and III of the Medicare cost report for cost reporting periods beginning on or after October 1, 2006, and before October 1, 2007. For wage index purposes, we refer to cost reports during this period as the ``FY 2007 cost report,'' the ``FY 2007 wage data,'' or the ``FY 2007 data.'' Instructions for completing

Worksheet S-3, Parts II and III are in the Provider Reimbursement

Manual (PRM), Part II, sections 3605.2 and 3605.3. The data file used to construct the wage index includes FY 2007 data submitted to us as of

March 3, 2010. As in past years, we performed an intensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

We asked our fiscal intermediaries/MACs to revise or verify data elements that resulted in specific edit failures. For the proposed FY 2011 wage index, we identified and excluded 14 providers with data that was too aberrant to include in the proposed wage index, although if data elements for some of these providers are corrected, we intend to include some of these providers in the FY 2011 final wage index. We instructed fiscal intermediaries/MACs to complete their data verification of questionable data elements and to transmit any changes to the wage data no later than April 14, 2010. We believe all unresolved data elements will be resolved by the date the final rule is issued. The revised data will be reflected in the FY 2011 IPPS final rule.

In constructing the proposed FY 2011 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2007, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the

FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we removed 8 hospitals that converted to CAH status between February 16, 2009, the cut-off date for CAH exclusion from the FY 2010 wage index, and February 15, 2010, the cut-off date for CAH exclusion from the FY 2011 wage index. After removing hospitals with aberrant data and hospitals that converted to CAH status, the proposed FY 2011 wage index is calculated based on 3,513 hospitals.

In the FY 2008 final rule with comment period (72 FR 47317) and the

FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for allocating a multicampus hospital's wages and hours data, by full-time equivalent (FTE) staff, among the different labor market areas where its campuses are located. During the FY 2011 wage index desk review process, we requested fiscal intermediaries/MACs to contact multicampus hospitals that had campuses in different labor market areas to collect the data for the allocation. The proposed FY 2011 wage index in this proposed rule includes separate wage data for campuses of three multicampus hospitals.

For FY 2011, 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 2011 wage index. One of the hospitals provided FTE staff data for the allocation. The average hourly wage associated with each geographical location of a multicampus hospital is reflected in Table 2 of the Addendum to this proposed rule.

G. Method for Computing the Proposed FY 2011 Unadjusted Wage Index

The method used to compute the proposed FY 2011 wage index without an occupational mix adjustment follows:

Step 1--As noted above, we are basing the proposed FY 2011 wage index on wage data reported on the FY 2007 Medicare cost reports. We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period beginning on or after October 1, 2006, and before October 1, 2007. In addition, we included data from some hospitals that had cost reporting periods beginning before October 2006 and reported a cost reporting period covering all of FY 2007. These data are included because no other data from these hospitals would be available for the cost reporting period described above, and because particular labor market areas might be affected due to the omission of these hospitals.

However, we generally describe these wage data as FY 2007 data. We note that, if a hospital had more than one cost reporting period beginning during FY 2007 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2006, and before October 1, 2007), we included wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and

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the periods were equal in length, we included the wage data from the later period in the wage index calculation.

Step 2--Salaries--The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS.

(We note that, beginning with FY 2008 (72 FR 47315), we include Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services in the wage index. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation for FY 2011 is to compute a ``revised'' Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In calculating a hospital's average salaries plus wage-related costs, we subtract from Line 1 (total salaries) the GME and CRNA costs reported on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3, 5 and 5.01, home office salaries reported on Line 7, and exclude salaries reported on Lines 8 and 8.01 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract from

Line 1 the salaries for which no hours were reported. To determine total salaries plus wage-related costs, we add to the net hospital salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 9 and 10), home office salaries and wage-related costs reported by the hospital on Lines 11 and 12, and nonexcluded area wage- related costs (Lines 13, 14, and 18).

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

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

Step 4--For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the ratio of excluded area hours (sum of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours

(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts of overhead salaries and hours to be allocated to excluded areas by multiplying the above ratio by the total overhead salaries and hours reported on Line 13 of Worksheet S-3, Part III. Next, we compute the amounts of overhead wage-related costs to be allocated to excluded areas using three steps: (1) We determine the ratio of overhead hours

(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent wage index calculations, we are excluding the sum of lines 22.01, 26.01, and 27.01 from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage- related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 22.01, 26.01, and 27.01 require that associated wage-related costs be combined with wages on the respective contract labor lines.); (2) we compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on

Part II, Lines 13, 14, and 18; and (3) we multiply the computed overhead wage-related costs by the above excluded area hours ratio.

Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries

(plus wage-related costs) and hours derived in Steps 2 and 3.

Step 5--For each hospital, we adjust the total salaries plus wage- related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2003, through April 15, 2005, for private industry hospital workers from the BLS' Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringes) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We also note that, since April 2006 with the publication of March 2006 data, the BLS' ECI uses a different classification system, the North American Industrial Classification

System (NAICS), instead of the Standard Industrial Codes (SICs), which no longer exist. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket and we are not proposing to make any changes to the usage for FY 2011. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated below.

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GRAPHIC

TIFF OMITTED TP04MY10.023

For example, the midpoint of a cost reporting period beginning

January 1, 2007, and ending December 31, 2007, is June 30, 2007. An adjustment factor of 1.02153 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 2007 and covered a period of less than 360 days or more than 370 days, we annualize the data to reflect a 1-year cost report. Dividing the data by the number of days in the cost report and then multiplying the results by 365 accomplishes annualization.

Step 6--Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the

Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area.

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

Step 8--We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Using the data as described above, the proposed national average hourly wage (unadjusted for occupational mix) is $34.9330.

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

Step 10--Following the process set forth above, we develop a separate Puerto Rico-specific wage index for purposes of adjusting the

Puerto Rico standardized amounts. (The national Puerto Rico standardized amount is adjusted by a wage index calculated for all

Puerto Rico labor market areas based on the national average hourly wage as described above.) We add the total adjusted salaries plus wage- related costs (as calculated in Step 5) for all hospitals in Puerto

Rico and divide the sum by the total hours for Puerto Rico (as calculated in Step 4) to arrive at an overall proposed average hourly wage (unadjusted for occupational mix) of $14.7351 for Puerto Rico. For each labor market area in Puerto Rico, we calculate the Puerto Rico- specific wage index value by dividing the area average hourly wage (as calculated in Step 7) by the overall Puerto Rico average hourly wage.

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

In the FY 2005 IPPS final rule (69 FR 49109), we adopted the

``imputed'' floor as a temporary 3-year measure to address a concern by some individuals that hospitals in all-urban States were disadvantaged by the absence of rural hospitals to set a wage index floor in those

States. The imputed floor was originally set to expire in FY 2007, but we extended it an additional year in the FY 2008 IPPS final rule with comment period (72 FR 47321). In the FY 2009 IPPS final rule (73 FR 48570 through 48574 and 48584), we extended the imputed floor for an additional 3 years, through FY 2011.

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H. Analysis and Implementation of the Proposed Occupational Mix

Adjustment and the Proposed FY 2011 Occupational Mix Adjusted Wage

Index

As discussed in section III.D. of this preamble, for FY 2011, we are proposing to apply the occupational mix adjustment to 100 percent of the proposed FY 2011 wage index. We calculated the proposed occupational mix adjustment using data from the 2007-2008 occupational mix survey data, using the methodology described in section III.D.3. of this preamble.

Using the occupational mix survey data and applying the occupational mix adjustment to 100 percent of the proposed FY 2011 wage index results in a proposed national average hourly wage of $34.9124 and a proposed Puerto-Rico specific average hourly wage of $14.7567.

After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2007 Worksheet S-3 cost report data for use in calculating the proposed FY 2011 wage index, we calculated the proposed FY 2011 wage index using the occupational mix survey data from 3,178 hospitals. Using the Worksheet

S-3 cost report data of 3,513 hospitals and occupational mix survey data from 3,178 hospitals represents a 90.4 percent survey response rate. The proposed FY 2011 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

Average hourly

Occupational mix nursing subcategory

wage

National RN...........................................

36.100857731

National LPN and Surgical Technician..................

20.877391755

National Nurse Aide, Orderly, and Attendant...........

14.632232352

National Medical Assistant............................

16.482939594

National Nurse Category...............................

30.504184147

The proposed national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is

$30.504184147. 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 2007-2008 occupational mix survey data, we determined

(in Step 7 of the occupational mix calculation) that the national percentage of hospital employees in the nurse category is 44.32 percent, and the national percentage of hospital employees in the all other occupations category is 55.68 percent. At the CBSA level, the percentage of hospital employees in the nurse category ranged from a low of 29.08 percent in one CBSA, to a high of 70.76 percent in another

CBSA.

We compared the proposed FY 2011 occupational mix adjusted wage indices for each CBSA to the proposed unadjusted wage indices for each

CBSA. As a result of applying the occupational mix adjustment to the wage data, the proposed wage index values for 203(51.9 percent) urban areas and 32 (68.1 percent) rural areas would increase. One hundred five (26.9 percent) urban areas would increase by 1 percent or more, and 6 (1.5 percent) urban areas would increase by 5 percent or more.

Eighteen (38.3 percent) rural areas would increase by 1 percent or more, and no rural areas would increase by 5 percent or more. However, the wage index values for 188 (48.1 percent) urban areas and 15 (31.9 percent) rural areas would decrease. Ninety (23.0 percent) urban areas would decrease by 1 percent or more, and no urban area would decrease by 5 percent or more. Seven (14.9 percent) rural areas would decrease by 1 percent or more, and no rural areas will decrease by 5 percent or more. The largest positive impacts are 7.83 percent for an urban area and 2.87 percent for a rural area. The largest negative impacts are 3.98 percent for an urban area and 2.41 percent for a rural area. No urban or rural areas are unaffected. These results indicate that a larger percentage of rural areas (68.1 percent) benefit from the occupational mix adjustment than do urban areas (51.9 percent). While these results are more positive overall for rural areas than under the previous occupational mix adjustment that used survey data from 2006, approximately one-third (31.9 percent) of rural CBSAs will still experience a decrease in their wage indices as a result of the occupational mix adjustment.

The proposed wage index values for FY 2011 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act) included in Tables 4A, 4B, 4C, and 4F of the Addendum to this proposed rule include the proposed occupational mix adjustment.

Tables 3A and 3B in the Addendum to this proposed rule list the 3- year average hourly wage for each labor market area before the redesignation or reclassification of hospitals based on FYs 2009, 2010, and 2011 cost reporting periods. Table 3A lists these data for urban areas and Table 3B lists these data for rural areas. In addition, Table 2 in the Addendum to this proposed rule includes the adjusted average hourly wage for each hospital from the FY 2005 and FY 2006 cost reporting periods, as well as the FY 2007 period used to calculate the proposed FY 2011 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described previously) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period. The proposed average hourly wages in Tables 2, 3A, and 3B in the Addendum to this proposed rule include the proposed occupational mix adjustment. The proposed wage index values in Tables 4A, 4B, 4C, and 4D-1 also include the proposed State-specific rural floor and imputed floor budget neutrality adjustments.

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

Reclassifications 1. General

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). Generally, hospitals must be proximate to the labor market area to which they

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are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280.

Section 1886(d)(10)(D)(v) of the Act provides that, beginning with

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

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

Section 1886(d)(8)(B) of the Act requires the Secretary to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the labor market area to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an urban area under the standards for designating

MSAs and if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of all contiguous MSAs. In light of the

CBSA definitions and the Census 2000 data that we implemented for FY 2005 (69 FR 49027), we undertook to identify those counties meeting these criteria. Eligible counties are discussed and identified under section III.I.5. of this preamble. 2. Effects of Reclassification/Redesignation

Section 1886(d)(8)(C) of the Act provides that the application of the wage index to redesignated hospitals is dependent on the hypothetical impact that the wage data from these hospitals would have on the wage index value for the area to which they have been redesignated. These requirements for determining the wage index values for 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 also has adopted the following policies:

The wage data for a reclassified urban hospital is included in both the wage index calculation of the urban area to which the hospital is reclassified (subject to the rules described above) and the wage index calculation of the urban area where the hospital is physically located.

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

In addition, in accordance with the statutory language referring to

``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider reclassified hospitals as a group when deciding whether to include or exclude them from both urban and rural wage index calculations. 3. FY 2011 MGCRB Reclassifications a. FY 2011 Reclassifications Requirements and Approvals

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

At the time this proposed rule was constructed, the MGCRB had completed its review of FY 2011 reclassification requests. Based on such reviews, there were 311 hospitals approved for wage index reclassifications by the MGCRB for FY 2011. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2011, hospitals reclassified during FY 2009 or FY 2010 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications. There were 258 hospitals approved for wage index reclassifications in FY 2009 and 254 hospitals approved for wage index reclassifications in FY 2010. Of all of the hospitals approved for reclassification for FY 2009, FY 2010, and FY 2011, based upon the review at the time of this proposed rule, 832 hospitals are in a reclassification status for FY 2011.

Under 42 CFR 412.273, hospitals that have been reclassified by the

MGCRB are permitted to withdraw their applications within 45 days of the

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publication of a proposed rule. Generally stated, the request for withdrawal of an application for reclassification or termination of an existing 3-year reclassification that would be effective in FY 2011 has to be received by the MGCRB within 45 days of the publication of the proposed rule. Hospitals may also cancel prior reclassification withdrawals or terminations in certain circumstances. For further information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer the reader to 42 CFR 412.273, as well as the FY 2002

IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 50065). Additional discussion on withdrawals and terminations, and clarifications regarding reinstating reclassifications and ``fallback'' reclassifications, were included in the FY 2008 IPPS final rule (72 FR 47333).

Changes to the wage index that result from withdrawals of requests for reclassification, terminations, wage index corrections, appeals, and the Administrator's review process for FY 2011 will be incorporated into the wage index values published in the FY 2011 IPPS/LTCH PPS final rule. These changes affect not only the wage index value for specific geographic areas, but also the wage index value redesignated/ reclassified hospitals receive; that is, whether they receive the wage index that includes the data for both the hospitals already in the area and the redesignated/reclassified hospitals. Further, the wage index value for the area from which the hospitals are redesignated/ reclassified may be affected. b. Applications for Reclassifications for FY 2012

Applications for FY 2012 reclassifications are due to the MGCRB by

September 1, 2010. 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 2010, via the

CMS Internet Web site at: http://cms.hhs.gov/MGCRB/02_instructions_ and_applications.asp, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L,

Baltimore, MD 21244-2670. c. Appeals of MGCRB Denials of Withdrawals and Terminations

Section 412.278 of the regulations permits a hospital or a group of hospitals dissatisfied with the MGCRB's decision regarding its geographic designation to request the Administrator's review of the decision. Section 412.273(e) permits a hospital to file an appeal to the Administrator regarding the MGCRB's denial of the hospital's request for withdrawal of an application. However, currently, this section of the regulations does not address Administrator review of the

MGCRB's denial of a hospital's request for termination; that is,

``terminations'' are not specified in the regulations at Sec. 412.273(e).

We are proposing to revise the regulations to specify the availability of Administrator review of MGCRB decisions regarding withdrawals and terminations, as well as cancellations of withdrawals or terminations. Because reclassifications are considered budget neutral actions, we believe these proposed revisions would have no impact on total IPPS payments.

In addition, during our review of Sec. 412.273, we determined that some of the existing language in the section could be clarified to make it more easily understood. For example, we believe it would be helpful to clarify the distinction between terminations and withdrawals by defining these terms in a new paragraph (a), which would also include the timing provisions now under existing paragraph (b)(1)(ii). To account for this new paragraph, we are proposing to redesignate the existing contents of paragraph (e) as paragraph (f) and also to revise the language to specify the ability of a hospital to appeal an MGCRB denial of a request for ``termination'' of an approved reclassification, as well as cancellation of a withdrawal or termination. We also believe it would be helpful (1) to establish the introductory language of existing paragraph (a) as a general rule under new paragraph (b); (2) to establish a new paragraph (c) that addresses the timing provisions currently in paragraphs (a)(1), (a)(2), and

(b)(1)(i); (3) to clarify the existing language of paragraphs

(b)(2)(i), (b)(2)(ii), (b)(2)(iii), and (d) and incorporate it under new paragraph (d); and (4) to redesignate the existing contents of paragraph (c) as new paragraph (e). 4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act

Section 1886(d)(8)(B) of the Act requires us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA if certain criteria are met. Effective beginning FY 2005, we use OMB's 2000 CBSA standards and the Census 2000 data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area.

Hospitals located in these counties have been known as ``Lugar'' hospitals and the counties themselves are often referred to as

``Lugar'' counties. We provide the FY 2011 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, 2010, 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.

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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 may compare the reclassified wage index for the labor market area in Table 4C in the Addendum to the proposed rule into which they would be reclassified by the MGCRB to the wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB reclassification within 45 days of the publication of this proposed rule. 5. Reclassifications Under Section 1886(d)(8)(B) of the Act

As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar hospitals are treated like reclassified hospitals for purposes of determining their applicable wage index and receive the reclassified wage index for the urban area to which they have been redesignated.

Because Lugar hospitals are treated like reclassified hospitals, when they are seeking reclassification by the MGCRB, they are subject to the rural reclassification rules set forth at 42 CFR 412.230. The procedural rules set forth at Sec. 412.230 list the criteria that a hospital must meet in order to reclassify as a rural hospital. Lugar hospitals are subject to the proximity criteria and payment thresholds that apply to rural hospitals. Specifically, the hospital must be no more than 35 miles from the area to which it seeks reclassification

(Sec. 412.230(b)(1)); and the hospital must show that its average hourly wage is at least 106 percent of the average hourly wage of all other hospitals in the area in which the hospital is located (Sec. 412.230(d)(1)(iii)(C)). In accordance with policy adopted in the FY 2009 IPPS final rule (73 FR 48568 and 48569), beginning with reclassifications for the FY 2010 wage index, a Lugar hospital must also demonstrate that its average hourly wage is equal to at least 84 percent (for FY 2010 reclassifications) and 86 percent (for reclassifications for FY 2011 and subsequent fiscal years) of the average hourly wage of hospitals in the area to which it seeks redesignation (Sec. 412.230(d)(1)(iv)(C)).

Hospitals not located in a Lugar county seeking reclassification to the urban area where the Lugar hospitals have been redesignated are not permitted to measure to the Lugar county to demonstrate proximity (no more than 15 miles for an urban hospital, and no more than 35 miles for a rural hospital or the closest urban or rural area for RRCs or SCHs) in order to be reclassified to such urban area. These hospitals must measure to the urban area exclusive of the Lugar County to meet the proximity or nearest urban or rural area requirement. We treat New

England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to FY 2008 IPPS final rule with comment period (72 FR 47337) for a discussion of this policy.) 6. Reclassifications Under Section 508 of Public Law 108-173

Section 508 of Public Law 108-173 allowed certain qualifying hospitals to receive wage index reclassifications and assignments that they otherwise would not have been eligible to receive under the law.

Although section 508 originally was scheduled to expire after a 3-year period, Congress extended the provision several times, as well as certain special exceptions that would have otherwise expired. For a discussion of the original section 508 provision and its various extensions, we refer readers to the FY 2009 IPPS final rule (73 FR 48588). The most recent extension of the provision was included in section 124 of Public Law 110-275 (MIPPA). Section 124 extended, through FY 2009, section 508 reclassifications as well as certain special exceptions. Because the section 124 extension of these provisions expired on September 30, 2009 (and, therefore, will not be applicable in FY 2011 unless there is intervening legislation to extend the provisions), we are not proposing to make any changes related to these provisions in this proposed rule for FY 2011.

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We note that section 508 and special exceptions reclassifications were recently extended again, through September 30, 2010, under section 10317 of the PPACA (Pub. L. 111-148). We intend to imminently issue instructions regarding implementation of section 10317 of Public Law 111-148.

J. Proposed FY 2011 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with the broad discretion under section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees

(the ``out-migration'' adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Such adjustments to the wage index are effective for 3 years, unless a hospital requests to waive the application of the adjustment.

A county will not lose its status as a qualifying county due to wage index changes during the 3-year period, and counties will receive the same wage index increase for those 3 years. However, a county that qualifies in any given year may no longer qualify after the 3-year period, or it may qualify but receive a different adjustment to the wage index level. Hospitals that receive this adjustment to their wage index are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. Adjustments under this provision are not subject to the budget neutrality requirements under section 1886(d)(3)(E) of the Act.

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

For the proposed FY 2011 wage index, we are proposing to calculate the out-migration adjustment using the same formula described in the FY 2005 IPPS final rule (69 FR 49064), with the addition of using the post-reclassified wage indices, to calculate the out-migration adjustment. This adjustment is calculated as follows:

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

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

Step 1.

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

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

These adjustments will be effective for each county for a period of 3 fiscal years. For example, hospitals that received the adjustment for the first time in FY 2010 will be eligible to retain the adjustment for

FY 2011. 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, 2010.

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 FYs 2005 through 2010 IPPS final rules, we are specifying that hospitals redesignated under section 1886(d)(8) of the Act or reclassified under section 1886(d)(10) of the Act will be deemed to have chosen to retain their redesignation or reclassification. Section 1886(d)(10) hospitals that wish to receive the out-migration adjustment, rather than their reclassification adjustment, should follow the termination/withdrawal procedures specified in 42 CFR 412.273 and section III.I.3. of the preamble of this proposed rule. Otherwise, they will be deemed to have waived the out-migration adjustment. Hospitals redesignated under section 1886(d)(8) of the Act will be deemed to have waived the out-migration adjustment unless they explicitly notify CMS within 45 days from the publication of this proposed rule that they elect to receive the out- migration adjustment instead. These notifications should be sent to the following address: Centers for Medicare and Medicaid Services, Center for Medicare Management, Attention: Wage Index Adjustment Waivers,

Division of Acute Care, Room C4-08-06, 7500 Security Boulevard,

Baltimore, MD 21244-1850.

Table 4J in the Addendum to this proposed rule lists the proposed out-migration wage index adjustments for FY 2011. Hospitals that are not otherwise reclassified or redesignated under section 1886(d)(8) or section 1886(d)(10) of the Act will automatically receive the listed adjustment. In accordance with the procedures discussed above, redesignated/reclassified hospitals will be deemed to have waived the out-migration adjustment unless CMS is otherwise notified within the necessary timeframe. In addition, hospitals eligible to receive the out-migration wage index adjustment and that withdraw their application for reclassification will automatically receive the wage index adjustment listed in Table 4J in the Addendum to this proposed rule.

The wage index is updated annually and, as such, hospitals wishing to waive their Lugar redesignation in order to receive their home area wage index plus the out-migration adjustment must request the waiver annually.

K. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the proposed FY 2011 wage index were made available on October 5, 2009, through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.

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

Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.

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In a memorandum dated October 21, 2009, 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, 2009 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, 2009.

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 21, 2009 memorandum referenced above.

In the October 21, 2009 memorandum, we also specified that a hospital requesting revisions to its occupational mix survey data was to copy its record(s) from the CY 2007-2008 occupational mix preliminary files posted to our Web site in October, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and complete documentation to its fiscal intermediary/MAC no later than

December 7, 2009.

The fiscal intermediaries/MACs notified the hospitals by mid-

February 2010 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 2010. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 22, 2010. Hospitals had until March 8, 2010, to submit requests to the fiscal intermediaries/MACs for reconsideration of adjustments made by the fiscal intermediaries/MACs as a result of the desk review, and to correct errors due to CMS's or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the wage index data. Hospitals also were required to submit sufficient documentation to support their requests.

After reviewing requested changes submitted by hospitals, fiscal intermediaries/MACs are to transmit any additional revisions resulting from the hospitals' reconsideration requests by April 14, 2010. The deadline for a hospital to request CMS intervention in cases where the hospital disagrees with the fiscal intermediary's (or, if applicable, the MAC's) policy interpretations is April 21, 2010.

Hospitals should examine Table 2 in the Addendum to this proposed rule. Table 2 in the Addendum to this proposed rule contains each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2007 data used to construct the proposed FY 2011 wage index. We note that the hospital average hourly wages shown in Table 2 only reflect changes made to a hospital's data and transmitted to CMS in March 2010.

We will release the final wage index data public use files by May 7, 2010 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/

WIFN/list.asp#TopOfPage. The May 2010 public use files are made available solely for the limited purpose of identifying any potential errors made by CMS or the fiscal intermediary/MAC in the entry of the final wage index data that resulted from the correction process described above (revisions submitted to CMS by the fiscal intermediaries/MACs by April 14, 2010). If, after reviewing the May 2010 final files, a hospital believes that its wage or occupational mix data are incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital should send a letter to both its fiscal intermediary/MAC and CMS that outlines why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). CMS and the fiscal intermediaries (or, if applicable, the MACs) must receive these requests no later than June 7, 2010.

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

CMS immediately to discuss any findings.

At this point in the process, that is, after the release of the May 2010 wage index data files, changes to the wage and occupational mix data will only be made in those very limited situations involving an error by the fiscal intermediary/MAC or CMS that the hospital could not have known about before its review of the final wage index data files.

Specifically, neither the fiscal intermediary/MAC nor CMS will approve the following types of requests:

Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by fiscal intermediaries or the MACs on or before April 21, 2010.

Requests for correction of errors that were not, but could have been, identified during the hospital's review of the February 22, 2010 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 7, 2010) will be incorporated into the final wage index in the FY 2011 IPPS/LTCH

PPS final rule, which will be effective October 1, 2010.

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 2011 payment rates. Accordingly, hospitals that did not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the fiscal intermediary's (or, if applicable, the MAC's) decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the

Provider Reimbursement Review Board, the failure of CMS to make a requested data revision. (See W. A. Foote Memorial Hospital v. Shalala,

No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v.

Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appealing to the PRRB for wage index data corrections.

Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the fiscal intermediary's (or, if applicable, the MAC's) attention. Moreover, because hospitals have access to the final wage index data by early May 2010, they have the opportunity to detect any data entry or tabulation errors made by the fiscal intermediary or the MAC or CMS before the development and publication of the final FY 2011 wage index by August 2010, and the implementation of the FY 2011 wage index on October 1, 2010. 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

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errors are identified by hospitals and brought to our attention after

June 7, 2010, 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 7 deadline for making corrections to the wage data for the following fiscal year's wage index. This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the fiscal intermediaries or the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However, under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating data used for the wage index calculation;

(2) the hospital knew about the error and requested that the fiscal intermediary (or, if applicable, the MAC) and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 7, 2010 deadline for the FY 2011 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 7, 2010 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.

L. Labor-Related Share for the Proposed FY 2011 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related: ``The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage- related costs of the DRG prospective payment rates * * *'' We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this ``would result in lower payments to a hospital than would otherwise be made.'' However, this provision of

Public Law 108-173 did not change the legal requirement that the

Secretary estimate ``from time to time'' the proportion of hospitals' costs that are ``attributable to wages and wage-related costs.'' We believe that this reflected Congressional intent 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.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 43856), we rebased and revised the hospital market basket for operating costs. We established a FY 2006-based IPPS hospital market basket to replace the FY 2002-based IPPS hospital market basket, effective October 1, 2009. In that final rule, we presented our analysis and conclusions regarding the frequency and methodology for updating the labor-related share for FY 2010. We also recalculated a labor-related share of 68.8 percent, using the FY 2006-based IPPS market basket, for discharges occurring on or after October 1, 2009. In addition, we implemented this revised and rebased labor-related share in a budget neutral manner, but consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. In this proposed rule, we are not proposing to make any further changes to the national average proportion of operating costs that are attributable to wages and salaries, fringe benefits, contract labor, the labor-related portion of professional fees, administrative and business support services, and all other labor-related services

(previously referred to in the FY 2002-based IPPS market basket as labor-intensive). Therefore, we are proposing to continue to use a labor-related share of 68.8 percent for discharges occurring on or after October 1, 2010. Tables 1A and 1B in the Addendum to this proposed rule reflects this proposed labor-related share. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this employment ``would result in lower payments to a hospital than would otherwise be made.''

Therefore, for all IPPS hospitals whose wage indices are less than 1.0000, we are applying the wage index to a labor-related share of 62

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percent of the national standardized amount. For all IPPS hospitals whose wage indices are greater than 1.0000, we are applying the wage index to a labor-related share of 68.8 percent of the national standardized amount.

For Puerto Rico hospitals, the national labor-related share will always be 62 percent because the wage index for all Puerto Rico hospitals is less than 1.0. We are proposing to continue to use a labor-related share for the Puerto Rico-specific standardized amounts of 62.1 percent for discharges occurring on or after October 1, 2010.

This Puerto Rico labor-related share of 62.1 percent was also adopted in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43857) at the time the

FY 2006-based hospital market basket was established, effective October 1, 2009. Consistent with our methodology for determining the national labor-related share, we added the Puerto Rico-specific relative weights for wages and salaries, fringe benefits, contract labor, the labor- related portion of professional fees, administrative and business support services, and all other labor-related services (previously referred to in the FY 2002-based IPPS market basket as labor-intensive) to determine the labor-related share. Puerto Rico hospitals are paid based on 75 percent of the national standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. The labor-related share of a hospital's Puerto Rico-specific rate will be either the

Puerto Rico-specific labor-related share of 62.1 percent or 62 perecent, depending on which results in higher payments to the hospital. If the hospital has a Puerto Rico-specific wage index of greater than 1.0, we will set the hospital's rates using a labor- related share of 62.1 percent for the 25 percent portion of the hospital's payment determined by the Puerto Rico standardized amounts because this amount will result in higher payments. Conversely, a hospital with a Puerto Rico-specific wage index of less than 1.0 will be paid using the Puerto Rico-specific labor-related share of 62 percent of the Puerto Rico-specific rates because the lower labor- related share will result in higher payments. The proposed Puerto Rico labor-related share of 62.1 percent for FY 2011 is reflected in the

Table 1C of the Addendum to this proposed rule.

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

A. Reporting of Hospital Quality Data for Annual Hospital Payment

Update 1. Background a. Overview

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

CMS has implemented quality measure reporting programs for multiple settings of care. To measure the quality of hospital inpatient services, CMS implemented the Reporting Hospital Quality Data for

Annual Payment Update (RHQDAPU) program. In addition, CMS has implemented quality reporting programs for hospital outpatient services, the Hospital Outpatient Quality Data Reporting Program (HOP

QDRP), and for physicians and other eligible professionals, the

Physician Quality Reporting Initiative (PQRI). CMS has also implemented quality reporting programs for home health agencies and skilled nursing facilities that are based on conditions of participation, and an end- stage renal disease quality reporting program that is based on conditions for coverage. b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108-173

Section 501(b) of the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 (MMA), Public Law 108-173, added section 1886(b)(3)(B)(vii) to the Act. This section established the authority for the RHQDAPU program and revised the mechanism used to update the standardized payment amount for inpatient hospital operating costs.

Specifically, section 1886(b)(3)(B)(vii)(I) of the Act, before it was amended by section 5001(a) of Public Law 109-171, provided for a reduction of 0.4 percentage points to the update percentage increase

(also known as the market basket update) for FY 2005 through FY 2007 for any subsection (d) hospital that did not submit data on a set of 10 quality indicators established by the Secretary as of November 1, 2003.

It also provides that any reduction would apply only to the fiscal year involved, and would not be taken into account in computing the applicable percentage increase for a subsequent fiscal year. The statute thereby established an incentive for IPPS hospitals to submit data on the quality measures established by the Secretary, and also built upon the previously established Voluntary Hospital Quality Data

Reporting Program that we described in the FY 2009 IPPS final rule (73

FR 48598).

We implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005

IPPS final rule (69 FR 49078) and codified the applicable percentage change in Sec. 412.64(d) of our regulations. We adopted additional requirements under the RHQDAPU program in the FY 2006 IPPS final rule

(70 FR 47420). c. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 109-171

Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public

Law 109-171, further amended section 1886(b)(3)(B) of the Act to revise the mechanism used to update the standardized payment amount for hospital inpatient operating costs, in particular, by adding new section 1886(b)(3)(B)(viii) to the Act. Specifically, sections 1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment update for FY 2007 and each subsequent fiscal year be reduced by 2.0 percentage points for any subsection (d) hospital that does not submit quality data in a form and manner, and at a time, specified by the

Secretary. Section 1886(b)(3)(B)(viii)(I) of the Act also provides that any reduction in a hospital's payment update will apply only with respect to the fiscal year involved, and will not be taken into account for computing the applicable percentage increase for a subsequent fiscal year. In the FY 2007 IPPS final rule (71 FR 48045), we amended our regulations at Sec. 412.64(d)(2) to reflect the 2.0 percentage point reduction in the payment update for FY 2007 and subsequent fiscal years for subsection (d) hospitals that do not comply with requirements for reporting quality data, as provided for under section 1886(b)(3)(B)(viii) of the Act.

(1) Quality Measures

Section 1886(b)(3)(B)(viii)(III) of the Act requires that the

Secretary expand the ``starter set'' of 10 quality measures that was established by the Secretary as of November 1, 2003, as the Secretary

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determines to be appropriate for the measurement of the quality of care furnished by a hospital in inpatient settings. In expanding this set of measures, section 1886(b)(3)(B)(viii)(IV) of the Act requires that, effective for payments beginning with FY 2007, the Secretary begin to adopt the baseline set of performance measures as set forth in a report issued by the Institute of Medicine (IOM) of the National Academy of

Sciences under section 238(b) of Public Law 108-173.\5\

\5\ Institute of Medicine, ``Performance Measurement:

Accelerating Improvement,'' December 1, 2005, available at: http:// www.iom.edu/CMS/3809/19805/31310.aspx. IOM set forth these baseline measures in a November 2005 report. However, the IOM report was not released until December 1, 2005 on the IOM Web site.

Section 1886(b)(3)(B)(viii)(V) of the Act requires that, effective for payments beginning with FY 2008, the Secretary add other quality measures that reflect consensus among affected parties, and to the extent feasible and practicable, have been set forth by one or more national consensus building entities. The NQF is a voluntary consensus standard-setting organization with a diverse representation of consumer, purchaser, provider, academic, clinical, and other health care stakeholder organizations. The NQF was established to standardize health care quality measurement and reporting through its consensus development process. We have generally adopted NQF-endorsed measures.

However, we believe that consensus among affected parties also can be reflected by other means, including consensus achieved during the measure development process, consensus shown through broad acceptance and use of measures, and consensus through public comment.

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

In the FY 2007 IPPS final rule, we began to expand the RHQDAPU program measures by adding 11 quality measures to the 10-measure starter set to establish an expanded set of 21 quality measures for the

FY 2007 payment determination (71 FR 48033 through 48037, 48045).

In the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted six additional quality measures for the FY 2008 payment determination, for a total of 27 measures. Two of these measures (30-Day Risk Standardized

Mortality Rates for Heart Failure and 30-Day Risk Standardized

Mortality Rates for AMI) were calculated using existing administrative

Medicare claims data; thus, no additional data submission by hospitals was required for these two measures. The measures used for the FY 2008 payment determination included, for the first time, the HCAHPS patient experience of care survey.

In the FY 2008 IPPS final rule (72 FR 47348 through 47358) and the

CY 2008 OPPS/ASC final rule with comment period (72 FR 66875 through 66877), we added three additional process measures to the RHQDAPU program measure set. (These three measures are SCIP-Infection-4:

Cardiac Surgery Patients with Controlled 6AM Postoperative Serum

Glucose, SCIP-Infection-6: Surgery Patients with Appropriate Hair

Removal, and Pneumonia 30-day mortality (Medicare patients).) The addition of these 3 measures brought the total number of RHQDAPU program measures to be used for the FY 2009 payment determination to 30

(72 FR 66876). The 30 measures used for the FY 2009 annual payment determination are listed in the FY 2009 IPPS final rule (73 FR 48600 through 48601).

For the FY 2010 payment determination, we added 15 new measures to the RHQDAPU program measure set and retired one measure from the program (PN-1: Oxygenation Assessment). Of the new measures, 13 were adopted in the FY 2009 IPPS final rule (73 FR 48602 through 48611) and two additional measures were finalized in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68780 through 68781). This resulted in an expansion of the RHQDAPU program measures from 30 measures for the

FY 2009 payment determination to 44 measures for the FY 2010 payment determination. The RHQDAPU program measures for the FY 2010 payment determination consist of: 26 chart-abstracted process measures, which measure quality of care provided for Acute Myocardial Infarction (AMI),

Heart Failure (HF), Pneumonia (PN), and Surgical Care Improvement

(SCIP); 6 claims-based measures, which evaluate 30-day mortality and 30-day readmission rates for AMI, HF, or PN; 9 claims-based AHRQ patient safety indicators and inpatient quality indicators; 1 claims- based nursing sensitive measure; 1 structural measure that assesses participation in a systematic database for cardiac surgery; and the

HCAHPS patient experience of care survey. The measures are listed in the IPPS FY 2009 final rule at 73 FR 46809 and in the CY 2009 OPPS/ASC final rule with comment period at 73 FR 68781.

On December 31, 2008, CMS advised hospitals that they would no longer be required to submit data for the RHQDAPU program measure AMI- 6-Beta blocker at arrival, beginning with discharges occurring on April 1, 2009. This change was based on the evolving evidence regarding AMI patient care, as well as changes in the American College of Cardiology/

American Heart Association (ACC/AHA) practice guidelines for ST-segment elevation myocardial infarction and non-ST segment elevation myocardial infarction, upon which AMI-6 is based. CMS took action to remove the measure from reporting initiatives based on the lack of support by the measure developer and the clinical and scientific considerations described in the FY 2010 IPPS/RY 2010 LTCH PPS final rule at 74 FR 43863.

We had previously discussed considerations relating to retiring or replacing measures in the FY 2008 IPPS final rule with comment period and the FY 2009 IPPS final rule, including the ``topping out'' of hospitals' performance under a measure (72 FR 47358 through 47359 and 73 FR 48603 through 48604, respectively). However, in this instance, the measure no longer ``represent[s] the best clinical practice,'' an additional basis under section 1886(b)(3)(B)(viii)(VI) of the Act for retiring a measure. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we formally retired the AMI-6 measure from the RHQDAPU program for the FY 2011 payment determination and subsequent payment determinations.

