Part II

 
CONTENT

Federal Register: April 30, 2008 (Volume 73, Number 84)

Proposed Rules

Page 23527-23938

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

DOCID:fr30ap08-26

Page 23527

Part II

Department of Health and Human Services

Centers for Medicare & Medicaid

42 CFR Parts 411, 412, 413 et al.

Medicare Program; Proposed Changes to the Hospital Inpatient

Prospective Payment Systems and Fiscal Year 2009 Rates; Proposed

Changes to Disclosure of Physician Ownership in Hospitals and Physician

Self-Referral Rules; Proposed Collection of Information Regarding

Financial Relationships Between Hospitals and Physicians; Proposed Rule

Page 23528

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services 42 CFR Parts 411, 412, 413, 422, and 489

CMS-1390-P

RIN 0938-AP15

Medicare Program; Proposed Changes to the Hospital Inpatient

Prospective Payment Systems and Fiscal Year 2009 Rates; Proposed

Changes to Disclosure of Physician Ownership in Hospitals and Physician

Self-Referral Rules; Proposed Collection of Information Regarding

Financial Relationships Between Hospitals and Physicians

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 to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Deficit

Reduction Act of 2005, the Medicare Improvements and Extension Act,

Division B, Title I of the Tax Relief and Health Care Act of 2006, and the TMA, Abstinence Education, and QI Programs Extension Act of 2007.

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 hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2008. We also are setting forth the proposed update to the rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The proposed updated rate-of-increase limits would be effective for cost reporting periods beginning on or after October 1, 2008.

Among the other policy decisions and changes that we are proposing to make are changes related to: Limited proposed revisions of the classification of cases to Medicare severity diagnosis-related groups

(MS-DRGs), proposals to address charge compression issues in the calculation of MS-DRG relative weights, the proposed revisions to the classifications and relative weights for the Medicare severity long- term care diagnosis-related groups (MS-LTC-DRGs); applications for new medical services and technologies add-on payments; wage index reform changes and the wage data, including the occupational mix data, used to compute the proposed FY 2009 wage indices; submission of hospital quality data; proposed changes to the postacute care transfer policy relating to transfers to home for the furnishing of home health services; and proposed policy changes relating to the requirements for furnishing hospital emergency services under the Emergency Medical

Treatment and Labor Act of 1986 (EMTALA).

In addition, we are proposing policy changes relating to disclosure to patients of physician ownership or investment interests in hospitals and soliciting public comments on a proposed collection of information regarding financial relationships between hospitals and physicians. We are also proposing changes or soliciting comments on issues relating to policies on physician self-referrals.

DATES: To be assured consideration, comments must be received at one of the addresses provide below, no later than 5 p.m. E.S.T. on June 13, 2008.

ADDRESSES: When commenting on issues presented in this proposed rule, please refer to filecode CMS-1390-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 to http://www.regulations.gov. Follow the instructions for

``Comment or Submission'' and enter the file code CMS-1390-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-1390-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-1390-P, Mail Stop C4-26-05, 7500 Security Boulevard,

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

Avenue, SW., Washington, DC 20201.

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

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

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

Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by following the instructions at the end of the ``Collection of Information

Requirements'' section in this document.

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

FOR FURTHER INFORMATION, CONTACT:

Michele Hudson, (410) 786-4487, Operating Prospective Payment, MS-

DRGs, Wage Index, New Medical Service and Technology Add-On Payments,

Hospital Geographic Reclassifications, and Postacute Care Transfer

Issues.

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded

Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs,

EMTALA, Hospital Emergency Services, and Hospital-within-Hospital

Issues.

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

Demonstration Program Issues.

Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment

Update Issues.

Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing and

Readmissions to Hospital Issues.

Anne Hornsby, (410) 786-1181, Collection of Managed Care Encounter

Data Issues.

Jacqueline Proctor, (410) 786-8852, Disclosure of Physician

Ownership in

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Hospitals and Financial Relationships between Hospitals and Physicians

Issues.

Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1404,

Physician Self-Referral 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 on 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

Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web (the Superintendent of Documents' home page address is http://www.gpoaccess.gov/), by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required).

Acronyms

AARP American Association of Retired Persons

AAHKS American Association of Hip and Knee Surgeons

AAMC Association of American Medical Colleges

ACGME Accreditation Council for Graduate Medical Education

AF Artrial fibrillation

AHA American Hospital Association

AICD Automatic implantable cardioverter defibrillator

AHIMA American Health Information Management Association

AHIC American Health Information Community

AHRQ Agency for Healthcare Research and Quality

AMA American Medical Association

AMGA American Medical Group Association

AMI Acute myocardial infarction

AOA American Osteopathic Association

APR DRG All Patient Refined Diagnosis Related Group System

ASC Ambulatory surgical center

ASITN American Society of Interventional and Therapeutic

Neuroradiology

BBA Balanced Budget Act of 1997, Pub. L. 105-33

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

Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113

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

Insurance Program] Benefits Improvement and Protection Act of 2000,

Pub. L. 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

CoP [Hospital] condition of participation

CPI Consumer price index

CY Calendar year

DFRR Disclosure of financial relationship report

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

DRG Diagnosis-related group

DSH Disproportionate share hospital

DVT Deep vein thrombosis

ECI Employment cost index

EMR Electronic medical record

EMTALA Emergency Medical Treatment and Labor Act of 1986, Pub. L. 99-272

FAH Federation of Hospitals

FDA Food and Drug Administration

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

HCRIS Hospital Cost Report Information System

HHA Home health agency

HHS Department of Health and Human Services

HIC Health insurance card

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-PCS International Classification of Diseases, Tenth Edition,

Procedure Coding System

ICR Information collection requirement

IHS Indian Health Service

IME Indirect medical education

IOM Institute of Medicine

IPF Inpatient psychiatric facility

IPPS [Acute care hospital] inpatient prospective payment system

IRF Inpatient rehabilitation facility

LAMCs Large area metropolitan counties

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

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

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

NCD National coverage determination

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NCHS National Center for Health Statistics

NCQA National Committee for Quality Assurance

NCVHS National Committee on Vital and Health Statistics

NECMA New England County Metropolitan Areas

NQF National Quality Forum

NTIS National Technical Information Service

NVHRI National Voluntary Hospital Reporting Initiative

OES Occupational employment statistics

OIG Office of the Inspector General

OMB Executive Office of Management and Budget

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PE Pulmonary embolism

PMSAs Primary metropolitan statistical areas

POA Present on admission

PPI Producer price index

PPS Prospective payment system

PRM Provider Reimbursement Manual

ProPAC Prospective Payment Assessment Commission

PRRB Provider Reimbursement Review Board

PSF Provider-Specific File

PS&R Provider Statistical and Reimbursement (System)

QIG Quality Improvement Group, CMS

QIO Quality Improvement Organization

RCE Reasonable compensation equivalent

RHC Rural health clinic

RHQDAPU Reporting hospital quality data for annual payment update

RNHCI Religious nonmedical health care institution

RRC Rural referral center

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

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

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

QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 110-09

TJA Total joint arthroplasty

UHDDS Uniform hospital discharge data set

VAP Ventilator-associated pneumonia

VBP Value-based purchasing

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 a. Inpatient Rehabilitation Facilities (IRFs) b. Long-Term Care Hospitals (LTCHs) c. Inpatient Psychiatric Facilities (IPFs) 3. Critical Access Hospitals (CAHs) 4. Payments for Graduate Medical Education (GME)

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

C. Provisions of the Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)

D. Provision of the TMA, Abstinence Education, and QI Programs

Extension Act of 2007

E. Major Contents of this Proposed Rule 1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights 2. Proposed Changes to the Hospital Wage Index 3. Other Decisions and Proposed Changes to the IPPS for

Operating Costs and GME Costs 4. Proposed Changes to the IPPS for Capital-Related Costs 5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Units: Rate-of-Increase Percentages 6. Proposed Changes Relating to Disclosure of Physician

Ownership in Hospitals 7. Proposed Changes and Solicitation of Comments on Physician

Self-Referral Provisions 8. Proposed Collection of Information Regarding Financial

Relationships between Hospitals and Physicians 9. Determining Proposed Prospective Payment Operating and

Capital Rates and Rate-of-Increase Limits 10. Impact Analysis 11. Recommendation of Update Factors for Operating Cost Rates of

Payment for Inpatient Hospital Services 12. Disclosure of Financial Relationships Report (DFRR) Form 13. Discussion of Medicare Payment Advisory Commission

Recommendations

F. Public Comments Received on Issues in Related Rules 1. Comments on Phase-Out of the Capital Teaching Adjustment under the IPPS Included in the FY 2008 IPPS Final Rule with Comment

Period 2. Policy Revisions Related to Medicare GME Group Affiliations for Hospitals in Certain Declared Emergency Areas

II. Proposed Changes to Medicare Severity DRG (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. MS-DRG Documentation and Coding Adjustment, Including the

Applicability to the Hospital-Specific Rates and the Puerto Rico-

Specific Standardized Amount 1. MS-DRG Documentation and Coding Adjustment 2. Application of the Documentation and Coding Adjustment to the

Hospital-Specific Rates 3. Application of the Documentation and Coding Adjustment to

Puerto Rico-Specific Standardized Amount 4. Potential Additional Payment Adjustments in FYs 2010 through 2012

E. Refinement of the MS-DRG Relative Weight Calculation 1. Background 2. Refining the Medicare Cost Report 3. Timeline for Revising the Medicare Cost Report 4. Revenue Codes used in the MedPAR File

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

Infections 1. General 2. Statutory Authority 3. Public Input 4. Collaborative Process 5. Selection Criteria for HACs 6. HACs Selected in FY 2008 and Proposed Changes to Certain

Codes a. Foreign Object Retained After Surgery: Proposed Inclusion of

ICD-9-CM Code 998.7 (CC) b. Pressure Ulcers: Proposed Changes in Code Assignments 7. HACs Under Consideration as Additional Candidates a. Surgical Site Infections Following Elective Surgeries b. Legionnaires' Disease c. Glycemic Control d. Iatrogenic Pneumothorax e. Delirium f. Ventilator-Associated Pneumonia (VAP) g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE) h. Staphylococcus aureus Septicemia i. Clostridium Difficile-Associated Disease (CDAD) j. Methicillin-Resistant Staphylococcus aureus (MRSA) 8. Present on Admission (POA) Indicator Reporting 9. Enhancement and Future Issues a. Risk Adjustment b. Rates of HACs c. Use of POA Information d. Transition to ICD-10-PCS e. Application of Nonpayment for HACs to Other Settings f. Relationship to NQF's Serious Reportable Adverse Events

G. Proposed Changes to Specific MS-DRG Classifications 1. Pre-MDCs: Artificial Heart Devices 2. MDC 1 (Diseases and Disorders of the Nervous System) a. Transferred Stroke Patients Receiving Tissue Plasminogen

Activator (tPA) b. Intractable Epilepsy with Video Electroencephalogram (EEG) 3. MDC 5 (Diseases and Disorders of the Circulatory System) a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and Generator Procedures b. Left Atrial Appendage Device 4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions a. Brief History of Development of Hip and Knee Replacement

Codes b. Prior Recommendations of the AAHKS c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and AAHKS' Recommendations d. AAHKS' Recommendations for FY 2009 e. CMS' Response to AAHKS' Recommendations f. Conclusion 5. MDC 18 (Infections and Parasitic Diseases Systemic or

Unspecified Sites): Severe Sepsis

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6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs):

Traumatic Compartment Syndrome 7. Medicare Code Editor (MCE) Changes a. List of Unacceptable Principal Diagnoses in MCE b. Diagnoses Allowed for Male Only Edit c. Limited Coverage Edit 8. Surgical Hierarchies 9. CC Exclusions List a. Background b. CC Exclusions List for FY 2009 10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 989 a. Moving Procedure Codes from MS-DRG 981 through 983 or MS-DRG 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

H. Recalibration of MS-DRG Weights

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

Group (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY 2009 1. Background 2. Proposed Changes in the MS-LTC-DRG Classifications a. Background b. Patient Classifications into MS-LTC-DRGs 3. Development of the Proposed FY 2009 MS-LTC-DRG Relative

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

Weights b. Data c. Hospital-Specific Relative Value (HSRV) Methodology d. Treatment of Severity Levels in Developing Proposed Relative

Weights e. Proposed Low-Volume MS-LTC-DRGs 4. Steps for Determining the Proposed FY 2009 MS-LTC-DRG

Relative Weights

J. 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 2009 Status of Technologies Approved for FY 2008 Add-On

Payments 4. FY 2009 Applications for New Technology Add-On Payments a. CardioWestTMTemporary Total Artificial Heart

System (CardioWestTMTAH-t) b. Emphasys Medical Zephyr[supreg] Endobronchial Valve

(Zephyr[supreg] EBV) c. Oxiplex[supreg] d. TherOx Downstream[supreg] System 5. Proposed Regulatory Change

III. Proposed Changes to the Hospital Wage Index

A. Background

B. Requirements of Section 106 of the MIEA-TRHCA 1. Wage Index Study Required Under the MIEA-TRHCA 2. CMS Proposals in Response to Requirements Under Section 106(b) of the MIEA-TRHCA a. Proposed Revision of the Reclassification Average Hourly Wage

Comparison Criteria b. Within-State Budget Neutrality Adjustment for the Rural and

Imputed Floors c. Within-State Budget Neutrality Adjustment for Geographic

Reclassification

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

D. Proposed Occupational Mix Adjustment to the Proposed FY 2009

Wage Index 1. Development of Data for the Proposed FY 2009 Occupational Mix

Adjustment 2. Calculation of the Proposed Occupational Mix Adjustment for

FY 2009 3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index

E. Worksheet S-3 Wage Data for the Proposed FY 2009 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 1. Wage Data for Multicampus Hospitals 2. New Orleans' Post-Katrina Wage Index

G. Method for Computing the Proposed FY 2009 Unadjusted Wage

Index

H. Analysis and Implementation of the Proposed Occupational Mix

Adjustment and the Proposed FY 2009 Occupational Mix Adjustment Wage

Index

I. Proposed Revisions to the Wage Index Based on Hospital

Redesignations 1. General 2. Effects of Reclassification/Redesignation 3. FY 2009 MGCRB Reclassifications 4. FY 2008 Policy Clarifications and Revisions 5. Redesignations of Hospitals under Section 1886(d)(8)(B) of the Act 6. Reclassifications under Section 1886(d)(8)(B) of the Act

J. Proposed FY 2009 Wage Index Adjustment Based on Commuting

Patterns of Hospital Employees

K. Process for Requests for Wage Index Data Corrections

L. Labor-Related Share for the Proposed Wage Index for FY 2009

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

Costs and GME Costs

A. Proposed Changes to the Postacute Care Transfer Policy 1. Background 2. Proposed Policy Change Relating to Transfers to Home with a

Written Plan for the Provision of Home Health Services 3. Evaluation of MS-DRGs under Postacute Care Transfer Policy for FY 2009

B. Reporting of Hospital Quality Data for Annual Hospital

Payment Update 1. Background a. Overview b. Voluntary Hospital Quality Data Reporting c. Hospital Quality Data Reporting under Section 501(b) of Pub.

L. 108-173 d. Hospital Quality Data Reporting under Section 5001(a) of Pub.

L. 109-171 2. Proposed Quality Measures for FY 2010 and Subsequent Years a. Proposed Quality Measures for FY 2010 b. Possible New Quality Measures, Measure Sets, and Program

Requirements for FY 2011 and Subsequent Years c. Considerations in Expanding and Updating Quality Measures

Under the RHQDAPU Program 3. Form and Manner and Timing of Quality Data Submission 4. Current and Proposed RHQDAPU Program Procedures a. RHQDAPU Program Procedures for FY 2009 b. Proposed RHQDAPU Program Procedures for FY 2010 5. Current and Proposed HCAHPS Requirements a. FY 2009 HCAHPS Requirements b. Proposed FY 2010 HCAHPS Requirements 6. Current and Proposed Chart Validation Requirements a. Chart Validation Requirements for FY 2009 b. Proposed Chart Validation Requirements for FY 2010 c. Chart Validation Methods and Requirements Under Consideration for FY 2011 and Subsequent Years 7. Data Attestation Requirements a. Proposed Change to Requirements for FY 2009 b. Proposed Requirements for FY 2010 8. Public Display Requirements 9. Proposed Reconsideration and Appeal Procedures 10. Proposed RHQDAPU Program Withdrawal Deadline for FYs 2009 and 2010 11. Requirements for New Hospitals 12. Electronic Medical Records

C. Medicare Hospital Value-Based Purchasing (VBP) 1. Medicare Hospital VBP Plan Report to Congress 2. Testing and Further Development of the Medicare Hospital VBP

Plan

D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small

Rural Hospitals (MDHs): Volume Decrease Adjustment 1. Background 2. Volume Decrease Adjustment for SCHs and MDHs: Data Sources for Determining Core Staff Values a. Occupational Mix Survey b. AHA Annual Survey

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

F. Indirect Medical Education (IME) Adjustment 1. Background 2. IME Adjustment Factor for FY 2009

G. Medicare GME Affiliation Provisions for Teaching Hospitals in

Certain Emergency Situations; Technical Correction 1. Background 2. Technical Correction

H. Payments to Medicare Advantage Organizations: Collection of

Risk Adjustment Data

I. Hospital Emergency Services under EMTALA

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1. Background 2. EMTALA Technical Advisory Group (TAG): Recommendations 3. Proposed Changes Relating to Applicability of EMTALA

Requirements to Hospital Inpatients 4. Proposed Changes to the EMTALA Physician On-Call Requirements a. Relocation of Regulatory Provisions b. Shared/Community Call 5. Proposed Technical Change to Regulations

J. Application of Incentives To Reduce Avoidable Readmissions to

Hospitals 1. Introduction 2. Measurement 3. Accountability 4. Interventions 5. Financial Incentive: Direct Payment Adjustment 6. Financial Incentive: Performance-Based Payment Adjustment 7. Nonfinancial Incentive: Public Reporting 8. Conclusion

K. Rural Community Hospital Demonstration Program

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

A. Background 1. Exception Payments 2. New Hospitals 3. Hospitals Located in Puerto Rico

B. Revisions to the Capital IPPS Based on Data on Hospitals

Medicare Capital Margins 1. Elimination of the Large Add-On Payment Adjustment 2. Changes to the Capital IME Adjustment a. Background and Changes Made for FY 2008 b. Public Comments Received on Phase Out of Capital IPPS

Teaching Adjustment Provisions Included in the FY 2008 Final Rule

With Comment Period and Further Solicitation of Public Comments

VI. Proposed Changes for Hospitals and Hospital Units Excluded From the IPPS

A. Proposed Payments to Excluded Hospitals and Hospital Units

B. IRF PPS

C. LTCH PPS

D. IPF PPS

E. Determining Proposed LTCH Cost-to-Charge Ratios (CCRs) under the LTCH PPS

F. Proposed Change to the Regulations Governing Hospitals-

Within-Hospitals

VII. Disclosure Required of Certain Hospitals and Critical Access

Hospitals Regarding Physician Ownership

VIII. Physician Self-Referrals Provisions

A. Stand in the Shoes Provisions 1. Physician ``Stand in the Shoes'' Provisions a. Background b. Proposals 2. DHS Entity ``Stand in the Shoes'' Provisions 3. Application of the Physician ``Stand in the Shoes'' and the

Entity ``Stand in the Shoes'' Provisions 4. Definitions: ``Physician'' and ``Physician Organization''

B. Period of Disallowance

C. Gainsharing Arrangements 1. Background 2. Statutory Impediments to Gainsharing Arrangements 3. Office of Inspector General (OIG) Approach Towards

Gainsharing Arrangements 4. MedPAC Recommendation 5. Demonstration Programs 6. Solicitation of Comments

D. Physician-Owned Implant and Other Medical Device Companies 1. Background 2. Solicitation of Comments

IX. Financial Relationships between Hospitals and Physicians

A. Background

B. Section 5006 of the Deficit Reduction Act (DRA) of 2005

C. Disclosure of Financial Relationships Report (DFRR)

D. Civil Monetary Penalties

E. Uses of Information Captured by the DFRR

F. Solicitation of Comments

X. MedPAC Recommendations

XI. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements 1. Legislative Requirement for Solicitation of Comments 2. Solicitation of Comments on Proposed Requirements in

Regulatory Text a. ICRs Regarding Physician Reporting Requirements b. ICRs Regarding Risk Adjustment Data c. ICRs Regarding Basic Commitments of Providers 3. Associated Information Collections Not Specified in

Regulatory Text a. Present on Admission (POA) Indicator Reporting b. Proposed 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 2009 Index (Hospital

Wage Index Occupational Mix Survey) 4. Addresses for Submittal of Comments on Information Collection

Requirements

C. Response to Public Comments

Regulation Text

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

Beginning On or After October 1, 2008

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital

Inpatient Operating Costs for FY 2009

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 of Payment Rates for Acute Care Hospital

Inpatient Capital-Related Costs for FY 2009

A. Determination of Proposed Federal Hospital Inpatient Capital-

Related Prospective Payment Rate Update

B. Calculation of the Proposed Inpatient Capital-Related

Prospective Payments for FY 2009

C. Capital Input Price Index

IV. Proposed Changes to Payment Rates for Excluded Hospitals and

Hospital Units: Rate-of-Increase Percentages

V. Tables

Table 1A.--National Adjusted Operating Standardized Amounts,

Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share

If Wage Index Is Greater Than 1)

Table 1B.--National Adjusted Operating Standardized Amounts,

Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If

Wage Index Is Less Than or Equal to 1)

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

Rico, Labor/Nonlabor

Table 1D.--Capital Standard Federal Payment Rate

Table 2.--Hospital Case-Mix Indexes for Discharges Occurring in

Federal Fiscal Year 2007; Hospital Wage Indexes for Federal Fiscal

Year 2009; Hospital Average Hourly Wages for Federal Fiscal Years 2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage

Data); and 3-Year Average of Hospital Average Hourly Wages

Table 3A.--FY 2009 and 3-Year Average Hourly Wage for Urban

Areas by CBSA

Table 3B.--FY 2009 and 3-Year Average Hourly Wage for Rural

Areas by CBSA

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

(GAF) for Urban Areas by CBSA and by State--FY 2009

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

(GAF) for Rural Areas by CBSA and by State--FY 2009

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

(GAF) for Hospitals That Are Reclassified by CBSA and by State--FY 2009

Table 4D-1.--Rural Floor Budget Neutrality Factors--FY 2009

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

Rural Floor or Imputed Floor Wage Index--FY 2009

Table 4E.--Urban CBSAs and Constituent Counties--FY 2009

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

Adjustment Factor (GAF) by CBSA--FY 2009

Table 4J.--Out-Migration Wage Adjustment--FY 2009

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

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

Mean Length of Stay

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

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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 2007 MedPAR Update--December 2007

GROUPER V25.0 MS-DRGs

Table 7B.--Medicare Prospective Payment System Selected

Percentile Lengths of Stay: FY 2007 MedPAR Update--December 2007

GROUPER V26.0 MS-DRGs

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

Ratios--March 2008

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

Ratios--March 2008

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

Ratios for LTCHs--March 2008

Table 9A.--Hospital Reclassifications and Redesignations--FY 2009

Table 9B.--Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act--FY 2009

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 2008

Table 11.--Proposed FY 2009 MS-LTC-DRGs, Proposed Relative

Weights, Proposed Geometric Average Length of Stay, and Proposed

Short-Stay Outlier Threshold

Appendix A--Regulatory Impact Analysis

I. Overall Impact

II. Objectives

III. Limitations on Our Analysis

IV. Hospitals Included in and Excluded From the IPPS

V. Effects on Excluded Hospitals and Hospital Units

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 2)

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

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

(Column 4)

F. Effects of MGCRB Reclassifications (Column 5)

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

Including the Proposed Application of Budget Neutrality at the State

Level (Column 6)

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

Migration (Column 7)

I. Effects of All Proposed Changes with CMI Adjustment Prior to

Estimated Growth (Column 8)

J. Effects of All Proposed Changes with CMI Adjustment and

Estimated Growth (Column 9)

K. Effects of Policy on Payment Adjustment for Low-Volume

Hospitals

L. 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 MS-LTC-DRG Reclassifications and Relative

Weights for LTCHs

C. Effects of Proposed Policy Change Relating to New Medical

Service and Technology Add-On Payments

D. Effects of Proposed Policy Change Regarding Postacute Care

Transfers to Home Health Services

E. Effects of Proposed Requirements for Hospital Reporting of

Quality Data for Annual Hospital Payment Update

F. Effects of Proposed Policy Change to Methodology for

Computing Core Staffing Factors for Volume Decrease Adjustment for

SCHs and MDHs

G. Effects of Proposed Clarification of Policy for Collection of

Risk Adjustment Data From MA Organizations

H. Effects of Proposed Policy Changes Relating to Hospital

Emergency Services under EMTALA

I. Effects of Implementation of Rural Community Hospital

Demonstration Program

J. Effects of Proposed Policy Changes Relating to Payments to

Hospitals-Within-Hospitals

K. Effects of Proposed Policy Changes Relating to Requirements for Disclosure of Physician Ownership in Hospitals

L. Effects of Proposed Changes Relating to Physician Self-

Referral Provisions

M. Effects of Proposed Changes Relating to Reporting of

Financial Relationships Between Hospitals and Physicians

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

B. Results

IX. Alternatives Considered

X. Overall Conclusion

XI. Accounting Statement

XII. 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 2009

III. Secretary's Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and

Updating Payments in Traditional Medicare

Appendix C--Disclosure of Financial Relationships Report (DFRR) Form

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

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payment, it would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases.

Any outlier payment due is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.

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

(SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. Until FY 2007, a

Medicare-dependent, small rural hospital (MDH) has received the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospital-specific rate if the hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is higher than the IPPS rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the

IPPS rate and its hospital-specific rate, if the hospital-specific rate is higher than the IPPS rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services ``in accordance with a prospective payment system established by the Secretary.'' The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. However, as discussed in section V.B.2. of this preamble, we are phasing out the IME adjustment beginning with FY 2008.

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 specialty hospitals and hospital units are excluded from the IPPS.

These hospitals and units are: Rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the

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

Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection

Act of 2000 (Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)), as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413. a. Inpatient Rehabilitation Facilities (IRFs)

Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility

Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P. b. Long-Term Care Hospitals (LTCHs)

Under the authority of sections 123(a) and (c) of Pub. L. 106-113 and section 307(b)(1) of Pub. L. 106-554, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of ``new'' under Sec. 412.23(e)(4) are paid, during a 5-year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of

``new'' under Sec. 412.23(e)(4) could elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5-year transition. For cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. c. Inpatient Psychiatric Facilities (IPFs)

Under the authority of sections 124(a) and (c) of Pub. L. 106-113, inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF

PPS. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount established under the IPF PPS. (For cost reporting periods beginning on or after January 1, 2005, and ending on or before December 31, 2007, some IPFs received transitioned payments for inpatient hospital services based on a blend of reasonable cost-based payment and a

Federal per diem payment rate.) The existing regulations governing payment under the IPF PPS are located in 42 CFR part 412, Subpart N. 3. Critical Access Hospitals (CAHs)

Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are based on 101 percent of reasonable cost.

Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415. 4. 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

Page 23535

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 Deficit Reduction Act of 2005 (DRA)

Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Pub. L. 109-171, requires the Secretary to develop a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals defined in the Act. In section IV.C. of the preamble of this proposed rule, we discuss the report to Congress on the

Medicare value-based purchasing plan and the current testing of the plan.

C. Provisions of the Medicare Improvements and Extension Act Under

Division B, Title I of the Tax Relief and Health Care Act of 2006

(MIEA-TRHCA)

Section 106(b)(2) of the MIEA-TRHCA instructs the Secretary of

Health and Human Services to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The

Secretary was also instructed to consider MedPAC's recommendations on the Medicare wage index classification system in developing these proposals. In section III. of the preamble of this proposed rule, we discuss MedPAC's recommendations in a report to Congress and present our proposed changes to the FY 2009 wage index in response to those recommendations.

D. Provision of the TMA, Abstinence Education, and QI Programs

Extension Act of 2007

Section 7 of the TMA [Transitional Medical Assistance], Abstinence

Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90) provides for a 0.9 percent prospective documentation and coding adjustment in the determination of standardized amounts under the IPPS (except for MDHs and SCHs) for discharges occurring during FY 2009. The prospective documentation and coding adjustment was established in FY 2008 in response to the implementation of an MS-DRG system under the IPPS that resulted in changes in coding and classification that did not reflect real changes in case-mix under section 1886(d) of the Act. We discuss our proposed implementation of this provision in section II.D. of the preamble of this proposed rule and in the Addendum and in Appendix A to this proposed rule.

E. Major Contents of This Proposed Rule

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

Medicare IPPS for operating costs and for capital-related costs in FY 2009. We also are setting forth proposed changes relating to payments for IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, we are presenting proposed changes relating to disclosure to patients of physician ownership and investment interests in hospitals, proposed changes to our physician self-referral regulations, and a solicitation of public comments on a proposed collection of information regarding financial relationships between hospitals and physicians.

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

Relative Weights

In section II. of the preamble to this proposed rule, we are including--

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

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

Proposed changes to address the RTI reporting recommendations on charge compression.

Proposed recalibrations of the MS-DRG relative weights.

We also are proposing to refine the hospital cost reports so that charges for relatively inexpensive medical supplies are reported separately from the costs and charges for more expensive medical devices. This proposal would be applied to the determination of both the IPPS and the OPPS relative weights as well as the calculation of the ambulatory surgical center payment rates.

We are presenting a listing and discussion of additional hospital- acquired conditions (HACs), including infections, that are being proposed to be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2009.

We are presenting our evaluation and analysis of the FY 2009 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

We are proposing the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2009. 2. Proposed Changes to the Hospital Wage Index

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

Proposed wage index reform changes in response to recommendations made to Congress as a result of the wage index study required under Pub. L. 109-432. We discuss changes related to reclassifications criteria, application of budget neutrality in reclassifications, and the rural floor and imputed floor budget neutrality at the State level.

Changes to the CBSA designations.

The methodology for computing the proposed FY 2009 wage index.

The proposed FY 2009 wage index update, using wage data from cost reporting periods that began during FY 2006.

Analysis and implementation of the proposed FY 2009 occupational mix adjustment to the wage index.

Proposed revisions to the wage index based on hospital redesignations and reclassifications.

The proposed adjustment to the wage index for FY 2009 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.

The timetable for reviewing and verifying the wage data used to compute the proposed FY 2009 wage index.

The proposed labor-related share for the FY 2009 wage index, including the labor-related share for Puerto Rico. 3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs

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

Proposed changes to the postacute care transfer policy as it relates to transfers to home with the provision of home health services.

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

Proposed changes in the collection of Medicare Advantage

(MA) encounter data that are used for computing the risk payment adjustment made to MA organizations.

Discussion of the report to Congress on the Medicare value-based purchasing

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plan and current testing and further development of the plan.

Proposed changes to the methodology for determining core staff values for the volume decrease payment adjustment for SCHs and

MDHs.

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

The statutorily-required IME adjustment factor for FY 2009 and technical changes to the GME payment policies.

Proposed changes to policies on hospital emergency services under EMTALA to address EMTALA Technical Advisory Group (TAG) recommendations.

Solicitation of public comments on Medicare policies relating to incentives for avoidable readmissions to hospitals.

Discussion of the fifth year of implementation of the

Rural Community Hospital Demonstration Program. 4. Proposed Changes to the IPPS for Capital-Related Costs

In section V. of the preamble to this proposed rule, we discuss the payment policy requirements for capital-related costs and capital payments to hospitals. We acknowledge the public comments that we received on the phase-out of the capital teaching adjustment included in the FY 2008 IPPS final rule with comment period, and again are soliciting public comments on this phase-out in this proposed rule. 5. Proposed Changes to the Payment Rates for Excluded Hospitals and

Hospital Units: Rate-of-Increase Percentages

In section VI. of the preamble to this proposed rule, we discuss proposed changes to payments to excluded hospitals and hospital units, proposed changes for determining LTCH CCRs under the LTCH PPS, including a discussion regarding changing the annual payment rate update schedule for the LTCH PPS, and proposed changes to the regulations on hospitals-within-hospitals. 6. Proposed Changes Relating to Disclosure of Physician Ownership in

Hospitals

In section VII. of the preamble of this proposed rule, we present proposed changes to the regulations relating to the disclosure to patients of physician ownership or investment interests in hospitals. 7. Proposed Changes and Solicitation of Comments on Physician Self-

Referrals Provisions

In section VIII. of the preamble of this proposed rule, we present proposed changes to the policies on physician self-referrals relating to the ``Stand in Shoes'' provision, In addition, we solicit public comments regarding physician-owned implant companies and gainsharing arrangements. 8. Proposed Collection of Information Regarding Financial Relationships

Between Hospitals and Physicians

In section IX. of the preamble of this proposed rule, we solicit public comments on our proposed collection of information regarding financial relationships between hospitals and physicians. 9. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2009 prospective payment rates for operating costs and capital-related costs. We also establish the proposed threshold amounts for outlier cases. In addition, we address the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2009 for hospitals and hospital units excluded from the

PPS. 10. Impact Analysis

In Appendix A of this proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals. 11. Recommendation of Update Factors for Operating Cost Rates of

Payment for Inpatient Hospital Services

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2009 for the following:

A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs

(and hospital-specific rates applicable to SCHs and MDHs).

Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS. 12. Disclosure of Financial Relationships Report (DFRR) Form

In Appendix C of this proposed rule, we present the reporting form that we are proposing to use for the proposed collection of information on financial relationships between hospitals and physicians discussed in section IX, of the preamble of this proposed rule. 13. Discussion of Medicare Payment Advisory Commission Recommendations

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

MedPAC's March 2008 recommendations concerning hospital inpatient payment policies address the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and 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 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: www.medpac.gov.

F. Public Comments Received on Issues in Related Rules 1. Comments on Phase-Out of the Capital Teaching Adjustment Under the

IPPS Included in the FY 2008 IPPS Final Rule With Comment Period

In the FY 2008 IPPS final rule with comment period, we solicited public comments on our policy changes related to phase-out of the capital teaching adjustment to the capital payment update under the

IPPS (72 FR 47401). We received approximately 90 timely pieces of correspondence in response to our solicitation. (These public comments may be viewed on the following Web site: http://www.cms.hhs.gov/ eRulemaking/ECCMSR/list.asp under file code CMS-1533-FC.) In section V. of the preamble of this proposed rule, we acknowledge receipt of these public comments and again solicit public comments on the phase-out in this proposed rule. We will respond to the public comments received in response to both the FY 2008 IPPS final rule with comment period and this proposed rule in the FY 2009 IPPS final rule, which is scheduled to be published in August 2008. 2. Policy Revisions Related to Medicare GME Group Affiliations for

Hospitals in Certain Declared Emergency Areas

We have issued two interim final rules with comment periods in the

Federal Register that modified the GME

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regulations as they apply to Medicare GME affiliated groups to provide for greater flexibility in training residents in approved residency programs during times of disasters: on April 12, 2006 (71 FR 18654) and on November 27, 2007 (72 FR 66892). We received a number of timely pieces of correspondence in response to these interim final rules with comment period. (The public comments that we received may be viewed on the Web site at: http://www.cms.hhs.gov/eRulemaking/ECCMSR/list.asp under the file codes CMS-1531-IFC1 and CMS-1531-IFC2, respectively.) We will summarize and address these public comments in the FY 2009 IPPS final rule, which is scheduled to be published in August 2008.