For the FY 2011 payment determination, we retained 41 of the FY 2010 quality measures; harmonized two FY 2010 RHQDAPU program quality measures (combining PSI 04--Death among surgical patients with treatable serious complications; and Nursing Sensitive-Failure to rescue into a single measure (Death among surgical inpatients with serious, treatable complications); added two chart-abstracted measures

(SCIP-Infection-9: Postoperative Urinary Catheter Removal on Post

Operative Day 1 or 2 and SCIP-Infection-10: Perioperative Temperature

Management); and added two structural measures (1) Participation in a

Systematic Clinical Database Registry for Stroke Care; and (2)

Participation in a Systematic Clinical Database Registry for Nursing

Sensitive Care) (74 FR 43868 through 43873). The 46 measures

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we adopted for the FY 2011 payment determination are:

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(2) Maintenance of Technical Specifications for Quality Measures

The technical specifications for the RHQDAPU program measures, or links to Web sites hosting technical specifications, are contained in the CMS/The Joint Commission Specifications Manual for National

Hospital Inpatient Quality Measures (Specifications Manual). This

Specifications Manual is posted on the CMS QualityNet Web site at https://www.QualityNet.org/. We maintain the technical specifications by updating this Specifications Manual semiannually, or more frequently in unusual cases, and include detailed instructions and calculation algorithms for hospitals to use when collecting and submitting data on required measures. These semiannual updates are accompanied by notifications to users, providing sufficient time between the change and the effective date in order to allow users to incorporate changes and updates to the specifications into data collection systems.

(3) Public Display of Quality Measures

Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the

Secretary establish procedures for making quality data available to the public after ensuring that a hospital has the opportunity to review its data before they are made public. To meet this requirement, data from the RHQDAPU program are typically displayed on CMS Web sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov after a 30-day preview period. An interactive Web tool, this Web site assists beneficiaries by providing information on hospital quality of care to those who need to select a hospital. It further serves to encourage beneficiaries to work with their doctors and hospitals to discuss the quality of care hospitals provide to patients, thereby providing an additional incentive to hospitals to improve the quality of care that they furnish. The RHQDAPU program currently includes process of care measures, risk adjusted outcome measures, the HCAHPS patient experience of care survey, and structural measures, all of which are featured on the Hospital Compare Web site. However, information that may not be salient to or understood by beneficiaries and information for which there are unresolved display issues or design considerations for inclusion on Hospital Compare may be made available on other CMS Web sites that are not intended to be used as an interactive Web tool, such as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the information in this manner, though not on the Hospital Compare Web site, allows CMS to meet the requirement under section 1886(b)(3)(B)(viii)(VII) of the Act for establishing procedures to make quality data used for RHQDAPU payment determinations available to the public following a preview period. In such circumstances, affected parties are notified via CMS listservs, CMS e-mail blasts, national provider calls, and QualityNet announcements regarding the release of preview reports followed by the posting of data on a Web site other than Hospital Compare. 2. Retirement of RHQDAPU Program Measures a. Considerations in Retiring Quality Measures From the RHQDAPU Program

Unless stated otherwise, we generally retain measures from the current year's RHQDAPU program measure set for subsequent years' measure set. We have previously retired one measure, PN-1: Oxygenation

Assessment for Pneumonia, from the RHQDAPU program on the basis of high unvarying performance among hospitals, as measures with very high performance among hospitals present little opportunity for improvement, and do not provide meaningful distinctions in performance for consumers. We also have retired one measure from the program because it no longer ``represent[ed] the best clinical practice,'' as stated under section 1886(b)(3)(B)(viii)(VI) of the Act. In this latter situation, we stated that when there is reason to believe that the continued collection of a measure as it is currently specified raises potential patient safety concerns that it is appropriate for CMS to take immediate action to remove a measure from the RHQDAPU program and not wait for the annual rulemaking cycle. Therefore, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that we would promptly retire such measures followed by subsequent confirmation of the retirement in the next IPPS rulemaking. When we do so, we will notify hospitals and the public through the usual hospital and QIO communication channels used for the RHQDAPU program, which include memo and email notification and

QualityNet Web site articles and postings.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we invited public comment regarding additional RHQDAPU program measures that should be considered for retirement along with criteria that should be used for retiring measures. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, commenters recommended 11 RHQDAPU program measures for retirement for various reasons (74 FR 43865). Among the criteria suggested by commenters that CMS should consider when determining whether to retire

RHQDAPU program measures were: (1) Measure performance among hospitals is so high and unvarying that meaningful distinctions and improvements in performance can no longer be made; (2) performance or improvement on a measure does not result in better patient outcomes; (3) a measure does not align with current clinical guidelines or practice; (4) the availability of a more broadly applicable (across settings, populations, or conditions) quality measure for the topic; (5) the availability of a measure that is more proximal in time to desired patient outcomes for the particular topic; (6) the availability of a measure that is more strongly associated with desired patient outcomes for the particular topic; (7) collection and/or public reporting of a measure leads to negative unintended consequences other than patient harm. We agreed with commenters that these criteria should be among those considered in evaluating current RHQDAPU program measures for retirement. We again invite commenters to submit suggestions for additional measure retirement criteria for CMS to consider. b. Proposed Retirement of Quality Measures Under the RHQDAPU Program for the FY 2011 Payment Determination and Subsequent Years

In the FY 2009 IPPS final rule, for the FY 2010 payment determination we adopted nine measures that were developed by the

Agency for Healthcare Research and Quality (AHRQ), and in the FY 2010

IPPS/RY 2010 LTCH PPS we subsequently retained these measures for the

FY 2011 payment determination. One of these measures was the AHRQ

Mortality for Selected Surgical Procedures Composite, which is comprised of measures from the AHRQ Inpatient Quality Indicator (IQI) measure set. In late June of 2009, following an NQF steering committee evaluation of the AHRQ Mortality for Selected Surgical Procedures composite, the AHRQ issued guidance \6\ that this composite is ``not recommended for comparative reporting'' as specified due to significant evidence gaps, and that these significant evidence gaps are

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unlikely to be addressed with further development or validation work.

This guidance is available at: http://www.qualityindicators.ahrq.gov/ downloads/publications/

AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.

\6\ AHRQ. Guidance on Using the AHRQ QI for Hospital-Level

Comparative Reporting. June 2009. http:// www.qualityindicators.ahrq.gov/downloads/publications/

AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.

For this reason, we are proposing to retire the Mortality for

Selected Procedures Composite from the RHQDAPU program measure set from the RHQDAPU program measure set for the FY 2011 payment determination and for subsequent payment determinations because the measure is not considered suitable for purposes of comparative reporting by the measure developer. We will neither calculate this measure for the FY 2011 payment determination, nor display results for this measure on

Hospital Compare. We invite comment on our proposal to retire this measure from the RHQDAPU program for the FY 2011 payment determination and for subsequent payment determinations. We also invite commenters to submit suggestions and rationales for retirement of other RHQDAPU program measures.

Set out below are the RHQDAPU program quality measures for the FY 2011 payment determination reflecting our proposed retirement of one measure:

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3. Proposed Expansion Plan for Quality Measures for the FY 2012, FY 2013, and FY 2014 Payment Determinations a. Considerations in Expanding and Updating Quality Measures Under the

RHQDAPU Program

In the FY 2009 IPPS final rule (73 FR 48613) and the FY 2010 IPPS/

RY 2010 LTCH PPS final rule (74 FR 43866 through 43869), we acknowledged the data collection burden for hospitals participating in the RHQDAPU program, and reiterated our desire to expand the RHQDAPU program measure set while minimizing burden and seeking to provide alternative mechanisms for data submission for the RHQDAPU program. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also stated that in future expansions and updates to the RHQDAPU program measure set, we would be taking into consideration several important goals. These goals include: (a) Expanding the types of measures beyond process of care measures to include an increased number of outcome measures, efficiency measures, and patients' experience-of-care measures; (b) expanding the scope of hospital services to which the measures apply; (c) considering the burden on hospitals in collecting chart-abstracted data; (d) harmonizing the measures used in the RHQDAPU program with other CMS quality programs to align incentives and promote coordinated efforts to improve quality; (e) seeking to use measures based on alternative sources of data that do not require chart abstraction or that utilize data already being reported by many hospitals, such as data that hospitals report to clinical data registries, or all-payer claims data bases; and (f) weighing the relevance and utility of the measures compared to the burden on hospitals in submitting data under the

RHQDAPU program. Specifically, we give priority to quality measures that assess performance on: (a) Conditions that result in the greatest mortality and morbidity in the Medicare population; (b) conditions that are high volume and high cost for the Medicare program; and (c) conditions for which wide cost and treatment variations have been reported, despite established clinical guidelines. We have used and continue to use these criteria to guide our decisions regarding what measures to add to the RHQDAPU program measure set.

RHQDAPU program measures were initially based solely on a hospital's submission of chart-abstracted quality measure data.

However, in recent years we have adopted measures that do not require chart abstraction, including structural and claims-based quality measures which we can calculate using other data sources. This supports our goal of expanding the measures for the RHQDAPU program while minimizing the burden on hospitals and, in particular, without significantly increasing the chart abstraction burden.

In addition to structural and claims-based measures, we previously noted that registries \7\ and electronic health records (EHRs) are potential alternative sources of hospital data for the RHQDAPU program.

We observed that many hospitals already submit data to and participate in existing registries, and that registries often capture outcome information and provide ongoing quality improvement feedback to registry participants. We envisioned that instead of requiring hospitals to submit the same data to CMS that many hospitals are already submitting to registries, that we would collect the data directly from the registries. This could enable the expansion of the

RHQDAPU program measure set without increasing the burden of data collection for those hospitals participating in the registries. We cited as examples of registries actively used by hospitals the Society of Thoracic Surgeons (STS) Cardiac Surgery Registry (with approximately 90 percent participation by cardiac surgery programs), the AHA Stroke

Registry (with approximately 1200 hospitals participating), and the

American Nursing Association (ANA) Nursing Sensitive Measures Registry

(with approximately 1400 hospitals participating). In the FY 2009 IPPS final rule (73 FR 48608 through 48609), we adopted the first RHQDAPU program measure related to registries: Participation in a Systematic

Database for Cardiac Surgery. Subsequently, in the FY 2010 IPPS/RY 2010

LTCH PPS final rule (74 FR 43870 through 43872), we adopted two additional structural measures of registry participation for the topics of Stroke and Nursing Sensitive Care. We continue to evaluate the feasibility of leveraging registry-based data collection mechanisms for the RHQDAPU program and we are proposing to collect such data for the

FY 2013 payment determination.

\7\ A registry is a collection of clinical data for purposes of assessing clinical performance, quality of care, and opportunities for quality improvement.

We also stated our intention to explore mechanisms for data submission using EHRs (73 FR 48614; 74 FR 43866, 43892). Establishing such a system will require interoperability between EHRs and CMS data collection systems, additional infrastructure development on the part of hospitals and CMS, and the adoption of standards for the capturing, formatting, and transmission of data elements that make up the measures. However, once these activities are accomplished, the adoption of measures that rely on data obtained directly from EHRs will enable us to expand the RHQDAPU program measure set with less cost and burden to hospitals.

In the FY 2009 IPPS final rule, we adopted nine AHRQ measures for the RHQDAPU program, one of which is now proposed for retirement for the FY 2011 payment determination and subsequent payment determinations in this proposed rule. We stated that we would initially calculate the measures using Medicare claims data (73 FR 48608). However, we also stated that we remained interested in using all-payer claims data to calculate them and that we might propose to collect such data in the future. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24169), we invited input and suggestions on how all-payer claims data can be collected and used by CMS to calculate these measures, as well as on additional AHRQ measures that we should consider adopting for future RHQDAPU program payment determinations.

In summary, we will continue to pursue goals regarding the expansion and updating of quality measures under the RHQDAPU program while minimizing burden. We will take into account the public comments we receive on the possible uses of EHRs, registries, and all-payer claims data in the RHQDAPU program. We also will consider the measure selection criteria suggested by various commenters in prioritizing and selecting quality measures for the future.'' In particular, we are concerned about the lack of progress in reducing the rates of healthcare associated infections that was recently reported in the 2009

National Healthcare Quality Report (http://www.ahrq.gov/qual/nhqr09/ nhqr09.pdf). For example, the report found that rates of postoperative sepsis increased by 8 percent. It is evident that more attention needs to be paid to ensure health care does not result in avoidable harm and that patients are informed about hospitals' performance. We are soliciting comment on the option to include among our prioritization criteria quality measures that assess performance on healthcare associated infections. Also, while the current and proposed measures cover many aspects of healthcare associated infections, we are soliciting public comment on additional measures that could be added to those hospitals would

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report and that CMS would make available to the public in order promote improvement in healthcare associated infection rates.

In the past, we have proposed to add new RHQDAPU program measures for one year's payment determination in a given rulemaking cycle.

Although in prior years we have identified various measures for future consideration, we have not proposed or finalized measures for the

RHQDAPU program beyond those to be collected for the purpose of the next sequential payment determination. In this FY 2011 rulemaking cycle, we are proposing an expansion to the RHQDAPU program that will take place over three payment years, and are proposing to add measures not only for the FY 2012 payment determination, but also for the FY 2013 and FY 2014 payment determinations. To the extent we finalize some or all of these proposed measures this year, we believe that we will be providing greater certainty for hospitals to plan to meet future reporting requirements and implement related quality improvement efforts. We will also have more time to prepare, organize and implement the necessary infrastructure necessary to collect data on the measures and make payment determinations.

Finally, in section V.A.5.(2) of this proposed rule, we discuss a proposal to make RHQDAPU payment determinations beginning with FY 2013 using, in part, a consecutive calendar year of quality measure data.

This proposed approach, of synchronizing the quarters for which data on these measures must be submitted during each year with the quarters we will use to make payment determinations, would apply beginning with

January 1, 2011 discharges although it would not affect our payment determinations until FY 2013. We invite public comment on the measures and timeframe for their addition to the RHQDAPU program measure set. b. Proposed RHQDAPU Program Quality Measures for the FY 2012 Payment

Determination

(1) Proposed Retention of 45 Existing RHQDAPU Program Quality Measures for the FY 2012 Payment Determination

As noted above, we are proposing to retire the AHRQ Mortality for

Selected Surgical Procedures Composite for the FY 2011 payment determination. We are proposing that the remaining 45 of the 46 quality measures for the FY 2011 RHQDAPU program payment determination will be used for the FY 2012 RHQDAPU program payment determination. Details regarding data submission requirements are discussed in section V.A.5. of this proposed rule. We invite comment on the proposal to include all

FY 2011 measures except for the AHRQ Mortality for Selected Surgical

Procedures Composite in the FY 2012 RHQDAPU measure set.

In proposing to retain 45 of the 46 FY 2011 measures, we recognize that we are not significantly reducing the burden for hospitals, since the one measure that we are proposing to remove is a measure that currently is calculated based on Medicare claims. At the same time, we are proposing to expand the measures for the FY 2012 and subsequent years' payment determinations, which may add additional reporting burdens and new focus areas for hospital quality improvement efforts.

In view of our concern about the burden of reporting for hospitals, especially when it comes to reporting chart-abstracted measures, another option that we have considered to accommodate the expansion of the measure set is the retirement of additional measures. Specifically, we have considered retiring one or more of those measures suggested by various commenters that were listed in the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (74 FR 43865). We noted in that final rule that 11

RHQDAPU program chart-abstracted measures were recommended for retirement by commenters. Seven of these 11 measures were recommended for retirement based on their performance being uniformly high nationwide, with little variability among hospitals. Information on the performance rates for hospitals reporting is available at: http:// www.cms.hhs.gov/HospitalQualityInits/downloads/

HospitalNationalLevelPerformance.pdf. These measures are:

AMI-1 Aspirin at arrival

AMI-3 ACEI/ARB for left ventricular systolic dysfunction

AMI-4 Adult smoking cessation advice/counseling

AMI-5 Beta-blocker prescribed at discharge

HF-4 Adult smoking cessation advice/counseling

PN-4 Adult smoking cessation advice/counseling

SCIP-Infection-6: Surgery patients with appropriate hair removal

In addition to these ``topped out'' measures, commenters recommended we retire four additional measures listed below for reasons unrelated to high unvarying performance. These measures are:

HF-1 Discharge instructions

PN-3b Blood culture performed before first antibiotic received in hospital

SCIP-Infection-2: Prophylactic antibiotic selection for surgical patients

SCIP-Infection-4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose

Reasons given by commenters included the following: (1) Care process measured has weak or no relationship to better outcomes; (2)

Collection burden of measure negates or outweighs the benefit of reporting the measure; and (3) Measure perceived to be discordant with current guidelines.

We invite comments on the option to retire one or more of these 11 measures that were suggested for retirement by commenters to the FY 2010 IPPS proposed rule. We note that some of these measures were proposed for electronic reporting under the program for payment incentives for meaningful use of electronic health records (75 FR 1896).

In addition, we are considering an option under which if we propose and finalize measures that are specified to more broadly address a clinical topic, and thus would require hospitals to submit the same data that they are already submitting on more narrowly specified measures that we previously adopted for the RHQDAPU program, we would propose to retire the more narrowly specified measures from the RHQDAPU measure set. An example of this that we are considering would be to retire the current Influenza and Pneumoccocal vaccination measures that apply only to the Pneumonia admission inpatient population (PN-2

Pneumococcal vaccination status; and PN-7 Influenza vaccination status) if we proposed and finalized measures of Influenza and Pneumoccocal vaccination that apply to all inpatients. We invite comments on this option to retire narrowly specified measures in order to accommodate more broadly specified measures on a given topic.

(2) Proposed New Claims-Based Measures

We are proposing to add 10 claims-based measures to the RHQDAPU program measure set for the FY 2012 payment determination: 2 AHRQ

Patient Safety Indicators and 8 Hospital Acquired Condition measures.

These proposed measures would be calculated using up to three years' of

Medicare claims for discharges prior to January 1, 2011. These measures are discussed below.

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(A) Proposed AHRQ Patient Safety Indicators

In the FY 2009 IPPS final rule we adopted a number of AHRQ Patient

Safety Indicators and Inpatient Quality Indicators for the RHQDAPU program to be calculated using Medicare claims. The addition of these measures to the RHQDAPU program allowed us to expand the RHQDAPU program measure set to include measures of patient safety, in-hospital mortality, adverse events and complications without increasing the data submission burden on hospitals. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we retained these measures for the FY 2011 payment determination. In this proposed rule, we are proposing to retire one of those measures (Mortality for Selected Surgical Procedures Composite) from the RHQDAPU program measure set for the FY 2011 payment determination. For the FY 2012 payment determination, we are proposing to adopt 2 additional Patient Safety Indicators developed by the AHRQ.

These are: PSI-11: Post-Operative Respiratory Failure and PSI-12: Post-

Operative Pulmonary Embolism (PE) or Deep Vein Thrombosis (DVT). Both measures address post-operative complications, a topic that is currently not well represented in the RHQDAPU program measure set. Both measures are NQF-endorsed, and have a Tier 1 evidence rating by AHRQ, the measure developer. Indicators given this level of evidentiary rating by AHRQ have the strongest evidence base, with established evidence in several or most evidentiary areas established by AHRQ, no substantial evidence suggesting that the indicators may not be useful for comparative reporting purposes, and in most cases the indicators have been NQF-endorsed.\8\ The specific measures that we are proposing to add are NQF-endorsed, thus reflecting consensus among affected parties, and are deemed appropriate for comparative public reporting by the measure developer. Like the current AHRQ measures in the RHQDAPU program, these indicators are risk-adjusted outcome measures that can be calculated based on existing Medicare claims, placing no additional reporting burden on hospitals while allowing us to expand outcomes measurement in the RHQDAPU program. The specifications for these measures can be found at http://www.qualityindicators.ahrq.gov/

TechnicalSpecs41.htm#PSI41. We invite comment on our proposal to adopt these two AHRQ Patient Safety Indicators for the FY 2012 payment determination.

\8\ http://www.qualityindicators.ahrq.gov/downloads/ publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.p df.

(B) Proposed Hospital Acquired Condition (HAC) Measures

Section 1886(d)(4)(D) of the Act required the Secretary to select, in consultation with the Centers for Disease Control and Prevention

(CDC), at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence based guidelines. We currently have 10 categories of Hospital Acquired Conditions (HACs). We refer readers to: section II.F. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218); section II.F. of the FY 2009 IPPS final rule with comment period (73 FR 48474 through 48486); and section II.F. of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785) for detailed discussions regarding the selection of the current 10 HAC categories. We refer readers to section II.F. of this proposed rule for additional discussion and our proposals for HAC policy for FY 2011.

We have worked collaboratively with public health and infectious disease professionals from across HHS, including CDC, AHRQ, and the

Office of Public Health and Science, to identify and select preventable

HACs with input and comment from affected parties. CMS and CDC have also collaborated on the process for hospitals to submit a present on admission (POA) indicator for each diagnosis listed on IPPS hospital

Medicare claims and on the payment implications for POA reporting (74

FR 43783).

CMS, CDC and AHRQ held jointly sponsored HAC and POA Listening

Sessions (December 17, 2007 and December 18, 2008) to receive input from affected parties, individuals, and organizations regarding the selection and definition of HACs. The adoption of HACs were informed and continue to be informed by feedback received during the listening sessions, as well as through public comment received during the IPPS rulemaking process. In addition to receiving comments regarding the selection of conditions and POA indicator reporting, in the FY 2010

IPPS/LTCH PPS final rule (74 FR 43785), commenters suggested that CMS consider making aggregate POA information publicly available, and providing comparative information as a means of facilitating improvements in preventing the incidence of HACs.

We are proposing to adopt as RHQDAPU measures for the FY 2012 payment determination eight (of 10) current HACs defined in section

II.F. of this proposed rule, six of which have been identified by NQF as serious reportable events, and to publicly report these measures as we do other RHQDAPU program measures. These measures are:

Foreign Object Retained After Surgery

Air Embolism

Blood Incompatibility

Pressure Ulcer Stages III & IV

Falls and Trauma: (Includes: Fracture, Dislocation,

Intracranial Injury, Crushing, Injury, Burn, Electric Shock)

Vascular Catheter-Associated Infection

Catheter-Associated Urinary Tract Infection (UTI)

Manifestations of Poor Glycemic Control

We do not believe that it is necessary to propose to adopt the other two current HAC categories as RHQDAPU measures because the topics that they deal with would substantially overlap with other RHQDAPU program measures discussed below that we are proposing to adopt for future payment determinations as chart-abstracted measures (which allows us to collect data on all patients). By contrast, the eight proposed HAC measures are claims-based measures for which we can only

(at this time) collect data only on Medicare beneficiaries.

We are proposing to utilize Medicare claims data to calculate measure rates for these eight HACs using the ICD-9-CM codes in conjunction with POA coding of ``N'' or ``U,'' as defined in IPPS rulemaking. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218), section

II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48486), section II.F.6. (74 FR 43782 through 43785) of the FY 2010 IPPS/RY 2010

LTCH PPS final rule, and section II.F. of this proposed rule for detailed discussions regarding the use of the POA indicator in conjunction with ICD-9-CM coding to determine the presence of HACs. We also refer readers to the current ICD-9-CM codes and proposed updates for these eight HAC categories in this proposed rule. We are proposing to use the ICD-9-CM codes in conjunction with the ``N'' and ``U'' POA indicators for the HAC categories that will be finalized in the FY 2011

IPPS/RY 2011 LTCH PPS final rule to

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calculate the eight HAC measures for the RHQDAPU program.

We believe that these HAC measures reflect consensus among affected parties as required for RHQDAPU program measures by section 1886(b)(3)(B)(viii)(V) of the Act. In addition to meeting the consensus requirement through rulemaking and public comment, Vascular Catheter-

Associated Infection and Catheter-Associated UTI are the subject of a quality measure which gained NQF endorsement in August 2009. The remaining six HAC categories have been identified as serious reportable events through the NQF consensus process and have also been selected as

HACs through rulemaking and public comment. Data reporting requirements for these measures are provided in section V.A.5. of this proposed rule. We invite comment on our proposal to adopt these eight HAC measures for the FY 2012 payment determination.

(3) Proposed All-Patient Volume Data for Selected MS-DRGs

CMS currently displays volume data for 70 MS-DRGs, 55 of which relate to RHQDAPU program measures on the Hospital Compare Web site.

However, the volume data currently shown on Hospital Compare is based on Medicare claims only. Although we do not consider volume alone to be a quality measure unless volume has been determined to be an indicator of quality, we believe that to the extent all-patient volume data are related to the measures, as they provide context for the quality measures in the inpatient hospital setting, and may assist Hospital

Compare users in understanding the measure calculations. In general, in implementing RHQDAPU program measures, we have sought where currently possible to measure the care rendered to all patients within a hospital, and not just Medicare patients. For this reason, the chart- abstracted process of care measures we collect and display on Hospital

Compare are based on the entire inpatient population for the hospital.

We are proposing that hospitals begin submitting as data on measures selected for the RHQDAPU program the all-patient data elements discussed in section V.A.5. of this proposed rule for 55 MS-DRGs displayed on Hospital Compare that relate to adopted RHQDAPU program measures. The specific MS-DRGs are listed below. As stated above, we believe that the addition of this data will enable us and Medicare beneficiaries to better understand and evaluate the quality of care provided by hospitals with respect to both the chart-abstracted and claims-based measures. We intend to publicly display this volume data along with the corresponding measure results on Hospital Compare.

Hospitals would begin reporting these data once annually beginning with

January 1, 2011 discharges by submitting the all-patient data elements needed to calculate MS-DRG volume to QualityNet so we can determine the volume of cases treated by a hospital for the 55 MS-DRGs currently displayed on Hospital Compare. Rather than require hospitals to group their all-patient claims data by MS-DRG category themselves, CMS would use the data to be submitted by hospitals to group the data.We invite comments on this proposal.

We also invite comment on an alternative that hospitals submit all- patient volume data based upon specific ICD-9-CM codes related to the proposed MS-DRGs rather than all data necessary to calculate the MS-

DRGs.

The proposed RHQDAPU measure set for the FY 2012 payment determination is listed below:

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We invite comment on these proposed measures for the FY 2012 payment determination. c. Proposed RHQDAPU Program Quality Measures for the FY 2013 Payment

Determination

(1) Proposed Retention of FY 2012 Payment Determination Measures for the FY 2013 Payment Determination

We generally propose to retain RHQDAPU program measures from one year to the next. Consistent with this approach, we are proposing to retain all of the proposed measures for the FY 2012 RHQDAPU payment determination, if finalized, for the FY 2013 payment determination. We invite public comment on this proposal.

(2) Proposed New Chart-Abstracted Measure for the FY 2013 Payment

Determination

We are proposing to add one new chart-abstracted measure for the FY 2013 payment determination--AMI-statin at discharge. This measure is similar to the NQF-endorsed stroke measure ``Ischemic stroke patients with LDL >/= 100 mg/dL, or LDL not measured, or, who were on cholesterol reducing therapy prior to hospitalization are discharged on a statin medication'' (NQF 0439), only specified for the AMI population. Current scientific evidence supports the continuation of statins more strongly for AMI patients than for stroke patients.

Several randomized clinical trials have proven the benefits of statin drugs (also known as HMG Co-A reductase inhibitors) in reducing the risk of death and recurrent cardiovascular events in a broad range of patients with established cardiovascular disease, including those with prior myocardial infarction. Current ACC/AHA guidelines place a strong emphasis on the initiation or maintenance of statin drugs for patients hospitalized with AMI, particularly those with LDL-cholesterol levels at or above 100 mg/dL. As a result of the strength of the evidence and guideline support, the ACC/AHA has developed a performance measure to assess this aspect of care for AMI patients.

Because statins are generally well-tolerated, most AMI patients are appropriate candidates for this therapy. As a result of this clinical evidence, the NQF has been asked to review whether it should broaden the current endorsed measure specification to include the AMI population. This ad hoc review is occurring now and is expected to be completed prior to publication of the FY 2011 IPPS/LTCH PPS final rule.

Information on this project can be found at: http:// www.qualityforum.org/Projects/a-b/Ad_Hoc_Reviews/Statin_Medication/

Ad_Hoc_Review__Discharged_on_Statin.aspx. We will decide whether to finalize this measure based on whether it achieves NQF endorsement and public comments. We believe that minimal additional burden would result from adoption of this measure into the RHQDAPU program because the AMI population that is the focus of this measure is already part of data collection efforts for RHQDAPU, and very few additional data elements would be needed to be abstracted for the proposed new measure on this existing measurement population. We proposed that hospitals would begin submission of data for the AMI-statin at discharge measure beginning with January 1, 2011 dischares for the RHQDAPU 2013 payment determination.

(3) Proposed New Healthcare Associated Infection (HAI) Measures for the

FY 2013 Payment Determination

In the FY 2009 and FY 2010 IPPS rulemakings, we listed several

Healthcare Associated Infection (HAI) measures as being under consideration for future adoption. Commenters to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule supported the HAI measures that were listed as being under consideration for the future and encouraged CMS to consider others as well (74 FR 43876). For the measure set to be used for the FY 2013 payment determination, we are proposing to adopt two new measures of Healthcare Acquired Infections that are currently being collected by the CDC via the National Healthcare Safety Network (NHSN).

These measures are: (1) Central Line Associated Blood Stream Infection

(NQF 0139) and (2) Surgical Site Infection (NQF 0299).

The NHSN is a secure, Internet-based surveillance system maintained and managed by the CDC, and can be

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utilized by all types of healthcare facilities in the United States, including acute care hospitals, long term acute care hospitals, psychiatric hospitals, rehabilitation hospitals, outpatient dialysis centers, ambulatory surgery centers, and long term care facilities. The

NHSN enables healthcare facilities to collect and use data about HAIs, adherence to clinical practices known to prevent HAIs, the incidence or prevalence of multidrug-resistant organisms within their organizations, and other adverse events. Some States use NHSN as a means for healthcare facilities to submit data on HAIs mandated through their specific State legislation. Currently, 21 States require hospitals to report HAIs using NHSN, and CDC supports more than 2000 hospitals that are using NHSN.\9\

\9\ http://www.cdc.gov/nhsn/.

Both the Central Line Associated Blood Stream Infection measure and the Surgical Site Infection measure are NQF-endorsed, and therefore meet the statutory requirement for measure selection of reflecting consensus among affected parties. The measures address HAIs, a topic area widely acknowledged by the HHS, IOM, the National Priorities

Partnership and others as a high priority requiring measurement and improvement. HAIs are among the leading causes of death in the United

States. CDC estimates that as many as 2 million infections are acquired each year in hospitals and result in approximately 90,000 deaths per year.\10\ It is estimated that more Americans die each year from HAIs than from auto accidents and homicides combined. HAIs not only put the patient at risk, but also increase the days of hospitalization required for patients and add considerable health care costs.

\10\ McKibben L, Horan T Guidance on public reporting of healthcare-associated infections: recommendations of the Healthcare

Infection Control Practices Advisory Committee. AJIC 2005;33:217-26.

HAIs are largely preventable through interventions such as better hygiene and advanced scientifically tested techniques for surgical patients. Therefore, many health care consumers and organizations are calling for public disclosure of HAIs, arguing that public reporting of

HAI rates provides the information health care consumers need to choose the safest hospitals, and gives hospitals an incentive to improve infection control efforts. Both of the measures we are proposing to add for the FY 2013 payment determination are NQF-endorsed, and are currently collected using the NHSN as part of State-mandated reporting and surveillance requirements for hospitals. NHSN data collection occurs via a Web-based tool hosted by CDC provided free of charge to hospitals. Additionally, data submission for these measures through

EHRs may be possible in the near future.

(A) Central Line Associated Blood Stream Infection

This HAI measure assesses the rate of laboratory-confirmed cases of bloodstream infection or clinical sepsis among ICU patients. It was endorsed by the NQF in 2004 and was adopted by the HQA in 2007. The measure can be stratified by the type of ICU.

(B) Surgical Site Infection

This HAI measure assesses the number of NHSN-defined operative procedures with a surgical site infection (deep incisional or organ space) within 30 days, or 1 year if an implant is in place. Infections are identified on original admission or upon readmission to the facility of original operative procedure within the relevant time frame

(30 days for no implants; within 1 year for implants). The measure can be stratified by procedure type or risk factors. This measure was NQF- endorsed in 2007 and was adopted by the HQA in 2008.

We invite comment on our proposal to adopt these two HAI measures into the RHQDAPU program for the FY 2013 payment determination.

Collection of these measures would begin with January 1, 2011 discharges for the FY 2013 payment determination. We are proposing that hospitals use the NHSN infrastructure to report the measures for

RHQDAPU program purposes. The proposed reporting mechanism for these

HAI measures is discussed in greater detail in section V.A.5. of this proposed rule.

(4) Proposed New Registry-Based Measures

For the FY 2013 payment determination, we are proposing that hospitals choose one of the following four proposed measure topics: (1)

Implantable Cardioverter Defibrillator (ICD) Complications; (2) Cardiac

Surgery; (3) Stroke; or (4) Nursing-Sensitive Care. With respect to the proposed measure topic selected by a hospital, we are proposing that the hospital report data on the proposed measure(s) applicable to the measure topic (discussed below) to a qualified registry for the specific topic, and direct the registry to both calculate the measure results for the hospital and release those results (along with the numerator/denominator information and exclusion information) to CMS for the RHQDAPU program. We are proposing that hospitals begin submitting data to the qualified registry of its choosing for discharges on or after January 1, 2011, and we intend to release a list of qualified registries before that date. In section V.A.13. of this proposed rule, we specify the self-nomination process we are proposing to use to qualify registries for each proposed registry-based measure topic.

Proposed procedural and submission requirements for the proposed registry-based measures are discussed in section V.A.5. of this proposed rule. Below is a discussion of the proposed registry-based measure topics and specific registry-based measures that fall within each topic that we are proposing to add to the RHQDAPU program for the

FY 2013 payment determination.

(A) Proposed Implantable Cardioverter Defibrillator (ICD) Complications

Registry-Based Topic and Measure

Implantable Cardioverter Defibrillators (ICDs) reduce the risk of sudden cardiac death for select high risk patients, and the number of patients undergoing ICD implantation increased from 5,600 in 1990 to 108,680 by 2005.\11\ ICD implantation is an expensive procedure performed on patients with advanced cardiovascular disease and, often, significant comorbidities. Despite improvements in technology and increasing experience with device implantation, the procedure carries a significant risk of complications,\12\ which in turn increases its cost, the patient's length of stay, and the patient's risk of mortality.\13\ In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43873 through 43875), our list of potential future quality measures under consideration included a measure of ICD complications. This measure is a risk-adjusted complication and mortality rate following implantation of ICDs in Medicare Fee for Service (FFS) patients at least 65 years of age, with complication specific outcome time frames.

The measure (NQF OT1-007-09) is currently undergoing NQF review

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under Phase 1 of a call for Patient Outcome Measures initiated in Fall of 2009. We are proposing to add the ICD complications topic and measure to the RHQDAPU measure set for collection beginning with

January 1, 2011 discharges for the FY 2013 RHQDAPU payment determination pending NQF endorsement. We anticipate that a final endorsement decision will occur in the fall of 2010, after publication of the FY 2011 IPPS/LTCH PPS final rule. Therefore, the decision whether to finalize this measure for the FY 2013 payment determination will be made in the CY 2011OPPS/ASC final rule with comment period.

\11\ Brown, D.W., Croft, J.B., et al. (2008). ``Trends in

Hospitalizations for the Implantation of Cardioverter-Defibrillators in the United States, 1990-2005.'' American Journal of Cardiology 101 (12): 1753-1755.

\12\ Hammill S and Curtis J. Publicly Reporting Implantable

Cardioverter Defibrillator Outcomes--Grading the Report Card. Circ

Arrhythmia Electrophysiol. 2008;1:235-237).

\13\ Al-Khatib SM, Greiner MA, Peterson ED, Hernandez AF,

Schulman KA, Curtis LH. Patient and Implanting Physician Factors

Associated With Mortality and Complications After Implantable

Cardioverter-Defibrillator Implantation, 2002-2005. Circ Arrhythmia

Electrophysiol. 2008;1:240-249.

The proposed ICD complications measure was developed based upon data submitted to the American College of Cardiology-National

Cardiovascular Data Registry's (ACC-NCDR) ICD registry, and data from that registry has been linked with CMS administrative claims data used to identify procedural complications. For this proposed measure, the measured outcome for each ICD index admission is one or more complications or mortality within 30 or 90 days (depending on the complication) following ICD implantation. Complications are counted in the measure only if they occur during a hospital admission.

Complications measured for 30 days include: (1) Pneumothorax or hemothorax plus a chest tube; (2) Hematoma plus a blood transfusion or evacuation; (3) Cardiac tamponade or pericardiocentesis; and (4) Death.

Complications measured for 90 days include: (5) Mechanical complications requiring a system revision; (6) Device related infection; and (7) Additional ICD implantation.

To comply with a January 2005 National Coverage Determination for

ICDs for primary prevention, all hospitals in which ICD procedures are performed are currently submitting to the ACC-NCDR ICD registry patient information needed for us to determine whether the procedure was reasonable and necessary. This requirement is documented in section 20.4 of the following Medicare National Coverage Determination Manual: http://www.cms.hhs.gov/manuals/downloads/ncd103c1_Part1.pdf. For purposes of the 2005 National Coverage Determination, we require that hospitals submit data to the ACC-NCDR ICD registry for primary prevention patients only but do not require hospitals to submit data on patients undergoing ICD implantation for secondary prevention. However, the ICD complication measure as submitted to the NQF for endorsement is specified such that it includes all ICD patients, regardless of whether they receive an ICD for the primary or secondary prevention of sudden cardiac death.

Therefore, hospitals that choose this registry-based measure topic for the RHQDAPU program would submit data on the ICD complications measure for both primary and secondary prevention patients to the qualified registry. For risk adjustment, data matching, and secondary prevention population identification purposes, we are proposing that hospitals also submit to the qualified ICD complications registry an additional 11 data elements not currently required under the NCD in order for the measure to be calculated for RHQDAPU program purposes.

In sum, we are proposing to add the ICD complications measure topic as one of four proposed measure topics that hospitals can choose from to submit required data elements to a qualified registry for the FY 2013 RHQDAPU payment determination. The only measure that we are proposing to include in this proposed topic at this time would be the

ICD complications measure. Because the ICD complications measure is a risk-adjusted outcome measure, it is necessary that all data for the measure be collected by a single qualified registry in order for that registry to be able to accurately calculate the risk adjustment model and subsequent measure results. Therefore, we are proposing to qualify one registry for this topic. Proposed registry qualification criteria are discussed in section V.A.13. of this proposed rule. We note that the ACC-NCDR ICD registry has already been qualified to receive and transmit data to CMS for a Medicare National Coverage Determination, and is currently the only registry to which hospitals submit data for this NCD. However, this would not preclude another registry from self- nominating to become a qualified registry for this proposed topic for the RHQDAPU program. Because the ICD complication measure is a risk adjusted measure, it requires that all data be collected at a single repository for calculation of the measure. Therefore, we anticipate qualifying a single registry to collect all of the data for the proposed ICD complications registry-based topic.