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

A. Background

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

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

Congress recognized that it would be necessary to recalculate the

DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

B. MS-DRG Reclassifications 1. General

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

Physician-Owned Specialty Hospitals'' in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking into account severity of illness 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 others across 13 different clinical areas involving nearly 1.7 million cases. As described below in more detail, these refinements were intermediate steps towards comprehensive reform of both the relative weights and the DRG system that is occurring 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 was established based on severity levels of illness (72 FR 47141).

\1\ Medicare Payment Advisory Commission: Report to the

Congress, Physician-Owned Specialty Hospitals, March 25, page viii.

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

IPPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the

International Classification of Diseases, Ninth Revision, Clinical

Modification (ICD-9-CM).

The process of forming 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 formed 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. Most MDCs are based on a particular organ system of the body. For example, MDC 6 is Diseases and Disorders of the

Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected.

However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2008, cases are assigned to one of 745 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.

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.

In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 26.0), there are 9

MS-DRGs to

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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 for tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)

MS-DRG 103............................. Heart Transplant or Implant of

Heart Assist System.

MS-DRG 480............................. Liver Transplant and/or

Intestinal Transplant.

MS-DRG 481............................. Bone Marrow Transplant.

MS-DRG 482............................. Tracheostomy for Face, Mouth, and Neck Diagnoses.

MS-DRG 495............................. Lung Transplant.

MS-DRG 512............................. Simultaneous Pancreas/Kidney

Transplant.

MS-DRG 513............................. Pancreas Transplant.

MS-DRG 541............................. ECMO or Tracheostomy with

Mechanical Ventilation 96+

Hours or Principal Diagnosis

Except for Face, Mouth, and

Neck Diagnosis with Major O.R.

MS-DRG 542............................. Tracheostomy with Mechanical

Ventilation 96+ Hours or

Principal Diagnosis Except for

Face, Mouth, and Neck

Diagnosis without Major O.R.

Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on the consumption of hospital resources. 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 the consumption of hospital resources. 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.

As we indicated above, for FY 2008, we made significant improvement in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs. The changes we adopted were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our DRG analysis for the FY 2008 final rule with comment period was based on data from the March 2007 update of the FY 2006 MedPAR file, which contained hospital bills received through March 31, 2007, for discharges occurring through September 30, 2006. For this proposed rule, for FY 2009, our DRG analysis is based on data from the September 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through September 30, 2007, for discharges through September 30, 2007. 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 concerns about MS-DRG classifications to bring those concerns to our attention in a timely manner so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the

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timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, concerns about MS-

DRG classification issues should be brought to our attention 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). However, based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs.

Rather, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represent a number of body systems. In creating these 20 new DRGs, we deleted 8 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, we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives, our actions for FY 2008, and our proposals for FY 2009 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2009 in other sections of this preamble and in the Addendum to this proposed rule.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the

HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the

HSRV portion of the proposed methodology. The cost-based weights are being 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 our proposals for addressing the issue of charge compression and the HSRV cost-weighting methodology for

FY 2009.

We believe that revisions to the DRG system to better recognize severity of

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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 in this proposed rule for FY 2009 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

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

D. MS-DRG Documentation and Coding Adjustment, Including the

Applicability to the Hospital-Specific Rates and the Puerto Rico-

Specific Standardized Amount 1. MS-DRG Documentation and Coding Adjustment

As stated above, we adopted the new MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates. Adoption of the MS-DRGs resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. By increasing the number of DRGs and more fully taking into account severity of illness in Medicare payment rates, the MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period

(72 FR 47175 through 47186), which appeared in the Federal Register on

August 22, 2007, we indicated that we believe the adoption of the MS-

DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for improved documentation and coding. In that final rule with comment period, using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by adjusting the standardized amount to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix, we established prospective documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.

On September 29, 2007, the TMA, Abstinence Education, and QI

Programs Extension Act of 2007, Pub. L. 110-90, was enacted. Section 7 of Pub. L. 110-90 included a provision that reduces the documentation and coding adjustment for the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 and -0.9 percent for FY 2009. To comply with the provision of section 7 of Pub. L. 110-90, in a final rule that appeared in the Federal

Register on November 27, 2007 (72 FR 66886), we changed the IPPS documentation and coding adjustment for FY 2008 to -0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly, with these revisions effective October 1, 2007.

For FY 2009, Pub. L. 110-90 requires a documentation and coding adjustment of -0.9 percent instead of the -1.8 percent adjustment specified in the FY 2008 IPPS final rule with comment period. As required by statute, we are applying a documentation and coding adjustment of -0.9 percent to the FY 2009 IPPS national standardized amounts. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. As a result, the -0.9 percent documentation and coding adjustment in FY 2009 is in addition to the -0.6 percent adjustment in FY 2008, yielding a combined effect of -1.5 percent. 2. 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 national rate; the updated hospital-specific rate based on

FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; or the updated hospital-specific rate based on FY 1996 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greater of either the FY 1982, 1987, or 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period, we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that rule, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, we cited our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust ``the standardized amount'' to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix. However, in a final rule that appeared in the

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 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'' and does not mention adjusting the hospital-specific rates.

We continue to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from coding improvements that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act, 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 rate should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. 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 authority authorizes us to provide ``for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.'' In light of this authority, for the FY 2010 rulemaking, we plan to

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examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. If we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. For example, the -0.9 percent documentation and coding adjustment to the national standardized amount in FY 2009 is in addition to the -0.6 percent adjustment made in FY 2008, yielding a combined effect of -1.5 percent in FY 2009. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the

FY 2010 hospital-specific rates, it may involve applying the FY 2008 and FY 2009 documentation and coding adjustments (-1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 hospital-specific rates. 3. 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 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 change 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. We are currently in the process of developing a Federal Register notice to correct that error in the

Puerto Rico-specific standardized amount for FY 2008 retroactive to

October 1, 2007.

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

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

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

Similar to SCHs and MDHs that are paid based on the hospital-specific rate, discussed in section II.D.2. of this preamble, we believe that

Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs in section II.D.2. of the preamble of this proposed rule, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals in Puerto Rico. If we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico- specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 Puerto Rico- specific standardized amount, it may involve applying the FY 2008 and

FY 2009 documentation and coding adjustments (-1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the

FY 2008 IPPS final rule with comment period, to the FY 2010 Puerto

Rico-specific standardized amount. 4. Potential Additional Payment Adjustments in FYs 2010 Through 2012

Section 7 of Pub. L.110-90 also provides for payment adjustments in

FYs 2010 through 2012 based upon a retrospective evaluation of claims data from the implementation of the MS-DRG system. If, based on this retrospective evaluation, the Secretary finds that in FY 2008 and FY 2009, the actual amount of change in case-mix that does not reflect real change in underlying patient severity differs from the statutorily mandated documentation and coding adjustments implemented in those years, the law requires the Secretary to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and

FY 2009 as a result of that difference, in addition to making an appropriate adjustment to the standardized amount under section 1886(d)(3)(A)(vi) of the Act.

In order to implement these requirements of section 7 of Pub. L. 110-90, we are planning a thorough retrospective evaluation of our claims data. Results of this evaluation would be used by our actuaries to determine any necessary payment adjustments in FYs 2010 through 2012 to ensure the budget neutrality of the MS-DRG implementation for FY 2008 and FY 2009, as required by law. We are currently developing our analysis plans for this effort.

We intend to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expect part of this overall national average change would be attributable to underlying changes in actual patient severity and part would be attributable to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we plan to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within base DRGs. The shifts among base DRGs are the result of changes in principal diagnoses while the shifts within base

DRGs are the result of changes in secondary diagnoses. Because we expect most of the documentation and coding improvements under the MS-

DRG system will occur in the secondary diagnoses, the shifts among base

DRGs are less likely to be the result of the MS-DRG system and the shifts within base DRGs are more likely to be the result of the MS-DRG system. We also anticipate evaluating data to identify the specific MS-

DRGs and diagnoses that contributed significantly to the improved documentation and coding payment effect and to quantify their impact.

This step would entail analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

While we believe that the data analysis plan described previously will produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding improvements, we may also decide, if feasible, to use historical data from our Hospital Payment

Monitoring Program

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(HPMP) to corroborate the within base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC). From 1999 to 2007, the CDAC obtained medical records for a sample of discharges as part of our hospital monitoring activities. These data were collected on a random sample of between 30,000 to 50,000 hospital discharges per year. The historical CDAC data could be used to develop an upper bound estimate of the trend in real case-mix growth (that is, real change in underlying patient severity) prior to implementation of the MS-DRGs.

We welcome public comments on our analysis plans, as well as suggestions on other possible approaches for conducting a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patients' severity of illness. Our analysis, findings, and any resulting proposals to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 will be discussed in future years' rulemakings.

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

In the FY 2008 IPPS final rule with comment period (72 FR 47188), we continued to implement significant revisions to Medicare's inpatient hospital rates by basing relative weights on hospitals' estimated costs rather than on charges. We continued 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 raised in the public comments, 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. In FY 2008, we continued our transition by blending the relative weights with one-third charge-based weights and two-thirds cost-based weights.

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

FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for more detail on our final policy for calculating the cost- based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

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

As a result, the cost-based weights would undervalue high cost items and overvalue low cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in March 2007 which was posted on the CMS Web site with its findings on charge compression. In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI found inconsistent matching of charges in the Medicare cost report and their corresponding charges in the MedPAR claims for certain cost centers. In addition, there was inconsistent reporting of costs and charges among hospitals. For example, some hospitals would report costs and charges for devices and medical supplies in the Medical Supplies Charged to

Patients cost center, while other hospitals would report those costs and charges in their related ancillary departments such as Operating

Room or Radiology. RTI also found evidence that certain revenue codes within the same cost center had significantly different markup rates.

For example, within the Medicare Supplies Charged to Patients cost center, revenue codes for devices, implantables, and prosthetics had different markup rates than the other medical supplies in that cost center. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

RTI offered short-term, medium-term, and long-term recommendations to mitigate the effects of charge compression. RTI's short-term recommendations included expanding the distinct hospital CCRs to 19 by disaggregating the ``Emergency Room'' and ``Blood and Blood Products'' from the Other Services cost center and by estimating regression-based

CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost centers. RTI recommended, for the medium-term, to expand the MedPAR file to include separate fields that disaggregate several existing charge departments. In addition, RTI recommended improving hospital cost reporting instructions so that hospitals can properly report costs in the appropriate cost centers. RTI's long-term recommendations included adding new cost centers to the Medicare cost report, such as adding a ``Devices, Implants and Prosthetics'' line under ``Medical

Supplies Charged to Patients'' and a ``CT Scanning and MRI'' subscripted line under ``Radiology-Diagnostics''.

Among RTI's short-term recommendations, for FY 2008, we expanded the number of distinct hospital department CCRs from 13 to 15 by disaggregating ``Emergency Room'' and ``Blood and Blood Products'' from the Other Services cost center as these lines already exist on the hospital cost report. Furthermore, in an effort to improve consistency between costs and their corresponding charges in the MedPAR file, we moved the costs for cases involving electroencephalography (EEG) from the Cardiology cost center to the Laboratory cost center group which corresponds with the EEG MedPAR claims categorized under the Laboratory charges. We also agreed with RTI's recommendations to revise the

Medicare cost report and the MedPAR file as a long-term solution for charge compression. We stated that, in the upcoming year, we would consider additional lines to the cost report and additional revenue codes for the MedPAR file.

We did not adopt RTI's short-term recommendation to create four

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additional regression-based CCRs for several reasons, even though we had received 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 were concerned that RTI's analysis was limited to charges on hospital inpatient claims while typically hospital cost report CCRs combine both inpatient and outpatient services. Further, because both the IPPS and

OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. We have since expanded RTI's analysis of charge compression to incorporate outpatient services. RTI has been evaluating the cost estimation process for the OPPS cost-based weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. The RTI report was finalized at the conclusion of our proposed rule development process and is expected to be posted on the

CMS Web site in the near future. We welcome comments on this report.

A second reason that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS-DRGs. We stated that we would consider the results of the second phase of the RAND study as we prepared for the FY 2009 IPPS rulemaking process. The purpose of the RAND study was to analyze how the relative weights would change if we were to adopt regression-based CCRs to address charge compression while simultaneously adopting an HSRV methodology using fully phased-in MS-

DRGs. We had intended to include a detailed discussion of RAND's study in this FY 2009 IPPS proposed rule. However, due to some delays in releasing identifiable data to the contractor under revised data security rules, the report on this second stage of RAND's analysis was not completed in time for the development of this proposed rule.

Therefore, we continue to have the same concerns with respect to uncertainty about how regression-based CCRs would interact with the MS-

DRGs or an HSRV methodology. Therefore, we are not proposing to adopt the regression-based CCRs or an HSRV methodology in this FY 2009 IPPS proposed rule. Nevertheless, we welcome public comments on our proposals not to adopt regression-based CCRs or an HSRV methodology at this time or in the future. The RAND report on regression-based CCRs and the HSRV methodology was finalized at the conclusion of our proposed rule development process and is expected to be posted on the

CMS Web site in the near future. Although we are unable to include a discussion of the results of the RAND study in this proposed rule, we welcome public comment on the report.

Finally, we received public comments on the FY 2008 IPPS proposed rule raising concerns on the accuracy of using regression-based CCR estimates to determine the relative weights rather than the Medicare cost report. Commenters noted that regression-based CCRs would not fix the underlying mismatch of hospital reporting of costs and charges.

Instead, the commenters suggested that the impact of charge compression might be mitigated through an educational initiative that would encourage hospitals to improve their cost reporting. Commenters recommended that hospitals be educated to report costs and charges in a way that is consistent with how charges are grouped in the MedPAR file.

In an effort to achieve this goal, hospital associations have launched an educational campaign to encourage consistent reporting, which would result in consistent groupings of the cost centers used to establish the cost-based relative weights. The commenters requested that CMS communicate to the fiscal intermediaries/MACs that such action is appropriate. In the FY 2008 IPPS final rule with comment period, we stated that we were supportive of the educational initiative of the industry, and we encouraged hospitals to report costs and charges consistently with how the data are used to determine relative weights

(72 FR 47196). We would also like to affirm that the longstanding

Medicare principles of cost apportionment at 42 CFR 413.53 convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another ancillary department (for example, combining the cost of Medical Supplies Charged to Patients with the costs of

Operating Room or any other ancillary cost center. (We note that, effective for cost reporting periods starting on or after January 1, 1979, the departmental method of apportionment replaced the combination method of apportionment where all the ancillary departments were apportioned in the aggregate (Section 2200.3 of the Provider

Reimbursement Manual (PRM), Part I).)

Furthermore, longstanding Medicare cost reporting policy has been that hospitals must include the cost and charges of separately

``chargeable medical supplies'' in the Medical Supplies Charged to

Patients cost center (line 55 of Worksheet A), rather than in the

Operating Room, Emergency Room, or other ancillary cost centers.

Routine services, which can include ``minor medical and surgical supplies'' (Section 2202.6 of the PRM, Part 1), and items for which a separate charge is not customarily made, may be directly assigned through the hospital's accounting system to the department in which they were used, or they may be included in the Central Services and

Supply cost center (line 15 of Worksheet A). Conversely, the separately chargeable medical supplies should be assigned to the Medical Supplies

Charged to Patients cost center on line 55.

We note that not only is accurate cost reporting important for IPPS hospitals to ensure that accurate relative weights are computed, but hospitals that are still paid on the basis of cost, such as CAHs and cancer hospitals, and SCHs and MDHs must adhere to Medicare cost reporting principles as well.

The CY 2008 OPPS/ASC final rule with comment period (72 FR 66601) also discussed the issue of charge compression and regression-based

CCRs, and noted that RTI is currently evaluating the cost estimation process underpinning the OPPS cost-based weights, including a reassessment of the regression models using both outpatient and inpatient charges, rather than inpatient charges only. In responding to comments in the CY 2008 OPPS/ASC final rule with comment period, we emphasized that we ``fully support'' the educational initiatives of the industry and that we would ``examine whether the educational activities being undertaken by the hospital community to improve cost reporting accuracy under the IPPS would help to mitigate charge compression under the OPPS, either as an adjunct to the application of regression-based

CCRs or in lieu of such an adjustment'' (72 FR 66601). However, as we stated in the FY 2008 IPPS final rule with comment period that we would consider the results of the RAND study before considering whether to adopt regression-based CCRs, in the CY 2008 OPPS/ASC final rule with comment period, we stated that we would determine whether refinements should be proposed, after reviewing the results of the RTI study.

On February 29, 2008, we issued Transmittal 321, Change Request 5928, to inform the fiscal intermediaries/

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MACs of the hospital associations' initiative to encourage hospitals to modify their cost reporting practices with respect to costs and charges in a manner that is consistent with how charges are grouped in the

MedPAR file. We noted that the hospital cost reports submitted for FY 2008 may have costs and charges grouped differently than in prior years, which is allowable as long as the costs and charges are properly matched and the Medicare cost reporting instructions are followed.

Furthermore, we recommended that fiscal intermediaries/MACs remain vigilant to ensure that the costs of items and services are not moved from one cost center to another without moving their corresponding charges. Due to a time lag in submittal of cost reporting data, the impact of changes in providers' cost reporting practices occurring during FY 2008 would be reflected in the FY 2011 IPPS relative weights. 2. Refining the Medicare Cost Report

In developing this FY 2009 proposed rule, we considered whether there were concrete steps we could take to mitigate the bias introduced by charge compression in both the IPPS and OPPS relative weights in a way that balance hospitals' desire to focus on improving the cost reporting process through educational initiatives with device industry interest in adopting regression-adjusted CCRs. Although RTI recommended adopting regression-based CCRs, particularly for medical supplies and devices, as a short-term solution to address charge compression, RTI also recommended refinements to the cost report as a long-term solution. RTI's draft interim March 2007 report discussed a number of options that could improve the accuracy and precision of the CCRs currently being derived from the Medicare cost report and also reduce the need for statistically-based adjustments. As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47193), we believe that

RTI and many of the public commenters on the FY 2008 IPPS proposed rule concluded that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of cost weights. Therefore, in this proposed rule, we are proposing to begin making cost report changes geared to improving the accuracy of the IPPS and OPPS relative weights. However, we also received comments last year asking that we proceed cautiously with changing the Medicare cost report to avoid unintended consequences for hospitals that are paid on a cost basis (such as CAHs and, to some extent, SCHs and MDHs), and to consider the administrative burden associated with adapting to new cost reporting forms and instructions. Accordingly, we are proposing to focus at this time on the CCR for Medical Supplies and

Equipment because RTI found that the largest impact on the relative weights could result from correcting charge compression for devices and implants. When examining markup differences within the Medical Supplies

Charged to Patients cost center, RTI found that its ``regression results provide solid evidence that if there were distinct cost centers for items, cost ratios for devices and implants would average about 17 points higher than the ratios for other medical supplies'' (January 2007 RTI report, page 59). This suggests that much of the charge compression within the Medical Supplies CCR results from inclusion of medical devices that have significantly different markups than the other supplies in that CCR. Furthermore, in the FY 2007 final rule and

FY 2008 IPPS final rule with comment period, the Medical Supplies and

Equipment CCR received significant attention by the public commenters.

Although we are proposing to make improvements to lessen the effects of charge compression only on the Medical Supplies and

Equipment CCR as a first step, we are inviting public comments as to whether to make other changes to the Medicare cost report to refine other CCRs. In addition, we are open to making further refinements to other CCRs in the future. Therefore, we are proposing at this time to add only one cost center to the cost report, such that, in general, the costs and charges for relatively inexpensive medical supplies would be reported separately from the costs and charges of more expensive devices (such as pacemakers and other implantable devices). We will consider public comments submitted on this proposed rule for purposes of both the IPPS and the OPPS relative weights and, by extension, the calculation of the ambulatory surgical center (ASC) payment rates.

Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for supplies and equipment was computed based on line 55 for Medical

Supplies Charged to Patients and lines 66 and 67 for DME Rented and DME

Sold, respectively. To compute the 15 national CCRs used in developing the cost-based weights under the IPPS (explained in more detail under section II.H. of the preamble of this proposed rule), we take the costs and charges for the 15 cost groups from Worksheet C, Part I of the

Medicare cost report for all hospital patients and multiply each of these 15 CCRs by the Medicare charges on Worksheet D-4 for those same cost centers to impute the Medicare cost for each of the 15 cost groups. Under this proposal, the goal would be to split the current CCR for Medical Supplies and Equipment into one CCR for medical supplies, and another CCR for devices and DME Rented and DME Sold.

In considering how to instruct hospitals on what to report in the cost center for supplies and the cost center for devices, we looked at the existing criteria for what type of device qualifies for payment as a transitional pass-through device category in the OPPS. (There are no such existing criteria for devices under the IPPS.) The provisions of the regulations under Sec. 419.66(b) state that for a medical device to be eligible for pass-through payment under the OPPS, the medical device must meet the following criteria: a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a

Category B device by the FDA in accordance with Sec. Sec. 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption. b. The device is determined to be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act). c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissues, and is surgically implanted or inserted whether or not it remains with the patient when the patient is released from the hospital. d. The device is not any of the following:

Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider

Reimbursement Manual (CMS Pub. 15-1).

A material or supply furnished incident to a service (for example, a suture, customized surgical kit, or clip, other than a radiological site marker).

Material that may be used to replace human skin (for example, a biological or synthetic material).

These requirements are the OPPS criteria used to define a device for pass-through payment purposes and do not include additional criteria that are used

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under the OPPS to determine if a candidate device is new and represents a substantial clinical improvement, two other requirements for qualifying for pass-through payment.

For purposes of applying the eligibility criteria, we interpret

``surgical insertion or implantation'' to include devices that are surgically inserted or implanted via a natural or surgically created orifice as well as those devices that are inserted or implanted via a surgically created incision (70 FR 68630).

In proposing to modify the cost report to have one cost center for medical supplies and one cost center for devices, we are proposing that hospitals would determine what should be reported in the Medical

Supplies cost center and what should be reported in the Medical Devices cost center using criteria consistent with those listed above that are included under Sec. 419.66(b), with some modification. Specifically, for purposes of the cost reporting instructions, we are proposing that an item would be reported in the device cost center if it meets the following criteria: a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a

Category B device by the FDA in accordance with Sec. Sec. 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption. b. The device is reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act). c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissue, is surgically implanted or inserted through a natural or surgically created orifice or surgical incision in the body, and remains in the patient when the patient is discharged from the hospital. d. The device is not any of the following:

Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider

Reimbursement Manual (CMS Pub. 15-1).

A material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker).

Material that may be used to replace human skin (for example, a biological or synthetic material).

A medical device that is used during a procedure or service and does not remain in the patient when the patient is released from the hospital.

We are proposing to select the existing criteria for what type of device qualifies for payment as a transitional pass-through device under the OPPS as a basis for instructing hospitals on what to report in the cost center for Medical Supplies Charged to Patients or the cost center for Medical Devices Charged to Patients because these criteria are concrete and already familiar to the hospital community. However, the key difference between the existing criteria for devices that are eligible for pass-through payment under the OPPS at Sec. 419.66(b) and our proposed criteria stated above to be used for cost reporting purposes is that the device that is implanted remains in the patient when the patient is discharged from the hospital. Essentially, we are proposing to instruct hospitals to report only implantable devices that remain in the patient at discharge in the cost center for devices. All other devices and non-routine supplies which are separately chargeable would be reported in the medical supplies cost center. We believe that defining a device for cost reporting purposes based on criteria that specify implantation and adding that the device must remain in the patient upon discharge would have the benefit of capturing virtually all costly implantable devices (for example, implantable cardioverter defibrillators (ICDs), pacemakers, and cochlear implants) for which charge compression is a significant concern.

However, we acknowledge that a definition of device based on whether an item is implantable and remains in the patient could, in some cases, include items that are relatively inexpensive (for example, urinary catheters, fiducial markers, vascular catheters, and drainage tubes), and which many would consider to be supplies. Thus, some modest amount of charge compression could still be present in the cost center for devices if the hospital does not have a uniform markup policy. In addition, requiring as a cost reporting criterion that the device is to remain in the patient at discharge could exclude certain technologies that are moderately expensive (for example, cryoablation probes, angioplasty catheters, and cardiac echocardiography catheters, which do not remain in the patient upon discharge). Therefore, some charge compression could continue for these technologies. We believe this limited presence of charge compression is acceptable, given that the proposed definition of device for cost reporting purposes would isolate virtually all of the expensive items, allowing them to be separately reported from most inexpensive supplies.

The criteria we are proposing above for instructing hospitals as to what to report in the device cost center specify that a device is not a material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker) (emphasis added). We understand that hospitals may sometimes receive surgical kits from device manufacturers that consist of a high-cost primary implantable device, external supplies required for operation of the device, and other disposable surgical supplies required for successful device implantation. Often the device and the attending supplies are included on a single invoice from the manufacturer, making it difficult for the hospital to determine the cost of each item in the kit. In addition, manufacturers sometimes include with the primary device other free or ``bonus'' items or supplies that are not an integral and necessary part of the device

(that is, not actually required for the safe surgical implantation and subsequent operation of that device). (We note that arrangements involving free or bonus items or supplies may implicate the Federal anti-kickback statue, depending on the circumstances.) One option is for the hospital to split the total combined charge on the invoice in a manner that the hospital believes best identifies the cost of the device alone. However, because it may be difficult for hospitals to determine the respective costs of the actual device and the attending supplies (whether they are required for the safe surgical implantation and subsequent operation of that device or not), we are soliciting comments with respect to how supplies, disposable or otherwise, that are part of surgical kits should be reported. We are distinguishing between such supplies that are an integral and necessary part of the primary device (that is, required for the safe surgical implantation and subsequent operation of that device) from other supplies that are not directly related to the implantation of that device, but may be included by the device manufacturer with or without charge as ``perks'' along with the kit. If it is difficult to break out the costs and charges of these lower cost items that are an integral and necessary

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part of the primary device, we would consider allowing hospitals to report the costs and charges of these lower cost supplies along with the costs and charges of the more expensive primary device in the cost report cost center for implantable devices. However, to the extent that device manufacturers could be encouraged to refine their invoicing practices to break out the charges and costs for the lower cost supplies and the higher cost primary device separately, so that hospitals need not ``guesstimate'' the cost of the device, this would facilitate more accurate cost reporting and, therefore, the calculation of more accurate cost-based weights. Under either scenario, even for an aggregated invoice that contains an expensive device, we believe that

RTI's findings of significant differences in supply CCRs for hospitals with a greater percentage of charges in device revenue codes demonstrate that breaking the Medical Supplies Charged to Patients cost center into two cost centers and using appropriate revenue codes for devices, and walking those costs to the new Implantable Devices Charged to Patients cost center, will result in an increase in estimated device costs.

In summary, we are proposing to modify the cost report to have one cost center for Medical Supplies Charged to Patients and one cost center for Implantable Devices Charged to Patients. We are proposing to instruct hospitals to report only devices that meet the four criteria listed above (specifically including that the device is implantable and remains in the patient at discharge) in the cost center for Implantable

Devices Charged to Patients. All other devices and nonchargeable supplies would be reported in the Medical Supplies cost center. This would allow for two distinct CCRs, one for medical supplies and one for implantable devices and DME rented and DME sold.

However, we are also soliciting comments on alternative approaches that could be used in conjunction with or in lieu of the four proposed criteria for distinguishing between what should be reported in the cost center for Implantable Devices and Medical Supplies, respectively.

Another option we are considering would distinguish between high-cost and low-cost items based on a cost threshold. Under this methodology, we would also have one cost center for Medical Supplies and one cost center for Devices, but we would instruct hospitals to report items that are not movable equipment or a capital expense but are above a certain cost threshold in the cost center for Devices. Items costing below that threshold would be reported in the cost center for Medical

Supplies.

Establishing a cost threshold for cost reporting purposes would directly address the problem of charge compression and would enable hospitals to easily determine whether an item should be reported in the supply or the device cost center. A cost threshold would also potentially allow a broader variety of expensive, single use devices that do not remain in the patient at discharge to be reported in the device cost center (such as specialized catheters or ablation probes).

While we have a number of concerns with the cost threshold approach, we are nevertheless soliciting public comments on whether such an approach would be worthwhile to pursue. Specifically, we are concerned that establishing a single cost threshold for pricing devices could possibly be inaccurate across hospitals. Establishing a threshold would require identifying a cost at which hospitals would begin applying reduced markup policies. Currently, we do not have data from which to derive a threshold. We have anecdotal reports that hospitals change their markup thresholds between $15,000 and $20,000 in acquisition costs. Recent research on this issue indicated that hospitals with average inpatient discharges in DRGs with supply charges greater than $15,000, $20,000, and $30,000 have higher supply CCRs (Advamed March 2006).

Furthermore, although a cost threshold directly addresses charge compression, it may not eliminate all charge compression from the device cost center because a fixed cost threshold may not accurately capture differential markup policies for an individual hospital. At the same time, we are also concerned that establishing a cost threshold may interfere with the pricing practices of device manufacturers in that the prices for certain devices or surgical kits could be inflated to ensure that the devices met the cost threshold. We believe our proposed approach of identifying a group of items that are relatively expensive based on the existing criteria for OPPS device pass-through payment status, rather than adopting a cost threshold, would not influence pricing by the device industry. In addition, if a cost threshold were adopted for distinguishing between high-cost devices and low-cost supplies on the cost report, we would need to periodically reassess the threshold for changes in markup policies and price inflation over time.

Another option for distinguishing between high-cost and low-cost items for purposes of the cost report would be to divide the Medical

Supplies cost center based on markup policies by placing items with lower than average markups in a separate cost center. This approach would center on documentation requirements for differential charging practices that would lead hospitals to distinguish between the reporting of supplies and devices on different cost report lines. That is, because charge compression results from the different markup policies that hospitals apply to the supplies and devices they use based on the estimated costs of those supplies and devices, isolating supplies and devices with different markup policies mitigates aggregation in markup policies that cause charge compression and is specific to a hospital's internal accounting and pricing practices. If requested by the fiscal intermediaries/MACs at audit, hospitals could be required to submit documentation of their markup policies to justify the way they have reported relatively inexpensive supplies on one line and more expensive devices on the other line. We believe that it should not be too difficult for hospitals to document their markup practices because, as was pointed out by many commenters since the implementation of cost-based weights, the source of charge compression is varying markup practices. Greater knowledge of the specifics of hospital markup practices may allow ultimately for development of standard cost reporting instructions that instruct hospitals to report an item as a device or a supply based on the type of markup applied to that item.

This option related to markup practices, the proposal to define devices based on four specific criteria, and the third alternative that would establish a cost threshold for purposes of distinguishing between high- cost and low-cost items, could be utilized separately or in some combination for purposes of cost report modification. Again, we are soliciting comments on these alternative approaches. We are also interested in other recommendations for appropriate cost reporting improvements that address charge compression. 3. Timeline for Revising the Medicare Cost Report

As mentioned in the FY 2008 IPPS final rule with comment period (72

FR 47198), we have begun a comprehensive review of the Medicare hospital cost report, and the proposed splitting of the current cost center for Medical Supplies Charged to Patients into one line for

Medical Supplies Charged to Patients and another line for Implantable

Devices Charged to Patients, is part of

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our initiative to update and revise the hospital cost report. Under an effort initiated by CMS to update the Medicare hospital cost report to eliminate outdated requirements in conjunction with the Paperwork

Reduction Act, we plan to propose the actual changes to the cost reporting form, the attending cost reporting software, and the cost report instructions in Chapter 36 of the Medicare Provider

Reimbursement Manual (PRM), Part II. We expect the proposed revision to the Medicare hospital cost report to be issued after publication of this IPPS proposed rule. If we were to adopt as final our proposal to create one cost center for Medical Supplies Charged to Patients and one cost center for Implantable Devices Charged to Patients in the FY 2009

IPPS final rule, the cost report forms and instructions would reflect those changes. We expect the revised cost report would be available for hospitals to use when submitting cost reports during FY 2009 (that is, for cost reporting periods beginning on or after October 1, 2008).

Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS ratesetting purposes and a given fiscal year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2012 IPPS relative weights and the CY 2012 OPPS relative weights. 4. Revenue Codes Used in the MedPAR File

An important first step in RTI's study (as explained in its draft interim March 2007 report) was determining how well the cost report charges used to compute CCRs matched to the charges in the MedPAR file.

This match (or lack thereof) directly affects the accuracy of the DRG cost estimates because MedPAR charges are multiplied by CCRs to estimate cost. RTI found inconsistent reporting between the cost reports and the claims data for charges in several ancillary departments (Medical Supplies, Operating Room, Cardiology, and

Radiology). For example, the data suggested that some hospitals often include costs and charges for devices and other medical supplies within the Medicare cost report cost centers for Operating Room, Radiology, or

Cardiology, while other hospitals include them in the Medical Supplies

Charged to Patients cost center. While the educational initiative undertaken by the national hospital associations is encouraging hospitals to consistently report costs and charges for devices and other medical supplies only in the Medical Supplies Charged to Patients cost center, equal attention must be paid to the way in which charges are grouped by hospitals in the MedPAR file. Several commenters on the

FY 2008 IPPS proposed rule supported RTI's recommendation of including additional fields in the MedPAR file to disaggregate certain cost centers. One commenter stated that the assignment of revenue codes and charges to revenue centers in the MedPAR file should be reviewed and changed to better reflect hospital accounting practices as reflected on the cost report (72 FR 47198).

In an effort to improve the match between the costs and charges included on the cost report and the charges in the MedPAR file, we are recommending that certain revenue codes be used for items reported in the proposed Medical Supplies Charged to Patients cost center and the proposed Implantable Devices Charged to Patients cost center, respectively. Specifically, under the proposal to create a cost center for implantable devices that remain in the patient upon discharge, revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), and 0278

(Other Implants) would correspond to implantable devices reported in the proposed Implantable Devices Charged to Patients cost center. Items for which a hospital may have previously used revenue code 0270

(General Classification), but actually meet the proposed definition of an implantable device that remains in the patient upon discharge should instead be billed with the 0278 revenue code. Conversely, relatively inexpensive items and supplies that are not implantable and do not remain in the patient at discharge would be reported in the proposed

Medical Supplies Charged to Patients cost center on the cost report, and should be billed with revenue codes 0271 (nonsterile supply), 0272

(sterile supply), and 0273 (take-home supplies), as appropriate.

Revenue code 0274 (Prosthetic/Orthotic devices) and revenue code 0277

(Oxygen--Take Home) should be associated with the costs reported on lines 66 and 67 for DME--Rented and DME--Sold on the cost report.