(B) Proposed Stroke Registry-Based Topic and Measures

We proposed to add five stroke measures to the RHQDAPU measure set in the FY 2009 IPPS proposed rule (73 FR 23648). We indicated that we would again consider these measures once NQF reviewed and endorsed the measures. Since that time, eight stroke measures received NQF endorsement in July of 2008, and in the FY 2010 IPPS/RY 2010 LTCH PPS final rule we included these measures in the list of potential future measures. We also included these measures in the preview section of the

Specifications Manual, and have worked with the Office of the National

Coordinator for Health Information Technology (ONC) and its partners to create a set of electronic specifications for these measures to facilitate collection through EHRs.

We are also aware that a number of hospitals are already submitting these measures to registries, and in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we finalized a structural measure of participation in a systematic clinical database registry for stroke care. Stroke is a topic of great relevance to the Medicare population due to its impact on morbidity and mortality, and is an area of great potential improvement for hospitals. Commenters on the FY 2010 IPPS/RY 2010 LTCH

PPS proposed rule expressed support for these measures, indicating that they accurately measure evidence-based care of the stroke patient to minimize secondary strokes and other complications, are widely recognized, and have great potential for quality improvement (74 FR 43875).

Therefore, we are proposing to include the following eight measures in the Stroke registry-based topic:

Proposed Measures for Stroke Registry-Based Topic

STK-1: Venous Thromboembolism Patients with an ischemic stroke or a

(VTE) Prophylaxis for

hemorrhagic stroke and who are non- patients with ischemic or

ambulatory should start receiving DVT hemorrhagic stroke (NQF

prophylaxis by end of hospital day two. 0434).

STK-2: Ischemic stroke

Patients with an ischemic stroke patients discharged on

prescribed antithrombotic therapy at antithrombotic therapy. (NQF discharge. 0435).

STK-3: Anticoagulation

Patients with an ischemic stroke with therapy for atrial

atrial fibrillation discharged on fibrillation/flutter. (NQF

anticoagulation therapy. 0436).

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STK-4: Thrombolytic Therapy

Acute ischemic stroke patients who arrive for Acute ischemic stroke

at the hospital within 120 minutes (2 patients. (NQF 0437).

whom IV t-PA was initiated at this hospital within 180 minutes (3 hours) of time last known well.

STK-5: Antithrombotic therapy Patients with ischemic stroke who receive by the end of hospital day

antithrombotic therapy by the end of two. (NQF 0438).

hospital day two.

STK-6: Discharged on statin

Ischemic stroke patients with LDL >/= 100 medication. (NQF 0439).

on cholesterol reducing therapy prior to hospitalization are discharged on a statin medication.

STK-8: Stroke education. (NQF Patients with ischemic or hemorrhagic 0440).

stroke or their caregivers who were given education or educational materials during the hospital stay addressing all of the following: personal risk factors for stroke, warning signs for stroke, activation of emergency.

STK-10: Assessed for

Patients with an ischemic stroke or rehabilitation services.

hemorrhagic stroke who were assessed for

(NQF 0441).

rehabilitation services.

We are proposing to add the stroke registry-based topic, which would include these eight registry-based stroke measures, to the

RHQDAPU program measure set as one of the four proposed measure topics that hospitals can choose from to submit data to a qualified registry for the FY 2013 payment determination beginning with January 1, 2011 discharges. We invite comment on the measures as well as the timing of their addition to the RHQDAPU measure set.

(C) Proposed Nursing Sensitive Care Registry-Based Topic and Measures

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we indicated that we were considering adopting a number of nursing-sensitive care measures for future RHQDAPU program payment determinations. Also in that rule, we adopted a structural measure of participation in a registry for nursing-sensitive care, under which hospitals submit data directly to the QIO Clinical Warehouse.

For the FY 2013 payment determination, we are proposing to add a nursing sensitive care registry-based topic to the RHQDAPU measure set, which would include the eight nursing-sensitive care measures listed below. All of the proposed nursing sensitive measures are NQF-endorsed.

Hospitals selecting this topic would begin reporting data on the eight proposed nursing-sensitive care registry-based measures to a qualified nursing-sensitive care registry beginning with January 1, 2011 discharges. Hospitals would continue reporting the nursing-sensitive care structural measure previously adopted for the RHQDAPU program directly to the QIO Clinical Warehouse.

We invite comment on the proposed addition of a nursing sensitive care registry-based topic, which would include 8 proposed nursing sensitive care measures, as well as the timing of this addition to the

RHQDAPU program for the FY 2013 payment determination.

Proposed Measures for Nursing Sensitive Care Registry-Based Topic

Patient Falls: All documented falls with or without injury, experienced by patients on an eligible unit in a calendar month. (NQF 0141).

Falls with Injury: All documented patient falls with an injury level of minor or greater. (NQF 0202).

Pressure Ulcer Prevalence (NQF 0201).

Restraint Prevalence (vest and limb) (NQF 0203).

Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/

Agency (NQF 0204).

Hours per patient day worked by RN, LPN, and UAP (NQF 0205).

Practice Environment Scale-Nursing Work Index (NQF 0206).

Voluntary turnover for RN, APN, LPN, UAP (NQF 0207).

(D) Proposed Cardiac Surgery Registry-Based Topic and Measures

We have previously proposed to add several measures on the topic of cardiac surgery to the RHQDAPU measure set (73 FR 48608), and have also listed a set of NQF-endorsed cardiac surgery measures in prior rules as being under consideration for future adoption (74 FR 43874). We also adopted a structural measure of cardiac surgery participation in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Cardiac surgery procedures carry a significant risk of morbidity and mortality. We believe that the nationwide public reporting of the 15 proposed cardiac surgery registry-based measures would provide highly meaningful information for

Medicare beneficiaries because they address procedures widely performed on Medicare beneficiaries. Analysis of the structural measure data we have received from hospitals indicates that nearly 90 percent of hospitals performing these procedures already report these data to clinical registries. Therefore, if we adopt this proposed registry- based topic, a hospital would not face any additional data submission burden if it chooses this registry-based topic for purposes of the FY 2013 payment determination and the registry to which it already submits data is qualified for this proposed topic.

For the FY 2013 payment determination, we are proposing to include 15 cardiac surgery registry-based measures in the cardiac surgery registry-based measure topic. These proposed registry-based measures are listed below, and hospitals would submit data on these measures to a qualified registry for the cardiac surgery registry-based topic.

Hospitals would continue submitting data for the cardiac surgery structural measure previously adopted for the RHQDAPU program directly to the QIO Clinical Warehouse.

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Proposed Measures for Proposed Cardiac Surgery Registry-Based Topic

Post-operative Renal Failure (NQF0114).

Surgical Re-exploration (NQF0115).

Anti-Platelet Medication at Discharge (NQF0116).

Beta Blockade at Discharge (NQF0117).

Anti-Lipid Treatment Discharge (NQF0118).

Risk-Adjusted Operative Mortality for Coronary Artery Bypass Graft CABG

(NQF0119)*.

Risk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR)

(NQF0120)*.

Risk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair

(MVR) (NQF0121)*.

Risk-Adjusted Operative Mortality MVR+CABG Surgery (NQF0122)*.

Risk-Adjusted Operative Mortality for AVR+CABG (NQF0123)*.

Pre-Operative Beta Blockade (NQF0127).

Duration of Prophylaxis for Cardiac Surgery Patients (NQF 0128).

Prolonged Intubation (ventilation) (NQF0129).

Deep Sternal Wound Infection Rate (NQF0130).

Stroke/Cerebrovascular Accident (NQF0131).

* Requires risk adjustment.

Because these measures were endorsed by the NQF in May of 2007, they meet the statutory requirement of reflecting consensus among affected parties. Hospitals selecting this topic would begin submitting data on the proposed measures to a qualified cardiac surgery registry beginning with January 1, 2011 discharges. We note that five of these measures (indicated with an asterisk in the table above) must be risk- adjusted in order to be calculated properly. Therefore, the data needed to calculate these measures must be collected by a single registry.

While the remaining measures do not require risk adjustment, we believe it may be overly burdensome for hospitals to submit data for this topic to more than one registry. For this reason, we anticipate qualifying a single registry to collect all of the data for the proposed cardiac surgery registry-based topic. We invite comment on this proposal.

Set out below are the RHQDAPU program topics and quality measures we are proposing to adopt for the FY 2013 payment determination:

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BILLING CODE 4120-10-C d. Proposed RHQDAPU Program Quality Measures for the FY 2014 Payment

Determination

(1) Proposed Retention of FY 2013 Payment Determination Measures for the FY 2014 Payment Determination

We are proposing to retain all of the measures adopted for the FY 2013 payment determination for the FY 2014 payment determination.

Collection of data for these measures would begin with January 1, 2012 discharges. We invite comment on this proposal.

(2) Proposed New Chart-Abstracted Measures for the FY 2014 Payment

Determination

We also are proposing to add the following 4 new chart-abstracted measures to the RHQDAPU program measure set for the FY 2014 payment determination: (1) ED [Emergency Department]Throughput--Admit Decision

Time to ED Departure Time for Admitted Patients (NQF 0497);

(2) ED Throughput--Median time from emergency department arrival to ED departure for admitted patients (NQF 0495); (3) Global Flu

Immunization; and (4) Global Pneumonia Immunization. In proposing to adopt these chart-abstracted measures, we recognize that we are proposing to increase the chart-abstraction burden on hospitals with respect to the RHQDAPU program. However, the burden associated with the proposed immunization measures for all inpatients could be counterbalanced by future retirement of the two current immunization measures that apply only to pneumonia inpatients. This measure retirement option is discussed earlier in section V.A.2. of this proposed rule. Furthermore, we note that the ED-Throughput measures have been specified for EHR-based collection, which may also serve to reduce burden associated with these measures in the future.

(A) Emergency Department (ED)-Throughput Measures

The two ED-Throughput measures we are proposing for the FY 2014 payment determination are: (1) Median time from admit decision time to time of departure from the emergency department for emergency department patients admitted to inpatient status; and (2) Median time from emergency department arrival to time of departure from the emergency room for patients admitted to the facility from the emergency department.

The ED-Throughput measures reflect not only the processes of care that occur while the patient is in the emergency department, but also reflect the coordination of care, communication, and efficiency of service provision beyond the walls of the emergency department. These measures have been NQF-endorsed (NQF 0497 and 0495) and adopted by HQA. Specifications for these measures are available in the preview section of the current Specifications Manual available on

QualityNet.

These measures also address ED overcrowding, which the IOM identified as a major quality issue. Reducing the time patients remain in the ED can improve access to treatment and increase the quality of care, and capability of the hospital to provide adequate treatment to patients. ED overcrowding may result in delays in the administration of medication such as antibiotics for pneumonia and has been associated with perceptions of compromised emergency care. For patients with non-

ST-segment-elevation myocardial infarction, long ED stays were associated with decreased use of guideline-recommended therapies and a higher risk of recurrent myocardial infarction. Overcrowding and heavy emergency resource demand have led to a number of problems, including ambulance refusals, prolonged patient waiting times, increased suffering for those who wait, rushed and unpleasant treatment environments, and potentially poor patient outcomes. Finally, when EDs are overwhelmed, their ability to respond to community emergencies and disasters may be compromised.

(B) Global Immunization Measures

For the FY 2014 payment determination, we are proposing to adopt two global immunization measures: (1) Pneumoccocal Immunization; and

(2) Influenza Immunization. Increasing influenza (flu) and pneumonia vaccination could reduce unnecessary hospitalizations and secondary complications particularly among high risk populations such as the elderly. About 36,000 adults die annually and over 200,000 are hospitalized for flu-related causes. Older adults are more vulnerable, and adults over 65 comprise about 90 percent of flu-related deaths.

Vaccinations can significantly reduce the number of flu related illnesses and deaths. The measures we are proposing were endorsed by the NQF as part of a

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consensus development project titled ``National Voluntary Consensus

Standards for Influenza and Pneumococcal Immunizations'' which concluded in 2008. This project resulted in the endorsement of immunization measures that reflect current consensus among affected parties that standard measure specifications for influenza and pneumonia immunization should be broadly applicable across conditions, populations, and care settings. The technical specifications for these global measures will be available for preview in the Specifications

Manual published in April 2010. The difference between these proposed immunization measures, and the two immunization measures that are currently part of the RHQDAPU program is that the current measures only apply to inpatients admitted for pneumonia, whereas the proposed measures apply to all inpatients regardless of admission diagnosis.

We are proposing to adopt these four chart-abstracted measures into the RHQDAPU program measure set for the FY 2014 payment determination.

Data submission for these measures would begin with January 1, 2012 discharges. We invite comment on these proposed measures as well as the proposed timing of their addition to the RHQDAPU program for the FY 2014 payment determination. The complete list of proposed quality measures for the FY 2014 payment determination is set out below.

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We are inviting public comment on the following quality measures and topics set out below that we are considering for the future. We also are seeking suggestions and rationales to support the adoption of measures and topics that are not included in this list for the RHQDAPU program.

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BILLING CODE 4120-01-C 5. Form, Manner, and Timing of Quality Data Submission

Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment update for FY 2007 and each subsequent fiscal year be reduced by 2.0 percentage points for any subsection (d) hospital that does not submit quality data in a form and manner, and at a time, specified by the Secretary. The data submission requirements,

Specifications Manual, and submission deadlines are posted on the

QualityNet Web site at: http://www.QualityNet.org/. CMS requires that hospitals submit data in accordance with the specifications for the appropriate discharge periods.

Hospitals submit quality data through the secure portion of the

QualityNet Web site (formerly known as QualityNet Exchange) (https:// www.QualityNet.org). This Web site meets or exceeds all current Health

Insurance Portability and Accountability Act (HIPAA) requirements for security of protected health information. a. Proposed RHQDAPU Program Requirements for FY 2012, FY 2013, and FY 2014

(1) Procedural Requirements for the FY 2012, FY 2013, and FY 2014

Payment Determinations

For the FY 2012, FY 2013, and FY 2014 payment determination, we are proposing that the following procedures would apply to hospitals participating in the RHQDAPU program. These procedures are, for the most part, the same as the procedures that apply to the FY 2011 payment determination. We identify below where we are proposing to modify a procedure.

Register with QualityNet, before participating hospitals initially begin reporting data, regardless of the method used for submitting data.

Identify a QualityNet Administrator who follows the registration process located on the QualityNet Web site (http:// www.QualityNet.org).

Complete a Notice of Participation. New subsection (d) hospitals and existing hospitals that wish to participate in the

RHQDAPU program for the first time must complete a revised ``Reporting

Hospital Quality Data for Annual Payment Update Notice of

Participation'' form (Notice of Participation form) that includes the name and address of each hospital campus that shares the same CMS

Certification Number (CCN). We will revise the Notice of Participation form as needed and will provide appropriate notification of any revisions to hospitals and QIOs through the routine RHQDAPU communication channels which include memo and e-mail notification and

QualityNet Web site articles and postings.

We are proposing that, consistent with our policy for the FY 2011 payment determination, any hospital that receives a new CCN on or after

October 15, 2009 (including new subsection (d) hospitals and hospitals that have merged) that wishes to participate in the RHQDAPU program and has not otherwise submitted a Notice of Participation form using the new CCN must submit a completed Notice of Participation form no later than 180 days from the date identified as the open date (that is, the

Medicare acceptance date) on the approved CMS Online System

Certification and Reporting (OSCAR) system to participate in the

RHQDAPU program for FY 2012 and future years. We believe that this deadline will give these hospitals a sufficient amount of time to get their operations up and running while simultaneously providing CMS with clarity regarding whether they intend to participate in the RHQDAPU program for FY 2012.

(2) Synchronization of RHQDAPU Program Data Submission and Validation

Quarters With Quarters Used To Make Payment Determinations

Currently we determine, in part, whether a hospital has met the

RHQDAPU program requirements for a given fiscal year by looking at whether the hospital properly submitted data with respect to a number of quarterly discharge periods. However, the quarters that we look at for HCAHPS data, chart-abstracted RHQDAPU program measures, and structural measures may not be the same for a single payment determination. For example, for the FY 2011 payment

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determination, we looked at discharge data submitted by hospitals from 4th quarter 2008 through 3rd quarter 2009 for AMI, HF, and PN chart- abstracted RHQDAPU program measures, 1st quarter 2010 for the newly added SCIP Infection 9 and 10 measures, April 2008 through March 2009 data for HCAHPS, and January 1, 2010 through June 30, 2010 data for structural measures.

This lack of synchronization has developed because we have generally made payment decisions using the four earliest occurring discharge quarters for each measure topic that we did not include in a previous year's payment determination, and we have not synchronized when hospitals must begin reporting data on new measures.

Starting with the FY 2013 payment determination, we are proposing to determine whether the hospital meets the data submission requirement for quality measure data by looking at whether the hospital properly submitted data on the applicable measures during the same quarterly discharge periods. Specifically, the quarterly discharge periods that will apply to a particular payment determination will be the four quarters that occur within a calendar year. In other words, beginning with the FY 2013 payment determination, we will look at whether the hospital properly submitted data for quality measure data for the four calendar year quarters of CY 2011.

With respect to our requirement that hospital data be successfully validated in order for the hospital to earn the full payment update for a given fiscal year, we are also proposing, beginning with the FY 2013 payment determination, to validate four discharge quarters, but the quarters will be the 4th calendar quarter of the calendar year that occurs two years before the payment determination and the first 3 calendar quarters of the following calendar year. Thus, for the FY 2013 payment determination, we will validate data from the 4th calendar quarter of 2010 through the 3rd calendar quarter of 2011. We believe this is appropriate given the time required for the validation abstraction and appeal process.

This proposed synchronization will give us a more complete picture of the quality of care provided by a hospital during a given time period, thus enabling us to link that quality of care to the applicable

RHQDAPU payment determination. In addition, this proposal will provide clarity to hospitals regarding what data we will look at to make payment determinations for a given fiscal year. We believe that this synchronization will also assist us to more effectively implement the

RHQDAPU program because we will be able to achieve operational consistency regarding what data applies to what payment determination.

Further, we believe that this proposal may assist the agency in implementing Hospital Value-Based Purchasing as authorized by the

Patient Protection and Affordable Care Act, Public Law 111-148, because it will improve the link between quality, as measured during a single period of time, and the payment amounts provided to hospitals. For example, under our proposal, the HCAHPS patient experience of care measure and chart-abstracted measures for a single set of discharge quarters will be used together for a single payment determination.

Finally, we believe that this proposal will improve hospitals' ability to implement quality improvement strategies that affect RHQDAPU program measures and their quality of care.

We will post a table outlining the discharge quarters that will be used to make each fiscal year payment determination no later than

September 15th annually on the QualityNet Web site (http:// www.QualityNet.org). We welcome comments on this proposal.

(3) Proposed HCAHPS Requirements for the FY 2012, FY 2013 and FY 2014

Payment Determinations

We are proposing that, for the FY 2012, FY 2013 and FY 2014 payment determinations, except as noted below, the RHQDAPU program HCAHPS requirements we adopted for FY 2011 would continue to apply. Under these requirements, a hospital must continuously collect and submit

HCAHPS data in accordance with the current HCAHPS Quality Assurance

Guidelines and the quarterly data submission deadlines, both of which are posted at http://www.hcahpsonline.org. In order for a hospital to participate in the collection of HCAHPS data, a hospital must either:

(1) Contract with an approved HCAHPS survey vendor that will conduct the survey and submit data on the hospital's behalf to the QIO Clinical

Warehouse; or (2) self-administer the survey without using a survey vendor provided that the hospital attends HCAHPS training and meets

Minimum Survey Requirements as specified on the Web site at: http:// www.hcahpsonline.org. A current list of approved HCAHPS survey vendors can be found on the HCAHPS Web site at: http://www.hcahpsonline.org.

We are proposing that the FY 2012 payment determination for the

RHQDAPU program for HCAHPS will be based on discharges from April 1, 2010 through December 31, 2010.

We are proposing that the FY 2013 payment determination for the

RHQDAPU program for HCAHPS will be based on discharges from January 1, 2011 through December 31, 2011.

We are proposing that the FY 2014 payment determination for the

RHQDAPU program for HCAHPS will be based on discharges from January 1, 2012 through December 31, 2012.

Every hospital choosing to contract with a survey vendor should provide the sample frame of HCAHPS-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 Quality Assurance Guidelines located at http://www.hcahpsonline.org for details about HCAHPS eligibility and sample frame creation.) In addition, the hospital must authorize the survey vendor to submit data via My QualityNet, the secure part of the

QualityNet Web site, on the hospital's behalf.

After the survey vendor submits the data to the QIO Clinical

Warehouse, we strongly recommend that hospitals employing a survey vendor promptly review the two HCAHPS Feedback Reports (the Provider

Survey Status Summary Report and the Data Submission Detail Report) that are available. These reports enable a hospital to ensure that its survey vendor has submitted the data on time and the data has been accepted into the QIO Clinical Warehouse.

Any hospital that has five or fewer HCAHPS-eligible discharges in any month is no longer required to submit HCAHPS surveys for that month, although the hospital may voluntarily choose to submit these data. However, the hospital still must submit its total number of

HCAHPS-eligible cases for that month to the QIO Clinical Warehouse as part of its quarterly HCAHPS data submission.

In order to ensure compliance with HCAHPS survey and administration protocols, hospitals and survey vendors must participate in all oversight activities. As part of the oversight process, during the onsite visits or conference calls, the HCAHPS Project Team will review the hospital's or survey vendor's survey systems and assess protocols based upon the most recent HCAHPS Quality Assurance Guidelines. All materials relevant to survey administration will be subject to review.

The systems and program review includes, but is not limited to: (a)

Survey management and data systems; (b) printing and mailing materials and facilities; (c) telephone

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and IVR materials and facilities; (d) data receipt, entry and storage facilities; and (e) written documentation of survey processes.

Organizations will be given a defined time period in which to correct any problems and provide follow-up documentation of corrections for review. As needed, hospitals and survey vendors will be subject to follow-up site visits or conference calls. If CMS determines that a hospital is not compliant with HCAHPS program requirements, CMS may determine that the hospital is not submitting HCAHPS data that meet the requirements of the RHQDAPU program.

We continue to strongly recommend 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. New hospitals can conduct a dry run in the last month of a calendar quarter. The dry run will give newly participating hospitals the opportunity to gain first-hand experience collecting and transmitting HCAHPS data without the public reporting of results. Using the official survey instrument and the approved modes of administration and data collection protocols, hospitals/survey vendors will collect

HCAHPS dry-run data and submit the data to My QualityNet, the secure portion of QualityNet.

We are again encouraging hospitals to regularly check the HCAHPS

Web site at http://www.hcahpsonline.org for program updates and information. b. Additional Proposed RHQDAPU Program Procedural Requirements for the

FY 2012, FY 2013 and FY 2014 Payment Determinations

(1) Chart-Abstracted Measures For Which Data Is Submitted Directly to

CMS (via QualityNet)

Hospitals must begin submitting RHQDAPU program data starting with the first day of the quarter following the date when the hospital registers to participate in the program. For purposes of meeting this requirement, we interpret the registration date to be the date that the hospital submits a completed Notice of Participation form. As proposed previously in this section, hospitals must also register with

QualityNet and identify a QualityNet Administrator who follows the

QualityNet registration process before submitting RHQDAPU program data.

Hospitals must continuously collect and report data to CMS (via

QualityNet) for each of the quality measures under the topic areas that require chart abstraction (and are not registry-based topic areas). For the FY 2012 and FY 2013 payment determinations, the proposed topic areas are AMI, HF, PN, and SCIP. For the FY 2014 payment determination, the proposed topic areas are AMI, HF, PN, SCIP, Emergency Department

Throughput (EDT), and Global Immunization (GIM).

For FY 2012, we are proposing that hospitals must submit data for five calendar year discharge quarters as follows: 4Q CY 2009, 1Q CY 2010 (AMI, HF and PN only), 2Q CY 2010, 3Q CY 2010 and 4Q CY 2010. For the FY 2013 payment determination, we are proposing that hospitals must submit data for four consecutive calendar year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q CY 2011 and 4Q CY 2011. For the FY 2014 payment determination, hospitals must submit data for four consecutive calendar year discharge quarters as follows: 1Q CY 2012, 2Q

CY 2012, 3Q CY 2012 and 4Q CY 2012. Hospitals must report these data by each quarterly deadline.

Hospitals must submit the data to the QIO Clinical Warehouse using the CMS Abstraction & Reporting Tool (CART), The Joint Commission

ORYX[supreg] Core Measures Performance Measurement System, or another third-party vendor tool that meets the measurement specification requirements for data transmission to QualityNet. All submissions will be executed through My QualityNet, the secure part of the QualityNet

Web site. Because the information in the QIO Clinical Warehouse is considered QIO information, it is subject to the stringent QIO confidentiality regulations in 42 CFR Part 480. The QIO Clinical

Warehouse will submit the data to CMS on behalf of the hospitals.

Hospitals must submit complete data for each quality measure that requires chart abstraction in accordance with the joint CMS/The Joint

Commission sampling requirements located on the QualityNet Web site.

These requirements specify that hospitals must submit a random sample or complete population of cases for each of the topics covered by the quality measures. Hospitals must meet the sampling requirements for these quality measures for discharges in each quarter.

For the FY 2012 payment determination, we are proposing that hospitals must submit population and sampling data for three consecutive calendar year discharge quarters as follows: 2Q CY 2010, 3Q

CY 2010 and 4Q CY 2010.

For the FY 2013 payment determination, we are proposing that hospitals must submit population and sampling data for four consecutive calendar year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q

CY 2011 and 4Q CY 2011.

For the FY 2014 payment determination, we are proposing that hospitals must submit population and sampling data for four consecutive calendar year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q

CY 2012 and 4Q CY 2012.

Hospitals must submit to CMS on a quarterly basis aggregate population and sample size counts for Medicare and non-Medicare discharges for the topic areas for which chart-abstracted data must be submitted (currently AMI, HF, PN, and SCIP). For clarification, we are proposing that hospitals are required to submit a numeric representation of their aggregate population and sample size count for each topic area even if the hospital has not treated patients in a specific topic area. For example, if a hospital has not treated AMI patients, the hospital is still required to submit a zero for its quarterly aggregate population and sample count for that topic in order to meet the requirement.

In order to reduce the burden on hospitals that treat a low number of patients in a RHQDAPU program topic area, a hospital that has five or fewer discharges (Medicare and non-Medicare combined) in a topic area during a quarter in which data must be submitted is not required to submit patient-level data for that topic area for the quarter. The hospital must still submit its aggregate population and sample size counts for Medicare and non-Medicare discharges for the topic areas each quarter. We also note that hospitals meeting the five or fewer patient discharge exception may voluntarily submit these data.

The quarterly data submission deadline for hospitals to submit patient level data for the proposed measures that require chart abstraction is 4[frac12] months following the last discharge date in the calendar quarter. CMS will post the quarterly submission deadline schedule on the QualityNet Web site (http://www.QualityNet.org). Chart- abstracted measures have not been added for the FY 2012 payment determination. The collection of new chart-abstracted measures proposed for the FY 2013 payment determination would begin with the 1st calendar quarter 2011 discharges, for which the submission deadline would be

August 15, 2011. The collection of new chart-abstracted measures proposed for the FY 2014 payment determination would begin with the 1st calendar quarter 2012 discharges, for which the submission deadline would be August 15, 2012. Hospitals must comply with the

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discharge quarter submission deadlines in any fiscal year for each quarter for which data submission is required (Quarter 1--August 15th;

Quarter 2--November 15th; Quarter 3--February 15th; Quarter 4--May 15th).

The data submission deadline for hospitals to submit aggregate population and sample size count data for the measures requiring chart abstraction is four months following the last discharge date in the calendar quarter. This requirement allows CMS to advise hospitals regarding their submission status in enough time for them to make appropriate revisions before the data submission deadline. We will post the aggregate population and sample size count data submission deadlines on the QualityNet Web site (http://www.QualityNet.org).

CMS strongly recommends that hospitals review the QIO Clinical

Warehouse Feedback Reports and the RHQDAPU Program Provider

Participation Reports that are available after patient level data are submitted to the QIO Clinical Warehouse. CMS generally updates these reports on a daily basis to provide accurate information to hospitals about their submissions. These reports enable hospitals to ensure that their data were submitted on time and accepted into the QIO Clinical

Warehouse.

(2) Data Submission Requirements for HCAHPS

Hospitals must continuously collect and submit HCAHPS data in accordance with the current HCAHPS Quality Assurance Guidelines, which can be found on the HCAHPS Web site, http://www.hcahpsonline.org. The

QIO Clinical Warehouse is able to accept submissions indicating zero

HCAHPS-eligible discharges in a month. A hospital with zero HCAHPS- eligible discharges in a month must submit a zero as its total number of HCAHPS-eligible cases to the QIO Clinical Warehouse for that month as part of its quarterly HCAHPS data submission.

In order to reduce the burden on hospitals that treat a low number of patients that would be otherwise covered by the HCAHPS submission requirements, a hospital that has five or fewer HCAHPS-eligible discharges during a month is not required to submit HCAHPS surveys for that month. However, hospitals that meet this exception may voluntarily submit this data. A hospital with five or fewer HCAHPS-eligible discharges must submit its number of HCAHPS-eligible cases to the QIO

Clinical Warehouse for the month(s) in which it had five or fewer

HCAHPS-eligible discharges as part of its quarterly HCAHPS data submission.

(3) Procedures for Claims-Based Measures

Hospitals are encouraged to regularly check the QualityNet Web site, http://www.QualityNet.org, for program updates and information.

The following RHQDAPU program claims-based measures would be calculated using Medicare claims:

BILLING CODE 4120-01-P

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GRAPHIC

TIFF OMITTED TP04MY10.044

BILLING CODE 4120-01-C

For the claims-based RHQDAPU program measures listed above, hospitals are not required to submit the data to the QIO Clinical Warehouse. CMS uses the existing Medicare fee-for-service claims to calculate the measures. For the FY 2012 payment determination, CMS would use up to 3 years of discharges prior to January 1, 2011 (as appropriate for the measure), to calculate the 30-day mortality and 30-day readmission measures AHRQ PSI, IQI and Composite measures (including the AHRQ PSI and Nursing Sensitive Care measure, Death among surgical inpatients with serious, treatable complications), and the proposed new HAC

Measures. For the FY 2013 and FY 2014 payment determinations, CMS would use up to 3 years of discharges (as appropriate for the measure) prior to January 1, 2012, and January 1, 2013 respectively. Hospitals are required to appropriately report the POA indicator in conjunction with

ICD-9-CM coding to determine the presence of HACs so that the proposed

HAC measures can be calculated for the RHQDAPU program using Medicare claims.

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(4) Data Submission Requirements for Structural Measures

We are proposing that for the FY 2012 payment determination, hospitals submit the required registry participation information once for the structural measures via a Web-based collection tool between July 1, 2011-August 15, 2011 with respect to the time period of July 1, 2010 through December 31, 2010.

Below is the list of structural measures we are proposing to adopt for the FY 2012 payment determination:

FY 2012 payment determination: Proposed

Topic

structural measures

Cardiac Surgery.............. Participation in a Systematic

Database for Cardiac Surgery.

Stroke Care.................. Participation in a Systematic

Clinical Database Registry for Stroke

Care.

Nursing Sensitive Care....... Participation in a Systematic

Clinical Database Registry for Nursing

Sensitive Care.

(5) Data Submission of All-Patient Volume Data for Selected MS-DRGs

Related to RHQDAPU Program Measures

For submission of the all-patient volume data for selected MS-DRGs, we are proposing that hospitals submit patient level information needed for CMS to apply the MS-DRG grouper software to calculate the all- patient MS-DRG volumes, the data elements for which would be defined in the Specifications Manual. Hospitals would begin submitting this data quarterly via QualityNet beginning with January 1, 2011 discharges.

We invite comment on an alternative that hospitals submit hospital- level all-patient volume data based upon specific ICD-9-CM codes that are related to the selected MS-DRGs (rather than the patient-level data) necessary for CMS to calculate the MS-DRGs. Hospitals would begin submitting this data quarterly via QualityNet beginning with January 1, 2011 discharges.

(6) Proposed Data Submission and Reporting Requirements for HAI

Measures Reported via NHSN

We are proposing that hospitals participating in RHQDAPU submit the data elements needed to calculate the Central Line Associated Blood

Stream Infection and Surgical Site Infection measures to the NHSN using the standard procedures that have been set forth by CDC for NHSN participation in general and for submission of these two measures to

NHSN in particular. This would include NHSN participation forms and indications to CDC allowing CMS to access data for these two measures for RHQDAPU program purposes, adherence to training requirements, use of standard CDC measure specifications, data element definitions, data collection requirements and instructions, and data reporting timeframes. Detailed requirements for NHSN participation, measure specifications, and data collection can be found at http://www.cdc.gov/ nhsn/. Hospitals must use the current specifications and data collection tools available on the CDC Web site to submit data for the

Central Line Associated Bloodstream Infection and Surgical Site

Infection measures. We are proposing that hospitals would submit data for these two measures to CDC's NHSN on a monthly basis for discharges occurring on or after January 1, 2011.

For the FY 2013 payment determination, we are proposing that hospitals must submit HAI data via the NHSN for four consecutive calendar year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q

CY 2011 and 4Q CY 2011.

For the FY 2014 payment determination, hospitals must submit HAI data for four consecutive calendar year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q CY 2012 and 4Q CY 2012.

We are proposing that once quarterly each hospital would utilize an automated report function that will be made available to submitters in the NHSN, to generate a quarterly report containing hospital-level numerator, denominator, and exclusion counts for these two CDC measures specifically for the RHQDAPU program. The CDC will create this automated RHQDAPU report function and add it to NHSN's reporting functionalities in the next few months. While hospitals may be reporting other data elements to CDC for other reporting programs (that is: State mandated surveillance programs), the quarterly RHQDAPU report that would be generated within NHSN would only contain those data elements needed to calculate the two measures currently being proposed for the RHQDAPU program. CMS will access the reports in the NHSN and will compile the reports for RHQDAPU program and public reporting purposes.

We invite comment on the proposed mechanism for submitting data for the Central Line Associated Blood Stream Infection measure and the

Surgical Site Infection measure for the RHQDAPU program beginning with the FY 2012 payment determination.

(7) Data Submission Requirements for Registry-Based Measures

We are proposing that hospitals participating in RHQDAPU would be required to choose at least one of four registry based measure topics

(ICD Complications, Stroke, Nursing Sensitive Care, or Cardiac

Surgery), and would submit the data needed to calculate the measures included in the chosen registry-based topic to a qualified registry in order to meet the requirements to receive the full FY 2013 annual payment update.

We are proposing that hospitals then would arrange to have the qualified registry calculate the measures and submit to the QIO

Clinical Warehouse the results, as well as the numerator, denominator, and exclusions. Any arrangement reached between the hospital and the qualified registry must comply with HIPAA. The qualified registry would also submit registry-derived hospital-level measure calculations to the

QIO Clinical Warehouse using a CMS-specified record layout and file format that we will make available.

Our program and its data system must maintain compliance with HIPAA requirements for requesting, processing, storing, and transmitting data. For the FY 2013 RHQDAPU payment determination, hospitals would need to submit data for the proposed registry-based measures to the qualified registry in the form and manner and by the deadline(s) specified by the registry.

CMS will begin qualifying registries for the four proposed registry-based topics so that hospitals may begin submitting data for discharges beginning January 1, 2011. Proposed registry qualification criteria are discussed in a section V.A.13. of this proposed rule. We are proposing to post on the RHQDAPU program section of the QualityNet

Web site http://www.qualitynet.org a list of qualified registries for the FY 2013 RHQDAPU payment determination, including the registry name, contact information, and the measure(s) that the registry has been

Page 23991

qualified to collect and report for the RHQDAPU program.

We anticipate posting the list of qualified FY 2011 registries as soon as we have completed vetting the registries interested in participating in the FY 2013 RHQDAPU program payment determination and identified the qualified registries for the FY 2013 RHQDAPU program payment determination, which we anticipate will be completed by

December 31, 2010. Specific data submission requirements for the registry-based measures are discussed below:

(A) Hospitals That Choose To Report the ICD Complications Measure

If the hospital chooses the ICD Complications measure, it would submit specified data elements for specified populations to the qualified ICD registry. We intend to establish criteria and begin qualifying registries for this topic so that hospitals can begin submitting data for discharges beginning January 1, 2011. The hospital would follow the standard participation and reporting procedures set by the registry regarding the submission of data elements for the particular measures we have specified for the topic. These data elements and population definitions will be listed in the

Specifications Manual.

Hospitals must allow the qualified registry it is using to report the patient-level data to CMS in order to calculate the ICD complications measure.

(B) Hospitals That Choose To Report Either the Stroke, Nursing

Sensitive Care, or Cardiac Surgery Measures

If a hospital chooses the Stroke, Nursing Sensitive Care, or

Cardiac Surgery measure topics, it would submit data on the measures listed for these topics to a qualified registry for the topic. CMS intends to establish criteria and begin qualifying registries for these topics so that hospitals can begin submitting data for discharges beginning January 1, 2011. The hospital would follow the standard participation and reporting procedures set by the registry regarding the submission of data elements for the particular measures CMS has specified for the topic. Additionally, the hospital would agree to allow the registry to send calculations of the measures, numerator, denominator and exclusion counts to CMS for the RHQDAPU program. 6. RHQDAPU Program Disaster Extensions and Waivers

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24176), we solicited public comment about rules we could adopt that would enable hospitals to request either an extension or a waiver of various

RHQDAPU program requirements in the event of a disaster (such as a hurricane that damages or destroys the hospital).

Specifically, we welcomed public comment on the following issues:

Recommendations for rules that we could follow when considering whether to grant an extension or waiver of RHQDAPU program requirements in the event of a disaster, including suggested criteria that we should take into account (for example, specific hospital infrastructure damage, hospital closure time period, degree of destruction of medical records, impact on data vendors, and long-term evacuation of discharged patients impacting HCAHPS survey participation).

The role that QIOs and QIO support contractors should play in the event of a disaster, including communicating with affected hospitals, communicating with State hospital associations, and collecting information directly from hospitals.

How CMS extension or waiver decisions should be communicated to affected hospitals.

Any other issues commenters deem relevant to a hospital's request for an extension or waiver of RHQDAPU program requirements in the event of a disaster.

We responded to public comments in the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (74 FR 43881). We recognize that there are times when hospitals are unable to submit quality data due to extraordinary circumstances that are not within their control. It is our goal to not penalize hospitals for such circumstances and we do not want to unduly increase their burden during these times.