Charges associated with supplies used incident to radiology or to other diagnostic services (revenue codes 0621 and 0622 respectively) should match those items used incident to those services on the Medical

Supplies Charged to Patients cost center of the cost report, because, under this proposal, supplies furnished incident to a service would be reported in the Medical Supplies Charged to Patients cost center (see item b. listed above, in the proposed definition of a device). A revenue code of 0623 for surgical dressings would similarly be associated with the costs and charges of items reported in the proposed

Medical Supplies Charged to Patients cost center, while a revenue code of 0624 for FDA investigational device, if that device does not remain in the patient upon discharge, could be associated with items reported on the Medical Supplies Charged to Patients cost center as well.

In general, if an item is reported as an implantable device on the cost report, the associated charges should be recorded in the MedPAR file with either revenue codes 0275 (Pacemaker), 0276 (Intraocular

Lens), or 0278 (Other Implants). Likewise, items reported as Medical

Supplies should receive an appropriate revenue code indicative of supplies. We understand that many of these revenue codes have been in existence for many years and have been added for purposes unrelated to the goal of refining the calculation of cost-based weights.

Accordingly, we acknowledge that additional instructions relating to the appropriate use of these revenue codes may need to be issued. In addition, CMS or the hospital associations may need to request new revenue codes from the National Uniform Billing Committee (NUBC). In either case, we do not believe either should delay use of the new

Medical Supplies and Implantable Devices CCRs in setting payment rates.

However, in light of our proposal to create two separate cost centers for Medical Supplies Charged to Patients and Implantable Devices

Charged to Patients, respectively, we are soliciting comments on how the existing revenue codes or additional revenue codes could best be used in conjunction with the revised cost centers on the cost report.

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

Infections 1. General

In its landmark 1999 report ``To Err is Human: Building a Safer

Health System,'' the Institute of Medicine found that medical errors, particularly hospital-acquired conditions (HACs) caused by medical errors, are a leading cause of morbidity and mortality in the United

States. The report noted that the number of Americans who die each year as a result of medical errors that occur in hospitals may be as high as 98,000. The cost burden of HACs is also high. Total national costs of these errors due to lost productivity, disability, and health care costs were estimated at $17

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billion to $29 billion.\2\ In 2000, the CDC estimated that hospital- acquired infections added nearly $5 billion to U.S. health care costs every year.\3\ A 2007 study found that, in 2002, 1.7 million hospital- acquired infections were associated with 99,000 deaths\4\ Research has also shown that hospitals are not following recommended guidelines to avoid preventable hospital-acquired infections. A 2007 Leapfrog Group survey of 1,256 hospitals found that 87 percent of those hospitals do not follow recommendations to prevent many of the most common hospital- acquired infections.\5\

\2\ Institute of Medicine: To Err Is Human: Building a Safer

Health System, November 1999. Available at: http://www.iom.edu/

Object.File/Master/4/117/ToErr-8pager.pdf.

\3\ Centers for Disease Control and Prevention: Press Release,

March 2000. Available at: http://www.cdc.gov/od/oc/media/pressrel/ r2k0306b.htm.

\4\ Klevens et al. Estimating Health Care-Associated Infections and Deaths in U.S. Hospitals, 2002. Public Health Reports. March-

April 2007. Volume 122.

\5\ 2007 Leapfrog Group Hospital Survey. The Leapfrog Group 2007. Available at: http://www.leapfroggroup.org/media/file/

Leapfrog_hospital_acquired_infections_release.pdf

As one approach to combating HACs, including infections, in 2005

Congress authorized CMS to adjust for Medicare IPPS hospital payments to encourage the prevention of these conditions. The preventable HAC provision at section 1886(d)(4)(D) of the Act is part of an array of

Medicare value-based purchasing (VBP) tools that CMS is using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. CMS' application of VBP tools through various initiatives, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

The President's FY 2009 Budget outlines another approach for addressing serious preventable adverse events (``never events''), including HACs. The President's Budget proposal would: (1) Prohibit hospitals from billing the Medicare program for ``never events'' and prohibit Medicare payment for these events; and (2) require hospitals to report occurrence of these events or receive a reduced annual payment update.

Medicare's IPPS encourages hospitals to treat patients efficiently.

Hospitals receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In many cases, complications acquired in the hospital do not generate higher payments than the hospital would otherwise receive for uncomplicated cases paid under the same DRG. To this extent, the IPPS encourages hospitals to avoid complications. However, complications, such as infections, acquired in the hospital can generate higher Medicare payments in two ways. First, the treatment of complications can increase the cost of a hospital stay enough to generate an outlier payment. However, the outlier payment methodology requires that a hospital experience a large loss on an outlier case, which serves as an incentive for hospitals to prevent outliers. Second, under the MS-DRGs that took effect in FY 2008, there are currently 258 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. If a condition acquired during a hospital stay is one of the conditions on the CC or MCC list, the hospital currently receives a higher payment under the MS-DRGs (prior to the October 1, 2008 effective date of the

HAC payment provision). (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).) The following is an example of how an MS-DRG may be paid.

Present on admission

Average

Service: MS-DRG Assignment\*\ (Examples below with CC/MCC indicate a single

(status of payment (based secondary diagnosis only)

secondary

on 50th diagnosis)

percentile)

Principal Diagnosis............................................................ ...............

$5,347.98

Intracranial hemorrhage or cerebral infarction (stroke) without CC/

MCC--MS-DRG 066...........................................................

Principal Diagnosis............................................................

Y

6,177.43

Intracranial hemorrhage or cerebral infarction (stroke) with CC--

MS-DRG 065................................................................

Example Secondary Diagnosis

Dislocation of patella-open due to a fall (code 836.4 (CC)).......

Principal Diagnosis............................................................

N

5,347.98

Intracranial hemorrhage or cerebral infarction (stroke) with CC--

MS-DRG 065................................................................

Example Secondary Diagnosis

Dislocation of patella-open due to a fall (code 836.4 (CC)).......

Principal Diagnosis............................................................

Y

8,030.28

Intracranial hemorrhage or cerebral infarction (stroke) with MCC--

MS-DRG 064................................................................

Example Secondary Diagnosis

Stage III pressure ulcer (code 707.23 (MCC))......................

Principal Diagnosis............................................................

N

5,347.98

Intracranial hemorrhage or cerebral infarction (stroke) with MCC--

MS-DRG 064................................................................

Example Secondary Diagnosis

Stage III pressure ulcer (code 707.23 (MCC))......................

\*\ Operating amounts for a hospital whose wage index is equal to the national average. 2. Statutory Authority

Section 1886(d)(4)(D) of the Act required the Secretary to select at least two conditions by October 1, 2007, that are: (a) High cost, high volume, or both; (b) assigned to a higher paying DRG when present as a secondary diagnosis; and (c) could reasonably have been prevented through the application of evidence-based guidelines. Beginning October 1, 2008, Medicare can no longer assign an inpatient hospital discharge to

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a higher paying MS-DRG if a selected HAC was not present on admission.

That is, the case will be paid as though the secondary diagnosis was not present. (Medicare will continue to assign a discharge to a higher paying MS-DRG if the selected condition was present on admission.)

Section 1886(d)(4)(D) of the Act provides that the list of conditions can be revised from time to time, as long as the list contains at least two conditions. Beginning October 1, 2007, we required hospitals to begin submitting information on Medicare claims specifying whether diagnoses were present on admission (POA).

The POA indicator reporting requirement and the HACs payment provision apply to IPPS hospitals only. At this time, non-IPPS hospitals such as CAHs, LTCHs, IRFs, and hospitals in Maryland operating under waivers, among others, are exempt from POA reporting and the HAC payment provision. Throughout this section, ``hospital'' refers to IPPS hospitals. 3. Public Input

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

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

IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS proposed rule (72 FR 24716), we again sought formal public comment on conditions that we proposed to select. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we summarized the public comments we received on the FY 2008 IPPS proposed rule, presented our responses, selected eight conditions to which the HAC provision will initially apply, and noted that we would be seeking comments on additional HAC candidates in this proposed rule. 4. Collaborative Process

CMS experts worked with public health and infectious disease professionals from the CDC to identify the candidate preventable HACs.

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

Medicare claims.

On December 17, 2007, CMS and CDC hosted a jointly sponsored HAC and POA Listening Session to receive input from interested organizations and individuals. The agenda, presentations, audio file, and written transcript of the listening session are available on the

Web site at: http://www.cms.hhs.gov/HospitalAcqCond/07_

EducationalResources.asp. CMS and CDC also received informal comments during the listening session and subsequently received numerous written comments. 5. Selection Criteria for HACs

CMS and CDC staff evaluated each candidate condition against the criteria established by section 1886(d)(4)(D)(iv) of the Act.

Cost or Volume--Medicare data \6\ must support that the selected conditions are high cost, high volume, or both. At this point, there are no Medicare claims data indicating which secondary diagnoses were POA because POA indicator reporting began only recently; therefore, the currently available data for candidate conditions includes all secondary diagnoses.

\6\ For this FY 2009 IPPS proposed rule, the DRG analysis is based on data from the September 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through September 30, 2007, for discharges through September 30, 2007.

Complicating Condition (CC) or Major Complicating

Condition (MCC)--Selected conditions must be represented by ICD-9-CM diagnosis codes that clearly identify the condition, are designated as a CC or an MCC, and result in the assignment of the case to an MS-DRG that has a higher payment when the code is reported as a secondary diagnosis. That is, selected conditions must be a CC or an MCC that would, in the absence of this provision, result in assignment to a higher paying MS-DRG.

Evidence-Based Guidelines--Selected conditions must be reasonably preventable through the application of evidence-based guidelines. By reviewing guidelines from professional organizations, academic institutions, and entities such as the Healthcare Infection

Control Practices Advisory Committee (HICPAC), we evaluated whether guidelines are available that hospitals should follow to prevent the condition from occurring in the hospital.

Reasonably Preventable--Selected conditions must be reasonably preventable through the application of evidence-based guidelines. 6. HACs Selected in FY 2008 and Proposed Changes to Certain Codes

The HACs that were selected for the HAC payment provision through the FY 2008 IPPS final rule with comment period are listed below. The payment provision for these selected HACs will take effect on October 1, 2008. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) for a detailed analysis supporting the selection of each of these HACs.

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We are seeking public comments on the following refinements to two of the previously selected HACs: a. Foreign Object Retained After Surgery: Proposed Inclusion of ICD-9-

CM Code 998.7 (CC)

In the FY 2008 IPPS final rule with comment period (72 FR 47206), we indicated that a foreign body accidentally left in the patient during a procedure (ICD-9-CM code 998.4) was one of the conditions selected. It has come to our attention that ICD-9-CM diagnosis code 998.7 (Acute reaction to foreign substance accidentally left during a procedure) should also be included. ICD-9-CM code 998.7 describes instances in which a patient developed an acute reaction due to a retained foreign substance. Therefore, we are proposing to make this code subject to the HAC payment provision. b. Pressure Ulcers: Proposed Changes in Code Assignments

As discussed in the FY 2008 IPPS final rule with comment period (72

FR 47205-47206), we referred the need for more detailed ICD-9-CM pressure ulcer codes to the CDC. The topic of expanding pressure ulcer codes to capture the stage of the ulcer was addressed at the September 27-28, 2007, meeting of the ICD-9-CM Coordination and Maintenance

Committee. A summary report of this meeting is available on the Web site at: http://www.cdc.gov/nchs/about/otheract/icd9/maint/maint.htm.

Numerous wound care professionals supported modifying the pressure ulcer codes to capture staging information. The stage of the pressure ulcer is a powerful predictor of severity and resource utilization. At its September 27-28, 2007 meeting, the ICD-9-CM Coordination and

Maintenance Committee discussed the creation of pressure ulcer codes to capture this information. The new codes, along with their proposed CC/

MCC classifications, are shown in Table 6A of the Addendum to this proposed rule. The new codes are as follows: 707.20 (Pressure ulcer, unspecified stage). 707.21 (Pressure ulcer stage I). 707.22 (Pressure ulcer stage II). 707.23 (Pressure ulcer stage III). 707.24 (Pressure ulcer stage IV).

While the code titles are final, we are soliciting comment on the proposed MS-DRG classifications of these codes, as indicated in Table 6A of the Addendum to this proposed rule. We are proposing to remove the CC/MCC classifications from the current pressure ulcer codes that show the site of the ulcer (ICD-9-CM codes 707.00 through 707.09).

Therefore, the following codes would no longer be a CC: 707.00 (Decubitus ulcer, unspecified site). 707.01 (Decubitus ulcer, elbow). 707.09 (Decubitus ulcer, other site). The following codes would no longer be an MCC: 707.02 (Decubitus ulcer, upper back). 707.03 (Decubitus ulcer, lower back). 707.04 (Decubitus ulcer, hip). 707.05 (Decubitus ulcer, buttock). 707.06 (Decubitus ulcer, ankle). 707.07 (Decubitus ulcer, heel).

We are proposing to instead assign the CC/MCC classifications to the stage of the pressure ulcer as shown in Table 6A of the Addendum to this proposed rule. We are proposing to classify ICD-9-CM codes 707.23 and 707.24 as MCCs. We are proposing to classify codes 707.20, 707.21, and 707.22 as non-CCs.

Therefore, we are proposing that, beginning October 1, 2008, the codes used to make MS-DRG adjustments for pressure ulcers under the HAC provision would include the proposed MCC codes 707.23 and 707.24. 7. HACs Under Consideration as Additional Candidates

CMS and CDC have diligently worked together and with other stakeholders to identify additional HACs that might appropriately be subject to the HAC payment provision. If the additional candidate HACs are selected in the FY 2009 IPPS final rule, the payment provision will take effect for these candidate HACS on October 1, 2008. The statutory criteria for each HAC candidate are presented in tabular format. Each table contains the following:

HAC Candidate--We are seeking public comment on all HAC candidates.

Medicare Data--We are seeking public comment on the statutory criterion of high cost, high volume, or both as it applies to the HAC candidate.

CC/MCC--We are seeking public comment on the statutory criterion that an ICD-9-CM diagnosis code(s) clearly identifies the HAC candidate.

Selected Evidence-Based Guidelines--We are seeking public comment on the degree to which the HAC candidate is reasonably preventable through the application of the identified evidence-based guidelines. a. Surgical Site Infections Following Elective Surgeries

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In the FY 2008 IPPS final rule with comment period (72 FR 47213), surgical site infections were identified as a broad category for consideration, and we selected mediastinitis after coronary artery bypass graft (CABG) as one of the initial eight HACs for implementation. We are now considering the addition of other surgical site infections, particularly those following elective procedures. In most cases, patients selected as candidates for elective surgeries should have a relatively low-risk profile for surgical site infections.

The following elective surgical procedures are under consideration:

Total Knee Replacement (81.54): ICD-9-CM codes 996.66 (CC) and 998.59 (CC)

Laparoscopic Gastric Bypass (44.38) and Laparoscopic

Gastroenterostomy (44.39): ICD-9-CM code 998.59 (CC)

Ligation and Stripping of Varicose Veins (38.50 through 38.53, 38.55, 38.57, and 38.59): ICD-9-CM code 998.59 (CC)

Evidence-based guidelines for preventing surgical site infections emphasize the importance of appropriately using prophylactic antibiotics, using clippers rather than razors for hair removal and tightly controlling postoperative glucose.

While we are seeking public comments on the applicability of each of the statutory criteria to surgical site infections following elective procedures, we are particularly interested in receiving comments on the degree of preventability of surgical site infections following elective procedures generally, as well as specifically for those listed above. We also are seeking public comments on additional elective surgical procedures that would qualify for the HAC provision by meeting all of the statutory criteria. Based on the public comments we receive, we may select some combination of the four procedures presented here along with additional conditions that qualify and are supported by the comments. b. Legionnaires' Disease

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We discussed Legionnaires' Disease in the FY 2008 IPPS final rule with comment period (72 FR 47216). Legionnaires' Disease is a type of pneumonia caused by the bacterium Legionella pneumophila. It is contracted

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by inhaling contaminated water vapor or droplets. It is not spread person to person. Individuals at risk include those who are elderly, immunocompromised, smokers, or persons with underlying lung disease.

The bacterium thrives in warm aquatic environments and infections have been linked to large industrial water systems, including hospital water systems such as air conditioning cooling towers and potable water plumbing systems. Prevention depends primarily on regular monitoring and decontamination of these water systems. While we are seeking public comments regarding the applicability of each of the statutory criteria to Legionnaires' Disease, we are particularly interested in receiving comments on the degree of preventability of Legionnaires' Disease through the application of hospital water system maintenance guidelines.

Legionnaires' Disease is typically acquired outside of the hospital setting and may be difficult to diagnose as present on admission. We are seeking comments on the degree to which hospital-acquired

Legionnaires' Disease can be distinguished from community-acquired cases.

We also are seeking public comments on additional water-borne pathogens that would qualify for the HAC provision by meeting the statutory criteria. Based on the public comments we receive, we may finalize some combination of Legionnaires' Disease and additional conditions that qualify and are supported by the public comments. c. Glycemic Control

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During the December 17, 2007 HAC and POA Listening Session, one of the commenters suggested that we explore hyperglycemia and hypoglycemia as HACs for selection. NQF's list of Serious Reportable Adverse Events includes death or serious disability associated with hypoglycemia that occurs during hospitalization.