Therefore, we are proposing a process for hospitals to request and for CMS to grant extensions or waivers with respect to the reporting of required quality data when there are extraordinary circumstances beyond the control of the hospital. Under the proposed process, in the event of extraordinary circumstances not within the control of the hospital, for the hospital to receive consideration for an extension or waiver of the requirement to submit quality data for one or more quarters, a hospital must submit to the QIO in the hospital's State a request form that will be made available on the QualityNet Web site. The following information should be noted on the form:

Hospital CCN;

Hospital Name;

CEO and any other designated personnel contact information, including name, e-mail address, telephone number, and mailing address (must include a physical address, a post office box address is not acceptable);

Hospital's reason for requesting an extension or waiver;

Evidence of the impact of the extraordinary circumstances, including but not limited to photographs, newspaper and other media articles; and

A date when the hospital will again be able to submit

RHQDAPU data, and a justification for the proposed date.

The request form must be signed by the hospital's CEO. A request form must be submitted within 45 days of the date that the extraordinary circumstance occurred. The QIO in the hospital's state will forward the request form to CMS. Following receipt of the request form, CMS will: (1) Provide a written acknowledgement using the contact information provided in the request, to the CEO and any additional designated hospital personnel, notifying them that the hospital's request has been received; and (2) provide a formal response to the CEO and any additional designated hospital personnel using the contact information provided in the request notifying them of our decision.

This proposal does not preclude CMS from granting waivers or extensions to hospitals that have not requested them when we determine that an extraordinary circumstance, such as an act of nature (for example, hurricane), affects an entire region or locale. If CMS makes the determination to grant a waiver or extension to hospitals in a region or locale, CMS will communicate this decision through routine communication channels to hospitals, vendors and QIOs, including but not limited to issuing memos, e-mails and notices on the QualityNet Web site. We invite comment on this proposal. 7. Proposed Chart Validation Requirements for Chart-Abstracted Measures a. Chart Validation Requirements and Methods for the FY 2012 Payment

Determination

For the FY 2012 payment determination, we will use the chart validation requirements and methods that we adopted for FY 2012 in the

FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43884 through 43889).

These requirements, as well as additional information on these requirements, will be posted on the QualityNet Web site after we issue the FY 2011 IPPS/RY 2011 LTCH PPS final rule.

Specifically, we will:

Randomly select on an annual basis 800 participating hospitals that

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submitted chart-abstracted data for at least 100 discharges combined in the measure topics to be validated. To determine whether a hospital meets this ``100-case threshold,'' we will look to the discharge data submitted by the hospital during the calendar year three years prior to the fiscal year of the relevant payment determination. For example, if the 100-case threshold applied for the FY 2011 payment determination

(which it will not), the applicable measure topics would be AMI, HF,

PN, and SCIP, and we would choose 800 hospitals that submitted discharge data for at least 100 cases combined in these topics during calendar year 2008. If a hospital did not submit discharge data for at least 100 cases in these topics during CY 2008, we would not select the hospital for validation. We will announce the topic areas that apply for the FY 2012 payment determination at a later date, and we plan to select the first 800 hospitals in July 2010. We will select hospitals for the FY 2012 validation if they meet the 100-case threshold during

CY 2009. We adopted this 100-case threshold because we believe that it strikes the appropriate balance between ensuring that the selected hospitals have a large enough patient population to be able to submit sufficient data to allow us to complete an accurate validation, while not requiring validation for hospitals with a low number of submitted quarterly cases and relatively unreliable measure estimates. Based on previously submitted data, we estimate that 98 percent of participating

RHQDAPU program hospitals will meet this threshold and, thus, be eligible for validation. As noted below, we solicited comments and suggestions on how we might be able to target the remaining 2 percent of hospitals for validation.

Validate for each of the 800 hospitals a randomly selected stratified sample for each quarter of the validation period. Each quarterly sample will include 12 cases, with at least one but no more than three cases per topic for which chart-abstracted data was submitted by the hospital. However, we recognize that some selected hospitals might not have enough cases in all of the applicable topics to submit data (for example, if they have 5 or fewer discharges in a topic area in a quarter). For those hospitals, we will validate measures in only those topic areas for which they have submitted data.

For the FY 2012 payment determination, we will validate 1st calendar quarter 2010 through 3rd calendar quarter 2010 discharge data. We will validate 3 quarters of data for FY 2012 in order to provide hospitals with enough time to assess their medical record documentation and abstraction practices, and to take necessary corrective actions to improve these practices, before documenting their 1st calendar quarter 2010 discharges into medical records that may be sampled as part of this proposed validation process.

The CDAC contractor will, each quarter that applies to the validation, ask each of the 800 selected hospitals to submit 12 randomly selected medical charts from which data was abstracted and submitted by the hospital to the QIO Clinical Warehouse. We note that, under our current requirements, hospitals must begin submitting RHQDAPU program data starting with the first day of the quarter following the date when the hospital registers to participate in the program. For purposes of meeting this requirement, we interpret the registration date to be the date that the hospital submits a completed Notice of

Participation form. As proposed previously in this section, hospitals must also register with QualityNet and identify a QualityNet

Administrator who follows the QualityNet registration process before submitting RHQDAPU program data.

In addition, we will continue the following timeline with respect to CDAC contractor requests for paper medical records for the purpose of validating RHQDAPU program data. Beginning with CDAC contractor requests for second calendar quarter 2009 paper medical records, the

CDAC contractor will request paper copies of the randomly selected medical charts from each hospital via certified mail (or other trackable method that requires a hospital representative to sign for the letter), and the hospital will have 45 days from the date of the request (as documented on the request letter) to submit the requested records to the CDAC contractor. If the hospital does not comply within 30 days, the CDAC contractor will send a second certified letter to the hospital, reminding the hospital that it must return paper copies of the requested medical records within 45 calendar days following the date of the initial CDAC contractor medical record request. If the hospital still does not comply, then the CDAC contractor will assign a

``zero'' score to each measure in each missing record. The letter from the CDAC contractor is addressed to the hospital's medical record staff identified by the hospital to their state Quality Improvement

Organization (QIO). CMS recommends that hospitals routinely check with their State QIO to ensure the correct person is listed to receive the record request. If CMS has evidence from the CDAC contractor that the hospital received both letters requesting medical records (as determined by the tracking system used by the CDAC contractor), the hospital is responsible for not returning their charts and will not be able to submit charts as part of their reconsideration request.

Under the validation methodology, once the CDAC contractor receives the charts, it will re-abstract the same data submitted by the hospitals and calculate the percentage of matching RHQDAPU program measure numerators and denominators for each measure within each chart submitted by the hospital. Specifically, we will estimate the accuracy by calculating a match rate percent agreement for all of the variables submitted in all of the charts. For any selected record, a measure's numerator and denominator can have two possible states, included or excluded, depending on whether the hospital accurately included the cases in the measure numerator(s) and denominator(s). We will count each measure in a selected record as a match if the hospital-submitted measure numerator and denominator sets match the measure numerator and denominator states independently abstracted by our contractor. For example, one heart failure case from which data has been abstracted for four RHQDAPU program chart-abstracted measures (that is, HF-1, HF-2,

HF-3, and HF-4) would receive a 75-percent match if three out of four of the hospital-reported heart failure measure numerator and denominator states matched the re-abstracted numerator and denominator states. This proposed scoring approach is the same as recommended in the CMS Hospital Value-Based Purchasing Report to Congress, and is illustrated in further detail using an example in pages 83-84 of the report which can be found on our Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf.

We believe that this approach is appropriate, and it was supported by many commenters when we requested comment in the FY 2009 and FY 2010

IPPS final rules for input about the RHQDAPU program validation process

(73 FR 48622 and 48623, 74 FR 43886 and 43887).

Under the validation methodology, we will:

Use, as we currently do, each selected case as a cluster comprising one or multiple measures utilized in a validation score estimate. Each selected case will have multiple measures included in the validation score (for example, for the FY 2011 payment

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determination, a heart failure record will include 4 heart failure measures). Specifically, we will continue using the design-specific estimate of the variance for the confidence interval calculation, which, in this case, is a stratified single stage cluster sample, with unequal cluster sizes. (For reference, see Cochran, William G.:

Sampling Techniques, John Wiley & Sons, New York, chapter 3, section 3.12 (1977); and Kish, Leslie: Survey Sampling, John Wiley & Sons, New

York, chapter 3, section 3.3 (1964).) Each quarter and clinical topic is treated as a stratum for variance estimation purposes.

We believe that the clustering approach is a statistically appropriate technique for calculating the annual validation confidence interval. Because we will not be validating all hospital records, we need to calculate a confidence interval that incorporates a potential sampling error. Our clustering approach incorporates the degree of correlation at the individual data record level, because our previous validation experience indicates that hospital data mismatch errors tend to be clustered in individual data records. We have used this clustering since the inception of the RHQDAPU program validation requirement to calculate variability estimates needed for calculating confidence intervals (70 FR 47423).

Use the upper bound of a one-tailed 95 percent confidence interval to estimate the validation score; and

Require all RHQDAPU program participating hospitals selected for validation to attain at least a 75 percent validation score per quarter to pass the validation requirement.

We believe that this modified validation methodology incorporates many of the principles supported by the vast majority of commenters in response to our solicitation for public comments in the FY 2009 and FY 2010 IPPS proposed rule (73 FR 23658 through 23659, 74 FR 43886 and 43887). Specifically, we believe that the increased annual sample size per hospital will provide more reliable estimates of validation accuracy. The sample size of 12 records per quarter would provide a total of 36 records across the three sampled quarters for the FY 2012 payment determination, and 48 records in subsequent years. This estimate would improve the reliability of our validation estimate, as compared to the current RHQDAPU program annual validation sample of 20 cases per year. We also believe that modifying the validation score to reflect measure numerator and denominator accuracy will ensure that accurate data are posted on the Hospital Compare Web site.

In addition, we believe that stratified quarterly samples by topic will improve the feedback provided to hospitals. CMS will provide validation feedback to hospitals about all sampled topics submitted by the hospitals each quarter. Because all relevant data elements submitted by the hospital must match the independently re-abstracted data elements to count as a match, we reduced the passing threshold from 80 percent to 75 percent. We will use a one-tail confidence interval to calculate the validation score because we strongly believe that a one-tail test most appropriately reflects the pass or fail dichotomous nature of the statistical test regarding whether the confidence interval includes or is completely above the 75 percent passing validation score.

We also will continue to allow hospitals that fail to meet the passing threshold for the quarterly validation an opportunity to appeal the validation results to their State QIO. QIOs are currently tasked by

CMS to provide education and technical assistance about RHQDAPU program data abstraction and measures to hospitals, and the quarterly validation appeals process will provide hospitals with an opportunity to both appeal their quarterly results and receive education free of charge from their State QIO. This State QIO quarterly validation appeals process is independent of the proposed RHQDAPU program reconsideration procedures for hospital reconsideration requests involving validation for the FY 2010 payment update proposed in this proposed rule. b. Proposed Supplements to the Chart Validation Process for the FY 2013

Payment Determination and Subsequent Years

For FY 2013 and future years, we are also proposing to adopt the same validation requirements that we adopted for the FY 2012 payment determination, except as set forth below.

For FY 2013 and future years, we are proposing to modify our FY 2012 criteria by adding a targeting criterion, refining our random sample approach, and changing our data discharge quarters validated as part of our proposed synchronization of RHQDAPU timelines.

Specifically, we are proposing the following changes for FY 2013:

We are proposing to validate the data submitted by a hospital if the hospital failed the previous year's RHQDAPU program validation. We are proposing this targeting criterion to improve data accuracy for all hospitals failing our validation requirement in a previous year. We believe that this proposal is an appropriate method to ensure data accuracy, since it targets our resources on the hospitals with the least accurate data based on FY 2012 validation results. We also believe that these hospitals must correct the data inaccuracies identified in RHQDAPU validation for their internal quality improvement and RHQDAPU measures publicly reported on Hospital Compare. Our proposal allows CMS to assess the accuracy of these hospitals' data and provide feedback to hospitals until they comply with our RHQDAPU validation requirement.

Specifically, we are proposing that all hospitals selected for validation for the FY 2012 payment determination and that fail the validation will be selected for validation for the FY 2013 payment determination. Based on data analysis of past validation results, we estimate that targeting these hospitals would add about 20 to 40 hospitals to our list of validated hospitals to be selected in the FY 2013 validation sample.

For FY 2013, we also are proposing the following changes to the FY 2012 RHQDAPU validation random sample approach:

Starting in FY 2013, we are proposing to discontinue the 100 case minimum threshold for selection in the RHQDAPU 800 hospital random sample. We believe that discontinuing this requirement would improve the robustness of the RHQDAPU program validation sample by including the smallest hospitals participating in the RHQDAPU program in the sample. All hospitals successfully submitting at least one RHQDAPU case for the third calendar quarter of the year two years prior to the year to which the validation applies would be eligible to be selected for validation. For example, for the FY 2013 payment determination, we would select the sample in early 2011, and all hospitals that submitted at least one RHQDAPU case for third quarter 2010 discharges would be eligible to be selected. Starting in FY 2013, we are proposing this change to the RHQDAPU random validation sample, rather than including these hospitals in a targeted sample, to ensure that all RHQDAPU participating hospitals are equally likely to be selected in the random validation sample.

For the FY 2013 payment determination, we are proposing to modify the quarterly stratified sample selection by reallocating sample cases when a hospital has submitted fewer than three cases in a topic within a quarter. In these rare cases, we are proposing to randomly reallocate the extra sample cases to other topics with more than 3 submitted quarterly cases.

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This proposed modification is designed to ensure that CMS selects 12 cases for all hospitals in a quarter, including those hospitals specializing in only one topic. For example, an orthopedic specialty surgery hospital submitting only SCIP measure cases in a given quarter would have only SCIP measure cases randomly selected in the validation sample for that quarter. This would provide a more reliable estimate of abstraction and measure accuracy by maintaining the same 12 case total quarterly validation sample.

For the FY 2013 payment determination, we also are proposing to validate data from the 4th calendar quarter of 2010 through the 3rd calendar quarter of 2011 in accordance with our proposed synchronization of RHQDAPU data as outlined in section V.A.5.a.(2) of this proposed rule. This lag between the time a hospital submits data and the time we can validate that data is necessary because data is not due to the QIO Clinical Warehouse until 4\1/2\ months after the end of each quarter, and we need additional time to select hospitals and complete the validation process.

We are also considering additional changes to our validation approach for future years. Beginning with the FY 2014 payment determination, we are considering adding two strata to the current

RHQDAPU program validation sample of SCIP, AMI, HF, and PN cases. We are considering selecting 2 additional validation samples of 3 cases per selected hospital per quarter. One additional quarterly sample would enable us to validate the Central Line Associated Bloodstream

Infection (CLABSI) and Surgical Site Infection (SSI) measures that we are proposing to add to the RHQDAPU measure set for the FY 2013 payment determination, and the second additional quarterly sample would enable us to validate the ED-Throughput and the Immunization for Influenza and

Immunization for Pneumonia global measures that we are proposing to add to the RHQDAPU measure set for the FY 2014 payment determination. Thus, we would be validating a total of 18 records per quarter per validated hospital in six strata (1) SCIP, (2) AMI, (3) HF, (4) PN, (5) CLABSI/

SSI, and (6) ED-Throughput/Immunization measures. We are also considering requiring hospitals to sign a written form explicitly granting CMS access to their patient level data submitted for the proposed Central Line Associated Blood Stream Infection measure and the

Surgical Site Infection measure. We believe that the CLABSI/SSI stratum is necessary to validate the data in the reports that we will access from NHSN for the RHQDAPU program. We invite comment on our validation proposals and considerations.

We note that we are considering proposing, beginning with the FY 2015 payment determination, to add hospitals to our validation sample if they were open under their current CCNs in FY 2012 but not selected for validation in the three previous annual RHQDAPU validation samples.

We are considering this addition to supplement our validation approach to ensure that all eligible RHQDAPU program hospitals are selected for validation at least once every 4 years. We are considering this addition beginning with the FY 2015 payment determination because FY 2015 would be the fourth year that we will be using the random validation approach. 8. Data Accuracy and Completeness Acknowledgement Requirements for the

FY 2011 Payment Determination and Subsequent Years

For the FY 2011 payment determination and subsequent years, in the

FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24180), we proposed to require hospitals to electronically acknowledge on an annual basis the completeness and accuracy of the data submitted for the RHQDAPU program payment determination. Hospitals will be able to submit this acknowledgement on the same Web page that they use to submit data necessary to calculate the structural measures, and we believe that this Web page will provide a secure vehicle for hospitals to directly acknowledge that their information is complete and accurate to the best of their knowledge. A single annual electronic acknowledgement will provide us with explicit documentation acknowledging that the hospital's data is accurate and complete, but will not unduly burden hospitals. We noted that commenters generally supported the idea of electronic attestation in the FY 2009 IPPS final rule (73 FR 48625) at the point of data submission to the QIO Clinical Warehouse.

In addition, the Government Accountability Office (GAO) recommended in a 2006 report (GAO-06-54) that hospitals self-report that their data are complete and accurate. Therefore, in the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (74 FR 43890) for the FY 2010 payment determination, we required hospitals to electronically acknowledge their data accuracy and completeness once between July 1, 2009, and August 15, 2009.

Hospitals will acknowledge that all information that is, or will be, submitted as required by the RHQDAPU program for the FY 2010 payment determination is complete and accurate to the best of their knowledge.

We are proposing to require hospitals to electronically acknowledge their data accuracy and completeness once between July 1, 2010 and

August 15, 2010 for data to be used for the FY 2012 RHQDAPU program payment determination. 9. Proposed Public Display Requirements for the FY 2012 Payment

Determination and Subsequent Years

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. As we noted in section

V.A.1.c.(3) of this proposed rule, the RHQDAPU program quality measures are typically reported on the Hospital Compare Web site (http:// www.hospitalcompare.hhs.gov), but on occasion are reported on other CMS

Web sites. We require that hospitals sign a Notice of Participation form when they first register to participate in the RHQDAPU program.

Once a hospital has submitted a form, the hospital is considered to be an active RHQDAPU program participant until such time as the hospital submits a withdrawal form to CMS (72 FR 47360). Hospitals signing this form agree that they will allow CMS to publicly report the quality measures included in the RHQDAPU program.

We will continue to display quality information for public viewing as required by section 1886(b)(3)(B)(viii)(VII) of the Act. Before we display this information, hospitals will be permitted to review their information as recorded in the QIO Clinical Warehouse. 10. Proposed Reconsideration and Appeal Procedures for the FY 2011

Payment Determination

The general deadline for submitting a request for reconsideration in connection with the FY 2011 payment determination is November 1, 2010. As discussed more fully below, we are proposing that all hospitals submit a request for reconsideration and receive a decision on that request before they can file an appeal with the Provider

Reimbursement Review Board (PRRB).

For the FY 2011 payment determination, we are proposing to continue utilizing most of the same procedures that we utilized for the FY 2010 requests for reconsideration. Under these proposed procedures, the hospital must--

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Submit to CMS, via QualityNet, a Reconsideration Request form

(available on the QualityNet Web site) containing the following information:

--Hospital CMS Certification number (CCN).

--Hospital Name.

--CMS-identified reason for failure (as provided in the CMS notification of failure letter to the hospital).

--Hospital basis for requesting reconsideration. This must identify the hospital's specific reason(s) for believing it met the RHQDAPU program requirements and should receive the full FY 2011 IPPS annual payment update.

--CEO contact information, including name, e-mail address, telephone number, and mailing address (must include the physical address, not just the post office box). We no longer require that the hospital's CEO sign the RHQDAPU program reconsideration request. We have found that this requirement increases the burden for hospitals because it prevents them from electronically submitting the RHQDAPU program reconsideration request forms. In addition, to the extent that a hospital can submit a request for reconsideration on-line, the burden on our staff is reduced and, as a result, we can more quickly review the request.

--QualityNet System Administrator contact information, including name, e-mail address, telephone number, and mailing address (must include the physical address, not just the post office box).

--Paper medical record requirement for reconsideration requests involving validation. We are proposing that if a hospital asks us to reconsider an adverse RHQDAPU program payment decision made because the hospital failed the validation requirement, the hospital must submit paper copies of all the medical records that it submitted to the CDAC contractor each quarter for purposes of the validation. Hospitals must submit this documentation to a CMS contractor. The contractor will be a

QIO support contractor, which has authority to review patient level information under 42 CFR part 480. We will post the address where hospitals can ship the paper charts on the QualityNet Web site after we issue the FY 2011 IPPS/LTCH PPS final rule. Hospitals submitting a

RHQDAPU program validation reconsideration request will have all mismatched data reviewed by CMS, and not their State QIO. (As discussed in section V.A.6.b. of this proposed rule, the State QIO is available to conduct a quarterly validation appeal if so requested by a hospital.)

For the FY 2011 payment determination, the RHQDAPU program data that will be validated is 4th calendar quarter 2008 through 3rd quarter calendar year 2009 discharge data. Hospitals must provide a written justification for each appealed data element classified during the validation process as a mismatch. We will review the data elements that were labeled as mismatched, as well as the written justifications provided by the hospitals, and make a decision on the reconsideration request. As we mentioned above, we are proposing that all hospitals submit a reconsideration request to CMS and receive a decision on that request prior to submitting a PRRB appeal. We believe that the reconsideration process is less costly for both CMS and hospitals, and that this requirement will decrease the number of PRRB appeals by resolving issues earlier in the appeals process.

Following receipt of a request for reconsideration, we will--

Provide an e-mail acknowledgement, using the contact information provided in the reconsideration request, to the CEO and the

QualityNet Administrator that the request has been received.

Provide written notification to the hospital CEO, using the contact information provided in the reconsideration request, regarding our decision. We expect the process to take approximately 90 days from the reconsideration request due date of November 1, 2010.

As we stated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43892), the scope of our review when a hospital requests reconsideration because it failed our validation requirements will be as follows: 1. Hospital requests reconsideration for CDAC contractor-abstracted data elements classified as mismatches affecting validation scores.

Hospitals must timely submit a copy of the entire requested medical record to the CDAC contractor during the quarterly validation process for the requested case to be eligible to be reconsidered on the basis of mismatched data elements. 2. Hospital requests reconsideration for medical record copies submitted during the quarterly validation process and classified as invalid record selections. Invalid record selections are defined as medical records submitted by hospitals during the quarterly validation process that do not match the patient's episode of care information as determined by the CDAC contractor (in other words, the contractor determines that the hospital returned a medical record that is different from that which was requested). If the CDAC contractor determines that the hospital has submitted an invalid record selection case, it awards a zero validation score for the case because the hospital did not submit the entire copy of the medical record for that requested case. During the reconsideration process, our review of invalid record selections will initially be limited to determining whether the record submitted to the CDAC contractor was actually an entire copy of the requested medical record. If we determine during reconsideration that the hospital did submit the entire copy of the requested medical record, then we would abstract data elements from the medical record submitted by the hospital. 3. Hospital requests reconsideration for medical records not submitted to the CDAC contractor within the 45 calendar day deadline.

Our review will initially be limited to determining whether the CDAC contractor received the requested record within 45 calendar days, and whether the hospital received the initial medical record request and reminder notice. If we determine during reconsideration that the CDAC contractor did receive a paper copy of the requested medical record within 45 calendar days, then we would abstract data elements from the medical record submitted by the hospital. If we determine that the hospital received two letters requesting medical records and still did not submit the requested records within the 45 day period, CMS will not accept these records as part of the reconsideration. CMS will not abstract data from charts not received timely by the CDAC contractor.

In sum, we are initially limiting the scope of our reconsideration reviews involving validation to information already submitted by the hospital during the quarterly validation process, and we will not abstract medical records that were not submitted to the CDAC contractor during the quarterly validation process. We will expand the scope of our review only if we find during the initial review that the hospital correctly and timely submitted the requested medical records. In that case, then we would abstract data elements from the medical record submitted by the hospital as part of our review of its reconsideration request.

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,

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Subpart R (a PRRB appeal). We are again soliciting public comments on the extent to which these proposed procedures will be less costly for hospitals, and whether they will lead to fewer PRRB appeals. 11. Proposed RHQDAPU Program Withdrawal Deadlines

We are proposing to accept RHQDAPU program withdrawal forms for the

FY 2012 payment determination from hospitals until August 15, 2011. We are proposing this deadline so that we would have sufficient time to update the FY 2012 payment to hospitals starting on October 1, 2011. If a hospital withdraws from the program for the FY 2012 payment determination, it will receive a 2.0 percentage point reduction in its

FY 2012 annual payment update. We noted that once a hospital has submitted a Notice of Participation form, it is considered to be an active RHQDAPU program participant until such time as the hospital submits a withdrawal form to CMS. 12. Electronic Health Records (EHRs) a. Background

Starting with the FY 2006 IPPS final rule, we have encouraged hospitals to take steps toward the adoption of EHRs (also referred to 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 through 47421). We encouraged hospitals that are implementing, upgrading, or developing

EHR systems to ensure that the technology obtained, upgraded, or developed conforms to standards adopted by HHS. We suggested that hospitals also take due care and diligence to ensure that the EHR systems accurately capture quality data and that, ideally, such systems provide point-of-care decision support that promotes optimal levels of clinical performance.

We also continue to work with standard setting organizations and other entities to explore processes through which EHRs could speed the collection of data and minimize the resources necessary for quality reporting as we have done in the past.

We note that we have initiated work directed toward enabling EHR submission of quality measures through EHR standards development and adoption. We have sponsored the creation of electronic specifications for quality measures that are currently proposed for the RHQDAPU program and measures under future consideration. We look to continue this activity in the future. b. EHR Testing of Quality Measures Submission

As we have previously stated, we are interested in the reporting of quality measures using EHRs, and we continue to encourage hospitals to adopt and use EHRs that conform to the certification criteria as will be defined by the Office of the National Coordinator for Health

Information Technology, HHS at 45 CFR part 170. We believe that the testing of EHR submission is an important and necessary step to establish the ability of EHRs to report clinical quality measures and the capacity of CMS to receive such data.

The electronic specifications and interoperability standards for

EHR-based collection and transmission of the data elements for the ED

Throughput, Stroke, and Venous Thromboembolism (VTE) measures have been finalized by the Health Information Technology Standards Panel (HITSP) and are available for review and testing at http//www.HITSP.org. We anticipate testing the components required for the submission of clinical quality data extracted from EHRs for these measures, and are exploring different mechanisms and formats that will aid the submission process, as well as ensure that the summary measure results extracted from the EHRs are reliable.

We anticipate moving forward with testing CMS' technical ability to accept data from EHRs for the ED, Stroke, and VTE measures as early as summer of 2011. We anticipate building upon the work completed by the

HITSP in both the Connectathon and Health Information Management

Systems Society (HIMSS) Interoperability Showcase. This testing will encompass an ``end to end'' view of data transmission. Pursuant to the

Paperwork Reduction Act, we have previously published a Federal

Register notice and information collection request for CMS-10296 (74 FR 44366) seeking public comments on the process we intended to follow to select EHR vendors/hospitals for testing CMS ability to accept EHR- based data submissions. We will notify interested parties of changes in the process and timeline for testing via the Inpatient EHR testing Web site at: http://www.cms.hhs.gov/HospitalQualityInits/15_

HospitalInpatientEHRTesting.asp.

The test measures described above are not currently required under the RHQDAPU program. In addition, the posting of the electronic specifications for any particular measure should not be interpreted as a signal that we intend to select the measure for inclusion in the

RHQDAPU program measure set. c. HITECH Act EHR Provisions

The HITECH Act (Title IV of Division B of the ARRA, together with

Title XIII of Division A of the ARRA) authorizes payment incentives under Medicare for the adoption and use of certified EHR technology beginning in FY 2011. Hospitals are eligible for these payment incentives if they meet requirements for meaningful use of certified

EHR technology, which include reporting on quality measures using certified EHR technology. With respect to the selection of quality measures for this purpose, under section 1886(n)(3)(A)(ii) of the Act, as added by section 4102 of the HITECH Act, the Secretary shall select measures, including clinical quality measures, that hospitals must provide to CMS in order to be eligible for the EHR incentive payments.

With respect to the clinical quality measures, section 1886(n)(3)(B)(i) of the Act requires the Secretary to give preference to those clinical quality measures that have been selected for the RHQDAPU program under section 1886(b)(3)(B)(viii) of the Act or that have been endorsed by the entity with a contract with the Secretary under section 1890(a) of the Act. Any measures must be proposed for public comment prior to their selection, except in the case of measures previously selected for the RHQDAPU program under section 1886(b)(3)(B)(viii) of the Act.

Thus, the RHQDAPU program and the HITECH Act have important areas of overlap and synergy with respect to the reporting of quality measures using EHRs. We believe the financial incentives under the

HITECH Act for the adoption and meaningful use of certified EHR technology by hospitals will encourage the adoption and use of certified EHRs for the reporting of clinical quality measures under the

RHQDAPU program. Further, these efforts to test the submission of quality data through EHRs may provide a foundation for establishing the capacity of hospitals to send, and for CMS to receive, quality measures via hospital EHRs for future RHQDAPU program measures.

We again note that the provisions in this proposed rule do not implicate or implement any HITECH statutory provisions. Those provisions are the subject of separate rulemaking and public comment.

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13. Qualification of Registries for RHQDAPU Data Submission

In section V.A.3.c.(3) of this proposed rule, we proposed that hospitals would select at least one of four registry-based measure topics for which they will report data on proposed measures to a qualified registry beginning with January 1, 2011 discharges, and allow the registry to calculate and report measure data for the specified measures to CMS (via QualityNet) for RHQDAPU program purposes. The process and requirements that we are proposing to use to determine whether a registry is qualified to collect and submit quality measure data are described below. We will post on the RHQDAPU program section of the QualityNet Web site http://www.qualitynet.org no later than

December 31, 2010 a list of qualified registries for the FY 2013

RHQDAPU payment determination, including the registry name, contact information, and the measure(s) for which the registry is qualified and will report for the FY 2013 RHQDAPU payment determination. We have proposed measures for inclusion in each of the four registry-based topics, and a registry seeking to be qualified for a particular topic would have to agree to collect and report the measures included in the topic. The proposed measures support CMS and HHS priorities for improved quality and efficiency of care for Medicare beneficiaries

(such as, prevention; chronic conditions; high cost and high volume conditions; elimination of health disparities; healthcare-associated infections and other conditions; and effective management of acute and chronic episodes of care). We note, however, that none of the registries that we qualify for this purpose will be acting as a CMS contractor or agent. In other words, hospitals will still be responsible for making sure that the data it submits to the qualified registry is successfully processed and transmitted by the registry to

CMS.

We are proposing to implement a self-nomination process for registries seeking to submit FY 2013 RHQDAPU program quality measures

(including measure calculations, numerators, denominators, and exclusions) on behalf of hospitals beginning with January 1, 2011 discharges. A registry would be able to self-nominate if it meets the following requirements:

The registry has been collecting data elements needed to calculate the particular measures that are being proposed for inclusion in the registry-based topic for which the registry is seeking qualification for at least 3 years prior to January 1, 2010.

As of January 1, 2010, the registry has been collecting such data from at least 750 hospitals.

The registry must have the capability to collect from hospitals all of the data elements which are included in the measure specifications and calculate the results for the specified measures.

The measures are NQF-endorsed and will be listed in the Specifications

Manual.

The registry must agree to report the hospital level measure data to CMS (via QualityNet). During the registry qualification process, CMS will inform the registries of the specified reporting format which will include:

cir

The volume of eligible cases (reporting denominator);

cir

The volume of numerator events for the quality measure

(reporting numerator);

cir

The number of cases excluded from the measure;

cir

The measure results

The registry must agree to transmit quality measure data in a CMS-approved format. We expect that this CMS-specified record layout will be made available in late 2010;

The registry must be able to perform data quality validation checks on the data received from hospitals to determine if the data submitted by the hospitals are accurate and agree to submit an acceptable ``validation strategy'' to CMS by December 15, 2011. A validation strategy ascertains whether hospitals have submitted data accurately to the registry. An acceptable validation strategy may include such provisions as the registry being able to verify the accuracy of hospital data through random sampling or through the hospital's adherence to a required sampling method;

The registry must agree to enter into and maintain with its participating hospitals an appropriate Business Associate agreement that complies with HIPAA.

The registry must obtain and keep on file signed documentation showing that each of its participating hospitals has authorized the registry to calculate and submit the quality measure hospital-level data specified by CMS to CMS. This documentation must be obtained at the time the hospital arranges to submit RHQDAPU program quality measure data to the registry;

The registry must agree to provide CMS with access (if requested) to review the data that the hospital submitted to it for purposes of the RHQDAPU program;

The registry must agree to indicate to CMS upon request whether a particular hospital has satisfied the registry's participation requirements;

The registry must agree to provide CMS with a signed, written attestation statement via mail or e-mail which states that the quality measure data that the registry has submitted to CMS on behalf of its participating hospitals is accurate and complete.

The registry must agree to provide at least 1 feedback report per year to participating hospitals;

The registry must agree to provide on-going technical assistance to its participating hospitals with respect to the hospitals' submission of RHQDAPU data; and

The registry must agree to participate in periodic RHQDAPU program support calls hosted by CMS.

To apply to be a qualified registry for any of the four proposed registry-based topics, a registry must submit a self-nomination letter by October 15, 2010 to RHQDAPU_Registries@cms.hhs.gov containing the registry name, point of contact, the proposed registry-based measure topic for which qualification is being sought, and detailed information regarding how the registry satisfies the criteria listed above.

B. Payment for Transfers of Cases From Medicare Participating Acute

Care Hospitals to Nonparticipating Hospitals and CAHs (Sec. 412.4) 1. Background

Existing regulations at Sec. 412.4(a) provide that an inpatient is considered discharged from a hospital paid under the IPPS when the patient is either formally released from the hospital or dies in the hospital. Under certain circumstances, a discharge is considered a transfer for purposes of payment under the IPPS. Section 412.4(b) defines acute care transfers, and Sec. 412.4(c) identifies those discharges considered a postacute care transfer. In accordance with

Sec. 412.4(f), when a patient is transferred and his or her length of stay is less than the geometric mean length of stay for the MS-DRG to which the case is assigned, the transferring hospital is generally paid based on a graduated 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. In the case of acute care transfers, the receiving hospital that ultimately discharges the transferred patient receives the full MS-DRG payment, regardless of whether the length of the patient's inpatient stay exceeds the geometric mean length of stay for the applicable MS-DRG.

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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 (Sec. 412.4(f)(1)). Transfer cases also are eligible for outlier payments. In general, the outlier threshold for transfer cases, as described in Sec. 412.80(b) of the regulations, 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, and multiplied by the length of stay for the case plus one day.

The transfer policy adjusts the payments of the transferring hospital to approximate the reduced costs of transfer cases. Medicare adopted its IPPS transfer policy because, if Medicare were to pay the full MS-DRG payment regardless of whether a patient is transferred or discharged, there would be a strong incentive for hospitals to transfer patients to another IPPS hospital early in their stay in order to minimize costs while still receiving the full MS-DRG payment. b. Proposed Policy Change

The regulations at Sec. 412.4(b) state that a discharge of a hospital inpatient is considered to be an acute care transfer when the patient is readmitted on the same day to another hospital that is paid under the IPPS, or to a hospital that is excluded from the IPPS because of participation in a statewide cost control program, unless the readmission is unrelated to the initial discharge. These regulations were developed under the authority granted in section 1886(d)(5)(I)(ii) of the Act. Because a discharge is only considered an acute care transfer if the receiving hospital either is paid under IPPS or participates in a statewide cost control program, the current acute care transfer policy only applies to transfers between acute care hospitals that participate in the Medicare program (``participating acute care hospitals''); it does not currently apply to acute care hospitals that would otherwise be eligible to be paid under the IPPS, but do not have an agreement to participate in the Medicare program

(``nonparticipating acute care hospitals''). The acute care transfer policy also does not currently apply to IPPS acute care hospital transfers to CAHs.

The intent of the acute care transfer policy is to make payment to the transferring hospital commensurate with the resources it expends in treating Medicare beneficiaries. As stated above, a participating acute care hospital that admits a beneficiary from a transferring hospital receives a full MS-DRG payment, as long as the receiving hospital does not subsequently transfer the beneficiary prior to the geometric mean length of stay for that MS-DRG. The transferring hospital receives a reduced per diem payment amount. If the acute care transfer policy did not exist, Medicare would make separate full MS-DRG payments to each of the hospitals involved with the treatment of the beneficiary, even though the hospitals shared in one episode of care for the same beneficiary and neither provided the full spectrum of care for that beneficiary for that episode of care. Such a policy would inappropriately pay a ``double'' Medicare payment and would be inconsistent with the intent of the acute care transfer policy.

Although a nonparticipating acute care hospital is generally ineligible to receive payments under Medicare, such a hospital may still treat Medicare patients. In addition, acute care hospitals that do participate in the Medicare program are not precluded from transferring a Medicare patient to a nonparticipating acute care hospital. We note that a hospital that transfers a patient early in the patient's stay (that is, prior to the geometric mean length of stay of the patient's MS-DRG) incurs reduced costs for that case, regardless of whether the patient is transferred to a Medicare participating acute care hospital or a nonparticipating acute care hospital. A hospital that sends such a transfer to a CAH incurs similarly reduced costs, despite the fact that transfers to CAHs are not currently included under the Medicare acute care transfer policy.

These policy changes are also being proposed in order to avoid creating a financial incentive for an IPPS hospital to transfer cases to one type of provider versus another. A transfer decision should be made based on the clinical merits of the beneficiary's situation and the transferring hospital's capabilities. More pointedly, we want to avoid providing a Medicare participating acute care hospital with an incentive to transfer cases to a nonparticipating acute care hospital or a CAH. Without a policy change, these incentives still exists as payment issues relating to the IPPS transfer policy. With respect to nonparticipating acute care hospitals, it is frequently explained that the Medicare conditions of participation provide a certain minimum standard of care that beneficiaries can expect, and that Medicare does not make payments to nonparticipating acute care hospitals because these hospitals do not commit to adhering to these conditions of participation. As such, the lack of a policy with regard to transfers to nonparticipating acute care hospitals results in an inappropriate payment incentive.

Accordingly, in order to further align the IPPS regulations relating to transfer of cases under Sec. 412.4(b) with its original intent (that is, that a hospital's payment should be commensurate with the resources it expends for the case), in this proposed rule, we are proposing to add a new paragraph (b)(3) to Sec. 412.4 to specify that an acute care hospital ``transfer case'' includes a transfer to an acute care hospital that would otherwise be eligible to be paid under the IPPS, but does not have an agreement to participate in the Medicare program, and a new paragraph (b)(4) to state that an acute care hospital ``transfer'' also includes a transfer to a CAH.

Hospitals must use patient discharge status code ``66''

(Discharged/Transferred to a Critical Access Hospital) on IPPS claims to identify transfers to CAHs. For transfers to nonparticipating acute care hospitals, hospitals must continue to use patient status code

``02'' (Discharged/Transferred to a Short-Term General Hospital for

Inpatient Care) on IPPS claims. We note that the National Uniform

Billing Committee (NUBC) periodically updates or changes patient status codes; therefore, hospitals should check NUBC guidance periodically to determine whether there have been any changes to these codes.

C. Technical Change to Regulations

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43939 through 43940), in response to public comments we received on the FY 2010 proposed rule relating to the effects on CAH status arising from the redesignation by OMB of three Micropolitan Statistical Areas as

MSAs, we amended our regulations at Sec. 485.610 by adding a paragraph

(b)(4) to provide for a transition period for the CAHs that are located in counties that are reclassified from rural to urban to obtain a rural redesignation. However, when we added the new paragraph (b)(4) to Sec. 485.610, we inadvertently failed to make a conforming change to the introductory text of paragraph (b) to include a reference to paragraph

(b)(4) as one of the requirements that the CAH must meet in order to satisfy the conditions of participation for CAHs.

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We are proposing to make this confirming change.

D. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to Criteria

(Sec. 412.108) 1. Background

Under the IPPS, separate special payment protections 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 (that is, not less than 60 percent of its inpatient days or discharges either in its 1987 cost reporting year or in two of its most recent three settled Medicare cost reporting years). The regulations that set forth the criteria that a hospital must meet to be classified as an MDH are at 42 CFR 412.108.

Although MDHs are paid under an adjusted payment methodology, they are still IPPS hospitals paid under section 1886(d) of the Act. Like all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid for their discharges based on the DRG weights calculated under section 1886(d)(4) of the Act.

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 amount by which the Federal rate is exceeded by the updated hospital-specific rate based on the hospital's

FY 1982 or FY 1987 costs per discharge, whichever of these hospital- specific rates is higher. Section 5003(b) of Public Law 109-171 (DRA 2005) amended section 1886(d)(5)(G) of the Act to provide that, for discharges occurring on or after October 1, 2006, MDHs are paid based on the Federal rate or, if higher, the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the updated hospital-specific rate based on FY 1982, FY 1987, or FY 2002 costs per discharge, whichever of these hospital-specific rates is highest.

For each cost reporting period, the fiscal intermediary or 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 or MAC makes the determination. However, it may not be possible for the fiscal intermediary or 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, 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 or MAC makes a final adjustment at the settlement of the cost report 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 the MAC's determination regarding the final amount of program payment to which it is entitled, it has the right to appeal the determination in accordance with the procedures set forth in 42 CFR Part 405, Subpart R, which govern provider payment determinations and appeals. 2. Medicare-Dependency: Counting Medicare Inpatients

Currently, in order for an IPPS hospital to qualify as an MDH, at least 60 percent of its inpatient days or discharges must be attributable to individuals receiving Medicare Part A benefits (Sec. 412.108(a)(1)(iii) of the regulations).

The MDH policy, as explained in the FY 1991 final rule (55 FR 35994 through 35998), does not include in the count of Medicare inpatients those Medicare beneficiaries who have exhausted their Medicare Part A inpatient benefits. Currently, for purposes of determining DSH payment adjustments under the IPPS, section 1886(d)(5)(F)(vi)(I) of the Act and our policy include, in the Medicare inpatient count, individuals entitled to Medicare Part A benefits, regardless of whether or not they have exhausted Medicare Part A coverage. This policy is discussed in the FY 2005 IPPS final rule (69 FR 49090 through 49099). In addition, section 1886(d)(5)(G)(iv)(IV) of the Act specifies that a hospital is

Medicare-dependent if ``not less than 60 percent of its inpatient days or discharges during the cost reporting period beginning in fiscal year 1987, or two of the three most recently audited cost reporting periods for which the Secretary has a settled cost report, were attributable to inpatients entitled to benefits under part A.'' The use of the word

``entitled'' in the statute would encompass individuals who are entitled to Medicare Part A even though they have exhausted their Part

A hospital days. Individuals who have exhausted their Part A inpatient benefit coverage remain ``entitled'' to Medicare Part A because they retain the Medicare Part A insurance benefit coverage (for example, covered SNF days), and they continue to meet all statutory criteria for entitlement to Part A benefits under section 226 of the Act

(Entitlement to Hospital Insurance Benefits).

Accordingly, we are proposing to revise the Medicare-dependency criterion at Sec. 412.108(a)(1)(iii) of the regulations to replace the term ``receiving'' with the phrase ``entitled to''. As a result, we would include in the count of Medicare inpatient days or discharges all days or discharges attributable to individuals entitled to the Medicare

Part A insurance benefit, including individuals who have exhausted their Medicare Part A inpatient hospital coverage benefit, as well as individuals enrolled in Medicare Advantage plans and section 1876 cost contracts, that is, health maintenance organizations (HMOs) and competitive medical plans (CMPs). We note that, for inpatient care provided to Medicare Part A beneficiaries enrolled with an HMO or a

CMP, we provided that the days and discharges for those stays are counted for purposes of determining Medicare-dependency for MDH purposes (55 FR 35995). This was the case when HMOs and CMPs were included under Medicare Part A, and continues to be the case since 1997 when HMOs and CMPs were placed under Medicare Part C.

E. Rural Referral Centers (RRCs) (Sec. 412.96)

Under the authority of section 1886(d)(5)(C)(i) of the Act, the regulations at Sec. 412.96 set forth the criteria that a hospital must meet in order to qualify under the IPPS as an RRC. For discharges that occurred before October 1, 1994, RRCs received the benefit of payment based on the other urban standardized amount rather than the rural standardized amount (as discussed in the FY 1993 IPPS final rule (59 FR 45404 through 45409)). 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

RRCs such that they are not subject to the 12-percent cap on DSH payments that is applicable to other rural hospitals. RRCs are also not subject to the proximity criteria when applying for geographic reclassification. In addition, they do not have to meet the requirement that a hospital's average hourly wage must exceed, by a certain percentage, the average hourly wage of the labor market area where the hospital is located.

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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 IPPS final rule with comment period (62 FR 45999), CMS reinstated RRC status for all hospitals that lost the status due to triennial review or MGCRB reclassification.

However, CMS 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. Subsequently, in the

August 1, 2000 IPPS 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 all of the other applicable criteria. We use 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 an

RRC is to have 275 or more beds available for use (Sec. 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). (We refer readers to Sec. 412.96(c)(1) through (c)(5) and the

September 30, 1988 Federal Register (53 FR 38513).) With respect to the two mandatory prerequisites, a hospital may be classified as an RRC if--

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.) 1. Case-Mix Index (CMI)

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 Sec. 412.96(c)(1)(ii). The proposed national median CMI value for FY 2011 includes data from all urban hospitals nationwide, and the proposed regional values for FY 2011 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 Sec. 413.75). These proposed values are based on discharges occurring during FY 2009 (October 1, 2008 through September 30, 2009), and include bills posted to CMS' records through December 2009.

We are proposing 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, 2010, they must have a CMI value for FY 2009 that is at least-- 1.5127; or

The median CMI value (not transfer-adjusted) for urban hospitals (excluding hospitals with approved teaching programs as identified in Sec. 413.75) calculated by CMS for the census region in which the hospital is located.

The proposed median CMI values by region are set forth in the following table:

GRAPHIC

TIFF OMITTED TP04MY10.045

The preceding numbers will be revised in the FY 2011 IPPS final rule to the extent required to reflect the updated FY 2009 MedPAR file, which will contain data from additional bills received through March 2010.

A hospital seeking to qualify as an RRC should obtain its hospital- specific CMI value (not transfer-adjusted) from its fiscal intermediary or MAC. Data are available on the Provider Statistical and

Reimbursement (PS&R) System. In keeping with our policy on discharges, the CMI values are computed based on all Medicare patient discharges subject to the IPPS MS-DRG-based payment. 2. Discharges

Section 412.96(c)(2)(i) provides that CMS set forth the national and regional

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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. We are proposing to update the regional standards based on discharges for urban hospitals' cost reporting periods that began during FY 2008 (that is, October 1, 2007 through September 30, 2008), which are the latest cost report data available at the time this proposed rule was developed.

Therefore, we are proposing 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, 2010, must have, as the number of discharges for its cost reporting period that began during FY 2008, 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, as indicated in the following table.

GRAPHIC

TIFF OMITTED TP04MY10.046

These numbers will be revised in the FY 2011 IPPS final rule based on the latest available cost report data.

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, 2010, the hospital would be required to have at least 3,000 discharges for its cost reporting period that began during FY 2008.

F. Indirect Medical Education (IME) Adjustment (Sec. 412.105) 1. Background

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 education (IME) adjustment, are located at Sec. 412.105.

Public Law 105-33 (BBA 1987) 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. 2. IME Adjustment Factor for FY 2011

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 r, and a formula multiplier, which is represented as c, in the following equation: c x [{1 + r{time} .405-1]. The formula is traditionally described in terms of a certain percentage increase in payment for every 10-percent increase in the resident-to- bed ratio.

Section 502(a) of Public Law 108-173 modified the formula multiplier (c) to be used in the calculation of the IME adjustment.

Prior to the enactment of Public Law 108-173, the formula multiplier was fixed at 1.35 for discharges occurring during FY 2003 and thereafter. In the FY 2005 IPPS final rule, we announced the schedule of formula multipliers to be used in the calculation of the IME adjustment and incorporated the schedule in our regulations at Sec. 412.105(d)(3)(viii) through (d)(3)(xii). Section 502(a) modified the formula multiplier beginning midway through FY 2004 and provided for a new schedule of formula multipliers for FY 2005 and thereafter as follows:

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 2011, the formula multiplier is 1.35. We estimate that application of

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this formula multiplier for the FY 2011 IME adjustment will result in an increase in IPPS payment of 5.5 percent for every approximately 10- percent increase in the hospital's resident-to-bed ratio. 3. IME-Related Changes in Other Sections of This Proposed Rule

We refer readers to section IV.H.2. and IV.H.3. of the preamble of this proposed rule for a discussion of proposed changes to the policies for identifying ``approved medical residency programs'' and the electronic submission of Medicare GME affiliation agreements.

G. Payment Adjustment for Medicare Disproportionate Share Hospitals

(DSHs): Supplemental Security Income (SSI) Fraction (Sec. 412.106) 1. Background

Section 1886(d)(5)(F) of the Act provides for additional Medicare payments to subsection (d) hospitals that serve a significantly disproportionate number of low-income patients. The Act specifies two methods by which a hospital may qualify for the Medicare disproportionate share hospital (DSH) adjustment. Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a Medicare DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to needy patients with low incomes. This method is commonly referred to as the ``Pickle method.''

The second method for qualifying for the DSH payment adjustment, which is the most common, is based on a complex statutory formula under which the DSH payment adjustment is based on the hospital's geographic designation, the number of beds in the hospital, and the level of the hospital's disproportionate patient percentage (DPP). A hospital's DPP is the sum of two fractions: The ``Supplemental Security Income (SSI) fraction'' and the ``Medicaid fraction.'' The SSI fraction (also known as the ``SSI ratio'' or the ``Medicare fraction'') is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A (including patients who are enrolled in a Medicare Advantage (Part C) plan) and

SSI benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A (including patients who are enrolled in a Medicare Advantage (Part C) plan). The

Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid, but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period.

Because the DSH payment adjustment is part of the IPPS, the DSH statutory references (under section 1886(d)(5)(F) of the Act) to

``days'' apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the DSH payment adjustment. Under Sec. 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the

IME adjustment under Sec. 412.105(b). 2. CMS' Current Data Matching Process for the SSI Fraction

From the inception of the Medicare DSH adjustment in 1986, CMS

(formerly HCFA) has calculated the SSI fraction for each acute care hospital paid under the IPPS. This fraction, in combination with the

Medicaid fraction, is used to determine whether the provider qualifies for a DSH payment adjustment and the amount of any such payment (51 FR 16772, 16777, May 6, 1986 interim final rule). In determining the number of inpatient days for individuals entitled to both Medicare Part

A and SSI, as required for calculation of the numerator of the SSI fraction, CMS matches the Medicare records and SSI eligibility records for each hospital's patients during the Federal fiscal year, unless the provider requests calculation of the SSI fraction on a cost reporting period basis (in which case the provider would receive its SSI fraction based on its own cost reporting period). The data underlying the match process are drawn from: (a) The Medicare Provider Analysis and Review

(MedPAR) data file; and (b) SSI eligibility data provided by the Social

Security Administration (SSA). CMS has matched Medicare and SSI eligibility records using Title II numbers (included in the SSI records) and Health Insurance Claims Account Numbers (HICANs)

(contained in the MedPAR file). Below we provide a more detailed description of both a Title II number and a HICAN.

Title II Number: If a person qualifies for retirement or disability benefits under Title II of the Act (42 U.S.C. 401 et seq.), SSA assigns a ``Title II number'' to the individual. If the Title II beneficiary's own earnings history (or the individual's disability) were the basis for such benefits, the person's Social Security number (SSN) would constitute the ``root'' of the individual's Title II number. However, if the person's Title II benefits were based on the earnings history of another individual (for example, a spouse), that other person's SSN would provide the root for the beneficiary's Title II number. In addition to a root SSN, each Title II number ends with a Beneficiary

Identification Code (BIC) that identifies the basis for an individual's entitlement to benefits. For example, a person who becomes eligible for benefits under his or her own account would be described by his or her

SSN followed by the BIC ``A'' whereas a wife who becomes eligible for benefits under her husband's account would be described by his SSN followed by the BIC ``B.'' Children who become eligible under a parent's account would be described by the parent's SSN followed by the

BIC ``C1,'' ``C2,'' etc.

HICAN: When a person becomes entitled to Medicare benefits, he or she is assigned a HICAN for purposes of processing claims submitted on his or her behalf for Medicare services. A beneficiary's HICAN (which may not necessarily contain his or her SSN) is included on the Medicare inpatient hospital claim.

Each HICAN for a beneficiary should be identical, at the same point in time, to that individual's Title II number. This is because HICANs and Title II numbers are both assigned on the basis of the same data source, the SSA-maintained Master Beneficiary Record, and by using the same rules (that is, the rules for determining which person's SSN will serve as the root for an individual's HICAN and Title II number and for determining the BIC for both types of numbers).

We note that a person's Title II number and HICAN can change over time. For example, if the individual's entitlement to Title II and

Medicare benefits was originally based on the earnings history of a first spouse, but the beneficiary later qualified for such benefits on the basis of a second spouse's earnings history, the beneficiary's

HICAN and Title II number would change accordingly. Specifically, the first spouse's SSN would be the root of the beneficiary's original

HICAN and Title II number; later, the second spouse's SSN would become the root of the beneficiary's second HICAN and Title II number.

The SSI eligibility data that CMS receives from SSA contain monthly

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indicators to denote which month(s) each person was eligible for SSI benefits during a specific time period. The current matching process uses only one Title II number (which is included in the SSI file) and one HICAN (found in the MedPAR file) for each beneficiary. In the current matching process, CMS has used the HICAN because it is the patient identifier that is provided by hospitals on the Medicare claim.

Because SSNs are not included on Medicare inpatient claims, CMS has not used SSNs in the match process.

For a given fiscal year, CMS determines the numerator of the hospital's SSI fraction (that is, the number of the hospital's inpatient days for all of its patients who were simultaneously entitled to Medicare Part A benefits and SSI benefits) by calculating the sum of the number of the hospital's inpatient days that are associated with all of the identical Title II numbers and HICANs for the hospital's claims that are found through the data matching process. In turn, CMS determines the denominator of the hospital's SSI fraction by calculating the sum of the number of the hospital's inpatient days for patients entitled to benefits under Medicare Part A (regardless of SSI eligibility) that are included in the hospital's inpatient claims for the period. 3. Baystate Medical Center v. Leavitt Court Decision

In Baystate Medical Center v. Leavitt, 545 F. Supp. 2d 20, as amended, 587 F. Supp. 2d 37, 44 (D.D.C. 2008), the district court concluded that, in certain respects, CMS' current matching process (as described above) did not use the ``best available data'' to match

Medicare patient day information with SSI eligibility data when calculating the plaintiff's SSI fractions for FYs 1993 through 1996.

Specifically, the court found that:

Stale SSI Records and Forced Pay SSI Records. For the earliest years in question in Baystate, the SSI eligibility data did not include ``stale'' records--that is, records for individuals whose

SSI records were no longer active from SSA's perspective. (We note that it is our understanding that, as of the year 2000, SSA no longer differentiates between inactive and active records and therefore, no longer uses the ``stale record'' indicator in its databases.) The court also found that the SSI data file only included SSI eligibility information for SSI payments that were automated (as opposed to manual), thereby excluding those people who, for whatever reason, received manual or ``forced pay'' payments. Baystate, 545 F. Supp. 2d at 44-46.

Match Based on Only One Title II Number and One HICAN. The court found fault with CMS' use of only a single Title II number and one HICAN in the match process. As a beneficiary may receive SSI and

Medicare Part A benefits under more than one Title II number and HICAN over a period of time, CMS would not have matched a beneficiary's records if there had been a change in the person's Title II number and

HICAN between the time of an inpatient stay and when the match process was completed. Baystate, 545 F. Supp. 2d at 46-49.

Retroactive SSI Eligibility Determinations and Lifting of

Payment Suspensions. The court found that the match process did not appropriately account for retroactive eligibility determinations of SSI eligibility and the lifting of payment suspensions because the match process used SSI eligibility data that did not include more recent retroactive determinations of SSI eligibility and the lifting of SSI payment suspensions. By not using more recent SSI eligibility information that was available to CMS at the time of the hospital's cost report settlement, the court concluded that CMS did not use the

``best available data'' to calculate the provider's SSI fraction.

Baystate, 545 F. Supp. 2d at 42-44.

CMS continues to believe that its current data matching process and the resultant SSI fraction and DSH payments were lawful. Nonetheless, the agency did not appeal the Baystate decision. Accordingly, CMS implemented the court's decision by recalculating the plaintiff's SSI fractions for 1993 through 1996. In recalculating the SSI fractions at issue in the Baystate case, we worked closely with SSA to ensure that stale and forced pay SSI records were included in the SSI eligibility data. Also, we used a revised data matching process (described in more detail below) that comports with the court's decision. As the revised data matching process was completed using SSI eligibility data compiled between 13 and 16 years beyond the fiscal years at issue in the

Baystate case, we believe any issues associated with retroactive determinations of SSI eligibility and the lifting of payment suspensions had been long since resolved. Furthermore, because we believe that the revised match process used to implement the Baystate decision addressed all of the concerns found by the court, we are proposing to use the same revised data matching process for calculating hospitals' SSI fractions for FY 2011 and subsequent fiscal years. 4. CMS' Proposed Process for Matching Medicare and SSI Eligibility Data a. Inclusion of Stale Records and Forced Pay Records in the SSI

Eligibility Data Files

In recalculating the SSI fractions at issue in the Baystate case, stale records and forced pay records were included in the SSI eligibility data files that CMS used in the revised data match for the four fiscal years at issue. All SSI payment records, whether the payments were automated or manual or were for an individual whose record was active or stale, are now included in the data files provided by SSA and will continue to be included in the future. b. Use of SSNs in the Revised Match Process

As indicated above, the current matching process only uses one

Title II number and one HICAN in the data match process. By contrast, our revised match process would make use of the Medicare Enrollment

Database (EDB), which is CMS' system of records for all individuals who have ever been enrolled in Medicare. The EDB includes SSNs as well as all of an individual's HICANs. In our proposed revised match process, the individual's SSN, contained in the SSI eligibility data file, would be compared to the SSNs in the Medicare EDB, and each matched SSN would then be ``cross-walked'' within the EDB to find any and all HICANs associated with the individual's SSN. The resulting HICANs would then be matched against those HICANs contained in the MedPAR claims data files.

Before explaining our proposed revised match process in more detail, we believe it is appropriate to provide some background regarding SSNs and the three databases that would be used in our proposed match process. An individual should have only one SSN, which should be unique to that individual. The SSN may be assigned by SSA when the individual begins gainful employment (if not earlier).

However, if an applicant for SSI benefits does not already have a SSN,

SSA then assigns a SSN to the person. Thus, in the SSI eligibility data that SSA provides to CMS, each individual identified in those data should have a unique SSN.

The first database that we are proposing to use in our revised match process is the SSI eligibility data file, which contains a unique

SSN for every SSI record and would include as many as 10 different historical Title II numbers for the records related to one individual.

We are proposing to use 10 as the maximum number of Title II numbers for a beneficiary because that

Page 24004

is likewise the maximum number of HICANs that can be attributed to any one individual in our EDB. However, we note that as a practical matter, the greatest number of historical HICANs associated with any beneficiary appears to be 7. The SSI eligibility file serves as the system of record for whether or not SSA made a payment of SSI benefits to an individual who applied for SSI benefits.

The second relevant database, the Medicare EDB, contains a SSN for virtually every record in the EDB. Furthermore, the EDB has the capacity to hold up to 10 historical HICANs for a specific Medicare enrollee. (It is important to note that, of the more than 100 million records in the EDB, less than 0.07 percent (that is, fewer than 7 of every 10,000 records) relate to individuals for whom the EDB does not include a SSN for the person. The EDB might not include a SSN for an individual if, for example, the person lives in another country but is entitled to Medicare benefits through his or her spouse.)

The third relevant database that we are proposing to use in our revised match process is the MedPAR file. Hospitals submit claims to

Medicare for inpatient services provided to Medicare beneficiaries.

These claims are eventually accumulated in the MedPAR database. It is important to note that the MedPAR database does not contain SSNs. The

MedPAR database contains one HICAN number for each and every record of services provided to a Medicare beneficiary who was admitted to a

Medicare-certified hospital or skilled nursing facility. This database allows us to calculate the number of Medicare inpatient hospital days, which we use in determining each hospital's DSH SSI fraction.

Utilizing the steps set forth below, we are proposing to use these three databases in a revised match process for FY 2011 and subsequent fiscal years:

Step 1--Use SSNs to find any and all relevant HICANs. Using the SSI eligibility data file provided by SSA, we are proposing to compare the individual SSNs in that file to the SSNs contained in the Medicare EDB.

Each matched SSN would then be ``cross-walked'' (within the EDB) to find any and all HICANs associated with the individual's SSN. The resulting HICANs would then be matched against those HICANs contained in the MedPAR claims data files. This process should identify all relevant SSI records in which a SSN is associated with an individual who is simultaneously enrolled in Medicare Part A and in the SSI program.

Step 2--Utilize any and all Title II numbers. In order to provide further assurance that all of the Title II numbers and HICANs for SSI- eligible individuals have been identified, next we are proposing to compare the complete list of Title II numbers from the SSI data file

(up to 10 Title II numbers for any one individual) to the list of

HICANs generated through Step 1 above. If the SSI data file includes any Title II numbers that were not already identified in Step 1, the

Title II number will be included in our revised match process and compared to any and all HICANs in MedPAR. We note that by including this second step (that is, adding all Title II numbers not previously identified by Step 1), we are addressing the very small universe of individuals for whom the EDB does not include a SSN. If an individual is entitled to SSI benefits and Medicare benefits, the new format of the SSI eligibility file will contain up to 10 Title II numbers and, if they have not already been captured, each of those numbers will be included in our revised match process. Even if an individual does not have a SSN in the EDB, this second step should ensure that our revised match process will include that individual.

Step 3--Ensure consistency between the HICANs in the EDB, Title II numbers, and the HICANs in the MedPAR file. The EDB stores the beneficiary's record at the most specific level of detail. For example, if the beneficiary's Medicare eligibility was originally based on a spouse's earnings history and the spouse subsequently dies, the beneficiary would have two HICANs. Both HICANs, which would have the same root, but different BICs, would be stored in the EDB. However, the inpatient claim in the MedPAR file will only have the individual's

HICAN at a more general level of detail; in the preceding example, the

BIC would identify the beneficiary only as a spouse without specifying whether the spouse (that is, the ``primary'' beneficiary) was alive or deceased. This third step should ensure consistency between the HICANs from Step 1 and the Title II numbers from Step 2 by ``equating'' (or converting) the BIC identifiers to the identifiers that are on the inpatient claim that is included in the MedPAR file. In addition, we are proposing that, for any SSI-eligible beneficiary who is receiving

Medicare benefits based on his or her own account but whose records have not been matched already, we will attempt to match the beneficiary's HICAN in the MedPAR file. Specifically, we are proposing to simply add an ``A'' to all the SSNs in the SSI eligibility data file so that, if that individual was not captured by Steps 1 and 2 above

(for whatever unlikely reason) but MedPAR indicated that the person had received Medicare services, the individual would be included in the data match process by this third step.

Step 4--Calculate the SSI fraction. We are not proposing any changes with respect to the final step in determining the SSI fraction.

To calculate the numerator of the SSI fraction, CMS would continue to sum a hospital's Medicare inpatient days in the acute care part of the hospital (excluding IPPS-exempt units such as rehabilitation and psychiatric units) where the Medicare beneficiary was simultaneously entitled to SSI benefits. To calculate the denominator, CMS would continue to sum a hospital's total Medicare inpatient days in the acute care part of the hospital. c. Timing of the Match

One of the district court's findings in the Baystate decision was that CMS did not use the latest available SSI eligibility file to calculate the provider's SSI fractions. As a result, it might be possible that if a beneficiary treated at the hospital was later determined retroactively to be SSI eligible or if a suspension of the individual's SSI payments was later lifted, that inpatient stay might not be included in the numerator of the SSI fraction. We believe that, in our recalculation of the Baystate hospital's SSI fractions and DSH payments, retroactive SSI eligibility determinations and the lifting of

SSI payment suspensions were not an issue due to the long period of time that elapsed between the provider's 1993 through 1996 fiscal years and our use of updated SSI eligibility data during our completion of the revised match process in 2009. However, we believe that further consideration of the timing of both the SSI eligibility information that SSA provides to CMS and our proposed revised match process for FY 2011 and subsequent fiscal years is warranted.

At present, SSA provides an annual file to CMS with SSI eligibility information that is current through March 31, or 6 months after the end of the prior Federal fiscal year on September 30 (70 FR 47278, 47440,

August 12, 2005). Based on this date, for a hospital with an October 1 to September 30 cost reporting period, the SSI eligibility information we currently use contains 6 to 18 months worth of retroactive SSI eligibility determinations and payment suspension closures--6 months from September (that is, the end of the cost reporting period) and 18 months from October (that is, the

Page 24005

beginning of the cost reporting period). The time lag between the close of a hospital's cost reporting period and the date that CMS receives

SSI eligibility information could actually be longer or shorter for some hospitals, depending on the hospital's specific cost reporting period. We note that SSI fractions are generally based on the Federal fiscal year. However, under the regulations at Sec. 412.106(b)(3), a hospital with a cost reporting period that differs from the Federal fiscal year may request a revised SSI fraction that is based on its own cost reporting period rather than the Federal fiscal year. In such a case, we would revise the hospital's SSI fraction using SSI and

Medicare data derived from the data match process for the two Federal fiscal years that spanned the hospital's cost reporting period.

As we stated in the FY 2006 final IPPS rule, we believe that administrative finality with respect to the calculation of a hospital's

SSI fraction is important (70 FR 47440). We continue to believe that it is important to find an appropriate balance between administrative finality (that is, the final settlement of a hospital's cost report) and the inclusion of retroactive SSI eligibility determinations and the lifting of SSI payment suspensions by using the best and latest available SSI eligibility data at the time of cost report settlement.

Further, we believe it is important to account for the time period in which hospitals are allowed to submit timely Medicare claims in order to ensure that the point in time that we perform the match process includes as many timely submitted inpatient hospital claims as are administratively practicable.

In accordance with the regulations at 42 CFR 424.44 and the

Medicare Claims Processing Manual (Pub. L. 100-04), Chapter 1, Section 70, a hospital must generally file a claim by December 31 of the following year (for services furnished during the first 9 months of a calendar year) and by December 31 of the second following year (for services provided during the last 3 months of the calendar year).

Therefore, Medicare claims for hospital services furnished in FY 2011 would have to be submitted no later than December 31, 2012. We note that section 6404 of the Patient Protection and Affordable Care Act

(Pub. L. 111-148), as amended, recently changed these deadlines to no more than ``1 calendar year after the date of service'' effective for services provided on or after January 1, 2010.

Generally speaking, providers have a financial incentive to submit fee-for-service claims as close as possible to the date of the patient's discharge, and providers have no incentive to wait until after the end of the fiscal year. Thus, while conducting a data match with MedPAR files that were updated 6 months after the end of the

Federal fiscal year may not capture all of a provider's Medicare inpatient claims, we believe that, in large part, the provider's fee- for-service claims are included in that MedPAR file. The same may not be true for the ``information only'' or ``no pay'' claims that hospitals are required to submit to their fee-for-service contractor for Medicare Advantage (MA) beneficiaries. Because claims for MA beneficiaries are paid by MA plans and not the fee-for-service contractor, hospitals may not have the same incentive to file these claims as close as possible to the date of the patient's discharge.\14\

However, in accordance with Transmittal 1396 (issued December 14, 2007) and Transmittal 1695 (issued March 6, 2009), which changed the instructions in the Medicare Claims Processing Manual (Pub. L. 100-04), all IPPS hospitals that do not qualify for IME payments, direct GME payments, or nursing and allied health (N&AH) payments are required to submit informational-only claims for all MA inpatients to ensure that data for MA beneficiaries is included in the SSI fraction. Accordingly, we also are considering changes to the timing of the data match process to ensure that all of a hospital's MA claims are included in the revised matching process given the lack of incentives that exist to submit these claims as soon as possible after the time of the patient's discharge.

\14\ Teaching hospitals have an incentive to submit these claims because they receive an indirect medical education payment. The claims are also used for a teaching hospital's direct medical education payments. Non-teaching DSH hospitals do not have the same direct incentives to submit these claims but to the extent that the

MA beneficiary is also SSI eligible, it would be to the hospital's advantage to ensure these claims are included in the match process.

However, nonteaching DSH hospitals are required to submit MA claims for all MA beneficiaries, regardless of whether the beneficiaries were eligible for SSI benefits.

In addition, in matching eligibility records for Medicare beneficiaries and SSI recipients to calculate the SSI fractions for FY 2011 and future fiscal years, we are also proposing to use more recent

SSI eligibility information from SSA and a more updated version of

MedPAR that is likely to contain more claims data. We currently use SSI eligibility data and MedPAR claims data that are updated 6 months after the close of the Federal fiscal year. We are proposing to use, for FY 2011 and subsequent years, SSI eligibility data files compiled by SSA and MedPAR claims information that are updated 15 months after the close of each Federal fiscal year. This proposal would more closely align the timing of the match process with the timing of our requirements (described above) for the timely submission of claims. For example, to calculate the FY 2011 SSI fractions, we would use the

December 2012 update of the FY 2011 MedPAR file (containing claims information for patient discharges between October 1, 2010 and

September 30, 2011), and a December 2012 SSI eligibility file

(containing FY 2011 SSI eligibility data updated through December 2012, with a lag time relative to the Federal fiscal year of between 15 and 27 months). We expect that the FY 2011 SSI fractions would be published around March 2013 and would be used to settle cost reports for cost reporting periods that began in FY 2011. In addition, we would continue our practice of using each hospital's latest available SSI fraction in determining IPPS interim payments from the time that the SSI fractions are published until the SSI fractions for the next fiscal year are published.

Under current law as amended by section 6404 of Public Law 111-148,

Medicare inpatient claims for FY 2011 can be submitted no later than 1 calendar year from the date of service or by September 30, 2012, for claims with a September 30, 2011 date of service. Therefore, we believe that using the version of MedPAR that is updated 15 months after the end of the fiscal year would contain more accurate and complete inpatient claims information, as we would be using claims data from 3 months after the filing deadline for claims with a date of service occurring on the last day of the second preceding fiscal year.

Furthermore, a later update of the SSI eligibility file would contain more accurate eligibility information and would account for all retroactive changes in SSI eligibility and the lifting of SSI payment suspensions through that date.

The FY 2011 SSI fractions will be used to determine the hospitals'

Medicare DSH payments for cost reporting periods beginning in FY 2011

(that is, October 1, 2010 through September 30, 2011). The proposed timing of the data match for the SSI fractions, effective for FY 2011, would result in FY 2011 SSI fractions being published around March 2013 and would generally coincide with the final settlement of cost reports for cost reporting periods beginning in FY 2011.

We believe that, by calculating SSI fractions on the basis of SSI eligibility data and MedPAR claims data that are

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updated 15 months after the end of the Federal fiscal year, we would be using the best data available to us, given the deadlines for the submission and final settlement of Medicare cost reports. Cost reports must be submitted to the Medicare fiscal intermediary or MAC no later than 5 months after the end of the provider's cost reporting period; the fiscal intermediary or MAC must make a determination of cost report acceptability within 30 days of receipt of the provider's cost report

(42 CFR 413.24(f)(2)(i) and 413.24(f)(5)(iii)). In accordance with the

Medicare Financial Manual (Pub. 100-06), Chapter 8, Section 90, the fiscal intermediary or MAC is expected to settle each cost report that is not scheduled for audit within 12 months of the contractor's acceptance of the cost report. We believe that our proposed timing of the data match would achieve an appropriate balance between accounting for additional retroactive SSI eligibility determinations and the lifting of SSI payment suspensions using all timely submitted Part A inpatient claims, and facilitating administrative finality through the timely final settlement of Medicare cost reports.

Example of Timeline To Calculate FY 2011 SSI Fractions Under Current Policy

Deadline for

Cost reports that use the FY

timely filing of

MedPAR file used

SSI eligibility

Cost reports

Cost report final

SSI fraction 2011 SSI ratios

claims

file used

normally accepted

settlement

available

Cost reports beginning October

December 2012

March 2012 update March 2012 update Generally between Generally between Summer 2012. 1, 2010 through September 30,

of FY 2011 MedPAR. of FY 2011 SSI

March 2012 and

March 2013 and 2011.

eligibility.

February 2013.

February 2014.

Example of Timeline To Calculate FY 2011 SSI Fractions Under Proposed Rule

Deadline for

Cost reports that use the FY

timely filing of

MedPAR file used

SSI eligibility

Cost reports

Cost report final

SSI fraction 2011 SSI ratios

claims

file used

normally accepted

settlement

available

Cost reports beginning October

December 2012

December 2012

December 2012

Generally between Generally between Spring 2013. 1, 2010 through September 30,

update of FY 2011 update of FY 2011 March 2012 and

March 2013 and 2011.

MedPAR.

SSI eligibility.

February 2013.

February 2014.

5. CMS Ruling

The CMS Administrator has prepared a CMS Ruling that addresses three Medicare DSH issues, including CMS' process for matching Medicare and SSI eligibility data and calculating hospitals' SSI fractions. With respect to the data matching process issue, the Ruling requires the

Medicare administrative appeals tribunal (that is, the Administrator of

CMS, the PRRB, the fiscal intermediary hearing officer, or the CMS reviewing official) to remand each qualifying appeal to the appropriate

Medicare contractor. The Ruling also explains how, on remand, CMS and the contractor will recalculate the provider's DSH payment adjustment and make any payment deemed owing. The Ruling further provides that CMS and the Medicare contractors will apply the provisions of the Ruling, on the data matching process issue (and two other DSH issues, as applicable), in calculating the DSH payment adjustment for each hospital cost reporting period where the contractor has not yet final settled the provider's Medicare cost report through the issuance of an initial notice of program reimbursement (NPR) (42 CFR 405.1801(a) and 405.1803).

More specifically, the Ruling provides that, for qualifying appeals of the data matching issue and for cost reports not yet final settled by an initial NPR, CMS will apply any new data matching process that is adopted in the forthcoming FY 2011 IPPS final rule for each appeal that is subject to the Ruling. The data matching process provisions of the

Ruling would apply to properly pending appeals and open cost reports for cost reporting periods beginning prior to October 1, 2010 (that is those preceding the effective date of the FY 2011 IPPS final rule).

The Ruling further states that, if a new data matching process is not adopted in the forthcoming FY 2011 IPPS final rule, CMS would apply to claims subject to the Ruling the same data matching process as the agency used to implement the Baystate decision by recalculating that provider's SSI fractions. 6. Clarification of Language on Inclusion of Medicare Advantage Days in the SSI Fraction of the Medicare DSH Calculation

In the FY 2005 IPPS final rule (69 FR 49099), we discussed in the preamble our policy change to reflect the inclusion of the days associated with Medicare + Choice (now Medicare Advantage (MA)) beneficiaries under Medicare Part C in the SSI fraction of the DSH calculation. In that rule, we indicated that we were revising the regulation text at Sec. 412.106(b)(2)(i) to incorporate this policy.

However, we inadvertently did not make a change in the regulation text to conform to the preamble language. We also inadvertently did not propose to change Sec. 412.106(b)(2)(iii) in the FY 2005 final rule, although we intended to do so. Accordingly, in the FY 2007 IPPS rule

(72 FR 47384), we made a technical correction to amend the regulations at Sec. 412.106(b)(2)(i) and to Sec. 412.106(b)(2)(iii) to make them consistent with the preamble language of the FY 2005 IPPS final rule and to conform to the policy implemented in that rule. Section 412.106(b)(2)(i) of the regulations discusses the numerator of the SSI fraction of the Medicare disproportionate patient percentage (DPP) calculation, while Sec. 412.106(b)(2)(iii) of the regulations discusses the denominator of the SSI fraction of the Medicare DPP.

We are aware that there might be some confusion about our policy to include MA days in the SSI fraction, specifically regarding whether we have

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implied that MA beneficiaries are not actually ``entitled to receive benefits under Part A'' by using the word ``or'' in Sec. 412.106(b)(2)(i)(B) and Sec. 412.106 (b)(2)(iii)(B) with respect to MA days. We note that in the FY 2005 final rule, we stated that we believed that Medicare + Choice (now MA) beneficiaries are patients who are entitled to benefits under Medicare Part A. With respect to the change to the regulatory text that we intended to make in the FY 2005

IPPS final rule, we stated ``* * * we are adopting a policy to include patient days for M+C beneficiaries in the Medicare fraction'' (69 FR 49099) (emphasis added). In order to further clarify our policy that patients days associated with MA beneficiaries are to be included in the SSI fraction because they are still entitled to benefits under

Medicare Part A, we are proposing to replace the word ``or'' with the word ``including'' in Sec. 412.106(b)(2)(i)(B) and Sec. 412.106

(b)(2)(iii)(B).

H. Payments for Direct Graduate Medical Education (GME) (Sec. 413.75) 1. Background

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of hospital inpatient services. Section 1886(h) of the Act, as implemented in regulations at

Sec. 413.75 through Sec. 413.83, establishes a methodology for determining payments to hospitals for the direct costs of approved 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 of

October 1, 1983, through September 30, 1984). Medicare direct GME payments are calculated by multiplying the PRA by 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.