Hyperglycemia and hypoglycemia are extremely common laboratory findings in hospitalized patients and can be complicating features of underlying diseases and some therapies. However, we believe that extreme forms of poor glycemic control should not occur while under medical care in the hospital setting. Thus, we are considering whether the following forms of extreme glucose derangement should be subject to the HAC payment provision:

Diabetic Ketoacidosis: ICD-9-CM codes 250.10-250.13 (CC)

Nonketotic Hyperosmolar Coma: ICD-9-CM code 251.0 (CC)

Diabetic Coma: ICD-9-CM codes 250.30-250.33 (CC)

Hypoglycemic Coma: ICD-9-CM codes 250.30-251.0 (CC)

While we are seeking public comments regarding the applicability of each of the statutory criteria to these extreme aberrations in glycemic control, we are particularly interested in receiving comments on the degree to which these extreme aberrations in glycemic control are reasonably preventable, in the hospital setting, through the application of evidence-based guidelines. Based on the public comments we receive, we may select some combination of these glycemic control- related conditions as HACs. d. Iatrogenic Pneumothorax

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Iatrogenic pneumothorax refers to the accidental introduction of air into the pleural space, which is the space between the lung and the chest wall. When air is introduced into this space it partially or completely collapses the lung. Iatrogenic pneumothorax can occur during any procedure where there is the possibility of air entering pleural space, including needle biopsy of the lung, thoracentesis, central venous catheter placement, pleural biopsy, tracheostomy, and liver biopsy. Iatrogenic pneumothorax can occur secondary to positive pressure mechanical ventilation when an air sac in the lung ruptures allowing air into the pleural space.

While we are seeking public comments on the applicability of each of the statutory criteria to iatrogenic pneumothorax, we are particularly interested in receiving comments on the degree to which iatrogenic pneumothorax is reasonably preventable through the application of evidence-based guidelines. Based on the public comments we receive, we may select iatrogenic pneumothorax as an HAC. e. Delirium

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Delirium is a relatively abrupt deterioration in a patient's ability to sustain attention, learn, or reason. Delirium is strongly associated with aging and treatment of illnesses that are associated with hospitalizations. Delirium affects nearly half of hospital patient days for individuals age 65 and older, and approximately three-quarters of elderly individuals in intensive care units have delirium. About 14 to 24 percent of hospitalized elderly individuals have delirium at the time of admission. Having delirium is a very serious risk factor, with 1-year mortality of 35 to 40 percent, a rate as high as those associated with heart attacks and sepsis. The adverse effects of delirium routinely last for months. Delirium is a clinical diagnosis, commonly assisted by screening tests such as the Confusion Assessment

Method.

Well-established practices, such as reducing certain medications, reorienting the patient, assuring sensory input and sleep, and avoiding malnutrition and dehydration, prevent 30 to 40 percent of the possible cases. While we are seeking public comments on the applicability of each of the statutory criteria to delirium, we are particularly interested in receiving comments on the degree to which delirium is reasonably preventable through the application of evidence-based guidelines. Based upon the public comments we receive, we may select delirium as an HAC. f. Ventilator-Associated Pneumonia (VAP)

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We discussed ventilator-associated pneumonia (VAP) in the FY 2008

IPPS final rule with comment period (72 FR 47209-47210). VAP is a serious hospital-acquired infection associated with high mortality, significantly increased hospital length of stay, and high cost. It is typically caused by the aspiration of contaminated gastric and/or oropharyngeal secretions. The presence of an endotracheal tube facilitates both the contamination of secretions as well as aspiration.

During the past year, the ICD-9-CM Coordination and Maintenance

Committee discussed the creation of a new ICD-9-CM code 997.31 to identify VAP. This new code is shown in Table 6A of the Addendum to this proposed rule. The lack of a specific code was one of the barriers to including VAP as an HAC that we discussed in the FY 2008 IPPS final rule with comment period. We also discussed the degree to which VAP may be reasonably preventable through the application of evidence-based guidelines. Specifically, the FY 2008 IPPS final rule with comment period referenced the American Association for Respiratory Care's

Clinical Practice Guidelines at the Web site: http://www.rcjournal.com/ cpgs/09.03.0869.html.

To further investigate the extent to which VAP is reasonably preventable, we reviewed published clinical research. The literature, including recommendations by CDC and the HICPAC, from 2003 shows numerous prevention guidelines that can significantly reduce the incidence of VAP in the hospital setting. These guidelines include interventions such as educating staff, hand washing, using gowns and gloves, properly positioning the patient, elevating the head of the bed, changing ventilator tubing, sterilizing reusable equipment, applying chlorhexadine solution for oral decontamination, monitoring sedation daily, administering stress ulcer prophylaxis, and administering pneumococcal vaccinations. Further review of the literature, specifically regarding the proportion of VAP cases that might be preventable, revealed two large-scale analyses that were completed recently. One study concluded that an estimated 40 percent of

VAP cases are preventable. A second study concluded that at least 20 percent of nosocomial infections in general (not just VAP) are preventable.\7\

\7\ American Association for Respiratory Care Clinical Practice:

Guideline: Care of the Ventilator Circuit and Its Relation to

Ventilator Associated Pneumonia. Available at the Web site: http:// www.rcjournal.com/cpgs/09.03.0869.html.

During the December 17, 2007 HAC and POA Listing Session, we also received comments on evidence-based guidelines for preventing VAP.

Commenters referenced two articles \8\ \9\ that both state there is a high degree of risk associated with endotracheal tube insertions, suggesting that VAP may not always be preventable.

\8\ Ramirez et al.: Prevention Measures for Ventilator-

Associated Pneumonia: A New Focus on the Endotracheal Tube. Current

Opinion in Infectious Disease, April 2007, Vol.20 (2), pp. 190-197.

\9\ Safdar et al.: The Pathogenesis of Ventilator-Associated

Pneumonia: Its Relevance to Developing Effective Strategies for

Prevention. Respiratory Care, June 2005, Vol. 50, No. 6, pp.725-741.

While we are seeking public comments on the applicability of each of the statutory criteria to VAP, we are particularly interested in receiving comment on the degree to which VAP

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is reasonably preventable through the application of evidence-based guidelines. Based on the public comments we receive, we may select VAP as an HAC. g. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

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We discussed deep vein thrombosis (DVT) and pulmonary embolism (PE) in the FY 2008 IPPS final rule with comment period (72 FR 47215). DVT and PE are common events. DVT occurs when a blood clot forms in the deep veins of the leg and causes local swelling and inflammation. PE occurs when a clot or a piece of a clot migrates from its original site into the lungs, causing the death of lung tissue, which can be fatal.

Risk factors for DVTs and PEs include inactivity, smoking, use of oral contraceptives, prolonged bed rest, prolonged sitting with bent knees, certain types of cancer and other disease states, certain blood clotting disorders, and certain types of orthopedic and other surgical procedures. DVT is not always clinically apparent because the manifestations of pain, redness, and swelling may develop some time after the venous clot forms.

As we discussed in the FY 2008 IPPS final rule with comment period,

DVTs and PEs may be preventable in certain circumstances, but it is possible that a patient may have a DVT that is difficult to detect on admission. We also received comments during the December 17, 2007 HAC and POA Listening Session reiterating that not all cases of DVTs and

PEs are preventable. For example, common patient characteristics such as immobility, obesity, severe vessel trauma, and venous stasis put certain trauma and joint replacement surgery patients at high risk for these conditions.

In our review of the literature, we found that there are definite pharmacologic and nonpharmacologic interventions that may reduce the likelihood of developing DVTs and PEs, including exercise, compression stockings, intermittent pneumatic boots, aspirin, enoxaparin, dalteparin, heparin, coumadin, clopidogrel, and fondaparinux. However, the evidence[pi]based guidelines indicate that some patients may still develop clots despite these therapies.

While we are seeking public comments on the applicability of each of the statutory criteria to DVTs and PEs, we are particularly interested in receiving comments on the degree of preventability of

DVTs and PEs. We are also interested in comments on determining the presence of DVT and PE at admission. Based on the public comments we receive, we may select DVTs and PEs as HACs. h. Staphylococcus aureus Septicemia

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We discuss Staphylococcus aureus Septicemia in the FY 2008 IPPS final rule with comment period (72 FR 47208). Staphylococcus aureus is a bacterium that lives in the nose and on the skin of a large percentage of the population. It usually does not cause physical illness, but it can cause infections ranging from superficial boils to cellulitis to pneumonia to life threatening bloodstream infections

(septicemia). It usually enters the body through traumatized tissue, such as cuts or abrasions, or at the time of invasive procedures.

Staphylococcus aureus Septicemia can also be a late effect of an injury or a surgical procedure. Risk factors for developing Staphylococcus aureus Septicemia include advanced age, debilitated state, immunocompromised status, and a history of an invasive medical procedure.

CDC has developed evidence-based guidelines for the prevention of the Staphylococcus aureus Septicemia. Most preventable cases of septicemia are primarily related to the presence of a central venous or vascular catheter. During the December 17, 2007 HAC and POA Listening

Session, commenters noted that intravascular catheter-associated infections are only one cause of septicemia. Therefore, catheter- oriented evidence-based guidelines would not cover all cases of

Staphylococcus aureus Septicemia.\10\

\10\ Jensen, A.G. Importance of Focus Identification in the

Treatment of Staphylococcus aureus Bacteremia. 2002. Vol. 52, pp. 29-36.

We identified evidence-based guidelines that suggest Staphylococcus aureus Septicemia is reasonably preventable. These guidelines emphasize the importance of effective and fastidious hand washing by both staff and visitors, using gloves and gowns where appropriate, applying proper decontamination techniques, and exercising contact isolation where clinically indicated.

While we are seeking public comments on the applicability of each of the statutory criteria to Staphylococcus aureus infections generally, we are particularly interested in receiving comments on the degree of preventability of Staphylococcus aureus infections generally, and specifically Staphylococcus aureus Septicemia. Based on the public comments we receive, we may select Staphylococcus aureus Septicemia as an HAC. i. Clostridium Difficile-Associated Disease (CDAD)

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We discussed Clostridium difficile-associated disease (CDAD) in the

FY 2008 IPPS final rule with comment period. Clostridium difficile is a bacterium that colonizes the gastrointestinal (GI) tract of a certain number of healthy people. Under conditions where the normal flora of the gastrointestinal tract is altered, Clostridium difficile can flourish and release large enough amounts of a toxin to cause severe diarrhea or even life threatening colitis. Risk factors for CDAD include prolonged use of broad spectrum antibiotics, gastrointestinal surgery, prolonged nasogastric tube insertion, and repeated enemas.

CDAD can be acquired in the hospital or in the community. Its spores can live outside of the body for months and thus can be spread to other patients in the absence of meticulous hand washing by care providers and others who contact the infected patient.

We continue to receive strong support in favor of selecting CDAD as an HAC. During the December 17, 2007 HAC and POA Listening Session, representatives of consumers and purchasers advocated to include CDAD as an HAC.

The evidence-based guidelines for CDAD prevention emphasize that hand washing by staff and visitors and effective decontamination of environmental surfaces prevent the spread of Clostridium difficile.

While we are seeking public comments on the applicability of each of the statutory criteria to CDADs, we are particularly interested in receiving comments on the degree of preventability of CDAD. Based on the public comments we receive, we may select CDAD as an HAC. j. Methicillin-Resistant Staphylococcus aureus (MRSA)

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We discussed the special case of methicillin-resistant

Staphylococcus aureus (MRSA) in the FY 2008 IPPS final rule with comment period (72 FR 47212). In October 2007, the CDC published in the

Journal of the American Medical Association an article citing high mortality rates from MRSA, an antibiotic-resistant ``superbug.'' The article estimates 19,000 people died from MRSA infections in the United

States in 2005. The majority of invasive MRSA cases are health care- related--contracted in hospitals or nursing homes--though community- acquired MRSA also poses a significant public health concern. Hospitals have been focused for years on controlling MRSA through the application of CDC's evidence-based guidelines outlining best practices for combating the bacterium in that setting.

MRSA is currently addressed by the HAC payment provision. For every infectious condition selected, MRSA could be the etiology of that infection. For example, if MRSA were the cause of a vascular catheter- associated infection (one of the eight conditions selected in the FY 2008 IPPS final rule with comment period), the HAC payment provision would apply to that MRSA infection.

As we noted in the FY 2008 IPPS final rule with comment period, colonization by MRSA is not a reasonably preventable HAC according to the current evidence-based guidelines; therefore, MRSA does not meet the reasonably preventable statutory criterion for an HAC. An estimated 32.4 percent of Americans are colonized with MRSA, which may reside in the nose or on the skin of asymptomatic carriers.\11\ In addition, in last year's final rule with comment period, we noted that there is no

CC/MCC code available for MRSA, and therefore it also does not meet the codeable CC/MCC statutory criterion for an HAC. Only when MRSA causes an infection does a codeable condition occur. However, we referenced the possibility that new codes for MRSA were being considered by the

ICD-9-CM Coordination and Maintenance Committee. The creation of unique codes to capture MRSA was discussed during the March 19-20, 2008

Committee meeting. While these codes will enhance the data available and our understanding of MRSA, the availability and use of these codes will not change the fact that the mere presence of MRSA as a colonizing bacterium does not constitute an HAC.

\11\ Kuehnert, M.J., et al.: Prevalence of Staphylococcusa aureus Nasal Colonization in the United States, 2001-2002. The

Journal of Infectious Disease, January 15, 2006; Vol. 193.

Because MRSA as a bacterium does not meet two of our statutory criteria, codeable CC/MCC and reasonably preventable through evidence- based guidelines, we are not proposing MRSA as an HAC. However, we recognize the significant public health concerns that were raised by representatives of consumers and purchasers at the HAC and POA

Listening Session, and we are committed to reducing the spread of multi-drug resistant organisms, such as MRSA.

In addition, we are pursuing collaborative efforts with other HHS agencies to combat MRSA. The Agency for Healthcare Research and Quality

(AHRQ) has launched a new initiative in collaboration with CDC and CMS to identify and suppress the spread of MRSA and related infections. In support of this work, Congress has appropriated $5 million to fund research, implementation, management, and evaluation practices that mitigate such infections.

CDC has carried out extensive research on the epidemiology of MRSA and effective techniques that could be used to treat the infection and reduce its spread. The following Web sites contain information that reflect CDC's commitment: (1) http://www.cdc.gov/ncidod/dhqp/ar_ mrsa.html (health care-associated MRSA); (2) http://www.cdc.gov/ncidod/ dhqp/ar_mrsa_ca_public.html (community-acquired MRSA); (3) http:// www.cdc.gov/mmwr/preview/mmwrhtml/mm4908a1.htm; and (4) http:// www.cdc.gov/handhygiene/.

AHRQ has made previous investments in systems research to help monitor MRSA and related infections in hospital settings, as reflected in material on the Web site at: http://www.guideline.gov/browse/ guideline_index.aspx and http://www.ahrq.gov/clinic/ptsafety/pdf/ ptsafety.pdf. 8. Present on Admission (POA) Indicator Reporting

POA indicator information is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision and for broader public health uses of Medicare data. Through Change Request

No. 5679 (released June 20, 2007), CMS issued instructions requiring

IPPS hospitals to submit the POA indicator data for all diagnosis codes on Medicare claims. Specific instructions on how to select the correct

POA indicator for each diagnosis code are included in the ICD-9-CM

Official Guidelines for Coding and Reporting, available at the Web site: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide07.pdf

(POA

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reporting guidelines begin on page 92). Additional instructions, including information regarding CMS's phased implementation of POA indicator reporting and application of the POA reporting options, are available at the Web site: http://www.cms.hhs.gov/HospitalAcqCond.

There are five POA indicator reporting options: ``Y,'' ``N,''

``W,'' ``U,'' and ``1.'' Under the HAC payment provision, we are proposing to pay the CC/MCC MS-DRGs only for those HACs coded as ``Y'' and ``W'' indicators. The ``Y'' option indicates that the condition was present on admission. The ``W'' indicator affirms that the provider has determined, based on data and clinical judgment, that it is not possible to document when the onset of the condition occurred. We expect that this approach will encourage better documentation and promote the public health goals of POA reporting by providing more accurate data about the occurrence of HACs in the Medicare population.

We anticipate that true clinical uncertainty will occur in only a very small number of cases. We plan to analyze how frequently the ``W'' indicator is used, and we leave open the possibility of proposing in future IPPS rulemaking not paying the CC/MCC MS-DRGs for HACs coded with the ``W'' indicator. In addition, we plan to analyze whether both the ``Y'' and ``W'' indicators are being used appropriately. Medicare program integrity initiatives closely monitor for inaccurate coding and coding that is inconsistent with medical record documentation. We are seeking public comments regarding the proposed treatment of the ``Y'' and ``W'' POA reporting options under the HAC payment provision.

We are proposing to not pay the CC/MMC MS-DRGs for HACs coded with the ``N'' indicator. The ``N'' option indicates that the condition was not present on admission. We are also proposing to not pay the CC/MCC

MS-DRGs for HACs coded with the ``U'' indicator. The ``U'' option indicates that the medical record documentation is insufficient to determine whether the condition was present at the time of admission.

Not paying for the CC/MCC MS-DRGs for HACs that are coded with the

``U'' indicator is expected to foster better medical record documentation.

Although we are proposing not paying the CC/MCC MS-DRG for HACs coded with the ``U'' indicator, we do recognize there may be some exceptional circumstances under which payment might be made. Death, elopement (leaving against medical advice), and transfers out of a hospital may preclude making an informed determination of whether an

HAC was present on admission. We are seeking public comments on the potential use of the following current patient discharge status codes to identify the exceptional circumstances:

Patient Discharge Status Codes

Form locator code

Code descriptor

Exception for Patient Death

20.................................... Expired.

Exception for Patient Elopement (Leaving Against Medical Device)

7..................................... Left against medical advice or discontinued care.