Hospitals may receive direct GME and IME payments for residents in

``approved medical residency training programs.'' Section 1886(h)(5)(A) of the Act defines an ``approved medical residency training program'' as ``a residency or other postgraduate medical training program participation in which may be counted toward certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine approved by the Secretary.'' Section 1886(h)(4)(F) of the Act established a limit on the number of allopathic and osteopathic FTE residents that a hospital may include in its FTE resident count for purposes of calculating direct GME payments.

For most hospitals, the limit, or cap, is the unweighted number of allopathic and osteopathic FTE residents training in the hospital's most recent cost reporting period ending on or before December 31, 1996. 2. Identifying ``Approved Medical Residency Programs''

Despite the fact that current policies regarding the counting of

FTE residents for IME and direct GME purposes have been in effect since

October 1985, we continue to receive questions as to whether certain residents are training in approved medical residency programs, and whether these residents should be included in the Medicare direct GME and IME FTE counts. Although the fundamental rules defining an approved medical residency training program seem straightforward, some confusion apparently exists regarding whether certain trainees in a teaching hospital should be included in the FTE count for IME and direct GME purposes, or whether certain trainees should be treated as physicians and should instead bill for their services under Medicare Part B. These questions arise most often with regard to subspecialty training and

``fellows.'' It is important for hospitals to understand when each of these types of payment applies. a. Residents in Approved Medical Residency Programs

As stated earlier, section 1886(h)(5)(A) of the Act defines an

``approved medical residency training program'' as ``a residency or other postgraduate medical training program participation in which may be counted toward certification in a specialty or subspecialty and includes formal postgraduate training programs in geriatric medicine approved by the Secretary.'' The regulations at Sec. 413.75(b) define an ``approved medical residency program'' as a program that meets one of the following criteria (emphasis added):

(1) Is approved by one of the national organizations listed in

Sec. 415.152 of the regulations.

(2) May count towards certification of the participant in a specialty or subspecialty listed in the current edition of either of the following publications:

(i) The Directory of Graduate Medical Education Programs published by the American Medical Association; or

(ii) The Annual Report and Reference Handbook published by the

American Board of Medical Specialties.

(3) Is approved by the Accreditation Council for Graduate Medical

Education (ACGME) as a fellowship program in geriatric medicine.

(4) Is a program that would be accredited except for the accrediting agency's reliance upon an accreditation standard that requires an entity to perform an induced abortion or require, provide, or refer for training in the performance of induced abortions, or make arrangements for such training, regardless of whether the standard provides exceptions or exemptions.

The regulations at Sec. 415.152 define an ``approved graduate medical education program'' as a residency program approved by one of the following national organizations (or their predecessors): The

Accreditation Council for Graduate Medical Education (ACGME) of the

American Medical Association, the American Osteopathic Association

(AOA), the Commission on Dental Accreditation (CODA) of the American

Dental Association, and the Council on Podiatric Medical Education

(CPME) of the American Podiatric Medical Association. The statutory basis for this regulation is at section 1861(b)(6) of the Act, which cites these accrediting bodies for residency programs. Thus, in general, under Sec. 413.75(b), an ``approved'' program can be a program that is accredited by one of these national organizations, or one that leads toward board certification by the American Board of

Medical Specialties (ABMS). In the September 29, 1989 final rule (54 FR 40295), we explained that, in order to reconcile the two statutory definitions of approved programs at sections 1861(b)(6) and 1886(h)(5)(A) of the Act, we did not limit our regulatory definition of

``approved medical residency program'' to one that may count toward certification in a specialty, but added that a program is also

``approved'' for purposes of IME and direct GME if it is approved by one of the national accrediting bodies. Furthermore, we understood that, especially with respect to subspecialty training, there historically were some formal programs for which none of the listed national accrediting bodies had established standards. However, the

ABMS had established a national board examination for some of those unaccredited programs and, consequently, those programs do count toward certification. Accordingly, such

Page 24008

programs also meet the definition of an ``approved medical residency training program.'' b. Determining Whether an Individual Is a Resident or a Physician

The statute and the regulations (in at least two places in the teaching context) define the term ``resident.'' Section 1861(b)(6) of the Act refers to services provided in a hospital by an ``intern or resident-in-training under a teaching program approved'' by one of the listed accrediting bodies for residency programs. In addition, section 1886(h)(5)(I) of the Act states that the term ``resident'' includes

``an intern or other participant in an approved medical residency training program.'' The regulations at Sec. 413.75(b) state that the term resident means ``an intern, resident, or fellow who participates in an approved medical residency program, including programs in osteopathy, dentistry, and podiatry, as required in order to become certified by the appropriate specialty board.''

As discussed above, an ``approved'' program is one that is accredited by one of the listed national organizations, or one that may count towards board certification. Generally, residency programs today, whether they are core or subspecialty programs, are both accredited, and lead toward board certification through an explicit board examination for that field. Thus, in the typical instance, a resident is accepted into an accredited program in a particular specialty, completes that program over the course of what is typically 3 to 5 years, and then qualifies to take the board certifying examination in the particular specialty of that program. This resident may or may not train in an additional accredited subspecialty program, which would typically last for 1 to 3 years, and which would also lead to board certification through an additional board certifying examination which the individual would be qualified to take upon completion.

We receive questions from time to time regarding whether individuals are considered to be trainees in approved programs or whether they are considered to be physicians and should bill accordingly. These questions frequently involve programs of further training that certain senior and junior faculty at hospitals, typically at large academic medical centers, undertake on their own, not under the auspices of any accrediting body, and in an area of practice for which there is no board certification. Therefore, there is no actual standardized curriculum or formally organized ``program'' in which the individual trainee is participating. Another type of trainee about which we have received questions is one that has completed an accredited program in a certain specialty, but subsequently participates in additional training in that specialty that he or she could have participated in while still within the accredited program.

Sometimes this individual may even train with residents who are actually still training in that accredited program (for example, an individual who has completed a dermatology residency may choose to do additional training with PGY4 dermatology residents). In these scenarios, in order to decide whether an individual is considered a resident or a physician for purposes of Medicare payment, the pertinent questions are whether--

(1) The individual actually needs the training in order to meet board certification requirements in that specialty; and

(2) Whether the individual is formally participating in an organized, standardized, structured course of study.

With regard to the junior faculty who are ``training'' with senior faculty to learn highly specialized skills, we believe that individuals participating in a course of training that one or more senior physicians creates absent the involvement and approval of an accrediting body, and for which there is no specific existing board certification examination, should not be considered ``residents'' or counted for IME and direct GME purposes. Similarly, individuals that already completed an accredited residency program, but subsequently participate in additional training in that same specialty that they could have participated in while still within that accredited program, should also not be considered ``residents'' or be included in the IME and direct GME count. This is because these individuals have already completed accredited residency programs in a particular specialty or subspecialty, and do not need to complete the additional training in order to meet board certification requirements in that field in which they continue to ``train.'' The definition of ``resident'' at Sec. 413.75(b) is ``an intern, resident, or fellow who participates in an approved medical residency program, including programs in osteopathy, dentistry, and podiatry, as required in order to become certified by the appropriate specialty board'' (emphasis added). Accordingly, the individuals described in the scenarios above do not meet the definition of ``resident'' at Sec. 413.75(b) for IME and direct GME purposes.

Instead, these individuals should be treated and receive payment as physicians.

As we explained in the September 29, 1989 Federal Register rule:

``The costs relating to patient care services of licensed physicians who are classified as ``fellows'' but who are not in an identifiable formal program leading to certification as defined in section 1886(h)(5) of the Act but remain at a teaching hospital/medical school complex to enhance their expertise in a field of study are payable on a

Part B reasonable charge basis [now under the Medicare physician fee schedule] as physicians' services'' (54 FR 40295). Similarly, in the

Provider Reimbursement Manual, Part I, section 2405.3.F.2, we state,

``Intermediaries must not count an individual in the indirect medical education adjustment if * * * [A]n individual designated as a

``fellow'' has elected to remain at a teaching hospital/university complex for additional work to gain expertise in a particular field but is no longer in a formally organized program to fulfill certification requirements. The services of such an individual are generally covered as physicians' services payable on a reasonable charge basis''

(emphasis added). (Note: Although we used the term ``fellow,'' which is defined synonymously with ``resident'' in the regulations at Sec. 413.75, in these paragraphs in the September 29, 1989 Federal Register and in the PRM-I, by stating that such ``fellows'' are not in identifiable, formally organized programs and their services should be billed under Part B as physician services, we clearly were indicating that these ``fellows'' are licensed physicians, not residents, and should not be included in the IME and direct GME FTE counts. Perhaps

``junior faculty'' would have been a more apt characterization of these individuals.)

The passage from the September 29, 1989 Federal Register also mentions an ``identifiable formal program leading to certification as defined in section 1886(h)(5) of the Act'' which refers to the statutory definition of ``approved medical residency program.'' The word ``approved'' connotes formality; a planned, structured course of study with a curriculum based on national (rather than individual physician or hospital) standards with a standardized outcome based on standardized evaluations. Since the early days of Medicare, prior to the enactment of section 1886(h) of the Act, when hospitals received payment on a reasonable cost basis for ``approved educational activities,'' we defined such activities as ``formally organized or planned programs of study operated or

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supported by an institution, as distinguished from `on-the-job,'

`inservice,' or similar work-learning programs'' (emphasis added) (PRM-

I, section 402.1). We believe the education that junior faculty receive when working closely with senior faculty to gain highly specialized skills is more appropriately characterized as on-the-job, or inservice training, rather than training in an ``approved medical residency program.''

In order for the training to be considered an ``approved medical residency program,'' the training must prepare the individual for certification in the particular specialty or subspecialty in which the individual is training. The mere possibility that the training could be construed as leading toward or counting toward certification in some existing board examination is insufficient. For example, an individual who is enrolled and participating in a two year accredited subspecialty program in allergy and immunology and, as part of that program, completes an elective in allergic reactions to insect stings is considered a resident during that elective, and may be included in the

IME and direct GME FTE count (assuming all other requirements are met).

However, if, after completion of the 2-year allergy and immunology subspecialty program, this individual decides to remain at the teaching hospital for a year to shadow a physician who has unique expertise in allergic reactions to insect stings, this individual would not be considered a resident, nor would this training be considered an approved program, because this individual is not formally enrolled in a planned, structured, standardized course of study, nor is this year of training required for any individual to qualify to take the board examination in allergy and immunology. This individual already completed the 2-year subspecialty program, and therefore, the extra year spent studying allergic reactions to insect stings is extraneous.

Accordingly, this individual would not be viewed as a resident participating in an approved medical residency training program.

Rather, this individual is considered a physician and should bill

Medicare for services furnished under the physician fee schedule. c. Formal Enrollment and Participation in a Program

We understand that the participation of individuals in an approved medical residency program under which they would be considered residents as defined at Sec. 413.75 is marked by a formal application, acceptance, and enrollment process. We believe that in order for an individual to be considered a resident for purposes of inclusion in the

IME and direct GME counts, whether the individual is a graduate of an allopathic medical school, an osteopathic medical school, or a school of podiatry or dentistry, the individual must be:

(1) Formally accepted and enrolled in the training program, and

(2) Fully participating in that training (unless there is a documented arrangement for the resident to work part time).

In general, we would expect formal acceptance to include an application process (for example, the national residency match process), and an enrollment process which would include letters or other official notifications from the hospital or program sponsor regarding the resident's acceptance to train in a particular program.

We would also expect the resident to have an employment contract with the institution(s) sponsoring the program and/or the institution(s) in which he or she is training. A hospital must be able to document that the individual's participation in the particular course of training represents a definitive (not hypothetical) path for that individual's certification, and that satisfactory completion of such training would fulfill all required elements in order for the individual to qualify to take a specific board examination.

In order to make these rules clearer for the future, we are proposing to revise the definition of ``resident'' to specify that the trainee must be ``formally accepted and enrolled'' in the approved program in order to be considered a resident for IME and direct GME purposes. Specifically, we are proposing to revise the definition of

``resident'' at Sec. 413.75(b) to mean ``an intern, resident, or fellow who is formally accepted, enrolled, and participating in an approved medical residency program, including programs in osteopathy, dentistry, and podiatry, as required in order to become certified by the appropriate specialty board.'' We also are proposing to make a similar conforming change to the definition of ``primary care resident'' at Sec. 413.75(b). This change in the definitions of

``resident'' and ``primary care resident'' would be effective for IME and direct GME for cost reporting periods beginning on or after October 1, 2010.

In summary, we are proposing to clarify that individuals participating in a specialized course of training created by a senior physician, and not under the auspices of a national accrediting body, and for which there is no explicit existing board certification examination, should not be counted for IME and direct GME purposes.

Such individuals should be treated as physicians, and their services should be billed to Medicare for payment as physicians' services. If an individual has already successfully completed at least one residency program and has met the requirements to be board eligible in a specialty (regardless of whether the individual has passed the board examination for that specialty), and is engaged in subsequent training that will not provide additional knowledge or skills that could be applied for board certification in a subspecialty, the individual should be treated and bill for services provided as a physician. We also are proposing to revise the definition of ``resident'' at Sec. 413.75(b) to mean ``an intern, resident, or fellow who is formally accepted, enrolled, and participating in an approved medical residency program, including programs in osteopathy, dentistry, and podiatry, as required in order to become certified by the appropriate specialty board.'' We are proposing to make a conforming change to the definition of ``primary care resident'' to mean ``a resident who is formally accepted, enrolled, and participating in an approved medical residency training program in family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric medicine or osteopathic general practice.'' This change in the definitions of ``resident'' and

``primary care resident'' would be effective for IME and direct GME for cost reporting periods beginning on or after October 1, 2010. 3. Electronic Submission of Affiliation Agreements

Sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act establish limits on the number of allopathic and osteopathic FTE residents that hospitals may count for purposes of calculating direct GME payments and the IME adjustment. In addition, under the authority granted by section 1886(h)(4)(H)(ii) of the Act, the Secretary issued regulations on May 12, 1998 (63 FR 26358) to allow institutions that are members of the same Medicare GME affiliated group to elect to apply their direct GME and IME FTE resident caps based on the aggregate cap of all hospitals that are part of a Medicare GME affiliation group. Under those regulations, specified at Sec. 413.79(f) for direct GME and at Sec. 412.105(f)(1)(vi) for IME, hospitals that are part of the same Medicare

GME affiliated group are permitted to adjust each hospital's caps

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to reflect the rotation of residents among affiliated hospitals during an academic year. Under Sec. 413.75(b), a Medicare GME affiliated group may be formed by two or more hospitals if: (1) The hospitals are located in the same urban or rural area or in a contiguous area and have a shared rotational arrangement as specified at Sec. 413.79(f)(2); (2) the hospitals are not located in the same or in a contiguous area, but have a shared rotational arrangement and they are jointly listed as the sponsor, primary clinical site, or major participating institution for one or more programs as these terms are used in the most recent publication of the Graduate Medical Education

Directory, or as the sponsor or is listed under ``affiliations and outside rotations'' for one or more programs in Opportunities,

Directory of Osteopathic Post-Doctoral Education Programs; or (3) effective beginning July 1, 2003, two or more hospitals are under common ownership and have a shared rotational arrangement under Sec. 413.79(f)(2).

The existing regulations at Sec. 413.79(f)(1) specify that each hospital in a Medicare GME affiliated group must submit a Medicare GME affiliation agreement (as defined under Sec. 413.75(b)) to the CMS fiscal intermediary or MAC servicing the hospital and send a copy of the agreement to CMS' Central Office no later than July 1 of the residency program year during which the Medicare GME affiliation agreement will be in effect. For example, in order for a hospital to receive a temporary adjustment to its FTE resident caps to reflect participation in a Medicare GME affiliated group for the academic year beginning July 1, 2009, through June 30, 2010, the hospital in the affiliated group had to submit a Medicare GME affiliation agreement to the fiscal intermediary or MAC servicing the hospital and send a copy of the agreement to CMS' Central Office no later than July 1, 2009.

Over the last several years, we have received numerous inquiries regarding the possibility of submitting the Medicare GME affiliation agreement electronically. To date, CMS has only accepted signed hard copies of Medicare GME affiliation agreements that are received through the mail. Facsimile (FAX) and other electronic submissions of affiliation agreements have not been acceptable means of transmission of affiliation agreements to CMS Central Office in order for a hospital to meet the requirements of Sec. Sec. 413.79(f) and 412.105(f)(1)(vi).

The increasing frequency of these inquiries and our concerns regarding environmental and paperwork reduction have prompted us to reconsider our procedure for hospitals to submit Medicare GME affiliation agreements to the CMS Central Office. Accordingly, we are proposing to change our policy to provide for electronic submission of the affiliation agreement that is required to be sent to the CMS

Central Office. This proposal would not affect the authority of the fiscal intermediary or MAC to continue to specify its requirements for submission for hospitals in its servicing area.

We are proposing an electronic submission process that would consist of either an e-mail mailbox or a Web site where hospitals would submit their Medicare GME affiliation agreements to the CMS Central

Office. As part of this process, a copy of the Medicare GME affiliation agreement would need to be received through the electronic system no later than 11:59 p.m. on July 1 of each academic year. We are proposing that the electronic affiliation agreement would need to be submitted either as a scanned copy or a Printer-Friendly Display (PDF) version of that hard copy agreement; we are proposing not to accept an agreement in any electronic format that could be subject to manipulation. The scanned and/or PDF format will enable CMS to ensure that the agreements are signed and dated as required in the regulations at Sec. 413.75.

We believe that allowing an electronic submission of the affiliation agreement to the CMS Central Office would assist us in more effectively tracking the groups of hospitals that affiliate as well as the numbers of FTE cap slots that are being transferred within those groups. In addition, we believe an electronic submission process would minimize the paperwork burden for hospitals.

I. Certified Registered Nurse Anesthetist (CRNA) Services Furnished in

Rural Hospitals and CAHs

Section 2312 of the Deficit Reduction Act of 1984 (Pub. L. 98-369) provided for reimbursement to hospitals on a reasonable cost basis for the costs that hospitals incur in connection with the services of certified registered nurse anesthetists (CRNAs). Section 2312(c) provided that pass-through of CRNA costs was effective for cost reporting periods beginning on or after October 1, 1984, and before

October 1, 1987. Section 9320 of the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509) (which established a fee schedule for the services of nurse anesthetists) amended section 2312(c) of Public Law 98-369 by extending the CRNA pass-through provision through cost reporting periods beginning before January 1, 1989. In addition, Public

Law 99-509 amended section 1861 of the Act to add a new subsection

(bb), which provides that CRNA services include anesthesia services and related care furnished by a CRNA. Section 608 of the Family Support Act of 1988 (Pub. L. 100-485) extended pass-through payments for CRNA services through 1991 and amended section 9320 of Public Law 99-509 by including language referring to eligibility for pass-through payments for CRNA services if the facility is ``* * * a hospital located in a rural area (as defined for purposes of section 1886(d) of the Social

Security Act) * * *.'' Reasonable cost-based payment for CRNA services was extended indefinitely by section 6132 of the Omnibus Budget

Reconciliation Act of 1989 (Pub. L. 101-239).

Section 1886(d)(2)(D) of the Act defines ``rural'' as any area outside an urban area. This definition of ``rural'' was in effect when

Public Law 100-485 was implemented. In 1999, the Balanced Budget

Refinement Act (Pub. L. 106-113) amended section 1886(d)(8) of the Act by adding a new subparagraph (E), which permits a hospital physically located in an urban area to apply for reclassification to be treated as rural. In addition, Public Law 106-113 made a corresponding change to section 1820(c)(2)(B)(i) of the Act, which specifies the location requirements for CAH designation, by adding the phrase ``or is treated as being located in a rural area pursuant to section 1886(d)(8)(E).''

The regulations implementing pass-through payments for anesthesia services and related care furnished by qualified nonphysician anesthetists employed by a hospital or CAH, including CRNAs, are located at Sec. 412.113(c). Section 412.113(c)(2)(i)(A) specifies the location requirement for facilities that furnish these services and are eligible to be paid based on reasonable cost for the services. The regulations require that the hospital or CAH be located in a rural area as defined at Sec. 412.62(f) and not be deemed to be located in an urban area under the provisions of Sec. 412.64(b)(3). The regulations at Sec. 412.62(f) mirror section 1886(d)(2)(D) of the Act and define a rural area as ``* * * any area outside an urban area.'' The regulations at Sec. 412.64(b)(3) implement section 1886(d)(8)(B) of the Act, also known as the ``Lugar'' provision, which requires a hospital located in a rural county adjacent to one or more urban areas to be treated as being located in the urban metropolitan statistical area to which the greatest number of workers in the county commute.

Under existing regulations, neither CAHs/hospitals that have reclassified

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from urban to rural under the regulations at Sec. 412.103 nor CAHs/ hospitals located in Lugar counties are eligible to receive pass- through payments for anesthesia services and related care furnished by qualified nonphysician anesthetists. We believe that because the statute, as revised by section 608 of Public Law 100-485, allows for reasonable cost payments for CRNA services if the facility is a hospital located in a rural area as defined for purposes of section 1886(d) of the Act, it is appropriate for us to make the regulations consistent by permitting urban hospitals that have been reclassified as rural to qualify for these payments. Therefore, we are proposing to revise Sec. 412.113(c)(2)(i)(A) to state that effective for cost reporting periods beginning on or after October 1, 2010, CAHs and hospitals that have reclassified pursuant to section 1886(d)(8)(E) of the Act and Sec. 412.103 of the regulations are also rural for purposes of section 1886(d) of the Act and, therefore, are eligible to be paid based on reasonable cost for anesthesia services and related care furnished by a qualified nonphysician anesthetist.

We are not proposing to change our regulations to permit Lugar facilities to be paid based on reasonable cost for anesthesia services and related care furnished by qualified nonphysician anesthetists. As noted above, in order to be paid based on reasonable cost for anesthesia services and related care furnished by a qualified nonphysician anesthetist, a hospital or CAH must be considered rural for purposes of section 1886(d) of the Act. Lugar facilities

(facilities that have been reclassified under Sec. Sec. 412.63(b)(3) and 412.64(b)(3)) are considered urban for purposes of section 1886(d) of the Act. As a result, we do not believe it would be consistent with the statute and our regulations to permit these facilities to be paid on a reasonable cost basis for anesthesia services and related care furnished by qualified nonphysician anesthetists.

J. Rural Community Hospital Demonstration Program

Section 410A(a) of Public Law 108-173 required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing ``rural community hospitals'' to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals for such services under a cost-based methodology 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 under section 1820 of the Act.

Section 410A(a)(4) of Public Law 108-173 (MMA) specified that the

Secretary was to select for participation no more than 15 rural community hospitals in rural areas of States that the Secretary identified as having low population densities. Using 2002 data from the

U.S. Census Bureau, we identified the 10 States with the lowest population density in which rural community hospitals were to be located in order to participate in the demonstration: Alaska, Idaho,

Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota,

Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of the United States: 2003).

CMS originally solicited applicants for the demonstration in May 2004; 13 hospitals began participation with cost report years beginning on or after October 1, 2004. (Four of these 13 hospitals withdrew from the program and became CAHs). In a notice published in the Federal

Register on February 6, 2008 (73 FR 6971), we announced a solicitation for up to 6 additional hospitals to participate in the demonstration program. Four additional hospitals were selected to participate under this solicitation. These four additional hospitals began under the demonstration payment methodology with the hospital's first cost reporting period starting on or after July 1, 2008. Three hospitals (2 of the hospitals were among the 13 hospitals that originally participated in the demonstration and 1 of the hospitals was among the 4 hospitals that began the demonstration in 2008) withdrew from the demonstration during CY 2009. (Two of these hospitals indicated that they will be paid more for Medicare inpatient services under the rebasing allowed under the SCH methodology allowed by the Medicare

Improvement for Patients and Providers Act of 2008 (Pub. L. 110-275).

The other hospital restructured to become a CAH.) There are currently 10 hospitals participating in the demonstration.

Section 410A(a)(5) of Public Law 108-173 required a 5-year demonstration period of participation. For the seven currently participating hospitals that began the demonstration during FY 2005, the demonstration was scheduled to end for each of these hospitals on the last day of its cost reporting period that ends in FY 2010. The end of the participation for the three participating hospitals that began the demonstration in CY 2008 was scheduled to be September 30, 2010. A 5-year extension of the demonstration was mandated in the Patient

Protection and Affordable Care Act (PPACA, Pub. L. 111-148). We note that this proposed rule does not address the relevant changes mandated by Public Law 111-148. Public Law 111-148 does affect our proposed FY 2011 policy with regard to the rural community hospital demonstration.

However, we will address that provision of Public Law 111-148 and any revised policy proposals in a separate rulemaking document in the

Federal Register.

Section 410A of Public Law 108-173 required 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.'' This requirement is commonly referred to as ``budget neutrality.''

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 hospitals do not exceed the amount that would be paid to those same hospitals in the absence of the demonstration program. Typically, 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

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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 same hospitals.

In the past six IPPS final regulations, spanning the period for which the demonstration has been implemented, we have adjusted the national inpatient PPS rates by an amount sufficient to account for the added costs of this demonstration program, thus 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, FY 2008, FY 2009, and FY 2010 IPPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; and 74 FR 43922), we believe that the language of the statutory budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner.

In this proposed rule, in order to ensure that the demonstration in

FY 2007 is budget neutral, we are proposing to incorporate a component into the adjustment factor to the FY 2011 national IPPS rates that would offset the amount by which the costs of the demonstration program, as indicated by settled cost reports beginning in FY 2007 for hospitals participating in the demonstration during FY 2007, exceeded the amount that was identified in the FY 2007 final rule as the budget neutrality offset for FY 2007. Specifically, we are proposing the following methodology: (1) Calculate the FY 2007 costs of the demonstration program according to the settled cost reports that began in FY 2007 for the then participating hospitals (which represent the third year in the demonstration for each of the then participating hospitals); (2) Subtract the amount that was offset by the budget neutrality adjustment for FY 2007 ($9,197,870) from the costs of the demonstration in FY 2007 as calculated in step 1; and (3) Calculate an adjustment factor for the standardized amount for FY 2011 based on the dollar amount calculated in step 2 of this proposed methodology. This factor would represent the component of the proposed overall budget neutrality offset amount for FY 2011 that accounts for the difference between the cost of the demonstration in FY 2007 and the amount of the budget neutrality adjustment published in the FY 2007 final rule.

With respect to the first step of this proposed methodology, we note that we are proposing to use settled cost reports beginning in FY 2007 for hospitals participating in the demonstration during FY 2007 because we believe that these settled cost reports correspond most accurately to FY 2007 and because all such costs reports also began in

FY 2007. Therefore, we believe they correctly represent FY 2007 inpatient costs for the demonstration during that period. In addition, in the process of making adjustments comparing the demonstration's costs to the amounts estimated annually for the budget neutrality offset over the demonstration's entire period of performance, the cost amounts from these hospitals' cost reports correspond most precisely to

FY 2007. In addition, the settlement process for the demonstration hospitals' third year cost reports, that is, cost reporting periods starting in FY 2007, has experienced a delay. Therefore, for this FY 2011 IPPS proposed rule, we are unable to calculate the costs of the demonstration corresponding to FY 2007 and as a result are unable to propose the specific numeric adjustment that would be applied to the national IPPS rates. However, we expect cost reports beginning in FY 2007 for hospitals that participated in the demonstration during FY 2007 to be settled before the FY 2011 IPPS final rule is published.

Therefore, for the FY 2011 IPPS final rule, we will be able to calculate the amount by which the costs corresponding to FY 2007 exceeded the amount offset by the budget neutrality adjustment for FY 2007.

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

On March 23, 2010, the Patient Protection and Affordable Care Act

(PPACA), Public Law 111-148 was enacted. Following the enactment of

Public Law 111-148, the Health Care and Education Reconciliation Act of 2010, Public L. 111-152 (enacted on March 30, 2010), amended certain provisions of Public Law 111-148. A number of the provisions of Public

Law 111-148, as amended by Public Law 111-152, affect the IPPS and the

LTCH PPS and the providers and suppliers addressed in this proposed rule. However, due to the timing of the passage of the legislation, we are unable to address those provisions in this proposed rule.

Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate rulemaking documents in the Federal Register addressing the provisions of Public Law 111-148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and LTCH PPS, as well as the provisions of Public Law 111-148, as amended, that affect the policies and payment rates for FY 2010 under the IPPS and LTCH PPS.

A. Overview

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). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 through 39914) for additional information on the methodology used to determine capital IPPS payments to hospitals both during and after the transition period.) The basic methodology for determining capital prospective payments using the Federal rate is set forth in Sec. 412.312 of the regulations. For the purpose of calculating payments for each discharge, currently the standard Federal rate is adjusted as follows:

(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment

Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1

+ Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if applicable).

B. Exception Payments

The regulations at Sec. 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

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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 Sec. 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 Sec. 412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).

During the transition period, under Sec. Sec. 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 (Sec. 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 Sec. 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 fiscal intermediary or MAC indicating the completion date of their project.

(For more detailed information regarding the special exceptions policy under Sec. 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).)

C. New Hospitals

Under the IPPS for capital-related costs, Sec. 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 example, the following hospitals are not considered new hospitals: (1)

A hospital that builds new or replacement facilities at the same or another location, even if coincidental with a change of ownership, a change in management, or a lease arrangement; (2) a hospital that closes and subsequently reopens; (3) a hospital that has been in operation for more than 2 years but has participated in the Medicare program for less than 2 years; and (4) a hospital that changes its status from a hospital that is excluded from the IPPS to a hospital that is subject to the capital IPPS. 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 Sec. 412.304(c)(2) to provide that, for cost reporting periods beginning on or after October 1, 2002, a new hospital (defined under Sec. 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 full prospective payment based on 100 percent of the Federal rate. (We refer readers to the FY 2003 IPPS final rule (67 FR 50101 through 50102) for a detailed discussion of the special payment provisions for new hospitals under the capital IPPS after the 10-year transition period.)

D. Hospitals Located in Puerto Rico

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 and 25 percent of the capital IPPS Federal rate. However, effective October 1, 1997 (FY 1998), in conjunction with the change to the operating IPPS blend percentage for hospitals located in Puerto Rico required by section 4406 of Public Law 105-33, we revised the methodology for computing capital IPPS payments to hospitals in Puerto Rico to be based on a blend of 50 percent of the capital IPPS Puerto Rico rate and 50 percent of the capital IPPS

Federal rate. Similarly, in conjunction with the change in operating

IPPS payments to hospitals located in Puerto Rico for FY 2005 required by section 504 of Public Law 108-173, we again revised the methodology for computing capital IPPS payments to hospitals located in Puerto Rico to be based on a blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent of the capital IPPS Federal rate effective for discharges occurring on or after October 1, 2004.

E. Proposed Changes for FY 2011: MS-DRG Documentation and Coding

Adjustment 1. Background on the Prospective MS-DRG Documentation and Coding

Adjustments for FY 2008 and FY 2009

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize patients' 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. (Currently, there are 746 MS-DRGs, including one additional MS-DRG created in FY 2009. For FY 2011, there would be 747

DRGs with our proposals in this proposed rule to delete one MS- DRG and to create two new MS-DRGs.) By increasing the number of DRGs and more fully taking into account patients' severity of illness in Medicare payment rates, the MS-DRGs encourage hospitals to change their documentation and coding of patient diagnoses. In that same final rule with comment period (72 FR 47183), 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 changes in documentation and coding. Accordingly, we established adjustments to both the national operating standardized amount and the national capital Federal rate to eliminate the estimated effect of changes in documentation and coding resulting from the adoption of the MS-DRGs that do not reflect real changes in case-mix. Specifically, we established prospective documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY 2009, and -1.8 percent

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for FY 2010. However, to comply with section 7(a) of Public Law 110-90, enacted on September 29, 2007, in a final rule published in the Federal

Register on November 27, 2007 (72 FR 66886 through 66888), we modified the documentation and coding adjustment for FY 2008 to -0.6 percent, and consequently revised the FY 2008 IPPS operating and capital payment rates, factors, and thresholds accordingly, with these revisions effective October 1, 2007.

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of -0.9 percent instead of the -1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As discussed in the FY 2008 IPPS final rule with comment period (72 FR 48447 and 48733 through 48774), we applied a documentation and coding adjustment of -0.9 percent to the FY 2009 IPPS national standardized amounts and the capital Federal rate. The documentation and coding adjustments established in the FY 2009 IPPS final rule, as amended by Public Law 110-90, are cumulative. As a result, the -0.9 percent documentation and coding adjustment in FY 2009 was in addition to the -0.6 percent adjustment in FY 2008, yielding a combined effect of -1.5 percent. (For additional details on the development and implementation of the documentation and coding adjustments for FY 2008 and FY 2009, we refer readers to section II.D. of this preamble and the following rules published in the Federal

Register: August 22, 2007 (72 FR 47175 through 47186 and 47431 through 47432); November 27, 2007 (72 FR 66886 through 66888); and August 19, 2008 (73 FR 48447 through 48450 and 48773 through 48775).) 2. Retrospective Evaluation of FY 2008 Claims Data

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we presented the results of a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 (74 FR 24092 through 24101). We also sought public comment on our methodology and analysis and the proposed -1.9 percent prospective adjustment to address the effect of documentation and coding changes unrelated to changes in real case-mix in FY 2008 (that is, the estimated -2.5 percent documentation and coding effect for FY 2008 minus the -0.6 percent documentation and coding adjustment that was applied to the national capital Federal rate for FY 2008). In addition, we sought public comment on addressing in the FY 2011 rulemaking cycle any differences between the increase in FY 2009 case-mix due to documentation and coding changes that do not reflect real changes in case-mix for discharges occurring during FY 2009 and the -0.9 percent prospective documentation and coding adjustment applied in determining the FY 2009 capital Federal rate established in the FY 2009 IPPS final rule. However, after consideration of the public comments received on the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, consistent with the application of the documentation and coding adjustment to the operating

IPPS standardized amounts, we determined that it would be appropriate to postpone the adoption of any additional documentation and coding adjustments to the capital IPPS rates until a full analysis of FY 2009 case-mix changes could be completed. We stated that although we only proposed to make a -1.9 percent adjustment to account for the portion of the estimated 2.5 percent change in FY 2008 case-mix due to documentation and coding changes that exceeds the -0.6 percent prospective documentation and coding adjustment applied to the FY 2008 capital Federal rate (that is, -2.5 percent minus -0.6 percent = -1.9 percent), our then current estimate of the MS-DRG documentation and coding effect for FY 2009 was 2.3 percent (that is, the 4.8 percent total increase minus the 2.5 percent increase from FY 2008). We indicated that if the estimated documentation and coding effect determined based on a full analysis of FY 2009 claims data is more or less than our then current estimates, it would change the anticipated cumulative adjustments that we then estimated we would have to make for

FY 2008 and FY 2009 combined. We indicated that, in future rulemaking, we would consider applying a prospective documentation and coding adjustment to the capital IPPS rates based on a complete analysis of FY 2008 and FY 2009 claims data (74 FR 43926 through 43928). 3. Retrospective Analysis of FY 2009 Claims Data

For this proposed rule, we have performed a thorough retrospective evaluation of the most recent available claims data, and the results of this evaluation were used by our actuaries to determine any necessary payment adjustments beyond the cumulative -1.5 percent adjustment that has already been applied to the national capital Federal rate to ensure budget neutrality for the implementation of MS-DRGs. Specifically, as discussed in greater detail in section II.D.5. of the preamble of this proposed rule, we performed a retrospective evaluation of the FY 2009 claims data updated through December 2009 using the same analysis methodology as we did for FY 2008 claims in the FY 2010 IPPS/RY 2010

LTCH PPS proposed and final rules. Based on this evaluation, our actuaries have determined that the implementation of the MS-DRG system resulted in a 5.4 percent change in case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009.

The 5.4 percent estimate of the cumulative effect of changes in documentation and coding under the MS-DRG system that did not reflect real changes in case-mix for FYs 2008 and 2009 exceeds the cumulative - 1.5 percent prospective documentation and coding adjustment that has already been applied to the national capital Federal rate by 3.9 percentage points (5.4 percent minus 1.5 percent). An additional cumulative adjustment of -3.9 percent to the national capital Federal rate would be necessary to eliminate the full effect of the documentation and coding changes due to the adoption of the MS-DRGs on future payments. We intend to update our analysis with FY 2009 data on claims paid through March 2009 for the FY 2011 IPPS/LTCH PPS final rule. 4. Proposed Prospective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2011 and Subsequent Years

We continue to believe that it is appropriate to make adjustments to the capital IPPS rates to eliminate the effect of any documentation and coding changes as a result of the implementation of the MS-DRGs.

These adjustments are intended to ensure that future annual aggregate

IPPS payments are the same as payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 accurately reflected the change due to documentation and coding that occurred in those years. As noted in section V.A. of this preamble, under section 1886(g) of the Act, the

Secretary has broad authority in establishing and implementing the IPPS for acute care hospital inpatient capital-related costs (that is, the capital IPPS). We have

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consistently stated since the initial implementation of the MS-DRG system that we do not believe it is appropriate for Medicare expenditures under the capital IPPS to increase due to MS-DRG related changes in documentation and coding. Accordingly, we believe that it is appropriate under the Secretary's broad authority under section 1886(g) of the Act, in conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, to make adjustments to the capital Federal rate to eliminate the full effect of the documentation and coding changes resulting from the adoption of the MS-DRGs. We believe that this is appropriate because, in absence of such adjustments, the effect of the documentation and coding changes resulting from the adoption of the MS-DRGs results in inappropriately high capital IPPS payments because that portion of the increase in aggregate payments is not due to an increase in patient severity of illness (and costs).

As discussed in greater detail in section II.D.7. of this preamble, we explain that we are proposing a -2.9 percent adjustment for FY 2011 under the authority of section 7(b)(1)(B) of Public Law 110-90. We refer readers to that section of the preamble for a detailed discussion of the issue. In section II.D.6. of this preamble, we also discuss our retrospective evaluation of the FY 2009 claims, and our actuaries' determination that implementation of the MS-DRG system resulted in a 5.4 percent change in case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. The estimated 5.4 percent cumulative documentation and coding effect for FYs 2008 and 2009 exceeds the cumulative -1.5 percent prospective documentation and coding adjustment that has already been applied to the national capital Federal rate. Thus, an additional cumulative adjustment of -3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an appropriate prospective adjustment to the IPPS operating average standardized amounts in order to eliminate the full effect of the documentation and coding changes on future payments. However, we are not proposing a prospective adjustment to the IPPS operating average standardized amounts under section 7(b)(1)(A) of Public Law 110-90 for

FY 2011.

As discussed above in this section, given the increase in payments that we have determined is due to documentation and coding, we believe it is necessary and appropriate under the Secretary's broad authority under section 1886(g) of the Act, in conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, to make further adjustments to the capital Federal rate to eliminate the full effect of the documentation and coding changes resulting from the adoption of the MS-DRGs.

It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year.

Therefore, consistently with transitional policies we have adopted in many similar cases and in order to maintain consistency as far as possible with the adjustments that we are proposing to apply to IPPS hospitals, we are proposing an adjustment of -2.9 percent in FY 2011 to the national capital Federal rate. We believe that this proposed adjustment allows us to moderate the effects to hospitals in one year and to maintain equity between hospitals paid on the basis of different prospective rates. We are seeking public comment on the proposed -2.9 percent prospective adjustment to the national capital Federal rate for

FY 2011 and our plans to address in future rulemaking cycles the cumulative effect of changes in case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2008 and FY 2009, noting that our current estimates of the remaining adjustment to the national capital

Federal rate is -1.0 percent. We intend to update our analysis with FY 2009 data on claim paid through March 2009 for the FY 2011 IPPS/LTCH

PPS final rule.

Therefore, in this proposed rule, under the Secretary's broad authority under section 1886(g) of the Act, in conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, we are proposing to reduce the capital Federal rate in FY 2011 by -2.9 percent to account for the cumulative effect of the estimated changes in documentation and coding changes under the MS-DRG system in FYs 2008 and 2009 that did not reflect real changes in case-mix. Furthermore, consistent with our proposal for the hospital-specific rates under the operating IPPS, we are proposing to leave that proposed -2.9 percent adjustment in place for subsequent fiscal years to account for the effect in FY 2011 and subsequent years. As noted above, we intend to address in future rulemaking cycles the remaining estimated adjustment to the national capital Federal rate of -1.0 percent (that is, the estimated cumulative effect of documentation and coding changes under the MS-DRG system for FYs 2008 and 2009 of -5.4 percent minus the existing -0.6 percent and -0.9 adjustments and the proposed FY 2011 of

-2.9 percent adjustment). 5. Proposed Documentation and Coding Adjustment to the Puerto Rico-

Specific Capital Rate

Under Sec. 412.74, Puerto Rico hospitals are currently paid based on 75 percent of the national capital Federal rate and 25 percent of the Puerto Rico-specific capital rate. In the FY 2009 IPPS final rule

(73 FR 48775), consistent with our development of the FY 2009 Puerto

Rico-specific operating standardized amount, we did not apply the additional -0.9 percent documentation and coding adjustment (or the cumulative -1.5 percent adjustment) to the FY 2009 Puerto Rico-specific capital rate. However, 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, and therefore 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. To date, we had not applied a documentation and coding adjustment to the Puerto Rico-specific capital rate because we have historically made changes to the capital IPPS consistent with those changes made to the operating IPPS. We stated that we may propose to apply such an adjustment to the Puerto Rico capital rates in the future.

As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43928), when we performed a retrospective evaluation of the FY 2008 claims data of hospitals located in Puerto Rico using the same methodology discussed above, we found that the change in case-mix due to documentation and coding that did not reflect real changes in case- mix for discharges occurring during FY 2008 from hospitals located in

Puerto Rico was approximately 1.3 percent. Given this case-mix increase due to changes in documentation and coding under the MS-DRGs, we had proposed to adjust the Puerto Rico-specific capital rate by -1.3 percent in FY 2010 for the FY 2008 increase in case-mix due to changes in documentation and coding under the MS-DRGs. However, in that same final rule, postponed the adoption of any documentation and coding adjustments to the capital IPPS rates until a full analysis of FY 2009 case-mix changes could be completed. We indicated that any future documentation and coding adjustment to the capital

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Puerto Rico-specific IPPS rates based on a complete analysis of FY 2008 and FY 2009 claims data for Puerto Rico hospitals would be established through the notice and comment rulemaking process.

As discussed in section II.D.9. of this preamble, when we performed a retrospective evaluation of the FY 2009 claims data of hospitals located in Puerto Rico using the same methodology discussed above, we found that the change in case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 from hospitals located in Puerto Rico was approximately 2.4 percent. Given this case-mix increase due to changes in documentation and coding under the MS-DRGs, consistent with our proposal to adjust the FY 2011 capital Federal rate presented above and consistent with our proposed adjustment to the FY 2011 Puerto Rico- specific standardized amount discussed in section II.D.9. of the preamble of this proposed rule, under the Secretary's broad authority under section 1886(g) of the Act, we are proposing to adjust the Puerto

Rico-specific capital rate by -2.4 percent in FY 2011 for the cumulative increase in case-mix due to changes in documentation and coding under the MS-DRGs for FYs 2008 and 2009. In addition, consistent with our other proposals concerning prospective MS-DRG documentation and coding adjustments to the capital Federal rate and operating IPPS standardized amounts presented in this proposed rule, we are proposing to leave that proposed -2.4 percent adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments not reflective of an increase in real case-mix. We are proposing that the proposed -2.4 percent documentation and coding adjustment would be applied to the capital Puerto Rico- specific rate that accounts for 25 percent of payments to hospitals located in Puerto Rico, with the remaining 75 percent based on the proposed national capital Federal rate, which we are proposing to adjust for documentation and coding as described above. Consequently, the proposed overall reduction to the FY 2011 payment rates for hospitals located in Puerto Rico to account for documentation and coding changes would be slightly less than the reduction for IPPS hospitals paid based on 100 percent of the national capital Federal rate. As noted above, the Puerto Rico-specific capital rate was not adjusted for the cumulative effects of documentation and coding changes in FY 2008 or FY 2009 as is the case with the national capital Federal rate.

F. Other Proposed Changes for FY 2011

The proposed annual update to the capital IPPS national and Puerto

Rico-specific rates, as provided for at Sec. 412.308(c), for FY 2011 is discussed in section III. of the Addendum to this proposed rule.

VI. Proposed Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

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. A per discharge limit (the target amount as defined in Sec. 413.40(a)) was set for each hospital or hospital unit based on the hospital's own cost experience in its base year, and updated annually by a rate-of-increase percentage. The updated target amount was multiplied by total Medicare discharges during that period and applied as an aggregate upper limit (the ceiling as defined in

Sec. 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 to 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 Sec. 403.752(a) of the regulations,

RNHCIs are also subject to the rate-of-increase limits established under Sec. 413.40 of the regulations.)

For FY 2011, we are proposing that the rate-of-increase percentage to be applied to the target amount for cancer and children's hospitals and RNHCIs would be the proposed FY 2011 percentage increase in the

IPPS operating market basket. Beginning with FY 2006, we have used the percentage increase in the IPPS operating market basket to update the target amounts for children's and cancer hospitals. As explained in the

FY 2006 IPPS final rule (70 FR 47396 through 47398), with IRFs, IPFs, and LTCHs being paid under their own PPS, the remaining number of providers being paid based on reasonable cost subject to a ceiling

(that is, children's and cancer hospitals and RNHCIs) is too small and the cost report data are too limited to be able to create a market basket solely for these hospitals. We are proposing to continue to use the IPPS market basket to update the target amounts for children's and cancer hospitals and RNHCIs for the reasons discussed in the FY 2006

IPPS final rule.

We are proposing to use the revised and rebased FY 2006-based IPPS operating market baskets to update the target amounts for children's and cancer hospitals and RNHCIs for FY 2011. Based on IHS Global

Insight, Inc.'s 2010 first quarter forecast, with historical data through the 2009 fourth quarter, we are estimating that the FY 2011 update to the IPPS operating market basket would be 2.4 percent (that is, the current estimate of the market basket rate-of-increase).

We calculated the proposed rate-of-increase in the IPPS operating market basket for FY 2011 using the most recent data available.

However, if data that are more recent become available for the final rule, we will use them to calculate the IPPS operating market basket update for FY 2011. Therefore, consistent with our proposal that the rate-of-increase percentage for cancer and children's hospitals and

RNHCIs would be the proposed percentage increase in the FY 2011 IPPS operating market basket, the proposed FY 2011 rate-of-increase percentage that would be applied to FY 2010 target amounts in order to calculate the FY 2011 target amounts for cancer and children's hospitals and RNHCIs would be 2.4 percent, in accordance with the applicable regulations in 42 CFR 413.40.

We note that IRFs, IPFs, and LTCHs, which were paid previously under the reasonable cost methodology, now receive payment under their own prospective payment systems, in accordance with changes made to the statute. 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. (However, 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.

The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We

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refer readers to section IV. of the Addendum to this proposed rule for the specific proposed update changes to the Federal payment rates for

LTCHs under the LTCH PPS for RY 2011. The annual updates for the IRF

PPS and the IPF PPS are issued by the agency in separate Federal

Register documents.

B. Critical Access Hospitals (CAHs) 1. Background

Section 1820 of the Act provides for the establishment of Medicare

Rural Hospital Flexibility Programs (MRHFPs) under which individual

States may designate certain facilities as critical access hospitals

(CAHs). Facilities that are so designated and that meet the CAH conditions of participation under 42 CFR part 485, Subpart F, will be certified as CAHs by CMS. Regulations governing payments to CAHs for services to Medicare beneficiaries are located in 42 CFR part 413. 2. CAH Optional Method Election for Payment of Outpatient Services

Section 1834(g) of the Act establishes the payment rules for outpatient services furnished by a CAH. Section 403(d) of Public Law 106-113 (BBRA) amended section 1834(g) of the Act to provide for two methods of payment for outpatient services furnished by a CAH.

Specifically, section 1834(g)(1) of the Act, as amended by Public Law 106-113, provided that the amount of payment for outpatient services furnished by a CAH is equal to the reasonable cost of providing such services, unless the CAH made an election, under section 1834(g)(2) of the Act, to receive amounts that were equal to the reasonable cost of the CAH for facility services plus, with respect to the professional services, the amount otherwise paid for professional services under

Medicare, less the applicable Medicare deductible and coinsurance amount. The election made under section 1834(g)(2) of the Act is sometimes referred to as ``method II.'' Throughout this section of this preamble, we refer to this election as the ``optional method.'' Section 202 of Public Law 106-554 (BIPA) amended section 1834(g)(2)(B) of the

Act to increase the payment for professional services under the optional method to 115 percent of the amount otherwise paid for professional services under Medicare. In addition, section 405(a)(1) of

Public Law 108-173 (MMA) amended section 1834(g)(l) of the Act by inserting the phrase ``equal to 101 percent of'' before the phrase

``the reasonable costs.'' However, the MMA made no changes to the amount of payment under the optional method at section 1834(g)(2)(A) of the Act. As stated earlier, the proposed policies and payment rates in this proposed rule do not reflect the provisions of the recently enacted Public Law 111-148, as amended by Public Law 111-152. We plan to address the provisions of Public Law 111-148, as amended, as they affect payments to CAHs in separate documents in the Federal Register or through further instructions.

Accordingly, section 1834(g) of the Act currently provides for two methods of payment for outpatient CAH services. Under the method specified at section 1834(g)(1) of the Act, facility services are paid at 101 percent of reasonable costs to the CAH through the Medicare fiscal intermediary or the Medicare Part A/B MAC, while payments for physician and other professional services are made to the physician or other practitioner under the Medicare Physician Fee Schedule (MPFS) through the Medicare carriers. Under section 1834(g)(2) of the Act (the optional method), a CAH submits bills for both the facility and the professional services to its Medicare fiscal intermediary or its

Medicare Part A/B MAC. If a CAH chooses this optional method for outpatient services, the physician or other practitioner must reassign his or her billing rights to the CAH to bill the Medicare program for those services. In accordance with section 1834(g)(2) of the Act, under this optional method, the CAH receives reasonable cost payment for its facility costs and, with respect to the professional services, 115 percent of the amount otherwise paid for professional services under

Medicare.

The existing regulations at Sec. 413.70(b)(3)(i)(A) require that if a CAH wishes to elect the optional method, that election must be made in writing, made on an annual basis, and delivered to the fiscal intermediary servicing the CAH at least 30 days before the start of the cost reporting period for which the election is made. The regulations at Sec. 413.70(b)(3)(i)(B) specify that once an election is made for a cost reporting period, that election remains in effect for all of that period. Therefore, under the existing regulations, a CAH that is being paid under the optional method is required to submit an election on an annual basis if it wishes to continue to be paid under the optional method for a subsequent cost reporting period.

We have been informed that, in past years, some CAHs have submitted their elections several days late, which has caused these CAHs to lose their optional method election for the entire cost reporting year and has resulted in financial hardship for these providers. Such untimely submission of the optional method election may be due to staffing turnovers at the CAH as well as a change in fiscal intermediary or MAC assignments because, in the past, some CAHs received correspondence from their fiscal intermediaries or MACs reminding them to elect the optional method on an annual basis. Due to the significant consequences if a CAH fails to make a timely election, we are proposing to amend the regulations at Sec. 413.70(b)(3)(i) to state that, effective for CAH cost reporting periods beginning on or after October 1, 2010, if a CAH has elected the optional method for its most recent cost reporting period beginning prior to October 1, 2010 or chooses to elect the optional method for its upcoming cost reporting period, that election will remain in place until it is terminated.

We believe that removing the annual election requirement will reduce any perceived burden associated with the election process and make it easier for CAHs to maintain their election if they experience administrative staffing changes. If a CAH is being paid under the traditional method and wishes to elect the optional method, it must submit its election in writing to its servicing fiscal intermediary or

MAC at least 30 days prior to the first cost reporting period for which the election is effective. Once that initial election is made, it will remain in place until it is terminated.

We are proposing to revise the regulations to include a mechanism for CAHs that are being paid under the optional method to terminate that election. Specifically, we are proposing that if a CAH is being paid under the optional method and wishes to terminate that election, it must submit its termination request to the fiscal intermediary or

MAC servicing the CAH at least 30 days prior to the start of the next cost reporting period. Because the proposed effective date for this provision is for cost reporting periods beginning on or after October 1, 2010, CAHs that have cost reporting periods beginning in October 2010 or November 2010 may not have sufficient time to terminate their optional method election at least 30 days prior to the start of the cost reporting period. Therefore, we are proposing that CAHs that have cost reporting periods beginning in October 2010 or November 2010 and elected the optional method in 2009 that wish to terminate that election will have until December 1, 2010, to terminate their prior year election. The termination will be effective for the entire FY 2011 cost reporting period. Thus, if a CAH with a cost reporting period beginning in

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October 2010 or November 2010 terminates its optional method election after the beginning of its cost reporting period but before December 1, 2010, the fiscal intermediary or MAC would be instructed to reprocess any payments made under the optional method for services provided during that period as efficiently as possible.

Section 1834(g)(2)(B) of the Act provides that if a CAH elects the optional method, it is not required that each physician or other practitioner providing professional services in the CAH must reassign billing rights with respect to the services. Rather, the reassignment of billing rights is physician/practitioner specific. For this reason, the optional payment method should not apply to the computation of payments to the CAH for its facility services in conjunction with services furnished by physicians and practitioners who have not reassigned such billing rights. Accordingly, if a physician or practitioner has not reassigned his or her billing rights to the CAH, the CAH will be paid for its facility services at 101 percent of reasonable cost, as specified at Sec. 413.70(b)(2)(i) of the regulations. If a CAH experiences changes in its physician or practitioner staffing, there may be a change in which physicians or practitioners choose to reassign their billing rights in order to permit the CAH to bill for their professional services. In order to ensure appropriate payments, and specifically, in order to ensure that there is no duplicate billing for a physician's or practitioner's professional services by the CAH to the fiscal intermediary or MAC and by the physician or practitioner providing the service to the carrier, a CAH must continue to notify its fiscal intermediary or MAC when changes in reassignment occur.

In summary, we are proposing to revise Sec. 413.70(b)(3)(i) to specify, under paragraphs (A)(1) and (A)(2), that for CAH cost reporting periods beginning on or after October 1, 2010, once a CAH elects the optional method, including an election made for its most recent cost reporting period beginning prior to October 1, 2010, its election will remain in place until it is terminated. That is, CAHs would no longer be required to make an annual election in order to continue to be paid under the optional method in a subsequent year. If a CAH has not elected the optional method for its most recent cost reporting period beginning prior to October 1, 2010, and would like to be paid for outpatient services under the optional method for a cost reporting period beginning on or after October 1, 2010, consistent with our existing regulations, it would be required to provide its election in writing to its servicing fiscal intermediary or MAC at least 30 days prior to the start of the first cost reporting period for which the election is effective. In addition, we are proposing to revise the regulations to specify that if a CAH wishes to terminate its optional method election, it must submit its termination request to the fiscal intermediary or MAC servicing the CAH at least 30 days prior to the start of the next cost reporting period. We are proposing that CAHs that have cost reporting periods beginning in October 2010 or November 2010 and elected the optional method in 2009, that wish to terminate that election, will have until December 1, 2010, to terminate their prior year election. The termination would be effective for the entire

FY 2011 cost reporting period. We also are proposing to make a conforming change to paragraph (b)(3)(i)(D). 3. Costs of Provider Taxes as Allowable Costs for CAHs a. Background and Statutory Basis

Currently, certain taxes assessed against a provider may be allowable costs under Medicare to the extent that such taxes are related to the reasonable and necessary cost of providing patient care and represent costs actually incurred. Reasonable cost reimbursement is addressed in section 1861(v)(1)(A) of the Act. Section 1861(v)(1)(A) of the Act defines ``reasonable cost,'' in part, as the cost actually incurred, excluding costs found to be unnecessary in the efficient delivery of needed health services and are determined in accordance with regulations establishing the method or methods to be used and the items to be included. Section 1861(v)(1)(A) of the Act does not specifically address the determination of reasonable costs, but authorizes the Secretary to promulgate regulations and principles to be applied in determining reasonable costs.

We have issued regulations implementing this provision of the Act, including 42 CFR 413.9(a) which provide that the determination of reasonable cost ``must be based on the reasonable cost of services covered under Medicare and related to the care of beneficiaries.'' In addition, Sec. 413.9(c) requires that the provision for payment of reasonable cost of services is intended to meet the actual costs incurred in providing services. Therefore, in accordance with the statute, the regulations include two principles that help guide the determination of which expenses may be considered allowable reasonable costs that can be paid under Medicare; that is, such costs must be

``related'' to the care of Medicare beneficiaries, and such costs must actually be ``incurred.''

Consistent with these provisions, we also have issued policy instructions in the Provider Reimbursement Manual (PRM) for determining allowable reasonable costs under Medicare. Specifically, section 2122 of the PRM sets forth Medicare policy on determining when taxes levied on providers are allowable costs and provides a list of taxes that are considered unallowable costs. Specifically, section 2122.1 (General

Rule) of the PRM states: ``The general rule is that taxes assessed against the provider, in accordance with the levying enactments of the several States and lower levels of government and for which the provider is liable for payment, are allowable costs. Tax expenses should not include fines and penalties.'' Section 2122.2 (Taxes Not

Allowable as Costs) of the PRM lists certain taxes that are levied on providers that are not allowable costs. The listed taxes are:

Federal income and excess profit taxes, including any interest or penalties paid thereon (A).

State or local income and excess profit taxes (B).

Taxes in connection with financing, refinancing, or refunding operations, such as taxes on the issuance of bonds, property transfers, issuance or transfer of stocks, etc. Generally, these costs are either amortized over the life of the securities or depreciated over the life of the asset. They are not, however, recognized as tax expense. (C)

Taxes from which exemptions are available to the provider.

(D)

Special assessments on land which represent capital improvements such as sewers, water, and pavements should be capitalized and depreciated over their estimated useful lives. (E)

Taxes on property which is not used in the rendition of covered services. (F)

Taxes, such as sales taxes, levied against the patient and collected and remitted by the provider. (G)

Self-employment (FICA) taxes applicable to individual proprietors, partners, members of a joint venture, etc. (H) b. Proposed Clarification of Payment Policy for Provider Taxes

We have learned that there is some confusion relating to the determination of whether a tax is an allowable cost. We believe that much of this confusion

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has arisen because it may be possible to read sections 2122.1 and 2122.2 of the PRM as permitting all taxes assessed on a provider by a

State that are not specifically listed in section 2122.2 to be treated as allowable costs. Section 2122 of the PRM was last updated in 1979 when States typically raised revenue only from income, sales, and property taxes. The list in section 2212.2 is incomplete now, as it does not reflect the variety of provider taxes imposed by States. In addition, we are concerned that, even if a particular tax may be an allowable cost that is related to the care of Medicare beneficiaries, providers may not, in fact, ``incur'' the entire amount of these assessed taxes. For example, in accordance with the Medicaid statute and regulations, some States levy tax assessments on hospitals. The assessed taxes may be paid by the hospitals into a fund that includes all taxes paid, all Federal matching monies, and any penalties for nonpayment. The State is then authorized to disburse monies from the fund to the hospitals. We believe that these types of subsequent disbursements to providers are associated with the assessed taxes and may, in fact, offset some, if not all, of the taxes originally paid by the hospitals.

We believe that the treatment of these types of payments on the

Medicare cost report should be analogous to the adjustments described at Sec. 413.98 of the regulations. Specifically, Sec. 413.98(d) provides that the ``true cost of the goods or services is the net amount actually paid for them.'' Section 413.98 specifically addresses the purchase of goods and services and reflects the statutory mandate that a provider's allowable costs are the net expenses it incurs for items and services. In situations in which payments that are associated with the assessed tax are made to providers specifically to make the provider whole or partly whole for the tax expenses, Medicare should similarly recognize only the net expense incurred by the provider.

Thus, while a tax may be an allowable Medicare cost in that it is related to beneficiary care, the provider may only treat as a reasonable cost the net tax expense; that is, the tax paid by the provider, reduced by payments the provider received that are associated with the assessed tax. In addition, we do not believe that determinations made regarding whether the structure of specific taxes and subsequent reimbursements are consistent with Medicaid ``hold harmless'' provisions necessarily require the Medicare program to find that the same tax is an allowable cost. The Medicare statute and regulations set forth a different standard that requires a determination of how much of the allowable tax expense is actually

``incurred'' by the provider.

In this proposed rule, we are proposing to clarify our policy concerning when provider taxes may be considered allowable costs under

Medicare. As stated above, section 2122 of the PRM was last updated in 1979, and it no longer reflects the variety of provider taxes that may be imposed by States. Although some of the more recently enacted provider taxes may be allowable costs, we are concerned that some of these taxes may not be ``related to the care of beneficiaries'' and that some, if not all, of the costs of these taxes might not be actually ``incurred'' by the providers. This payment policy may not directly affect providers that are paid under a Medicare prospective payment system unless a cost-based prospective payment system is rebased on more current reported reasonable costs. However, this policy clarification could impact certain providers that are paid on the basis of their incurred reasonable costs, such as CAHs.

Therefore, we are proposing to clarify the policy set forth in sections 2122.1 and 2122.2 of the PRM to reflect our concerns set forth above regarding when certain provider taxes may be allowable costs under the Medicare program. We will modify the PRM consistent with these principles. We believe that the proposed revision would clarify that our Medicare contractors will determine the allowability of provider taxes on a case-by-case basis, based on reasonable cost principles, and will determine if a reduction of the allowable tax expenses is proper to account for payments providers receive that are associated with the assessed tax.

VII. Proposed Changes to the Long-Term Care Hospital Prospective

Payment System (LTCH PPS) for FY 2011

A. Background of the LTCH PPS 1. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP (State Children's

Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)

(Pub. L. 106-113) as amended by section 307(b) of the Medicare,

Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000

(BIPA) (Pub. L. 106-554) provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the

Social Security Act (the Act), effective for cost reporting periods beginning on or after October 1, 2002.

Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a hospital which has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days.'' Section 1886(d)(1)(B)(iv)(II) of the Act also provides an alternative definition of LTCHs: Specifically, a hospital that first received payment under section 1886(d) of the Act in 1986 and has an average inpatient length of stay (LOS) (as determined by the Secretary of

Health and Human Services (the Secretary)) of greater than 20 days and has 80 percent or more of its annual Medicare inpatient discharges with a principal diagnosis that reflects a finding of neoplastic disease in the 12-month cost reporting period ending in FY 1997.

Section 123 of the BBRA requires the PPS for LTCHs to be a ``per discharge'' system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resources and costs in LTCHs.

Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment.

In the August 30, 2002 Federal Register, we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR 55954). This system currently uses information from LTCH patient records to classify patients into distinct MS-long-term care diagnosis- related groups (MS-LTC-DRGs) based on clinical characteristics and expected resource needs. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the

Federal Register.

The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

(Pub. L. 97-248) for payments for inpatient services provided by a LTCH with a cost reporting period beginning on or after October 1, 2002.

(The regulations implementing the TEFRA reasonable cost-based payment provisions are located at 42 CFR Part 413.) With the implementation of the

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PPS for acute care hospitals authorized by the Social Security

Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the

Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and were paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital-specific ceiling on payments was determined by multiplying the hospital's updated target amount by the number of total current year Medicare discharges. (Generally, in section VIII. of this preamble, when we refer to discharges, the intent is to describe Medicare discharges.)

The August 30, 2002 final rule further details the payment policy under the TEFRA system (67 FR 55954).

In the August 30, 2002 final rule, we provided for a 5-year transition period. During this 5-year transition period, a LTCH's total payment under the PPS was based on an increasing percentage of the

Federal rate with a corresponding decrease in the percentage of the

LTCH PPS payment that is based on reasonable cost concepts. However, effective for cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate.

In addition, in the August 30, 2002 final rule, we presented an in- depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the budget neutrality requirements mandated by section 123 of the BBRA. The same final rule that established regulations for the LTCH PPS under 42

CFR part 412, Subpart O also contained LTCH provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements. We refer readers to the August 30, 2002 final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS (67 FR 55954).

In the June 6, 2003 Federal Register, we published a final rule that set forth the FY 2004 annual update of the payment rates for the

Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR 34122). It also changed the annual period for which the payment rates were to be effective, such that the annual updated rates were effective from July 1 through June 30 instead of from October 1 through September 30. We referred to the July through June time period as a ``long-term care hospital rate year'' (LTCH PPS rate year). In addition, we changed the publication schedule for the annual update to allow for an effective date of July 1. The payment amounts and factors used to determine the annual update of the LTCH PPS Federal rate are based on a

LTCH PPS rate year. In the past, while the LTCH payment rate updates were effective July 1, the annual update of the DRG classifications and relative weights for LTCHs continued to be linked to the annual adjustments of the acute care hospital inpatient DRGs and were effective each October 1.

As discussed in detail in section VIII.A.1. of the May 9, 2008 RY 2009 LTCH PPS final rule (73 FR 26788), we again changed the schedule for the annual updates of the LTCH PPS Federal payment rates beginning with RY 2010. We consolidated the rulemaking cycle for the annual update of the LTCH PPS Federal payment rates and description of the methodology and data used to calculate these payment rates with the annual update of the MS-LTC-DRG classifications and associated weighting factors for LTCHs so that the updates to the rates and the weights now occur on the same schedule and appear in the same publication. As a result, the updates to the rates and the weights are now effective on October 1 (on a Federal fiscal year schedule), and the annual updates to the LTCH PPS Federal rates are no longer published with a July 1 effective date (73 FR 26797 through 26798).

Public Law 110-173 (MMSEA), enacted on December 29, 2007, included provisions that have various effects on the LTCH PPS. In addition to amending section 1861 of the Act to add a subsection (ccc) which provided an additional definition of LTCHs, Public Law 110-173 also required the Secretary to submit, no later than 18 months after the date of enactment of the law, a report to Congress on a study of national long-term care hospital facility and patient criteria that included ``recommendations for such legislation and administrative actions, including timelines for the implementation of LTCH patient criteria or other actions, as the Secretary determines appropriate.''

The payment policy provisions under sections 114(c)(1) and 114(c)(2) of

Public Law 110-173 focused on providing 3 years of relief for certain

LTCHs from the percentage threshold payment adjustment policy at 42 CFR 412.534 and 412.536. However, because of the original implementation schedule of those sections of the regulations, the payment provisions had varying timeframes of applicability (73 FR 29701 through 29704). In addition, section 114(c)(3) of Public Law 110-173 provided that the

Secretary shall not apply, for the 3-year period beginning on the date of enactment of the Act the revision to the short-stay outlier (SSO) policy that was finalized in the RY 2008 LTCH PPS final rule (72 FR 26904 and 26992). In addition, section 114(c)(4) of Public Law 110-173 provided that the Secretary shall not, for the 3-year period beginning on the date of enactment of the Act, make the one-time adjustment to the payment rates provided for in Sec. 412.523(d)(3) or any similar provision (73 FR 26800 through 26804). The statute also provided that the base rate for RY 2008 be the same as the base rate for RY 2007 (the revised base rate, however, does not apply to discharges occurring on or after July 1, 2007, and before April 1, 2008) (73 FR 24875 through 24877). Section 114(d) of Public Law 110-173 established a 3-year moratorium (with specified exceptions) on the establishment and classification of new LTCHs, LTCH satellites, and on the increase in the number of LTCH beds in existing LTCHs or satellite facilities.

Finally, section 114(f) of Public Law 110-173 provided for an expanded review of medical necessity for admission and continued stay at LTCHs.

In the RY 2009 LTCH PPS final rule (73 FR 26804 through 26812), we established the applicable Federal rates for RY 2009, consistent with section 1886(m)(2) of the Act as amended by Public Law 110-173. We also revised the regulations at Sec. 412.523(d)(3) to change the methodology for the one-time budget neutrality adjustment and to comply with section 114(c)(4) of Public Law 110-173. Other policy revisions that were necessary as a result of the statutory changes of Public Law 110-173 were addressed in separate interim final rules with comment period (73 FR 24871 and 73 FR 29699). In the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (74 FR 43976 through 43990), we address all of the public comments received and finalized these two interim final rules with comment period.

Section 4302 of the ARRA, Public Law 111-5, enacted on February 17, 2009, included several amendments to the provisions set forth in section 114 of Public Law 110-173. Specifically, section 4302(a) modified the effective dates of the provisions of section 114(c) of

Public Law 110-173, described above, and added an additional category of LTCHs or satellite facilities that would not be subject to the percentage threshold payment adjustment at Sec. 412.536 for a 3-year period. In

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addition, section 4302(a)(2)(A) of Public Law 111-5 added

``grandfathered'' satellites (specified in Sec. 412.22(h)(3)(i) of the regulations) to those ``applicable'' LTCHs (specified in Sec. 412.534(g) of the regulations) originally granted relief under section 114(c) of Public Law 110-173. We issued instructions to the fiscal intermediaries and MACs interpreting the provisions of section 4302 of

Public Law 111-5 (Change Request 6444). In addition, in the FY 2010

IPPS/RY 2010 LTCH PPS final rule (43990 through 43992), we implemented the provisions of section 4302 of Public Law 111-5 through an interim final rule with comment period. We received one piece of timely correspondence regarding the provisions of section 4302 of Public Law 111-5 that were implemented through the interim final rule with comment period that was included in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. We plan to address this public comment and finalize the interim final rule with comment period in the FY 2011 IPPS/LTCH PPS final rule, which is scheduled to be issued by August l, 2010.

On March 23, 2010, the Patient Protection and Affordable Care Act

(PPACA), Public Law 111-148 was enacted. Following the enactment of

Public Law 111-148, the Health Care and Education Reconciliation Act of 2010, Public L. 111-152 (enacted on March 30, 2010), amended certain provisions of Public Law 111-148. A number of the provisions of Public

Law 111-148, as amended by Public Law 111-152, affect the IPPS and the

LTCH PPS and the providers and suppliers addressed in this proposed rule. However, due to the timing of the passage of the legislation, we are unable to address those provisions in this proposed rule.

Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate documents in the Federal Register addressing the provisions of Public

Law 111-148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111-148, as amended, that affect the policies and payment rates for FY 2010 under the IPPS and for RY 2010 under the LTCH PPS. 2. Criteria for Classification as a LTCH a. Classification as a LTCH

Under the existing regulations at Sec. 412.23(e)(1) and (e)(2)(i), which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare and must have an average Medicare inpatient length of stay (LOS) of greater than 25 days. Alternatively, Sec. 412.23(e)(2)(ii) states that for cost reporting periods beginning on or after August 5, 1997, a hospital that was first excluded from the PPS in 1986 and can demonstrate that at least 80 percent of its annual

Medicare inpatient discharges in the 12-month cost reporting period ending in FY 1997 have a principal diagnosis that reflects a finding of neoplastic disease must have an average inpatient length of stay for all patients, including both Medicare and non-Medicare inpatients, of greater than 20 days. b. Hospitals Excluded from the LTCH PPS

The following hospitals are paid under special payment provisions, as described in Sec. 412.22(c), and therefore, are not subject to the

LTCH PPS rules:

Veterans Administration hospitals.

Hospitals that are reimbursed under State cost control systems approved under 42 CFR Part 403.

Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of the Social

Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92- 603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject to the rate-of-increase test at section 1814(b) of the Act).

Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries. 3. Limitation on Charges to Beneficiaries

In the August 30, 2002 final rule, we presented an in-depth discussion of beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we clarified that the discussion of beneficiary liability in the August 30, 2002 final rule was not meant to establish rates or payments for, or define Medicare-eligible expenses. Under Sec. 412.507, if the

Medicare payment to the LTCH is the full LTC-DRG payment amount, as consistent with other established hospital prospective payment systems, a LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under Sec. 409.82, Sec. 409.83, and Sec. 409.87 and for items and services as specified under Sec. 489.30(a). However, under the LTCH PPS, Medicare will only pay for days for which the beneficiary has coverage until the SSO threshold is exceeded. Therefore, if the Medicare payment was for a SSO case (Sec. 412.529) that was less than the full LTC-DRG payment amount because the beneficiary had insufficient remaining Medicare days, the LTCH could also charge the beneficiary for services delivered on those uncovered days (Sec. 412.507). 4. Administrative Simplification Compliance Act (ASCA) and Health

Insurance Portability and Accountability Act (HIPAA) Compliance

Claims submitted to Medicare must comply with both the

Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105), and the Health Insurance Portability and Accountability Act of 1996

(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the

Medicare Program deny payment under Part A or Part B for any expenses incurred for items or services ``for which a claim is submitted other than in an electronic form specified by the Secretary.'' Section 1862(h) of the Act (as added by section 3(a) of the ASCA) provides that the Secretary shall waive such denial in two specific types of cases and may also waive such denial ``in such unusual cases as the Secretary finds appropriate'' (68 FR 48805). Section 3 of the ASCA operates in the context of the HIPAA regulations, which include, among other provisions, the transactions and code sets standards requirements codified at 45 CFR parts 160 and 162, subparts A and I through R

(generally known as the Transactions Rule). The Transactions Rule requires covered entities, including covered health care providers, to conduct certain electronic healthcare transactions according to the applicable transactions and code sets standards.

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group

(MS-LTC-DRG) Classifications and Relative Weights 1. Background

Section 123 of the BBRA requires that the Secretary implement a PPS for LTCHs (that is, a per discharge system with a diagnosis-related group (DRG)-based patient classification system reflecting the differences in patient resources and costs). Section 307(b)(1) of the

BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine ``the feasibility and the impact of basing payment under such a system [the long-term care hospital (LTCH) PPS] on the use of existing (or refined) hospital

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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 this patient classification system as the ``long-term care diagnosis-related groups (LTC-DRGs). Although the patient classification systems 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 relative weights under the LTCH PPS 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 under the IPPS and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 2008). For a full description of the development and implementation and rationale for the use 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 Sec. 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 adopted in FY 2008 represent an increase in the number of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In FY 2009, an additional MS-DRG was adopted for a total of 746 distinct groupings (73

FR 48497). For FY 2011, we are proposing to delete one MS-DRG and create two new MS-DRGs, for a net gain of one MS-DRG, as noted in section II. of the preamble of this proposed rule. This would result in 747 distinct MS-DRG groupings for FY 2011. Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec. 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.

In a departure from the IPPS, and as discussed in greater detail below in section VII.B.3.f. of this preamble, we use low-volume MS-LTC-

DRGs (that is, MS-LTC-DRGs with less than 25 LTCH cases) in determining the MS-LTC-DRG relative weights because LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. For purposes of determining the relative weights for the large number of low-volume MS-

LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five quintiles based on average charge per discharge. (A detailed discussion of the initial development and application of the quintile methodology appears in the August 30, 2002 LTCH PPS final rule (67 FR 55978).) We also account for adjustments to payments for short-stay outlier (SSO) cases (that is, cases where the covered LOS at the LTCH is less than or equal to five-sixths of the geometric ALOS for the MS-LTC-DRG).

Furthermore, we make adjustments to account for nonmonotonically increasing weights, when necessary. That is, 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 such that, in the severity levels within a base MS-LTC-DRG, the weights should increase monotonically with severity from the lowest to highest severity level. (We discuss nonmonotonicity in greater detail and our methodology to adjust the RY 2010 MS-LTC-DRG relative weights to account for nonmonotonically increasing relative weights in section

VII.B.3.g. (Step 6) of this preamble.) 2. Patient Classifications Into MS-LTC-DRGs a. Background

The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under the LTCH PPS) are based on the CMS DRG structure. As noted above in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs although they are structurally identical to the MS-DRGs used under the

IPPS.

The MS-DRGs are organized into 25 major diagnostic categories

(MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22,

Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER software program does not recognize all ICD-9-CM procedure codes as procedures affecting DRG assignment. That is, procedures that are not surgical (for example,

EKG), or minor surgical procedures (for example, biopsy of skin and subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-

DRG assignment based on their presence on the claim.

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;

Additional or secondary diagnoses;

Surgical procedures;

Age;

Sex; and

Discharge status of the patient.

Through FY 2010, the number of secondary or additional diagnoses and the number of surgical procedures considered for MS-DRG assignment was limited to eight and six, respectively. Elsewhere in this proposed rule, however, we are proposing that, for claims submitted on the 5010 format beginning January 1, 2011, we would increase the capacity to process diagnosis and procedure codes up to 25 diagnoses and 25 procedures. This will include one principal diagnosis and up to 24 secondary diagnoses for severity of illness determinations. We refer readers to section II.G.11.c. of this preamble for a complete discussion of this proposed change.

Upon the discharge of the patient from a LTCH, the LTCH must assign

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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 Coding Clinic for ICD-9-CM, a product of the American Hospital Association. (We refer readers to section

II.G.11. of this preamble for additional information on the annual revisions to the ICD-9-CM codes.)

With respect to the ICD-9-CM coding system, we have been discussing the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for many years. As is discussed in detail in section II.G.11. of this preamble, the ICD-10 coding systems applicable to hospital inpatient services will be implemented on October 1, 2013. In order for the industry to make the necessary conversions from ICD-9-CM to ICD-10-CM and ICD-10-PCS, we proposed, through the ICD-9-CM Coordination and

Maintenance Committee, to consider a moratorium on updates to the ICD- 9-CM and ICD-10 coding sets. We refer readers to section II.G.11. of this preamble for additional information on the adoption of ICD-10-CM and ICD-10-PCS.