Exception for Transfer

02.................................... Discharged/transferred to a short-term general hospital for inpatient care. 03.................................... Discharged/transferred to a skilled nursing facility (SNF) with Medicare certification in anticipation of skilled care. 04.................................... Discharged/transferred to an intermediate care facility

(ICF). 05.................................... Discharged/transferred to a designated cancer center or children's hospital. 06.................................... Discharged/transferred to home under care of organized home health service organization. 43.................................... Discharged/transferred to a

Federal health care facility. 50.................................... Hospice-home. 51.................................... Hospice-medical facility

(certified) providing hospice level of care. 61.................................... Discharged/transferred to a hospital-based Medicare approved swing bed. 62.................................... Discharged/transferred to an inpatient rehabilitation facility (IRF) including rehabilitation distinct part units of a hospital. 63.................................... Discharged/transferred to a

Medicare certified long term care hospital (LTCH). 64.................................... Discharged/transferred to a nursing facility certified under Medicaid but not certified under Medicare. 65.................................... Discharged/transferred to a psychiatric hospital or psychiatric distinct part unit of a hospital. 66.................................... Discharged/transferred to a critical access hospital (CAH). 70.................................... Discharged/transferred to another type of health care institution not otherwise defined in this code list.

We plan to analyze whether both the ``N'' and ``U'' POA reporting options are being used appropriately. The American Health Information

Management Association (AHIMA) has promulgated Standards of Ethical

Coding that require accurate coding regardless of the payment implications of the diagnoses. That is, diagnoses must be reported accurately regardless of their effect on payment. Medicare program integrity initiatives closely monitor for inaccurate coding and coding inconsistent with medical record documentation. We are seeking public comments regarding the proposal to not pay the CC/MCC MS-DRGs for HACs coded with ``N'' and ``U'' indicators. 9. Enhancement and Future Issues

The preventable HAC payment provision is one of CMS' VBP initiatives, as noted earlier in this section. VBP ties payment to performance through the use of incentives based on quality measures and cost of care. The implementation of VBP is rapidly transforming CMS from being a passive payer of claims to an active purchaser of higher quality, more efficient health care for Medicare beneficiaries. Other

VBP initiatives include hospital pay for reporting (the RHQDAPU program discussed in section IV.B. of the preamble of this proposed rule), physician pay for reporting (the Physician Quality Reporting

Initiative), home health pay for reporting, the Hospital VBP Plan

Report to Congress (discussed in section IV.C. of the preamble of this proposed rule), and various VBP demonstration

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programs across payment settings, including the Premier Hospital

Quality Incentive Demonstration and the Physician Group Practice

Demonstration.

The success of CMS' VBP initiatives depends in large part on the validity of the performance measures and on the effectiveness of incentives in driving desired changes in behavior that will result in greater quality and efficiency. We are committed to enhancing the

Medicare VBP programs, in close collaboration with stakeholders, to fulfill VBP's potential to promise of promoting higher value health care for Medicare beneficiaries. It is in this spirit that we seek public comment on enhancements to the preventable HACs payment policy and to concomitant POA indicator reporting.

We welcome all public comments presenting ideas and models for combating preventable HACs through the application of VBP principles.

To stimulate reflection and creativity, we present several options:

Risk adjustment could be applied to make the HAC payment provision more precise.

Rates of HACs could be collected to obtain a more robust longitudinal measure of a hospital's incidence of these conditions.

POA information could be used in various ways to decrease the incidence of preventable HACs.

The adoption of ICD-10-PCS could facilitate more precise identification of HACs.

The principle behind the HAC payment provision (Medicare not paying more for preventable HACs) could be applied to Medicare payments in settings of care other than the IPPS.

CMS is using authority other than the HAC payment provision to address other events on the NQF's list of Serious

Reportable Adverse Events.

We note that we are not proposing new Medicare policy in this

Enhancements and Future Issues discussion, as some of these approaches may require new statutory authority. a. Risk Adjustment

To make the HAC payment provision more precise, the adjustments to payment made when one of the selected HACs occurs during the hospitalization could be further adjusted to account for patient- specific risk factors. The expected occurrence of an HAC may be greater or lesser depending on the health status of the patient, as reflected by severity of illness, presence of comorbidities, or other factors.

Rather than not paying any additional amount for the complication, the additional payment for the complication could range from zero for the lowest risk patient to the full amount for the highest risk patient. An option may be individualized adjustment for every hospitalization based on the patient's unique characteristics, but state-of-the-art risk adjustment currently precludes such individualized adjustment. b. Rates of HACs

Given our limited capability at present for precise patient-level risk adjustment, adding a consideration of risk to the criteria for selecting HACs could be an alternative. If primarily high-risk patients are acquiring a certain condition during hospitalization, that condition could be considered a less-fit candidate for selection. Other alternatives to precise individualized risk adjustment could be adjustment for overall facility case mix or facility case-mix by condition. At the highest level, national Medicare program data could be used to make adjustments to the payment implications for the selected HACs based on expected rates of complications. Another option could be to designate certain patient risk factors as exemptions that would prohibit or mitigate the application of the HAC payment policy to the claims of patients with those risk factors.

The Medicare Hospital VBP Plan was submitted in a Report to

Congress on November 21, 2007. The plan includes a performance assessment model that scores a hospital's attainment or improvement on various measures. The scores for each measure would be summed within each domain, such as the clinical process of care domain or the patient experience domain, and then the domains would be weighted and summed to yield a total performance score. The total performance score would then be translated into an incentive payment, proposed to be a certain percentage of each MS-DRG payment, using an exchange function. The plan also calls for public reporting of hospitals' performance scores by domain and in total. (Section IV.C. of this preamble included a related discussion of the Hospital VBP Plan Report to Congress.)

In accordance with this hospital VBP model, a hospital's rates of

HACs could be included as a domain within each hospital's total performance score. The measurement of rates over time could be a more meaningful, actionable, and fair way to adjust a hospital's MS-DRG payments for the incidence of HACs. The consequence of a higher incidence of measured conditions would be a lower VBP incentive payment. Public reporting of the measured rates of HACs would give hospitals an additional, nonfinancial incentive to prevent occurrence of the conditions to avoid lower public ratings. c. Use of POA Information

Information obtained from hospitals' reporting of POA data could be used in various ways to better understand and prevent the occurrence of

HACs. The POA information could be provided to health services researchers to analyze factors that lead to HACs and disseminate the best practices for prevention of HACs. At least two states, New York and California, already collect POA data from their hospitals.

Comparison of the State POA data with the Medicare data could fill in gaps in the databases and yield valuable insights about POA data validity.

POA data could also be used to calculate the incidence of HACs by hospital. This application of the POA data would be particularly powerful if the Medicare POA data were combined with state or private sector payer POA data. The Medicare-only or combined quality of care information could be initially shared with hospitals and thereafter publicly reported to support better healthcare decision making by

Medicare beneficiaries, other health care consumers, professionals, and caregivers. d. Transition to ICD-10-PCS

Accurate identification of HACs requires unambiguous and precise diagnosis codes. The current ICD-9-CM diagnosis coding system is three decades old. It is outdated and contains numerous instances of broad and vague codes. Attempts to add necessary detail to the ICD-9-CM system are inhibited by lack of expansion capacity. These factors negatively affect CMS' attempts to identify HAC cases.

ICD-10-PCS codes are more precise and capture information using more current medical terminology. For example, ICD-9-CM codes for pressure ulcers do not provide information about the size, depth, or exact location of the ulcer, while ICD-10-PCS has 60 codes to capture this information. ICD-10-PCS would also provide codes, beyond the current ICD-9-CM codes, that would enable the selection of additional surgical complications and adverse drug events. e. Application of Nonpayment for HACs to Other Settings

The broad principle of Medicare not paying for preventable health care-associated conditions could potentially be applied to Medicare payment settings other than IPPS hospitals. Other

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possible settings of care might include hospital outpatient departments, SNFs, HHAs, end-stage renal disease facilities, and physician practices. The implications would be different for each setting, as each payment system is different and the reasonable preventability through the application of evidence-based guidelines would vary for candidate conditions over the different settings.

However, alignment of incentives across settings of care is an important goal for all of CMS' VBP initiatives, including the HAC provision.

A related application of the broad principle behind the HAC payment could be accomplished through modification to the Medicare secondary payer policy which would allow us to directly recoup from the provider that failed to prevent the occurrence of a preventable condition in one setting to pay for all or part of the necessary followup care in a second setting. This would help shield the Medicare program from inappropriately paying for the downstream effects of a preventable condition acquired in the first setting but treated in the second setting. f. Relationship to NQF's Serious Reportable Adverse Events

CMS is applying its authority to address the events on the NQF's list of Serious Reportable Adverse Events (also known as ``never events''). In May 2006 testimony before the Senate Finance Committee, the CMS Administrator noted that paying hospitals for serious preventable events is contrary to the promise that hospital payments should support higher quality and efficiency. There is growing consensus that health care purchasers should not be paying for these events when they occur during a hospitalization. In January 2005,

HealthPartners, a Minnesota-based not-for-profit HMO, announced that it would no longer reimburse hospitals for services associated with events enumerated in the Minnesota Adverse Health Care Events Reporting Act

(essentially the NQF's list of Serious Reportable Adverse Events).

Further, HealthPartners' contracts preclude hospitals from seeking reimbursement from the patient for these costs. During 2007, several

State hospital associations adopted policies stating that their members will not bill payers or patients when these events occur in their hospitals.

In the FY 2008 IPPS final rule with comment period, we adopted several items from the NQF's list of events as HACs, including retained foreign object after surgery, air embolism, blood incompatibility, stage III and IV pressure ulcers, falls, electric shock, and burns. In this proposed rule, we are seeking public comments regarding adding hypoglycemic coma, which is closely related to NQF's listing of death or serious disability associated with hypoglycemia. However, as we discussed in the FY 2008 IPPS final rule with comment period, the HAC payment provision is not ideally suited to address every condition on the NQF's list of Serious Reportable Adverse Events. To address the events on the NQF's list beyond the effect of the HAC policy, CMS is exploring the application of Medicare authority, including other payment provisions, coverage policy, conditions of participation, and

Quality Improvement Organization (QIO) retrospective review.

We note that we are not proposing new Medicare policy in this discussion of the HAC payment provision for IPPS hospitals, as some of these approaches may require new statutory authority. We are seeking public comments on these and other options for enhancing the preventable HACs payment provision and maximizing the use of POA indicator reporting data. We look forward to working with stakeholders in the fight against HACs.

G. Proposed Changes to Specific MS-DRG Classifications 1. Pre-MDCs: Artificial Heart Devices

Heart failure affects more than 5 million patients in the United

States with 550,000 new cases each year, and causes more than 55,000 deaths annually. It is a progressive disease that is medically managed at all stages, but over time leads to continued deterioration of the heart's ability to pump sufficient amounts of adequately oxygenated blood throughout the body. When medical management becomes inadequate to continue to support the patient, the patient's heart failure would be considered to be the end stage of the disease. At this point, the only remaining treatment options are a heart transplant or mechanical circulatory support. A device termed an artificial heart has been used only for severe failure of both the right and left ventricles, also known as biventricular failure. Relatively small numbers of patients suffer from biventricular failure, but the exact numbers are unknown.

There are about 4,000 patients approved and waiting to receive heart transplants in the United States at any given time, but only about 2,000 hearts per year are transplanted due to a scarcity of donated organs. There are a number of mechanical devices that may be used to support the ventricles of a failing heart on either a temporary or permanent basis. When it is apparent that a patient will require long- term support, a ventricular support device is generally implanted and may be considered either as a bridge to recovery or a bridge to transplantation. Sometimes a patient's prognosis is uncertain, and with device support the native heart may recover its function. However when recovery is not likely, the patient may qualify as a transplant candidate and require mechanical circulatory support until a donor heart becomes available. This type of support is commonly supplied by ventricular assist devices, (VADs), which are surgically attached to the native ventricles but do not replace them.

Devices commonly called artificial hearts are biventricular heart replacement systems that differ from VADs in that a substantial part of the native heart, including both ventricles, is removed. When the heart remains intact, it remains possible for the native heart to recover its function after being assisted by a VAD. However, because the artificial heart device requires the resection of the ventricles, the native heart is no longer intact and such recovery is not possible. The designation

``artificial heart'' is somewhat of a misnomer because some portion of the native heart remains and there is no current mechanical device that fully replaces all four chambers of the heart. Over time, better descriptive language for these devices may be adopted.

In 1986, CMS made a determination that the use of artificial hearts was not covered under the Medicare program. To conform to that decision, we placed ICD-9-CM procedure code 37.52 (Implantation of total replacement heart system) on the GROUPER program's MCE in the noncovered procedure list.

On August 1, 2007, CMS began a national coverage determination process for artificial hearts. SynCardia Systems, Inc. submitted a request for reconsideration of the longstanding noncoverage policy when its device, the CardioWest Temporary Total Artificial Heart (TAH-t)

System, is used for ``bridge to transplantation'' in accordance with the FDA-labeled indication for the device. ``Bridge to transplantation'' is a phrase meaning that a patient in end-stage heart failure may qualify as a heart transplant candidate, but will require mechanical circulatory support until a donor heart becomes available.

The CardioWest TAH-t System is indicated for use as a bridge to transplantation in cardiac transplant-eligible candidates at risk of imminent death from biventricular

Page 23563

failure. The system is intended for use inside the hospital as the patient awaits a donor heart. The ultimate desired outcome for insertion of the TAH-t is a successful heart transplant, along with the potential that offers for cure from heart failure.

CMS determined that a broader analysis of artificial heart coverage was deemed appropriate, as another manufacturer, Abiomed, Inc. has developed an artificial heart device, AbioCor[reg] Implantable

Replacement Heart Device, with different indications. SynCardia

Systems, Inc has received approval of its device from the FDA for humanitarian use as destination therapy for patients in end-stage biventricular failure who cannot qualify as transplant candidates. The

AbioCor[reg] Implantable Replacement Heart Device is indicated for use in severe biventricular end-stage heart disease patients who are not cardiac transplant candidates and who are less than 75 years old, who require multiple inotropic support, who are not treatable by VAD destination therapy, and who cannot be weaned from biventricular support if they are on such support. The desired outcome for this device is prolongation of life and discharge to home.

On February 1, 2008, CMS published a proposed coverage decision memorandum for artificial hearts which stated, in part, that while the evidence is inadequate to conclude that the use of an artificial heart is reasonable and necessary for Medicare beneficiaries, the evidence is promising for the uses of artificial heart devices as described above.

CMS supports additional research for these devices, and therefore proposed that the artificial heart will be covered by Medicare when performed under the auspices of a clinical study. The study must meet all of the criteria listed in the proposed decision memorandum. This proposed coverage decision memorandum may be found on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?id=211.

Following consideration of the public comments received, CMS expects to make a final decision on or about May 1, 2008.

The topic of coding of artificial heart devices was discussed at the September 27-28, 2007 ICD-9-CM Coordination and Maintenance

Committee meeting held at CMS in Baltimore, MD. We note that this topic was placed on the Committee's agenda because any proposed changes to the ICD-9-CM coding system must be discussed at a Committee meeting, with opportunity for comment from the public. At the September 2007

Committee meeting, the Committee accepted oral comments from participants and encouraged attendees or anyone with an interest in the topic to comment on proposed changes to the code, inclusion terms, or exclusion terms. We accepted written comments until October 12, 2007.

As a result of discussion and comment from the Committee meeting, the

Committee revised the title of procedure code 37.52 for artificial hearts to read ``Implantation of internal biventricular heart replacement system.'' In addition, the Committee created new code 37.55

(Removal of internal biventricular heart replacement system) to identify explantation of the artificial heart prior to heart transplantation.

To make conforming changes to the IPPS system with regard to the proposed revision to the coverage decision for artificial hearts, in this proposed rule, we are proposing to remove procedure code 37.52 from MS-DRG 215 (Other Heart Assist System Implant) and assign it to

MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with

Major Comorbidity or Complication (MCC)) and MS-DRG 002 (Heart

Transplant or Implant of Heart Assist System without Major Comorbidity or Complication (MCC)). In addition, we are proposing to remove procedure code 37.52 from the MCE ``Non-Covered Procedure'' edit and assign it to the ``Limited Coverage'' edit. We are proposing to include in this proposed edit the requirement that ICD-9-CM diagnosis code

V70.7 (Examination of participant in clinical trial) also be present on the claim. We are proposing that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the proposed coverage policy.

During FY 2008, we are making mid-year changes to portions of the

GROUPER program that do not affect MS-DRG assignment or ICD-9-CM coding. However, as the proposed coverage decision memorandum for artificial hearts was published after the CMS contractor's testing and release of the mid-year product, the above proposed changes to the MCE will not be included in that revision of the GROUPER Version 25.0.

GROUPER Version 26.0, which will be in use for FY 2009, will contain the proposed changes if they are approved. If the proposed revisions to the MCE are accepted, the edits in the MCE Version 25.0 will be effective retroactive to May 1, 2008. (To reduce confusion, we note that the version number of the MCE is one digit lower than the current

GROUPER version number; that is, Version 26.0 of the GROUPER uses

Version 25.0 of the MCE.) 2. MDC 1 (Diseases and Disorders of the Nervous System) a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator

(tPA)

In 1996, the FDA approved the use of tissue plasminogen activator

(tPA), one type of thrombolytic agent that dissolves blood clots. In 1998, the ICD-9-CM Coordination and Maintenance Committee created code 99.10 (Injection or infusion of thrombolytic agent) in order to be able to uniquely identify the administration of these agents. Studies have shown that tPA can be effective in reducing the amount of damage the brain sustains during an ischemic stroke, which is caused by blood clots that block blood flow to the brain. tPA is approved for patients who have blood clots in the brain, but not for patients who have a bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to be most effective when used within the first 3 hours after the onset of an embolic stroke, but it is contraindicated in hemorrhagic strokes.

For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial

Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and

Precerebral Occlusion without Infarction) by removing the diagnostic ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute

Ischemic Stroke with Use of Thrombolytic Agent) which increased reimbursement for patients who sustained an ischemic or embolic stroke and who also had administration of tPA. The intent of this DRG was not to award higher payment for a specific drug but to recognize the need for better overall care for this group of patients. Even though tPA is indicated only for a small proportion of stroke patients, that is, those patients experiencing ischemic strokes treated within 3 hours of the onset of symptoms, our data suggested that there was a sufficient quantity of patients to support the DRG change. While our goal is to make payment relate more closely to resource use, we also note that use of tPA in a carefully selected patient population may lead to better outcomes and overall care and may lessen the need for postacute care.

For FY 2008, with the adoption of MS-DRGs, CMS DRG 559 became MS-

DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with

MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with

CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC). Stroke cases in which no thrombolytic

Page 23564

agent was administered were grouped to MS-DRGs 064 (Intracranial

Hemorrhage or Cerebral Infarction with MCC), 065 (Intracranial

Hemorrhage or Cerebral Infarction with CC), or 066 (Intracranial

Hemorrhage or Cerebral Infarction without CC/MCC). The MS-DRGs that reflect use of a thrombolytic agent, that is, MS-DRGs 061, 062, and 063, have higher relative weights than the hemorrhagic or cerebral infarction MS-DRGs 064, 065, and 066.

The American Society of Interventional and Therapeutic

Neuroradiology (ASITN) has made us aware of a treatment issue that is of concern to the stroke provider's community. In some instances, patients suffering an embolytic or thrombolytic stroke are evaluated and given tPA in a community hospital's emergency department, and then are transferred to a larger facility's stroke center that is able to provide the level of services required by the increased severity of these cases. The facility providing the administration of tPA in its emergency department does not realize increased reimbursement, as the patient is often transferred as soon a possible to a stroke center. The facility to which the patient is transferred does not realize increased reimbursement, as the tPA was not administered there. The ASITN has requested that CMS give permission to code the administration of tPA as if it had been given in the receiving facility. This would result in the receiving facility being paid the higher weighted MS-DRGs 061, 062, or 063 instead of MS-DRGs 064, 065, or 066. The ASITN's rationale is that the patients who received tPA in another facility (even though administration of tPA may have alleviated some of the worst consequences of their strokes) are still extremely compromised and require increased health care services that are much more resource consumptive than patients with less severe types of stroke. We have advised the ASITN that hospitals may not report services that were not performed in their facility.

We recognize that the ASITN's concerns potentially have merit but the quantification of the increased resource consumption of these patients is not currently possible in the existing ICD-9-CM coding system. Without specific length of stay and average charges data, we are unable to determine an appropriate MS-DRG for these cases.

Therefore, we have advised the ASITN to present a request at the diagnostic portion of the ICD-9-CM Coordination and Maintenance

Committee meeting on March 20, 2008, for a code that would recognize the fact that the patient had received a thrombolytic agent for treatment of the current stroke. If this request is presented at the

March 20, 2008 meeting, it will not be approved in time to be published as a final code in this proposed rule. However, if a diagnosis code is created by the National Centers for Health Statistics as a result of that meeting, it can be added to the list of codes published in the FY 2009 IPPS final rule that will go into effect on October 1, 2008. With such information appearing on subsequent claims, we will have a better idea of how to classify these cases within the MS-DRGs. Therefore, because we lack the data to identify these patients, we are not proposing an MS-DRG modification for the stroke patients receiving tPA in one facility prior to being transferred to another facility. b. Intractable Epilepsy With Video Electroencephalogram (EEG)

As we did for FY 2008, we received a request from an individual representing the National Association of Epilepsy Centers to consider further refinements to the MS-DRGs describing seizures. Specifically, the representative recommended that a new MS-DRG be established for patients with intractable epilepsy who receive an electroencephalogram with video monitoring (vEEG) during their hospital stay. Similar to the initial recommendation, the representative stated that patients who suffer from uncontrolled seizures or intractable epilepsy are admitted to an epilepsy center for a comprehensive evaluation to identify the epilepsy seizure type, the cause of the seizure, and the location of the seizure. These patients are admitted to the hospital for 4 to 6 days with 24-hour monitoring that includes the use of EEG video monitoring along with cognitive testing and brain imaging procedures.

Effective October 1, 2007, MS-DRG 100 (Seizures with MCC) and MS-

DRG 101 (Seizures without MCC) were implemented as a result of refinements to the DRG system to better recognize severity of illness and resource utilization. Once again, the representative applauded CMS for making changes in the DRG structure to better recognize differences in patient severity. However, the representative stated that a subset of patients in MS-DRG 101 who have a primary diagnosis of intractable epilepsy and are treated with vEEG are substantially more costly to treat than other patients in this MS-DRG and represent the majority of patients being evaluated by specialized epilepsy centers.

Alternatively, the representative stated that he was not requesting any change in the structure of MS-DRG 100. According to the representative, the number of cases that would fall into this category is not significant. The representative further noted that this is a change from last year's request.

Epilepsy is currently identified by ICD-9-CM diagnosis codes 345.0x through 345.9x. There are two fifth digits that may be assigned to a subset of the epilepsy codes depending on the physician documentation:

``0'' for without mention of intractable epilepsy.

``1'' for with intractable epilepsy.

With the assistance of an outside reviewer, the representative analyzed cost data for MS-DRGs 100 and 101, which focused on three subsets of patients identified with a primary diagnosis of epilepsy or convulsions who also received vEEG (procedure code 89.19):

Patients with a primary diagnosis of epilepsy with intractability specified (codes 345.01 through 345.91).

Patients with a primary diagnosis of epilepsy without intractability specified (codes 345.00 through 345.90).

Patients with a primary diagnosis of convulsions (codes 780.39).

The representative acknowledged that the association did not include any secondary diagnoses in its analyses. Based on its results, the representative recommended that CMS further refine MS-DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy

(codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS-DRG that would be defined as ``MS-DRG XXX''

(Epilepsy Evaluation without MCC).

According to the representative, these cases are substantially more costly than the other cases within MS-DRG 101 and are consistent with the criteria for dividing MS-DRGs on the basis of CCs and MCCs. In addition, the representative stated that the request would have a minimal impact on most hospitals but would substantially improve the accuracy of payment to hospitals specializing in epilepsy care.

We performed an analysis using FY 2007 MedPAR data. As shown in the table below, we found a total of 54,060 cases in MS-DRG 101 with average charges of $14,508 and an average length of stay of 3.69 days.

There were 879 cases with intractable epilepsy and vEEG with average charges of $19,227 and an average length of stay of 5 days.

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Number of

Average length

Average

MS-DRG

cases

of stay

charges

MS-DRG 100--All Cases...........................................

16,142

6.34

$27,623

MS-DRG 100--Cases with Intractable Epilepsy with vEEG (Codes

69

6.6

26,990 345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91)

MS-DRG 100--Cases with Intractable Epilepsy without vEEG........

328

7.81

32,539

MS-DRG 101--All cases...........................................

54,060

3.69

14,508

MS-DRG 101--Cases with Intractable Epilepsy with vEEG (Codes

879

5.0

19,227 345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91)

MS-DRG 101--Cased with Intractable Epilepsy without vEEG........

1,351

4.25

14,913

In applying the criteria to establish subgroups, the data do not support the creation of a new subdivision for MS-DRG 101 for cases with intractable epilepsy and vEEG nor does the data support moving the 879 cases from MS-DRG 101 to MS-DRG 100. Moving the 879 cases to MS-DRG 100 would mean moving cases with average charges of approximately $19,000 into an MS-DRG with average charges of $28,000. Therefore, we are not proposing to refine MS-DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS-DRG. 3. MDC 5 (Diseases and Disorders of the Circulatory System) a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and

Generator Procedures

In the FY 2008 IPPS final rule with comment period (72 FR 47257), we created a separate, stand alone DRG for automatic implantable cardioverter-defibrillator (AICD) generator replacements and defibrillator lead replacements. The new MS-DRG 245 (AICD lead and generator procedures) contains the following codes: 00.52, Implantation or replacement of transvenous lead

electrode

into left ventricular coronary venous system. 00.54, Implantation or replacement of cardiac resynchronization defibrillator pulse generator device only [CRT-D]. 37.95, Implantation of automatic cardioverter/ defibrillator leads(s) only. 37.96, Implantation of automatic cardioverter/ defibrillator pulse generator only. 37.97, Replacement of automatic cardioverter/defibrillator leads(s) only. 37.98, Replacement of automatic cardioverter/defibrillator pulse generator only.

Commenters on the FY 2008 IPPS proposed rule supported this new MS-

DRG, which recognizes the distinct differences in resource utilization between pacemaker and defibrillator generators and leads, but suggested that CMS should consider additional refinements for the defibrillator generator and leads. In reviewing the standardized charges for the AICD leads, the commenter believed that the leads may be more appropriately assigned to another DRG such as MS-DRG 243 (Permanent Cardiac Pacemaker

Implant with CC) or MS-DRG 258 (Cardiac Pacemaker Device Replacement with MCC). The commenter recommended that CMS consider moving the defibrillator leads back into a pacemaker DRG, either MS-DRG 243 or MS-

DRG 258.

In response to the commenters, we indicated that the data supported separate DRGs for these very different devices (72 FR 47257). We indicated that moving the defibrillator leads back into a pacemaker MS-

DRG defeated the purpose of creating separate MS-DRGs for defibrillators and pacemakers. Therefore, we finalized MS-DRG 245 as proposed with the leads and generator codes listed above.

After publication of the FY 2008 IPPS final rule with comment period, we received a request from a manufacturer that recommended a subdivision for MS-DRG 245 (AICD Lead and Generator Procedures). The requestor suggested creating a new MS-DRG to separate the implantation or replacement of the AICD leads from the implantation or replacement of the AICD pulse generators to better recognize the differences in resource utilization for these distinct procedures.

The requestor applauded CMS' decision to create separate MS-DRGs for the pacemaker device procedures from the AICD procedures in the FY 2008 IPPS final rule (72 FR 47257). The requestor further acknowledged its support of the clinically distinct MS-DRGs for pacemaker devices.

Currently, MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with MCC and without MCC, respectively) describe the implantation or replacement of pacemaker generators while MS-DRGs 260, 261, and 262

(Cardiac Pacemaker Revision Except Device Replacement with MCC, with

CC, without CC/MCC, respectively) describe the insertion or replacement of pacemaker leads.

The requestor believed that the IPPS ``needs to continue to evolve to accurately reflect clinical differences and costs of services.'' As such, the requestor recommended that CMS follow the same structure as it did with the pacemaker MS-DRGs for MS-DRG 245 to separately identify the implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) from the implantation or replacement of the pulse generators (codes 37.96, 37.98, 00.54).

In our analysis of the FY 2007 MedPAR data, we found a total of 5,546 cases in MS-DRG 245 with average charges of $62,631 and an average length of stay of 3.3 days. We found 1,894 cases with implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) with average charges of $42, 896 and an average length of stay of 3.4 days. We also found a total of 3,652 cases with implantation or replacement of the pulse generator (codes 37.96, 37.98, 00.54) with average charges of $72, 866 and an average length of stay of 3.2 days.

We agree with the requestor that the IPPS should accurately recognize differences in resource utilization for clinically distinct procedures. As the data demonstrate, average charges for the implantation or replacement of the AICD pulse generators are significantly higher than for the implantation or replacement of the

AICD leads. Therefore, we are proposing to create a new MS-DRG 265 to separately identify these distinct procedures. The proposed new MS-DRG 265 would be titled ``AICD Lead Procedures'' and would include procedure codes that identify the AICD leads (codes 37.95, 37.97 and 00.52). The title for MS-DRG 245 would be revised to ``AICD Generator

Procedures'' and include procedure codes 37.96, 37.98, 00.54. We believe these changes would better reflect the clinical differences and resources utilized for these distinct procedures.

Page 23566

b. Left Atrial Appendage Device

Atrial fibrillation (AF) is the primary cardiac abnormality associated with ischemic or embolytic stroke. Most ischemic strokes associated with AF are possibly due to an embolism or thrombus that has formed in the left atrial appendage. Evidence from studies such as transesophageal echocardiography shows left atrial thrombi to be more frequent in AF patients with ischemic stroke as compared to AF patients without stroke. While anticoagulation medication can be efficient in ischemic stroke prevention, there can be problems of safety and tolerability in many patients, especially those older than 75 years.

Chronic warfarin therapy has been proven to reduce the risk of embolism but there can be difficulties concerning its administration. Frequent blood tests to monitor warfarin INR are required at some cost and patient inconvenience. In addition, because warfarin INR is affected by a large number of drug and dietary interactions, it can be unpredictable in some patients and difficult to manage. The efficacy of aspirin for stroke prevention in AF patients is less clear and remains controversial. With the known disutility of warfarin and the questionable effectiveness of aspirin, a device-based solution may provide added protection against thromboembolism in certain patients with AF.

At the April 1, 2004 ICD-9-CM Coordination and Maintenance

Committee meeting, a proposal was presented for the creation of a unique procedure code describing insertion of the left atrial appendage filter system. Subsequently, ICD-9-CM code 37.90 (Insertion of left atrial appendage device) was created for use beginning October 1, 2004.

This code was designated as a non-operating room (non-O.R.) procedure, and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous

Cardiovascular Procedure without Coronary Artery Stent or Acute

Myocardial Infarction). With the adoption of MS-DRGs in FY 2008, CMS

DRG 518 was divided into MS-DRGs 250 and 251 (Percutaneous

Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC, and without MCC, respectively).

We have reviewed the data concerning this procedure code annually.

Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases were reported, and the average charges ($27,620) closely mimicked the average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As the charges were comparable, we made no recommendations to change the

CMS DRG assignment for FY 2007.

Using FY 2006 MedPAR data for the FY 2008 final rule with comment period, we divided CMS DRG 518 into the cases that would be reflected in the MS-DRG configuration; that is, we divided the cases based on the presence or absence of an MCC. There were 35 cases without an MCC with average charges of $24,436, again mimicking the 38,002 cases with average charges of $32,546. There were 3 cases with MCC with average charges of $62,337, compared to the 5,458 cases also with an MCC with average charges of $53,864. Again it was deemed that cases with code 37.90 were comparable to the rest of the cases in CMS DRG 518, and the decision was made not to make any changes in the DRG assignment for this procedure code. As noted above, CMS DRG 518 became MS-DRGs 250 and 251 in FY 2008.

We have received a request regarding code 37.90, and its placement within the MS-DRG system for FY 2009. The requestor asked for either the reassignment of code 37.90 to an MS-DRG that would adequately cover the costs associated with the complete procedure or the creation of a new MS-DRG that would reimburse hospitals adequately for the cost of the device. The requestor, a manufacturer's representative, reported that the device's IDE clinical trial is nearing completion, with the conclusion of study enrollment in May 2008. The requestor will continue to enroll patients in a Continued Use Registry following completion of the trial. The requestor reported that it did not charge hospitals for the atrial appendage device, estimated to cost $6,000, during the trial period, but it will begin to charge hospitals upon the completion of the trial in May. The requestor provided us with its data showing what it believed to be a differential of $107 more per case than the payment average for MS-DRG 250, and a shortfall of $3,808 per case than the payment average for MS-DRG 251.

The requestor pointed out that code 37.90 is assigned to both MS-

DRGs 250 and 251, but stated that the final MS-DRG assignment would be

MS-DRG 251 when the patient has a principal diagnosis of atrial fibrillation (code 427.31) because AF is not presently listed as a CC or an MCC. We would take this opportunity to note that the principal diagnosis is used to determine assignment of a case to the correct MDC.

Secondary or additional diagnosis codes are the only codes that can be used to determine the presence of a CC or an MCC.

With regard to the request to create a specific DRG for the insertion of this device entitled ``Percutaneous Cardiovascular

Procedures with Implantation of a Left Atrial Appendage Device without

CC/MCC'', we would point out that the payments under a prospective payment system are predicated on averages. The device is already assigned to MS-DRGs containing other percutaneous cardiovascular devices; to create a new MS-DRG specific to this device would be to remove all other percutaneously inserted devices and base the MS-DRG assignment solely on the presence of code 37.90. This approach negates our longstanding method of grouping like procedures, and removes the concept of averaging. Further, to ignore the structure of the MS-DRG system solely for the purpose of increasing payment for one device would set an unwelcome precedent for defining all of the other MS-DRGs in the system. We would also point out that the final rule establishing the MS-DRGs set forth five criteria, all five of which are required to be met, in order to warrant creation of a CC or an MCC subgroup within a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule with comment period (72 FR 47169). One of the criteria specifies that there will be at least 500 cases in the CC or MCC subgroup. To date, there are not enough cases of code 37.90 reported within the MedPAR data.

Using FY 2007 MedPAR data, for this FY 2009 IPPS proposed rule, we reviewed MS-DRGs 250 and 251 for the presence of the left atrial appendage device. The following table displays our results:

Number of

Average length

Average

MS-DRG

cases

of stay

charges

250--All Cases....................................

6,424

7.72

$60,597.58 250--Cases with code 37.90........................

4

6.50

65,829.51 250--Cases without code 37.90.....................

6,420

7.72

60,594.32 251--All Cases....................................

39,456

2.84

35,719.81

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251--Cases with code 37.90........................

101

1.30

20,846.09 251--Cases without code 37.90.....................

39,335

2.85

35,757.98

There were a total of 105 cases with code 37.90 reported for

Medicare beneficiaries in the 2007 MedPAR data. There are 4 cases with an atrial appendage device in MS-DRG 250 that have higher average charges than the other 6,420 cases in the MS-DRG, and that have slightly shorter lengths