To create the MS-DRGs (and by extension, the MS-LTC-DRGs), individual DRGs were subdivided according to the presence of specific secondary diagnoses designated as complications or comorbidities (CCs) into three, two, or one level, depending on the impact of the CCs on resources used for those cases. Specifically, there are sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or a major complication and comorbidity (MCC). We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a detailed discussion about the creation of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175).

Medicare contractors (that is, fiscal intermediaries and MACs) enter the clinical and demographic information submitted by LTCHs 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, certain cases are selected for further development (74 FR 43949).

After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). The GROUPER software used under the LTCH PPS is the same GROUPER software program used under the

IPPS. 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 LTCHs to review the MS-LTC-DRG assignments made by the Medicare contractor and to submit additional information within a specified timeframe as provided in Sec. 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 (Sec. 412.60(e)) and the LTCH PPS

(Sec. 412.517), respectively. b. Proposed Changes to the MS-LTC-DRGs for FY 2011

As specified by our regulations at Sec. 412.517(a), which requires that the LTC-MS-DRG classifications and relative weights be updated annually and consistent with our historical practice of using the same patient classification system under the LTCH PPS as is used under the

IPPS, in this proposed rule, we are proposing to modify and revise the

MS-LTC-DRG classifications effective October 1, 2010, through September 30, 2011 (FY 2011) consistent with the proposed changes to specific MS-

DRG classifications presented above in section II.G. of this proposed rule (that is, proposed GROUPER Version 28.0). Therefore, the MS-LTC-

DRGs for FY 2011 presented in this proposed rule are the same as the proposed MS-DRGs that would be used under the IPPS for FY 2011. In addition, because the proposed MS-LTC-DRGs for FY 2011 are the same as the proposed MS-DRGs for FY 2011, the other changes that would affect

MS-DRG (and by extension MS-LTC-DRG) assignments under Version 28.0 of the GROUPER discussed in section II.G. of the preamble of this proposed rule, including the proposed changes to the MCE software and proposed changes to the ICD-9-CM coding system, would also be applicable under the LTCH PPS for FY 2011. 3. Development of the Proposed FY 2011 MS-LTC-DRG Relative Weights a. General Overview of the Development of the MS-LTC-DRG Relative

Weights

As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55984), 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.

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 final rule (73 FR 48542 through 48550)), the basic methodology for developing the proposed FY 2011 MS-LTC-DRG relative weights in this proposed rule continues to be determined in accordance with the general methodology established in the August 30, 2002 LTCH

PPS final rule (67 FR 55989 through 55991). Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary element used to

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account for the variations in cost per discharge and resource utilization among the payment groups (Sec. 412.515). To ensure that

Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as much to treat as cases in an MS-LTC-DRG with a weight of 1. b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2011

Beginning with the FY 2008 update, we established a budget neutral requirement for the annual update to the MS-LTC-DRG classifications and relative weights at 42 CFR 412.517(b) (in conjunction with Sec. 412.503), 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 classification and relative weight changes (May 11, 2007 LTCH PPS final rule, 72 FR 26882 through 26884).

Consistent with Sec. 412.517(b), we apply a two-step budget neutrality methodology, which is based on the current year MS-LTC-DRG classifications and relative weights. (For additional information on the established two-step budget neutrality methodology, we refer readers to the FY 2008 IPPS final rule (72 FR 47295 through 47296).)

Thus, the proposed annual update to the MS-LTC-DRG classifications and relative weights for FY 2011 is based on the FY 2010 MS-LTC-DRG classifications and relative weights. c. Data

In this proposed rule, to calculate the proposed MS-LTC-DRG relative weights for FY 2011, we are proposing to obtain total Medicare allowable charges from FY 2009 Medicare LTCH bill data from the

December 2009 update of the MedPAR file, which are the best available data at this time, and to use the proposed Version 28.0 of the GROUPER to classify LTCH cases (as discussed above). We also are proposing that if more recent data become available, we would use those data and the finalized Version 28.0 of the GROUPER in establishing the FY 2011 MS-

LTC-DRG relative weights in the final rule.

Consistent with our historical methodology, we 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. In addition, as is the case with the IPPS, Medicare Advantage

(Part C) claims are now included in the MedPAR files (74 FR 43808).

Consistent with IPPS policy, we are proposing to exclude such claims in the calculations for the relative weights under the LTCH PPS that are used to determine payments for fee-for-service Medicare claims.

Specifically, we have added an edit to the relative weight calculation to remove any claims from the MedPAR files that have a GHO Paid indicator value of ``1,'' which effectively removes Medicare Advantage claims from the relative weight calculations (73 FR 48532).

Accordingly, in the development of the proposed FY 2011 MS-LTC-DRG relative weights in this proposed rule, we excluded the data of 13 all- inclusive rate providers and the 2 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2009 MedPAR file, as well as any Medicare Advantage claims. d. Hospital-Specific Relative Value (HSRV) Methodology

By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation and wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges.

This nonrandom 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, consistent with the methodology we have used since the implementation of the LTCH PPS, we are proposing to continue to use a hospital-specific relative value

(HSRV) methodology to calculate the proposed MS-LTC-DRG relative weights. We believe this method removes this hospital-specific source of bias in measuring LTCH average charges (67 FR 55985). Specifically, we are reducing the impact of the variation in charges across providers on any particular proposed 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 adjust 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 our established methodology, we continue to standardize charges for each case by first dividing the adjusted charge for the case (adjusted for SSOs under Sec. 412.529 as described in section VII.B.3.g. (step 3) of the preamble of this proposed rule) by the average adjusted charge for all cases at the LTCH in which the case was treated. 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 (Sec. 412.529 and Sec. 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. (67 FR 55989)

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.

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

Relative Weights

For purposes of determining the proposed MS-LTC-DRG relative weights, there are 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 proposed relative weight; low-volume proposed MS-LTC-DRGs (that is, proposed MS-LTC-DRGs that contain between 1 and 24 cases based on a given year's claims data) are grouped into quintiles (as described below) and assigned the proposed relative weight of the quintile. No-volume proposed MS-LTC-DRGs (that is, no cases in the given year's claims data were assigned to those proposed

MS-LTC-DRGs) are crosswalked to other proposed MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the crosswalked MS-LTC-DRG (as described in greater detail below). (We provide in-depth discussions of our policy regarding weight-setting for low-volume MS-LTC-DRGs in section VII.B.3.f. of the preamble of this proposed rule and for no-volume MS-LTC-DRGs, under Step 5 in section

VII.B.3.g. of the preamble of this proposed rule.)

As also noted above, while the LTCH PPS and the IPPS use the same patient classification system, the methodology that is used to set the

DRG relative 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.

In general, consistent with our existing methodology, we are proposing to determine the proposed FY 2011 relative weights for the proposed MS-

LTC-DRGs using the following steps: (1) If a proposed MS-LTC-DRG has at least 25 cases, it is assigned its own proposed relative weight; (2) if a proposed MS-LTC-DRG has between 1 and 24 cases, it is assigned to a quintile for which we compute a proposed relative weight for all of the proposed MS-LTC-DRGs assigned to that quintile; and (3) if a proposed

MS-LTC-DRG has no cases, it is crosswalked to another proposed MS-LTC-

DRG based upon clinical similarities to assign an appropriate proposed relative weight (as described below in detail in Step 5 of section

VII.B.3.g. of this preamble). Furthermore, in determining the proposed

FY 2011 MS-LTC-DRG relative weights, when necessary, we are proposing to make adjustments to account for nonmonotonicity, as discussed in greater detail below in Step 6 of section VII.B.3.g. of this preamble.

We refer readers to the discussion in the FY 2010 IPPS/RY LTCH PPS final rule for our rationale for including an adjustment for nonmonotonicity (74 FR 43953 through 43954). f. Low-Volume MS-LTC-DRGs

In order to account for proposed MS-LTC-DRGs with low volume (that is, with fewer than 25 LTCH cases), consistent with our existing methodology, for purposes of determining the MS-LTC-DRG relative weights, we are proposing to continue to employ this quintile methodology for low-volume proposed MS-LTC-DRGs, such that 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 (67 FR 55984 through 55995 and 72

FR 47283 through 47288). In determining the proposed FY 2011 MS-LTC-DRG relative weights in this proposed rule, in cases where the initial assignment of a low-volume proposed MS-LTC-DRG to quintiles results in nonmonotonicity within a base-DRG, in order to ensure appropriate

Medicare payments, consistent with our historical methodology, we are proposing to make adjustments to the treatment of low-volume proposed

MS-LTC-DRGs to preserve monotonicity, as discussed in detail below in section VII.B.3.g. (Step 6) in this preamble.

In this proposed rule, using LTCH cases from the December 2009 update of the FY 2009 MedPAR file, we identified 283 MS-LTC-DRGs that contained between 1 and 24 cases. This list of proposed MS-LTC-DRGs was then divided into one of the 5 low-volume quintiles, each containing a minimum of 56 proposed MS-LTC-DRGs (283/5 = 56 with 3 proposed MS-LTC-

DRG as the remainder). We are proposing to assign a low-volume proposed

MS-LTC-DRG to a specific low-volume quintile by sorting the low-volume proposed MS-LTC-DRGs in ascending order by average charge in accordance with our established methodology. Furthermore, because the number of proposed MS-LTC-DRGs with less than 25 cases was not evenly divisible by 5, the average charge of the low-volume quintile was used to determine which of the low-volume quintiles would contain the 3 additional low-volume proposed MS-LTC-DRGs. Specifically, after sorting the 283 low-volume proposed MS-LTC-DRGs by ascending order by average charge, we are proposing to assign the first fifth (1st through 56th) of low-volume proposed MS-LTC-DRGs (with the lowest average charge) into Quintile 1. The proposed MS-LTC-DRGs with the highest average charge cases would be assigned into Quintile 5. Because the average charge of the 113th low-volume proposed MS-LTC-DRG in the sorted list is closer to the average charge of the 112th low-volume proposed MS-

LTC-DRG (assigned to Quintile 2) than to the average charge of the 114th low-volume MS-LTC-DRG (assigned to Quintile 3), we are proposing to place it into Quintile 2 (such that Quintile 2 would contain 57 low- volume proposed MS-LTC-DRGs before any adjustments for nonmonotonicity, as discussed below). This process was repeated through the remaining low-volume proposed MS-LTC-DRGs so that 2 of the 5 low-volume quintiles contain 56 MS-LTC-DRGs (Quintiles 1 and 4) and the other 3 low-volume quintiles contain 57 MS-LTC-DRGs (Quintiles 2, 3, and 5).

Accordingly, in order to determine the proposed FY 2011 relative weights for the proposed MS-LTC-DRGs with low volume, we are proposing to use the 5 low-volume quintiles described above. The composition of each of the 5 low-volume quintiles shown in the chart below was used in determining the proposed FY 2011 MS-LTC-DRG relative weights (as shown in Table 11 of the Addendum to this proposed rule). We determined a proposed relative weight and (geometric) average length of stay for each of the 5 low-volume quintiles using the methodology that we applied to the proposed MS-LTC-DRGs (25 or more cases), as described in section VII.B.3.g. of the preamble of this proposed rule. We are proposing to assign the same proposed relative weight and average length of stay to each of the low-volume proposed MS-LTC-DRGs that make up an individual low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of MS-LTC-

DRGs with a low volume of LTCH cases will vary in the future. We use the best available claims data in the MedPAR file to identify low- volume MS-LTC-DRGs and to calculate the proposed relative weights based on our methodology.

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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 used in determining the proposed MS-LTC-DRG relative weights 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. g. Steps for Determining the Proposed FY 2011 MS-LTC-DRG Relative

Weights

In general, we are proposing to determine the FY 2011 MS-LTC-DRG relative weights based on our existing methodology. For additional information on the original development of this methodology, and modifications to it since the adoption of the MS-LTC-DRGs, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55995) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43951 through 43966).

In summary, for FY 2011, to determine the proposed FY 2011 MS-LTC-

DRG relative weights, we are proposing to group LTCH cases to the appropriate proposed MS-LTC-DRG, while taking into account the low- volume proposed MS-LTC-DRGs (as described above). After grouping the cases to the appropriate MS-LTC-DRG (or low-volume quintile), we calculate the proposed FY 2011 relative weights 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 adjust the number of cases in each proposed MS-LTC-DRG (or low-volume quintile) for the effect of SSO cases (step 3 below). After removing statistical outliers

(step 1 below) and cases with a length of stay of less than 8 days

(step 2 below), the SSO adjusted discharges and corresponding charges are then used to calculate ``relative adjusted weights'' for each proposed MS-LTC-DRG (or low-volume quintile) using the HSRV method.

Below we discuss in detail the steps for calculating the proposed

FY 2011 MS-LTC-DRG relative weights. We note that, as we stated in section VII.B.3.c. of this preamble, we excluded the data of all- inclusive rate LTCHs, LTCHs that are paid in accordance with demonstration projects, and any Medicare Advantage claims in the FY 2009 MedPAR file.

Step 1--Remove statistical outliers.

The first step in the calculation of the proposed FY 2011 MS-LTC-

DRG relative weights is to remove statistical outlier cases. Consistent with our historical relative weight methodology, we are proposing to continue to define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each MS-LTC-DRG. These statistical outliers are removed prior to calculating the proposed relative weights because we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the proposed relative weights could result in an inaccurate

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relative weight that does not truly reflect relative resource use among the MS-LTC-DRGs. (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 2--Remove cases with a length of stay of 7 days or less.

The MS-LTC-DRG relative weights reflect the average of resources used on representative cases of a specific type. Generally, cases with a length of stay of 7 days or less do not belong in a LTCH because these stays do not fully receive or benefit from treatment that is typical in a LTCH stay, and full resources are often not used in the earlier stages of admission to a LTCH. If we were to include stays of 7 days or less in the computation of the proposed FY 2011 MS-LTC-DRG relative weights, the value of many proposed relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH by including data from these very short-stays. Therefore, consistent with our historical relative weight methodology, in determining the proposed FY 2011 MS-LTC-DRG relative weights, we are proposing to remove LTCH cases with a length of stay of 7 days or less.

(For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 3--Adjust charges for the effects of SSOs.

After removing cases with a length of stay of 7 days or less, we are left with cases that have a length of stay of greater than or equal to 8 days. As the next step in the calculation of the proposed FY 2011

MS-LTC-DRG relative weights, consistent with our historical relative weight methodology, we are proposing to adjust each LTCH's charges per discharge for those remaining cases for the effects of SSOs (as defined in Sec. 412.529(a) in conjunction with Sec. 412.503).

We make 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 proposed RY 2011 MS-LTC-DRG relative weights would lower the proposed FY 2011 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, we are proposing to adjust for SSO cases under Sec. 412.529 in this manner because it results in more appropriate payments for all LTCH cases. (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)

Step 4--Calculate the proposed FY 2011 MS-LTC-DRG relative weights on an iterative basis.

Consistent with our historical relative weight methodology, we are proposing to calculate the proposed FY 2011 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 is then multiplied by the LTCH's case-mix index to produce an adjusted hospital-specific relative charge value for the case. An initial case-mix index value of 1.0 is used for each LTCH.

For each proposed MS-LTC-DRG, the proposed FY 2011 relative weight was calculated by dividing the average of the adjusted hospital- specific relative charge values (from above) for the proposed MS-LTC-

DRG by the overall average hospital-specific relative charge value across all cases for all LTCHs. Using these recalculated proposed MS-

LTC-DRG relative weights, each LTCH's average relative weight for all of its cases (that is, its case-mix) is calculated by dividing the sum of all the LTCH's proposed MS-LTC-DRG relative weights by its total number of cases. The LTCHs' hospital-specific relative charge values above is multiplied by these hospital-specific case-mix indexes. These hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of proposed MS-LTC-DRG relative weights across all LTCHs. This iterative process was continued until there is convergence between the weights produced at adjacent steps, for example, when the maximum difference is less than 0.0001.

Step 5--Determine a proposed FY 2011 relative weight for MS-LTC-

DRGs with no LTCH cases.

As we stated above, we are proposing to determine the proposed FY 2011 relative weight for each proposed MS-LTC-DRG using total Medicare allowable charges reported in the best available LTCH claims data (that is, the December 2009 update of the FY 2009 MedPAR file for this proposed rule). Using these data, we identified a number of proposed

MS-LTC-DRGs for which there were no LTCH cases in the database, such that no patients who would have been classified to those proposed MS-

LTC-DRGs were treated in LTCHs during FY 2009 and, therefore, no charge data were available for these proposed MS-LTC-DRGs. Thus, in the process of determining the proposed MS-LTC-DRG relative weights, we were unable to calculate proposed relative weights for the proposed MS-

LTC-DRGs with no LTCH cases using the methodology described in Steps 1 through 4 above. However, because patients with a number of the diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs, consistent with our historical methodology, we are proposing to assign a proposed relative weight to each of the no-volume proposed MS-LTC-

DRGs based on clinical similarity and relative costliness (with the exception of ``transplant'' proposed MS-LTC-DRGs and ``error'' proposed

MS-LTC-DRGs, as discussed below). (For additional information on this step of the relative weight methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 43960.)

In general, we determined proposed FY 2011 relative weights for the proposed MS-LTC-DRGs with no LTCH cases in the FY 2009 MedPAR file used in this proposed rule (that is, ``no-volume'' proposed MS-LTC-DRGs) by crosswalking each no-volume proposed MS-LTC-DRG to another proposed MS-

LTC-DRG with a calculated proposed relative weight (determined in accordance with the methodology described above). Then, the ``no- volume'' proposed MS-LTC-DRG is assigned the same proposed relative weight (and average length of stay) of the proposed MS-LTC-DRG to which it was crosswalked (as described in greater detail below).

Of the 747 proposed MS-LTC-DRGs for FY 2011, we identified 223 proposed MS-LTC-DRGs for which there were no LTCH cases in the database

(including

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the 8 ``transplant'' proposed MS-LTC-DRGs and 2 ``error'' proposed MS-

LTC-DRGs). As stated above, we are proposing to assign proposed relative weights for each of the 213 no-volume proposed MS-LTC-DRGs

(with the exception of the 8 ``transplant'' proposed MS-LTC-DRGs and the 2 ``error'' proposed MS-LTC-DRGs, which are discussed below) based on clinical similarity and relative costliness to one of the remaining 524 (747--223 = 524) proposed MS-LTC-DRGs for which we were able to determine proposed relative weights based on FY 2009 LTCH claims data using the steps described above. (For the remainder of this discussion, we refer to the proposed ``crosswalked'' MS-LTC-DRGs as the proposed

MS-LTC-DRGs to which we are proposing to crosswalk one of the 213 ``no volume'' proposed MS-LTC-DRGs for purposes of determining a proposed relative weight.) Then, we are proposing to assign the no-volume proposed MS-LTC-DRG the proposed relative weight of the proposed crosswalked MS-LTC-DRG. (As explained below in Step 6, when necessary, we made adjustments to account for nonmonotonicity.)

In this proposed rule, we are proposing to use the following methodology for determining the proposed FY 2011 relative weights for the no-volume proposed MS-LTC-DRGs: We crosswalk the no-volume proposed

MS-LTC-DRG to a proposed MS-LTC-DRG for which there were LTCH cases in the FY 2009 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 evaluate the relative costliness in determining the applicable proposed MS-LTC-DRG to which a no-volume proposed MS-LTC-DRG was crosswalked in order to assign an appropriate proposed relative weight for the no-volume MS-

LTC-DRGs in FY 2011. (For more detail on our process for evaluating relative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH

PPS final rule (73 FR 48543).) We believe in the rare event that there would be a few LTCH cases grouped to one of the no-volume proposed MS-

LTC-DRGs in FY 2011, the proposed relative weights assigned based on the crosswalked proposed MS-LTC-DRGs would result in an appropriate

LTCH PPS payment because the proposed crosswalks, which are based on similar clinical similarity and relative costliness, generally require equivalent relative resource use.

We then assign the proposed relative weight of the crosswalked proposed MS-LTC-DRG as the proposed relative weight for the no-volume proposed MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume proposed MS-LTC-DRG and the crosswalked proposed MS-LTC-DRG) would have the same proposed relative weight for FY 2011. We note that if the crosswalked proposed MS-LTC-DRG had 25 cases or more, its proposed relative weight, which is calculated using the methodology described in Steps 1 through 4 above, is assigned to the no-volume proposed MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the no-volume proposed 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 proposed relative weights, we assign the proposed relative weight of the applicable low-volume quintile to the no-volume proposed MS-LTC-DRG such that both of these proposed MS-LTC-

DRGs (that is, the no-volume proposed MS-LTC-DRG and the crosswalked proposed MS-LTC-DRG) have the same proposed relative weight for FY 2011. (As we noted above, in the infrequent case where nonmonotonicity involving a no-volume proposed MS-LTC-DRG results, additional measures as described in Step 6 are required in order to maintain monotonically increasing proposed relative weights.)

For this proposed rule, a list of the no-volume MS-LTC-DRGs and the proposed MS-LTC-DRG to which it is crosswalked (that is, the crosswalked MS-LTC-DRG) for FY 2011 is shown in the chart below.

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To illustrate this methodology for determining the proposed relative weights for the proposed FY 2011 MS-LTC-DRGs with no LTCH cases, we are providing the following example, which refers to the no- volume proposed MS-LTC-DRGs crosswalk information for FY 2011 provided in the chart above.

Example: There were no cases in the FY 2009 MedPAR file used for this proposed rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with

Use of Thrombolytic Agent with MCC). We determined that proposed MS-

LTC-DRG 70 (Nonspecific Cebrovascular Disorders with MCC) was similar clinically and based on resource use to MS-LTC-DRG 61.

Therefore, we assigned the same proposed relative weight of MS-LTC-

DRG 70 of 0.9204 for FY 2011 to MS-LTC-DRG 61 (Table 11 of the

Addendum to this proposed rule).

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Furthermore, for FY 2011, consistent with our historical relative weight methodology, we are proposing to establish MS-LTC-DRG relative weights of 0.0000 for the following transplant proposed MS-LTC-DRGs:

Heart Transplant or Implant of Heart Assist System with MCC (proposed

MS-LTC-DRG 1); Heart Transplant or Implant of Heart Assist System without MCC (proposed MS-LTC-DRG 2); Liver Transplant with MCC or

Intestinal Transplant (proposed MS-LTC-DRG 5); Liver Transplant without

MCC (proposed MS-LTC-DRG 6); Lung Transplant (proposed MS-LTC-DRG 7);

Simultaneous Pancreas/Kidney Transplant (proposed MS-LTC-DRG 8);

Pancreas Transplant (proposed MS-LTC-DRG 10); and Kidney Transplant

(proposed 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. At the present time, we only include these eight transplant MS-LTC-DRGs in the GROUPER program for administrative purposes only. Because we use the same GROUPER program for LTCHs as is used under the IPPS, removing these MS-LTC-DRGs would be administratively burdensome. (For additional information regarding our treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010

LTCH PPS final rule (74 FR 43964).) 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 proposed relative weights in this proposed rule.

Step 6--Adjust the proposed FY 2011 MS-LTC-DRG relative weights to account for nonmonotonically increasing relative weights.

As discussed earlier in this section, the MS-DRGs contain base DRGs that have been subdivided into one, two, or three severity of illness levels. Where there are three severity levels, the most severe level has at least one code that is referred to as an MCC (that is, major complication or comorbidity). The next lower severity level contains cases with at least one code that is a CC (that is, complication or comorbidity). Those cases 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 subdivided into either two levels or the base DRG is not subdivided. The two-level subdivisions could consist of the with CC/MCC and the without CC/MCC. Alternatively, the other type of two-level subdivision may 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 both the ``with CC'' and the ``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 decrease as severity decreased (that is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher relative weight than one with MCC, 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 because the payment for the cases in the higher severity level in a base MS-LTC-DRG (which are generally expected to have higher resource use and costs) would be lower than the payment for cases in a lower severity level within the same base MS-LTC-DRG (which are generally expected to have lower resource use and costs).

Consequently, in determining the proposed FY 2011 MS-LTC-DRG relative weights in this proposed rule, consistent with our historical methodology, we are proposing to combine 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. For a comprehensive description of our existing methodology to adjust for nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any adjustments for nonmonotonicity that were made in determining the proposed FY 2011 MS-

LTC-DRG relative weights in this proposed rule by applying this methodology are denoted in Table 11 of the Addendum to this proposed rule.

Step 7-- Calculate the proposed FY 2011 budget neutrality factor.

As we established in the RY 2008 LTCH PPS final rule (72 FR 26882), under the broad authority conferred upon the Secretary to develop the

LTCH PPS under section 123 of Public Law 106-113, as amended by section 307(b) of Public Law 106-554, 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 (Sec. 412.517(b) in conjunction with Sec. 412.503). (For a detailed discussion on the establishment of the budget neutrality requirement to update the MS-

LTC-DRG classifications and relative weights, we refer readers to the

RY 2008 LTCH PPS final rule (72 FR 26881).)

The MS-LTC-DRG classifications and relative weights are updated annually based on the most recent available LTCH claims data to reflect changes in relative LTCH resource use (Sec. 412.517(a) in accordance with Sec. 412.503). Under the budget neutrality requirement at Sec. 412.517(b), 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, we are proposing to update the proposed

MS-LTC-DRG classifications and relative weights for FY 2011 based on the most recent available LTCH data, and to apply a budget neutrality adjustment in determining the proposed FY 2011 MS-LTC-DRG relative weights.

To ensure budget neutrality in the proposed update to the MS-LTC-

DRG classifications and relative weights under Sec. 412.517(b), we are proposing to continue to use our established two-step budget neutrality methodology. Specifically, in the first step of our MS-LTC-DRG budget neutrality methodology, we calculate and apply a normalization factor to the proposed recalibrated relative weights (the result of Steps 1 through 6 above) to ensure that estimated payments are not influenced by changes in the composition of case types or the changes to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the proposed MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases the average CMI.

To calculate the proposed normalization factor for FY 2011 (the first step of our budget neutrality methodology), we are proposing to use

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the following three steps: (1.a.) We use the most recent available LTCH claims data (FY 2009) and group them using the proposed FY 2011 GROUPER

(Version 28.0) and the proposed recalibrated FY 2011 MS-LTC-DRG relative weights (determined in steps 1 through 6 of the Steps for

Determining the Proposed FY 2011 MS-LTC-DRG Relative Weights above) to calculate the average CMI; (1.b.) we group the same LTCH claims data

(FY 2009) using the FY 2010 GROUPER (Version 27.0) and FY 2010 MS-LTC-

DRG relative weights and calculate the average CMI; and (1.c.) we compute the ratio of these average CMIs by dividing the average CMI for

FY 2010 (determined in Step 1.b.) by the average CMI for FY 2011

(determined in step 1.a.). In determining the proposed MS-LTC-DRG relative weights for FY 2011, each recalibrated MS-LTC-DRG relative weight is multiplied by 1.10362 in the first step of the budget neutrality methodology, which produces ``normalized relative weights.''

In the second step of our MS-LTC-DRG budget neutrality methodology, we determine a budget neutrality factor to ensure that estimated aggregate LTCH PPS payments (based on the most recent available LTCH claims data) after reclassification and recalibration (that is, the proposed FY 2011 MS-LTC-DRG classifications and relative weights) are equal to estimated aggregate LTCH PPS payments before reclassification and recalibration (that is, the FY 2010 MS-LTC-DRG classifications and relative weights). Accordingly, consistent with our existing methodology, we are proposing to use FY 2009 discharge data to simulate payments and compare estimated aggregate LTCH PPS payments using the FY 2010 MS-LTC-DRGs and relative weights to estimate aggregate LTCH PPS payments using the proposed FY 2011 MS-LTC-DRGs and relative weights.

As noted above, the most recent available LTCH claims data for this proposed rule are from the December 2009 update of the FY 2009 MedPAR file. Consistent with our historical policy of using the best available data, we are proposing to use the most recently available claims data for determining the budget neutrality adjustment factor in the final rule.

For this proposed rule, we determined the proposed FY 2011 budget neutrality adjustment factor rule using the following three steps:

(2.a.) we simulate estimated total LTCH PPS payments using the normalized proposed relative weights for FY 2011 and GROUPER Version 28.0 (as described above); (2.b.) we simulate estimated total LTCH PPS payments using the FY 2010 GROUPER (Version 27.0) and the FY 2010 MS-

LTC-DRG relative weights shown in Table 11 of the FY 2010 IPPS/RY 2010

LTCH PPS final rule (74 FR 44183 through 44192); and (2.c.) we calculate the ratio of these estimated total LTCH PPS payments by dividing the estimated total LTCH PPS payments using the FY 2010

GROUPER (Version 27.0) and the FY 2010 MS-LTC-DRG relative weights

(determined in step 2.b.) by the estimated total LTCH PPS payments using the proposed FY 2011 GROUPER (Version 28.0) and the normalized proposed MS-LTC-DRG relative weights for FY 2011 (determined in Step 2.a.). In determining the proposed FY 2011 MS-LTC-DRG relative weights, each normalized proposed relative weight is multiplied by a budget neutrality factor of 0.987575 in the second step of the budget neutrality methodology to determine the proposed budget neutral FY 2011 relative weight for each MS-LTC-DRG.

Accordingly, in determining the proposed FY 2011 MS-LTC-DRG relative weights in this proposed rule, consistent with our existing methodology, we are proposing to apply a normalization factor of 1.10362 and a budget neutrality factor of 0.987575 (computed as described above).

Table 11 in the Addendum to this proposed rule lists the proposed

MS-LTC-DRGs and their respective proposed relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (used in determining SSO payments under Sec. 412.529) for FY 2011. The proposed FY 2011 MS-LTC-DRG relative weights in Table 11 in the Addendum to this proposed rule reflect both the proposed normalization factor of 1.10362 and the proposed budget neutrality factor of 0.987575.

C. Proposed Changes to the LTCH Payment Rates and Other Changes to the

FY 2011 LTCH PPS 1. Overview of Development of the LTCH Payment Rates

The LTCH PPS was effective beginning with a LTCH's first cost reporting period beginning on or after October 1, 2002. Effective beginning with that cost reporting period, LTCHs were paid, during a 5- year transition period, a total LTCH prospective payment that was comprised of an increasing proportion of the LTCH PPS Federal rate and a decreasing proportion based on reasonable cost-based principles, unless the hospital made a one-time election to receive payment based on 100 percent of the Federal rate, as specified in Sec. 412.533. New

LTCHs (as defined at Sec. 412.23(e)(4)) are paid based on 100 percent of the Federal rate, with no phase-in transition payments.

The basic methodology for determining LTCH PPS Federal prospective payment rates is set forth at Sec. 412.515 through Sec. 412.536. In this section, we discuss the factors that would be used to update the

LTCH PPS standard Federal rate for the FY 2011 that would be effective for LTCH discharges occurring on or after October 1, 2010 through

September 30, 2011.

For further details on the development of the FY 2003 standard

Federal rate, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037), and for subsequent updates to the

LTCH PPS Federal rate, we refer readers to the following final rules:

RY 2004 LTCH PPS final rule (68 FR 34134 through 34140), RY 2005 LTCH

PPS final rule (69 FR 25682 through 25684), RY 2006 LTCH PPS final rule

(70 FR 24179 through 24180), RY 2007 LTCH PPS final rule (71 FR 27819 through 27827), RY 2008 LTCH PPS final rule (72 FR 26870 through 27029), RY 2009 LTCH PPS final rule (73 FR 26800 through 26804), and RY 2010 LTCH PPS final rule (74 FR 44021 through 44030). The proposed update to the LTCH PPS standard Federal rate for FY 2011 is presented in section V.A. of the Addendum to this proposed rule. The two components of the proposed update to the LTCH PPS standard Federal rate for FY 2011 are discussed below. 2. Market Basket for LTCHs Reimbursed Under the LTCH PPS a. Overview

Historically, the Medicare program has used a market basket to account for price increases in the services furnished by providers. The market basket used for the LTCH PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS uses a single payment rate for both operating and capital-related costs. With the initial implementation of the LTCH PPS for FY 2003, we established the use of the excluded hospital with capital market basket as the LTCH PPS market basket (67 FR 56016 through 56017). The development of the initial LTCH PPS standard Federal rate for FY 2003, using the excluded hospital with capital market basket, is discussed in further detail in the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033).

For further details on the development of the excluded hospital with capital market basket, we refer readers to the RY 2004 LTCH PPS final rule (68 FR 34134 through 34137).

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Beginning in RY 2007, we adopted the rehabilitation, psychiatric, long-term care (RPL) hospital market basket based on FY 2002 data as the appropriate market basket of goods and services under the LTCH PPS for discharges occurring on or after July 1, 2006. As discussed in the

RY 2007 LTCH PPS final rule (71 FR 27810), based on our research, we did not develop a market basket specific to LTCH services. We were unable to create a separate market basket specifically for LTCHs at that time due to the small number of facilities and the limited amount of data that was reported.

For further details on the development of the FY 2002-based RPL market basket, we refer readers to the RY 2007 LTCH PPS final rule (71

FR 27810 through 27817). b. Market Basket Under the LTCH PPS for FY 2011

When we initially created the FY 2002-based RPL market basket, we were unable to create a separate market basket specifically for LTCHs due, in part, to the small number of facilities and the limited data that were provided in the Medicare cost reports. Over the last several years, however, the number of LTCH facilities submitting valid Medicare cost report data has increased. Based on this development, as well as our desire to move from one RPL market basket to three stand-alone and provider-specific market baskets (for IRFs, IPFs, and LTCHs, respectively), we plan to begin exploring the viability of creating these market baskets for future use. However, as we discussed in the RY 2010 LTCH PPS final rule (74 FR 43967 through 43968), we are conducting further research to assist us in understanding the reasons for the variations in costs and cost structure between freestanding IRFs and hospital-based IRFs. We also are researching the reasons for similar variations in costs and cost structure between freestanding IPFs and hospital-based IPFs. Therefore, as we continue to explore the development of stand-alone market baskets for LTCHs, IRFs and IPFs, respectively, we believe that it is appropriate to continue to use the

FY 2002-based RPL market basket for LTCHs, IRFs and IPFs under their respective PPSs.

In addition, for the reasons discussed when we adopted the RPL market basket for use under the LTCH PPS in the RY 2007 LTCH PPS final rule (71 FR 27810 through 27817), we continue to believe that the RPL market basket appropriately reflect the cost structure of LTCHs. For the reasons explained above, in this proposed rule, we are proposing to continue to use the FY 2002-based RPL market basket under the LTCH PPS for FY 2011. We are hopeful that progress can be made in the near future with respect to creating stand-alone market baskets for LTCHs,

IRFs, and IPFs and, as a result, may propose to rebase the appropriate market basket(s) for subsequent updates in the future. c. Proposed Market Basket Update for LTCHs for FY 2011

Consistent with our historical practice, we estimate the RPL market basket update based on IHS Global Insight, Inc.'s forecast using the most recent available data. IHS Global Insight, Inc. is a nationally recognized economic and financial forecasting firm that contracts with

CMS to forecast the components of the hospital market baskets. Based on

IHS Global Insight Inc.'s first quarter 2010 forecast, the proposed FY 2011 market basket estimate for the LTCH PPS using the FY 2002-based

RPL market basket is 2.4 percent. Consistent with our historical practice of using market basket estimates based on the most recent available data, we are proposing that if more recent data are available when we develop the final rule, we would use such data, if appropriate.

(We note that in section V. of the Addendum to this proposed rule, for

FY 2011, we are proposing to update the LTCH PPS standard Federal rate by -0.1 percent. This proposed update reflects an adjustment based on the most recent market basket estimate (currently 2.4 percent, as discussed above) and a proposed adjustment to account for the increase in case-mix in the prior periods (FYs 2008 through 2009) that resulted from changes in documentation and coding practices rather than increases in patients' severity of illness.) d. Proposed Labor-Related Share Under the LTCH PPS for FY 2011

As discussed in section V.B. of the Addendum to this proposed rule, under the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, we established an adjustment to the LTCH PPS payments to account for differences in LTCH area wage levels at Sec. 412.525(c). The labor-related portion of the LTCH PPS Federal rate, hereafter referred to as the labor-related share, is adjusted to account for geographic differences in area wage levels by applying the applicable LTCH PPS wage index.

The labor-related share is determined by identifying the national average proportion of operating and capital costs that are related to, influenced by, or vary with the local labor market. We continue to classify a cost category as labor-related if the costs are labor- intensive and vary with the local labor market. Consistent with our proposal to continue to use the FY 2002-based RPL market basket under the LTCH PPS for FY 2011 discussed above, we are proposing to continue to define the labor-related share as the national average proportion of operating costs that are attributable to wages and salaries, employee benefits, contract labor, professional fees, labor-intensive services, and a labor-related portion of capital based on the FY 2002-based RPL market basket. (Additional information on the development of the FY 2002-based RPL market basket used under the LTCH PPS can be found in the RY 2007 LTCH PPS final rule (71 FR 27809 through 27818).)

Furthermore, for FY 2011, we are proposing to continue to define the LTCH PPS labor-related share as the national average proportion of operating costs (wages and salaries, employee benefits, professional fees, and all other labor-intensive services) and a labor-related portion of capital costs based on the FY 2002-based RPL market basket.

Consistent with our historical practice of using the best available data, we are proposing to use IHS Global Insight, Inc.'s first quarter 2010 forecast of the FY 2002-based RPL market basket for FY 2011 to determine the proposed labor-related share for the LTCH PPS for FY 2011 that would be effective for discharges occurring on or after October 1, 2010, and through September 30, 2011, as these are the most recent available data.

The proposed labor-related share for FY 2011 would be the sum of the proposed FY 2011 relative importance of each labor-related cost category, and would reflect the different rates of price change for these cost categories between the base year (FY 2002) and FY 2011. The sum of the proposed relative importance for FY 2011 for operating costs

(wages and salaries, employee benefits, professional fees, and all- other labor-intensive services) would be 71.537 percent, as shown in the chart below. The portion of capital that is influenced by the local labor market is estimated to be 46 percent. Because the relative importance for capital in FY 2011 would be 8.414 percent of the FY 2002-based RPL market basket, we are proposing to take 46 percent of 8.414 percent to determine the proposed labor-related share of capital for FY 2011. The result would be 3.870 percent, which we are proposing to add to 71.537 percent for the operating cost amount to determine the total proposed

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labor-related share for FY 2011. Thus, the labor-related share that we are proposing to use for LTCH PPS in FY 2011 would be 75.407